The European Commission has given it’s strongest signal so far that it believes Ireland could need a second bailout and that the banks could need more funds.
The three-page assessment of the country’s economic programme for the next three years noted that the Troika programme was on track with the country meeting all the targets. However, it concluded that, following the Commission’s latest assessment of the economy, “the risks with regards to long-term sustainability of public finances appear to be high”.
The banks, which have already received over€60bn of taxpayers money, will find it hard to meet further deleveraging targets because of the poor quality of the debts they hoped to sell, and tough market conditions.
The report painted a bleak picture of the result of the collapse of the Celtic Tiger, with a 50% increase in those suffering poverty in just two years to 2010, the biggest loss of jobs in the EU after Spain, and the highest number of long-term unemployed after Greece.
Economist with the Dublin-based think-tank Tasc Tom McDonnell said: “They believe we will certainly need a new bailout, an analysis I strongly agree with. Ireland will need between €36bn and €40bn of additional funding for 2014/2015, though they might use additional cash reserves to reduce that amount.”
Mr McDonnell added that the Commission’s reference to the long-term sustainability of public finances was significant, in that the rules to borrow from the ESM bailout fund demands a debt sustainability analysis.
“It means that the country will first restructure its debts to a sustainable level as determined by the ESM board of governors and then receive ESM funding,” he said. It could also imply tougher budgets, he added.
Senior EU sources admitted privately that Ireland needed EU-level measures such as access to cheaper loans through eurobonds when it plans to return to the markets next year, and funds for the banks that would not add to Irish debt, expected to reach a 120% by next year.
Commission president Jose Manuel Barroso proposed an EU-wide banking union with a single deposit guarantee scheme and funds to recapitalise banks directly and not through governments that then have responsibility for them. The Government has said it is in favour of these measures, but the response of Germany and the Netherlands was less than warm.
Prof John FitzGerald from the ESRI was pessimistic about greater growth in the economy this year. He said: “Were it not for the euro area crisis, Ireland might well enter a recovery phase over the coming 12 months. However, with the continuing sense of crisis and resulting absence of euro area growth, or even a fall in the output, it is hard to see such a recovery this year”.
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