Deal could have serious implications for Irish credit flow

The cost of borrowing here could surge if the bailout fails, writes Brian O’Mahony.

THE Greek financial crisis involving a €45 billion bailout by the EU and the IMF has serious implications for Ireland, a leading economist has warned.

The crisis facing Greece could push the spotlight back on Ireland, with serious implications for the cost of borrowing, said David McWilliams.

The high-profile economist and author said if the situation worsens in Greece, it “will force Ireland back on to the international news as an economy to be wary of”.

He told RTÉ’s News at One that with our national debt now worse that the Greeks at 14.3% after the decision by the EU in insisting that the money being injected into Anglo be treated as part of our national debt.

By the end of next year, when the other €18bn earmarked to bail out the collapsed bank is added to our borrowing, “the national debt will be 32% of GNP,” he said.

Greece is “Europe’s Anglo Irish Bank,” he said, and the bailout means Ireland has to find between €450 million and €500m to fund its part of the Greek rescue plan.

Legislation is being prepared and it will be put before the Dáil during the current session.

Ireland will be obliged to lend to Greece at a rate of 5%, while it was costing them 8% last week to borrow on international money markets.

European heads of state could sanction the package this weekend according to reports from Brussels yesterday.

Mr McWilliams said the bailout of Greece was destined to fail and that as Greece defaults on its debt, the bond markets will then pick off weaker countries such as Ireland.

At that point the financial strategy of Ireland, which now has the highest national debt in Europe ahead of Greece at 14.3%, “will be exposed for what it is,” he said.

The end result cold be a surge in the cost of borrowing for us, the economist warned.

Some stability returned to the markets yesterday afternoon after the Greek move.

AIB Global Treasury warned the rapid developments in Greece would cause market “volatility” in the weeks ahead.

“The issue of sovereign risk is unlikely to have gone away just yet as for example we do not know what conditions the IMF will ask for in exchange for the finance.

“This leaves markets open to the prospect of further volatility and the euro vulnerable to fresh downside pressures,” it warned.

Markets have also been talking about a two-speed Europe that could potentially see Ireland outside the single currency.

Germany’s role in this ongoing crisis will be crucial.

Chancellor Angela Merkel said European authorities must weigh up whether the stability of the euro area was threatened by the debt crisis in Greece before deciding on aid.

The Greeks must put forward a “credible” savings programme before eurozone countries provided aid, Ms Merkel said.