Resolving the debt burden by October ‘unrealistic’

Ireland’s hopes of agreeing a deal on the lowering of its bank debt burden by the end of October could be an unrealistic target, according to one leading economist.

Dermot O’Leary, chief economist at Goodbody Stockbrokers, said yesterday there are still “significant hurdles to overcome” if Ireland is to succeed in agreeing reductions to its bank debt levels with the EU within the next two months and relieving the burden on taxpayers.

The Government has been vague over its preferred scale of bank debt reduction, but a halving of the €63bn spent on bailing out the banks has been widely speculated upon. The October deadline is a target, given Finance Minister Michael Noonan’s stated desire to reach a successful outcome before the December Budget.

“The timing of a deal is still open to question and there is room for disappointment on that October deadline,” said Mr O’Leary.

He did, however, say he remains confident a deal will be done, but if not by the end of October, it could have a negative effect on Irish bond yields. Mr O’Leary was speaking in the aftermath of comments made by Germany’s finance minister Wolfgang Schauble, seemingly opposing any agreement on the Irish debt relief proposals on the grounds they may send negative signals to the markets.

“We cannot do anything that generates new uncertainty on the financial markets and lose trust which Ireland is just at the point of winning back.

“Naturally, we want to help each other, but I’m not yet convinced that some of the measures which are mentioned wouldn’t have the opposite effect,” Mr Schauble said in an interview.

Mr O’Leary said he was confused by the German minister’s comments, likening them to “giving a patient treatment and refusing to top-up this treatment despite continued pain and uncertainty as to whether it will actually pull through”.

He added: “Mr Schauble’s comments are an example of some of the difficulties that are still there. Euro area leaders currently have bigger issues to deal with than Ireland, and that is a problem for us.

“We were of the view that the political agreement reached on June 29 was a big step forward for Ireland.

“However, this stance, by the finance minister of Ireland’s most important ally, shows the difficulty that still remains in achieving agreement on the specifics of any deal,” Mr O’Leary said.

“While technical discussions are currently ongoing, Irish officials plan to attempt to win support among other European capitals over the coming weeks, as their support is likely to be required in any efforts that will include the use of resources in the EFSF/ESM. These officials can expect a lukewarm reaction in Berlin,” he added.

Mr O’Leary hailed the NTMA’s recent successful bond-selling exercises, saying that they remove much of Ireland’s short-term funding concerns.

“Allowing for €1bn in retail and €3.1bn in rollover of the promissory notes in 2013 and 2014, we estimate that only a further €7bn would be required to result in Ireland being fully funded up to the end of 2014 under current exchequer deficit estimates,” Mr O’Leary said.

“In practice, the NTMA will not run its cash balances down to zero, but this theoretical exercise should give the market comfort on the near-term funding requirements of the Irish sovereign,” he said.