Ireland Should Drop Model-Student Act and Get Help

Talk to practically any investors in London and they will tell you Ireland is a shining example of a successful euro-area bailout program, a narrative that the country’s international creditors eagerly endorse.

So it might have come as a surprise when Finance Minister Michael Noonan said at a meeting with his euro-area counterparts this week that the Irish — and Portuguese — may get an extension on the maturities of some of their bailout loans.

This would help to reduce Ireland’s debt burden, of course. But why is it necessary if Ireland’s bailout has been such a success? The answer is simple: Ireland’s debt is not yet on a sustainable path, and the country needs more help to return to one if it’s to become the success story that many say it already is. Read more of this post

Ireland Should Vote Yes on the Fiscal Compact

With fewer than ten days to go until the Irish referendum on the fiscal compact, a huge percent of the population remains undecided about how they are going to vote. According to a recent opinion poll, 37% of respondents will vote in favour of the fiscal compact, 24% against it and 35% are undecided. While the fiscal compact is misguided and poorly conceived, it is overwhelmingly in Ireland’s best interests to vote for it anyhow. Read more of this post

What happens to Ireland if Greece defaults

This piece first appeared in the Guardian on September 21st and has been reposted here with the Guardian’s permission.

Greece is hanging by a thread and Ireland is getting increasingly nervous about the implications for its own future.

The whole point of austerity measures in Greece was to reduce the primary deficit. With retrenchment choking off any hope of economic growth, the opposite has occurred.

There is now a real chance that Greece will be denied the €8bn tranche of the previously agreed €110bn bailout programme, in which case default would be inevitable and it would most likely abandon the euro.

If this happens, what are the implications for Ireland?

Both the troika and Ireland have a part to play in determining whether the country follows suit or not. However, as long as EU leaders remain committed to the euro project, Ireland should stay the course and continue to implement the terms of the bailout programme.

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4 reasons the recent EU summit agreement will fail

I was planted firmly on a beach chair on holiday during the EU summit on July 21st and was worried I might be missing a piece of European history-in-the-making. As it turns out, I didn’t miss much at all. Upon my return a few days later, analysts were just as confused about the outcome of the EU summit as they had been immediately following its conclusion. Digging into the details of what was agreed at the EU summit, there are four main problems that will preclude the agreement from drawing a line under this crisis.

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Forget renegotiating the bailout: Ireland should focus on domestic reforms

The euro crisis has hit a new level of panic this week with contagion spreading to Spain and Italy, much bigger countries than Ireland that threaten to pull the euro area apart at the seams. EU leaders will hold an emergency meeting this Thursday in an attempt to come to an agreement on how to keep the euro area together.

As a small fish, the Irish government has very little control over events in the upcoming week at the EU level. It therefore has two choices: it can either wait in anticipation to see if the eurozone will be saved or break apart, or it can get to work immediately on some necessary reforms at home.

There are no painless, popular options for the Irish government in the short-term. But if the government can swallow some of the pain in the next year to implement difficult reforms, the Irish economy will be in a much better position to reap substantial benefits further down the road.

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The euro is dying a slow death

The euro is dying a slow death. Political leaders are unlikely to take the steps necessary to address the underlying factors creating the current euro crisis, and the eurozone will eventually break up as a result.

To highlight the severity of the euro crisis, one only needs to glance at credit default swap (CDS) spreads for the peripheral euro area countries. CDS is a form of insurance against default or restructuring. The higher the CDS spread, the more likely investors think a sovereign default is.

In the first week of June, five-year CDS spreads for Greece were a whopping 1495 basis points, for Portugal 708, for Ireland 650 and for Spain 255. This compares with only around 200 for Iceland, a country that underwent a private default only two and a half years ago.

The euro crisis is just as much underpinned by politics as it is by unbalanced economies, rigid labour and product markets, burst property bubbles and unsustainable public and private debt levels. This has been particularly evident in recent weeks, as a cacophony of voices has emerged at the EU level on how to handle Greece.

Ultimately, it is politics, more than unsustainable debt, that will threaten the very existence of the euro.

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What happens to Portugal and Ireland if Greece reprofiles/restructures?

There is currently a debate raging about how exactly private investors will be involved in a Greek debt reprofiling in order to secure a second bail-out for the government. I wrote in a blog post last week that I think Greek debt will probably be rolled over as demanded by the European Central Bank (ECB). If Greece reprofiles or restructures its debt, would the same be inevitable in the other two insolvent euro area countries, Portugal and Ireland?

I do not think a Greek debt reprofiling or restructuring would necessarily lead to one in Portugal and Ireland, though it might if either country were to opt for a strategic default.

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