A report from Goodbody Stockbrokers has argued that the State cannot bear the losses from the banking crisis on its own.
In a report on Irish debt levels, Goodbody says there should be some form of risk-sharing with bondholders. But it adds that Ireland cannot do this on its own, and should push for a Europe-wide solution to the problem.
Goodbody says some €21 billion of bank debt should be restructured now – otherwise there will have to be a restructuring of Irish sovereign debt some time after 2014. Goodbody economist Dermot O’Leary says a new government must act urgently, as two-thirds of these bondholders are due to be repaid over the next 24 months.
Goodbody estimates the savings to the taxpayer could be around €10 billion if a 50% haircut were applied to the outstanding stock of unsecured, unguaranteed senior and subordinate bondholders.
The stockbroker believes Ireland will not reach the target of a 3% of GDP budget deficit by 2014, as foreseen under the four-year plan. Instead it believes the deficit will still be 4.3%, and the debt/GDP ratio will reach 115%.
The report also warns that reducing Ireland’s debt to levels required by the EU Stability & Growth Pact could take 20 years of tight budgets, even if the targets set out for the next four years are met.
Goodbody says the costs of the banking crisis make it less likely that Ireland will be able to pay back its debts in the future. It has raised its estimate of the cost of the banking crisis to €57.5 billion or 36% of gross domestic product.
‘The new Government has a small window of opportunity to convince the EU that it is in everyone’s interest to implement a more comprehensive reform of the banking system, which recognises that the Irish sovereign can no longer support the burden alone,’ said economist Dermot O’Leary.
Other options suggested by Goodbody are allowing the European Financial Stability Facility to directly recapitalise weak banking systems such as Ireland’s or facilitate the sale of Irish banking assets through an EU-wide insurance scheme.
The Goodbody report also says a reduction in the interest rates charged under the EU/IMF bail-out is needed. It calculates that every one-point reduction saves €675m a year in interest payments.
Ireland will need more EU help to raise funds – NCB
Stockbroker NCB has said that Ireland will need further EU help after 2013 to raise funds. It says a lowering of the interest rate on EU loans would give Ireland a higher probability of weaning itself off aid by 2014.
The ‘Ireland Moves Forward’ report also identifies state assets that could be the first to be sold off to help the Government finances, including those in the areas of forestry, energy, networks and ports.
The report says Ireland can look forward to a two-tier jobless recovery in 2011 with exports continuing to grow but domestic demand remaining weak. It says that the country’s competitiveness has improved significantly through the economic downturn.
It also points out that foreign direct investment in Ireland increased significantly last year, despite the global pot declining by 8%.
NCB says the country will be rolled into the European Stability Mechanism (ESM), the permanent EU crisis mechanism to replace the current European Financial Stability Fund.
It says a lowering of the interest rate on EU loans would give Ireland a higher probability of weaning itself off aid by 2014.
But it argues that any post-general election attempt renegotiation of the terms of the EU/IMF financial support for Ireland would lead to a deal that looks ‘very similar’ to the existing one.
It says the only changes would be in the exact details of how the €15 billion in budgetary corrections in coming years are achieved. However, NCB does see changes to the interest rate taken at a European level as likely in the coming months.
Today’s report says the Irish banks remain reliant on the state for capital and on the ECB and Irish Central Bank for liquidity. It adds that the March stress tests will determine whether any additional capital is needed apart from the €10 billion already earmarked for the financial institutions.
NCB predicts that the National Asset Management Agency will be a major ‘dictator of activity in 2011’ and beyond.
NCB says the VHI, Coillte, Rosslare Port as well as energy sector assets like Bord Gáis and the ESB with generation and supply assets should be sold off ahead of network assets such as distribution and transmission.
Today’s report also says there are further falls in house prices with a further 10% fall from peak levels expected.
NCB says that the Irish equity market is no longer a reflection of the Irish economy. The report notes that Irish derived profits now represent 17% of overall profit in its sample of recommended Irish shares. That compares to 36% in 2006.
It says publicly quoted food and construction companies are likely to be active acquirers of other businesses this year, while the area of renewable energy/cleantech industries continue to be an area of significant investor interest.
As Max has been saying we are still not been told the real figures and we continue to get a drip drip feed on this financial disaster .Now Dukes comes out and tells us that we must pump 15 billion more into these toxic black holes that is now All of the Irish Banks
The two main contenders for the top jobs in the new Government are choosing to ignore the real problem that is because they are themselves not in a position to understand the debt of this financial meltdown
The Banks must be allowed to fold and a new commercial bank that has new capital be brought into existence. The new 15,000,000,000: and not forgetting the new 1,500,000,000 for Bank of Ireland billion could be better spent in a new jobs stimulus packet and new Bank credit for small business
For God sake anybody with a atom of sense should know this !
See the Republic of Ireland’s national debt mount up, a measure of the legacy the Irish Government is in the process of bequeathing to the children of Ireland:
The FINANCE DUBLIN Irish Government Debt Clock was set at midnight on June 30th 2009, when it was €65.278 billion It updates the latest figures for the National Debt of Ireland. The clock is re-set periodically, to reflect changes in debt and deficit estimates from the Dept of Finance, the National Treasury Management Agency (NTMA), and independent economists.