Finance minister Brian Lenihan appears to have won over at least one influential international commentator even before his officials start on their international roadshow to convince holders of Irish debt that his five-year budget will put the country's finances back in order.
BBC economics editor Stephanie Flanders, writing in her blog, Stephanomics, puzzled about the apparent paradox of an Irish finance minister, for the second time in six months, sucking more money from a depressed economy while the rest of the world was spending more to try and save jobs.
"What gives? The answer isn't that Brian Lenihan gets a kick out of inflicting pain. There's method to his madness," she wrote. "The first lesson is that, if you're lurching further and further into debt, there comes a point when fiscal stimulus isn't very stimulating at all. Here's the basic argument. If the markets believe that the public finances are out of control, they demand a higher and higher return for buying government debt. And a higher interest rate for government borrowing means higher rates for everyone else as well… everyone accepts that a country will reach that point eventually."
Flanders was, of course, pointing to the challenge Britain will likely face later this year, as its deficit grows wider. As an explanation for the dilemma facing Ireland Inc, her explanation probably beats anything Lenihan and Taoiseach Brian Cowen have given.
Ireland pays two percentage points more than Germany, and almost a full one per cent more than Italy, the most indebted big country in Europe, to borrow abroad.
Speaking a day after the budget, Luca Cazzulani, a debt strategist at UniCredit Bank in Milan, gave his verdict. He said the debt markets' reaction was fairly favourable: the so-called spread or premium Ireland has to pay to service its debt narrowed slightly on the day of the budget before widening out again to 200 basis points (two percentage points) above the rate that Germany must pay. That still leaves Ireland Inc with one of the highest interest repayments in Europe, and after Greece, the highest rate in the eurozone.
The Milan debt expert believes that, barring other disasters here or elsewhere, Ireland will face little difficulty in refinancing the €5bn maturing bond and will also be able to raise the €20bn it needs to raise later this year. That's because the interest rate it has to offer is so high. Just like many small Irish banks that have to pay big savings rates to attract deposits, Ireland Inc has to pay high interest rates to attract the savings of foreigners. But that's as good as the good news gets, he says.
The key test for Lenihan and Michael Somers' NTMA before they start on their tour is whether the huge premium Irish taxpayers have to pay on our debt will fall any time soon. Cazzulani thinks that is unlikely.
"Things for Ireland are not so OK," he said. "Markets do not see a real big difference between a 13% budget deficit and a 10% budget deficit."
If the annual deficit narrowed to only 5% or went to 20%, then the markets, one way or another, would sit up and take notice, he said.
For the time being – and Cazzulani believes that could stretch into next year – Ireland will likely be stuck with paying a significantly higher premium, at precisely the wrong time, because the debt pile is growing bigger.
Too much has gone on here in a very short time. The nominally private debt in the Irish banks, because of the government's guarantee, is in effect sovereign bond debt too.
In short, international debt markets take some time to get used the idea that debt-free Ireland is an indebted country. They need to be convinced that the economy is not heading lower and that the state has enough money to recapitalise the banks.
Cazzulani suggests that the best that Ireland can hope for is for its interest rate to fall by 1%, to match Italian levels. That would leave the service costs one percentage point above those of Germany.
"Italy has debt of 110% of its GDP. But it is no news. Italy has a highly developed system to raise money. Ireland has been well behaved. But the game has been broken," said Cazzulani.
Debt pile of €150bn by 2013. But why do we pay more than Italy?
Last week Irish 10-year debt paper was trading at about one percentage point above Italy's, and, at a rate of 4.83% across a basket of maturities, we were paying up to half a percentage point more than Italy. How can this be, when Italy, with a debt pile of 110% of GDP, is the most indebted big nation in Europe? Using Department of Finance and NTMA estimates, government debt will soar in the coming years, but still not reach Italian levels. This year Irish debt grows to 59% of GDP, equivalent to a debt pile of €101bn, and then climbs to 79%, or €146bn, at the end of 2012. The debt pile continues to grow to €150bn in 2013, but economic growth means its proportion of GDP falls back to 77%. However, add in the potential cost of the bad bank agency, the National Asset Management Agency, and overall debt soars to 107% of GDP in 2011, close enough to Italian levels. Perhaps the best Ireland Inc can hope for is to make the same repayments as Italy.