Brian Lenihan: not in control, according to a leading bond analyst

Ireland has lost control of its financial fate and its future is now in the hands of the markets, one of Europe's leading sovereign bond commentators has said.

Luca Cazzulani, deputy head of fixed income at Italian-German bank UniCredit, said the Irish and Portuguese governments could do little to influence their fate because the markets had signaled them out from the so-called PIIGS - Portugal Ireland, Italy, Greece and Spain - for extreme scrutiny.

He forecast that key sovereign interest rates in Ireland and Portugal, which rose last week to more than 5.5%, were "unlikely" to fall back below 5% because markets were not anticipating good news from Europe.

"If anything, we are likely to get further bad news," Cazzulani warned.

Irish and Portuguese sovereign interest rates could stay "very high" for five or six months. "If so, then we are going to face a series of stresses because these levels are clearly unsustainable," Cazzulani said. "Investors will start to realise that it makes no sense to lend to those countries because they will not be able to pay back in the long run."

Following Spain's successful debt, Ireland and Portugal last week stood out in the eurozone for the high interest rates they face in refinancing and raising new debt.

Cazzulani said that Italy, one of the euro peripheral countries the markets perceived to be in trouble, was now best placed paying "quite low" interest rate on its debt of 4%. Spain is paying 4.6%.

Ireland and Portugal interest rates are "by no way a sustainable rate for either because neither of the two countries can meet a growth rate in line with that yield. For example Portugal is paying 5.6%, which is basically the highest yield ever and the picture for Ireland is fairly much unchanged," he said.

But Chris Pryce, the senior analyst who sets the credit ratings for Ireland at Fitch, told the Sunday Tribune that the agency's rating for Ireland had been stable "for most of this year and will continue to be stable." He added: "I do not think that Ireland is in danger of losing access to the markets. That has not been our experience these last few months."

He said Ireland was "very slowly" emerging from recession and the economy was "probably past the bottom".