Brian Lucey: 'already too late'

THE National Treasury Management Agency (NTMA), which sells Irish debt, may as well "pack its bags for next year" because it will not be able to raise more money from abroad, one of the most senior market players predicted this weekend.


The leading bond expert, speaking on the basis of anonymity for fear of facing instant dismissal, said the government's bet that €6bn in cuts will help Ireland return to the debt markets in 2011 is "snookered", and it will be unable to sell a single Irish bond next year.


Analysts believe that German leader Angela Merkel's statement that she may move to protect German taxpayers from Greek, Irish and Portuguese national debts by forcing some sort of default on bond holders, has sharply increased the chances of Ireland being locked out of the sovereign bond markets and forced into the "disastrous" and "hugely costly" EU/IMF bailout.


"As things stand, why would anyone lend Ireland a single euro when there is a risk that you only get 70c back in the German-inspired default," the senior source told the Sunday Tribune.


"There are no buyers for Irish bonds. They are talking about a default and with the Germans talking about a default there is no way any one will buy Irish bonds in 2011. Ireland is snookered. Unless there is a substantial turnaround from the Germans, the game is up."


Debts issued by the governments of Iraq, Lebanon and Iceland are now cheaper to insure than Irish sovereign debt. Overseas lenders owed €90bn by the Irish government this weekend face paying the fifth most expensive costs in the world behind Bolivia, Greece, Argentina and Pakistan to insure their debt holdings.


The deepening market crisis for Ireland was marked by a number of other developments:


* The European Central Bank stepped in last week to buy more Irish bonds and now owns an estimated €18bn, or one fifth of all €90bn in Irish national debt, the Sunday Tribune has learned.


* Bond debts of Irish banks are also increasingly expensive to insure as costs for AIB and Bank of Ireland bonds soared, according to CMA Datavision.


* Share prices of battered AIB and Bank of Ireland fell sharply.


* International financial news wires reported Irish bond prices were matching the route taken by Greece before it was forced into its special bailout last May.


* Proposed budget cuts in Portugal failed to stem a rise in its costs of borrowing abroad.


Gabriel Stein, the influential director of London's Lombard Street Research, said Germany's comments favouring a so-called orderly default were "a game changer" for Ireland. "Once you start talking about it, it increases the chances of it happening. It is like talking about a devaluation," said Stein, who expects Greece to default on its debt as early as next year.


Jonathan Loynes, chief European economist at Capital Economics, said the likelihood of some sort of default on Greek, Irish and Portuguese national debt had risen.


"I would have thought there was a growing chance in the next six months that countries, namely Ireland and Portugal, will take the bailout funds," he said.


Dietmar Hornung, the lead analyst on Ireland at credit rating agency Moody's, told the Sunday Tribune its review of Ireland's credit rating would conclude in December after it assessed the government's four-year plan deficit plan and the budget. The deterioration of market sentiment toward Ireland complicated the review process, he acknowledged.


But TCD associate professor Brian Lucey, a longtime critic of the government's banking policy, said it was already too late. "In the absence of a detailed plan, it was very obvious that the markets did not believe the government's plans.


"The difficulty for Ireland will be selling debt in the early part of next year, which is the crucial time if we are not to be running on fumes," Lucey said.