Buiter On Why Irish Eyes Demand A New Bailout
While Ireland's bond performance is often held up as evidence that living-standard-crushing austerity can indeed lead to positive developments, Citgroup's chief economist William Buiter suggests, in a speech in Dublin today, that they should begin negotiating a new rescue package as soon as possible. Buiter, via The Irish Times, points to the fact that Ireland currently pays around 6% for its 'rescue-money' which could be refinanced (theoretically) at around 3% via the EFSF. He said Ireland was not like Greece but it was in very bad fiscal shape because of its bank guarantee (isn't that what Italy and Portugal are doing with the new Ponzi-bonds?). He said that clearly something had to be done about the "continuing massive sovereign funding gap" that Ireland had and which still existed after three and a half years of "fierce" fiscal austerity. While Merkel's comments today on central bank support as illusory and spending EU money appropriately, it would seem that Ireland remains in a strong negotiating position. We await the term 'referendum' to confirm the discussions have begun - and given the timing (the day before IMF-EU official's fifth review) we would expect to hear it soon.
Ireland clearly needs to negotiate a stand-by second bailout, Citigroup chief economist Willem Buiter said during a visit to Dublin today.
Mr Buiter, a former member of the Bank of England's monetary policy committee and respected economist, said the most attractive option from Ireland’s point of view would be a reduction on the interest it pays on an outstanding €30 billion in promissory notes, issued mostly to deal with the collapse of Anglo Irish Bank.
He said Ireland is paying in the region of 6 per cent on this money but it could be refinanced at 3 per cent by the European Financial Stability Facility.
This would have attractions for the rest of Europe also as it would not be a technical restructuring of sovereign debt. It would also have the political advantage of showing recognition for the enormous effort Ireland had made to try put its house in order, he said.
There were two other possible options if that was not enough, he said during a press briefing.
The two other possible options were a restructuring of Irish sovereign debt or the revoking of the government guarantee on bank debt. He said he thought European politicians and the members of the EU-IMF troika would prefer to pursue the option of more generous official funding terms.
He said Ireland was not like Greece but it was in very bad fiscal shape because of its bank guarantee.
He said that clearly something had to be done about the “continuing massive sovereign funding gap” that Ireland had and which still existed after three and a half years of “fierce” fiscal austerity.
Mr Buiter's comments came on the eve of the return of EU-IMF officials to Dublin for its fifth review of Ireland's compliance with the terms of last year's €67.5 billion bailout.