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We Face Greek Style Crisis...

They're all away as we face Greek-style crisis

Immediate action needed on debt, but Dail won't cut short holidays...


THE Government is to leave the political apparatus of the State on holiday throughout September -- even though there is growing concern that the country could face a Greek-style crisis before the end of the year.

Widespread bewilderment was aroused in high finance circles last week by the publication of photographs of the Taoiseach, Brian Cowen, playing golf the day after Ireland's sovereign debt was downgraded again.

In what is seen as an example of ill-judged timing, Mr Cowen played golf in Connemara on Wednesday with other seemingly carefree TDs and senators, who still have four weeks of a two-month summer break to go.

But while the Oireachtas is in repose, enjoying a longer than usual break, the financial markets are in overdrive and are now evidently training their sights on Ireland with the apparent intention of again testing the resolve of the EU later this year.

There is growing consensus among economic commentators here that, to counteract the threat, Ireland desperately needs to address the concerns of the markets between now and the end of September.

The markets' concerns relate to the massive and seemingly open-ended debt burden being foisted on taxpayers by the Government in an attempt, effectively, to bail out the banks -- primarily Anglo Irish Bank.

There is agreement among commentators that Finance Minister Brian Lenihan urgently needs to draw a definitive line on the cost of the Anglo bailout.

The markets are also awaiting a decision by the Government on whether it intends to extend the bank guarantee scheme; and, if so, to what extent and for how long. An announcement will not be made, however, until the day the Oireachtas comes off holiday.

A Sunday Independent/ Quantum Research poll, conducted on Friday, asked whether the Government should extend the bank guarantee scheme: 58 per cent said no, while 42 per cent said yes.

"It gets more and more damning and more and more worrying," Brian Lucey, economics professor at Trinity College, Dublin, said on Friday. "Where is the Dail? On its bloody holidays? Where is the Government?" he asked.

Ciaran O'Hagan, an Irish economist who is head of rates research at Societe Generale in Paris, said measures to limit public debt and contingent liabilities were now needed.

On whether these urgent measures were required before the end of September, he said: "Bang on."

But the Oireachtas will not be back off of its holiday until the end of next month.

The significance of the downgrade by the rating agency Standard & Poor's is regarded as of minor importance, although it still has serious consequences.

An immediate consequence last week was that yields of Irish government debt rose sharply, at one point closing at its highest since the EU agreed a bail-out fund in early May when the entire euro project was under threat.

Last April, Standard & Poor's decreased the Greek debt rating to the first levels of 'junk' status amid fears of default by the government there. Following that downgrading, yields on Greek government two-year bonds rose to 15.3 per cent as analysts questioned Greece's ability to refinance its debt.

Last week, Standard & Poor's also assigned a negative outlook to Ireland, citing substantially higher costs to support its struggling financial institutions.

The influential Financial Times, in an editorial last week, said: "It is time to staunch the bleeding. As Irish state guarantees near their expiry date, some banks will not be able to refinance their balances.

"The government should prepare insolvent banks for forced debt-for-equity swaps, which would instantly recapitalise the banks in question and cap the government's exposure.

"This cannot be done frivolously; European institutions are exposed and EU partners must be consulted. But someone must put an end to the practice of handing banks blank cheques.

"Some Irish pluckiness would benefit us all."

In the absence of out-front political leadership, it has been left to the Governor of the Central Bank, Dr Patrick Honohan, and the National Treasury Manager Agency chief executive, Jim Corrigan, to effectively defend policy.

On Wednesday, Mr Corrigan said Standard & Poor's analysis was "flawed".

Among economic commentators, there is some sympathy for Mr Corrigan's argument; there is also widely held opinion that rating agencies should be held to greater scrutiny for their role in mis-rating many of the toxic assets at the centre of the international financial crisis.

Nevertheless, Ireland's rating at three notches below the top, triple-A ranking has caused a further problem for the Government at a time when it is making plans for what will be a politically sensitive Budget.



Report by JODY CORCORAN - Sunday Independent

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