Monday, December 2, 2013

Ireland - Threat of second bailout still has not gone away

We have lived in extraordinarily uncertain times over the past half decade. Despite this, many people, including some very clever people both at home and abroad, proclaimed with great certainty last year that Ireland would not exit its bailout this month. They had many good reasons to believe that a second bailout would be needed before the first one had formally ended. But they had no reason to be so certain in that view. It is good for everyone that they have been proved wrong.
That Ireland is the first euro area country to have successfully weaned itself off rescue funding is unambiguously good. Having to resort to a second bailout would be unambiguously bad.
But resorting to a second bailout is a real possibility. Most of the reasons that gave rise to the belief that an on-schedule exit was impossible have not gone away. There are three major foreseeable risk factors over the next two years.
One is domestic. If the economy does not grow at a decent clip, the State's already-huge debt mountain will get bigger, not smaller, as per government and troika projections. If it grows much bigger, those who lend to governments will conclude – sooner or later – that it is unrepayable and will stop adding to it. It would then be back to bailout.
Source and full piece: Irish Independent, 1 December 2013

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