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Ireland may face sov debt restructure

Tuesday 8 February 2011 - by Andrew Hickley

Ireland will need further help after EU funding ceases and cannot rule out having to restructure its sovereign debt, according to a report on the republic's economy.

The report, conducted by financial services firm NCB, concludes that even under best estimates, Ireland will likely have to rely on a permanent European bailout facility with the country unable to support itself by 2014.

"In the low growth scenario, and even in our base case scenario, it is difficult to see how Ireland would be able to wean itself completely off EU aid post 2013," it states.

"As such, our central view is that Ireland will need EU help to raise funds and as a result be rolled into the permanent European Stability Mechanism. Sovereign debt restructuring may form part of the ESM, but we see it as being a last resort after other efforts have been exhausted."

The ESM, agreed as a follow-up to the temporary European Financial Stability Facility set up to bail out Greece in early 2010, will be set up by 2013 with an increased mandate.

The report recommends another potential measure to help the damaged financial system. "A lowering of the interest rate on EU loans, however, would give Ireland a higher probability of weaning itself off aid by 2014."

The report adds that the country's low 12.5 per cent corporation tax rate is unlikely to be altered despite the bailout, declaring it as forming the "backbone of Irish foreign direct investment and export policy".

While it states that the European Commission is progressing work towards a proposed unified European common consolidated corporation tax base, unanimity is required for taxation issues and the country has a right to use a veto, having previously rejected a change in the tax when negotiating the loan.

It also noted that Ireland will have to endure a jobless recovery at least until 2011, with employment expected to contract marginally.

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