Ireland: return to health or brief respite?

Ireland made a triumphant return to the international debt markets this week after exiting its three-year European rescue programme.

In a heavily over-subscribed offering, Dublin sold €3.75bn of ten-year bonds priced to yield 3.5%, raising almost half the funding it needs this year. The yield on existing ten-year Irish paper fell to an eight-year low of 3.5% – down from 14.6% two years ago – as prices rose.

What the commentators said

“There is a general idea in the market that the European crisis is almost over,” said Piet Lammens of KBC. So it’s no wonder investors trust Ireland to shake off its banking crisis and recover without further help. But can it do that?

It does appear to be on the road to recovery, with unemployment having fallen to 12% from a peak of 15%, an uptick in consumer confidence and house prices, and the relatively strong rebounds in Britain and the US, Ireland’s top trading partners, boding well for the crucial export sector.

There is a chance, however, that Ireland’s bail-out exit could prove to be “a brief respite”, as the FT’s Peter Spiegel put it. GDP growth is broadly flat, so it will be some time before the country starts working off its huge debt pile of 124% of GDP, especially since the government keeps borrowing. The annual deficit is set to reach 7.4% of GDP.

High private debt is hampering the domestic economy, with the banks, whose bankruptcy plunged Ireland into this mess in the first place, still causing concern.

With a quarter of home loans 90 days in arrears, and many businesses weighed down by toxic real-estate debt, yet more holes could appear in the banks’ balance sheets when rigorous stress tests take place this year.

Rattled investors could then send long-term interest rates sharply higher by selling off Irish debt, undermining growth. The EU, concluded Spiegel, could once again be “touting Ireland as a success story prematurely”.

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.