Bloomberg News

IMF Says Ireland May Return to Market If Leaders Stem Contagion

July 14, 2011

July 14 (Bloomberg) -- International Monetary Fund Deputy Director Ajai Chopra said Ireland has a good chance of returning to markets if European leaders are able to stem contagion from the region’s debt crisis.

“It’s very important for all of us to try and abstact from these contagion risks and look at the positive elements in the case of Ireland,” Chopra said in Dublin today after the IMF, European Commission and European Central Bank reviewed Ireland’s budget. “It needs to be judged by its own merits. I think if one can address some of the broader issues,” there are “goods prospects of getting back to market access.”

Ireland has been locked out of markets since September and the yield on its 10-year debt surged to 14 percent earlier this week. The country, which got a bailout in November, joined Portugal and Greece on July 12 as the third euro-area nation to have its credit rating reduced to junk as EU leaders struggle to contain the debt crisis.

“The problems that Ireland faces are not just an Irish problem,” Chopra said. “They’re a shared European problem. What we need and what’s lacking so far is a European solution to a European problem. What’s critical now is for Europe to dispel the uncertainty that’s being created by the lack of what’s perceived by markets as an insufficient response.”

‘Well Financed’

In the review of Ireland’s fiscal progress as part of the bailout, the so-called troika said the program is “on track” and “well financed.” European Commission Director Istvan Szekely said the country met all targets and that the next review will be in October.

“The government has developed a great deal of fiscal credibility,” Chopra said.

Finance Minister Michael Noonan, who had indicated he’d like to return to bond markets next year, said this week that further tough budgets are required to reduce Ireland’s deficit. An adjustment larger than the 3.6 billion euros ($5.1 billion) planned for 2012 is “something that will have to be considered.” he said.

Speaking at the press conference today, European Central Bank official Klaus Masuch said Irish lenders have especially benefited from ECB liquidity measures. Asked about Ireland’s proposal to impose losses on some senior bank bondholders, he said the ECB position opposing this “hasn’t changed.”

Undermining

“We regard it as undermining confidence in the Irish banking sector,” he said. “I know that there is sometimes criticism of ECB policy decision here in Ireland. One has to understand that being in the euro area means that monetary policy can’t be divided, can’t be set differently for one country than the other.”

Moody’s Investors Service cut Ireland to non-investment grade on July 12, citing the probability that the country will need additional official financing and for investors to share in losses before it can return to the private market to borrow. The outlook remains “negative,” the company said.

Irish bonds rose for the first time in more than a week today, with the yield on the 10-year debt declining 8 basis points to 13.92 percent. Still, the yield premium over German bunds reached a euro-era record of 11.40 percentage points.

--With assistance from Colm Heatley in Belfast News and Paul Dobson in London. Editors: Fergal O’Brien, Simone Meier

To contact the reporter on this story: Finbarr Flynn in Dublin at fflynn3@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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