The Irish government has been warned by a world renowned economist to negotiate a second bail-out deal with the EU and the IMF now – just in case.
Willem Buiter told a Dublin city conference that Ireland should plan immediately for another major downturn and not wait until the last minute.
His call came as EU/IMF/ECB Troika officials arrived in Dublin to examine the books and scrutinise Ireland’s latest austerity measures.
Buiter, one of the top economists with the international financial services giant Citi, told their annual global research day conference that Ireland should strike a deal now with the Troika at a 3 per cent interest rate for any fresh borrowings and avoid the crippling 8 per cent in the debt markets.
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“The Irish government should not attempt to secure a second bailout agreement in a state of near panic, at the last minute, but should negotiate a second loan agreement to have on standby in the event of not being able to borrow from the markets later this year,” said Buiter.
The Irish Examiner reports that the economist also predicted that the majority of eurozone-based banks are likely to be state-controlled by 2014. He is also forecasting that Europe’s triple-A rated economies will probably be downgraded in 2012.
“Fiscal austerity will be a feature almost everywhere for years to come, as debt levels mostly have yet to start falling. Ireland, alongside Portugal and Greece, should see further restructuring of its sovereign debt this year, but external funding will make public sector deleveraging in the eurozone’s periphery states more gradual than it would otherwise be,” he said.
“This year 2012 will see downgrades for most, likely all EU/Eurozone triple-A economies.”
Buiter also said deleveraging will continue slowly in the banking sector, via more asset sales and the gradual running down of loan books.
“Deleveraging in the eurozone will play out in a variety of ways,” added Buiter.
“Official funding support and directed lending will slow deleveraging. Many, perhaps most, eurozone banks will be majority state-owned in two years’ time.”
The economist did warn that any break-up of the eurozone would be ‘chaotic’.
“A full or comprehensive break-up, with the euro area splintering into around 10 national currencies would create financial and economic pandemonium,” Buiter argued.
“It wouldn’t be a planned, orderly, gradual unwinding of existing political, economic and legal commitments and obligations.”
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