Irish markets: Too early for backslapping
While the Greek crisis puts Ireland in a good light, we're still a risky prospect, says Proinsias O'Mahony.
Ireland's decision to take painful budgetary decisions long before its European neighbours has been widely applauded by international commentators, with the Greek panic confirming that Brian Lenihan was rightfully mindful of the need to keep the bond vigilantes on side.
However, we're far from out of the woods. The Economist recently undertook a survey of the sovereign-debt situation, analysing which countries stood out in terms of their structural deficits, debt ratios, debt maturity calendars and primary fiscal balances.
In short, the countries with the most "pronounced debt vulnerabilities". The usual suspects were there, Greece topping the list, with the UK, Japan, Portugal and Spain also in the line of fire. So, too, was Ireland, unfortunately, coming second on the list, despite having taken the "tough decisions to get their finances under control".
RBC constructed a similar index, examining the sovereign risk for OECD countries. This time, Ireland actually tops the list. The aforementioned Simon Johnson, too, is worried, saying that European leaders were showing "no awareness" of the depth of the crisis facing the continent. "It's not limited to Spain, Greece and Portugal, it's also going to include Ireland", he warned.
As mentioned in our Businessandfinancetoday.com blog recently, short sellers continue to have Ireland in their sights. A recent report by short-selling specialists Data Explorers concluded that we are now more targeted than even Greece and Portugal.
Credit Suisse, too, constructed a similar index of ‘at risk' countries. It made for slightly cheerier reading, Ireland coming seventh in terms of riskiness (Iceland, Greece, Hungary, Portugal, Spain and Latvia were riskiest).
Irish credit default swaps, a form of debt insurance in the event of sovereign default, are, thankfully, nowhere near the levels seen early last year.
However, the above reports, coupled with skittish bond markets that will likely be on high alert throughout 2010 for any developments, confirm that it's too early for any self-congratulatory back-slapping.
