Tuesday, November 09, 2010

Will US go all Irish on deficit, too?

We're sunk: Ireland's top economist says bank losses make bankruptcy 'inevitable'
Professor Morgan Kelly predicted that Ireland would follow Greece in seeking a humilating bail-out from the European Union due to a £60.3billion (€70billion) blackhole in its financial system.

But Prof Kelly, an economics professor at University College, Dublin, believes that Brussels will force Dublin to pay such a high price that it will 'inevitably' default on its loans.

'Our debt will rise faster than our means of servicing it and we will inevitably face a State bankruptcy that will destroy what few shreds of out international reputation that still remain,' he argued.

Unless Irish finance minister Brian Lenihan can deliver a credible plan to slash a further €6billion from public spending, Ireland could be frozen when it next tries to raise loans in the New Year, economists fear.

That would leave Dublin without the means to pay for essential public services.

Prof Kelly, who is known as ‘Doctor Doom’ for his prescient prediction in 2006 that Irish house prices would collapse, believes that Mr Lenihan’s austerity measures will ultimately prove futile.

'What is the point of re-arranging the spending deckchair when the iceberg of bank losses is going to sink us all?' he asked.

Ireland’s profligate banks have not fully faced up to the vast losses on their mortgage books, he said. As a result, the cost of cleaning up the banking system will be some £17.2billion (€20billion) higher than the government’s own £43.1billion (€50billion) estimate, Prof Kelly warned.

The eye-watering cost of purging Ireland’s crippled financial system - equivalent to nearly £13,400 for every Irish citizen - is the legacy of a decade-long property boom that imploded spectacularly in 2007.

Ireland’s budget deficit is set to rocket to an alarming 32 per cent of national output this year and more than one in eight workers cannot find a job.

Read more: http://www.dailymail.co.uk/news/worldnews/article-1327834/Irelands-economist-says-bank-losses-makes-bankruptcy-inevitable.html?ITO=1490#ixzz14iqnzSjD

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