Forget Greece; Ireland nearly bankrupt

The nation's books may not look as bad at first, but that's because nationalized banks and toxic mortgages are seen as 'assets.'

By InvestorPlace Mar 31, 2010 11:13AM

ireland debtWhile Greece is in the spotlight as sovereign debt woes threaten to cripple the nation’s public sector, Ireland’s balance sheet has quietly been getting worse -- and now its financial problems are so bad it could have the dubious honor of beating Greece to bankruptcy.

That’s because a very pricey government bank bailout is adding to the ballooning deficit of this nation. Some experts see Ireland's debt-to-GDP ratio topping 10% in 2010 and to 80% by 2012 without intervention!

Ireland is already $95 billion in debt for 2010, and on top of that, it’s essentially nationalizing its banking sector for tens of billions of dollars more. But because it’s buying assets -- albeit “toxic assets” with very little real value -- those expenses aren’t on the balance sheet as sovereign debt. Quite a trick of math!

Unfortunately, just because those numbers are in a different column on a spreadsheet doesn’t mean Ireland can avoid the serious costs. Early this morning, Ireland announced it will offer its banks nearly 22 billion euros (or $30 billion) in taxpayer money to meet stiff new capital requirements. The government already has substantial ownership of the nation’s two largest banks, including a 16% stake in the Bank of Ireland (IRE) and a 25% stake in Allied Irish Banks (AIB). IRE and AIB shares have been soundly punished as a result, with both trading down more than 50% since October.

Worse than the government interference in the banks is a government-ordered fire sale of assets to make up the shortfall. Allied Irish, for instance, was ordered to sell assets in the United States, Britain and Poland that totaled about 7.4 billion euros, or about $10.1 billion.

Greece’s debt woes (and those of other beleaguered borrowers like Portugal and Spain) have actually compounded Ireland’s problems, because more nations are competing with the U.S., Europe and Japan to borrow money on the international markets. There just aren’t enough investors out there willing to front the cash.

And the amount of cash needed is staggering. Greece needs $15.6 billion by the end of May and that much again in August and November. Ireland needs even more due to its banking problems to the tune of $110 billion over the next 12 months to stabilize its bad banks.

So why haven’t we heard as much about Ireland’s debt if it's so large? Well, mostly because the toxic assets don’t appear as debt, as mentioned before. It’s easier to rail against Greece for spending so frivolously, while some think the bank bailout in Ireland is not the fault of the leadership in Dublin. The other reason could be that Ireland’s bonds are poised to outperform those of every other euro member except Austria this quarter, as investors bet it will be more successful than countries such as Greece in cutting its budget deficit.


But whatever the reasons for the difference in coverage, this much is clear: Ireland is racking up debt that’s quickly dwarfing that of Greece. And investors had better take notice if they want to protect themselves.

Related Articles:

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124 rated 1
266 rated 2
452 rated 3
702 rated 4
671 rated 5
604 rated 6
640 rated 7
495 rated 8
267 rated 9
158 rated 10

Top Picks




Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.