Cantillon: Ireland sheds PIIGS status

Ireland has in recent years shed its PIIGS status. The slightly offensive acronym stood for Portugal, Italy, Ireland, Greece, and Spain – the weakest links in the post 2008 euro zone debt crisis. The bond yields of these nations spiralled out of control at the height of the crisis and they still trade at a significant margin above benchmark German notes.

However, Ireland's solid financial performance over the past eight years – prior to Covid – transformed a mammoth post-financial crisis budget deficit into a surplus and means it is now in the middle tier or "semi-core" of euro zone sovereigns, ranked alongside the likes of Belgium in terms of a credit risk.

The National Treasury Management Agency raised €5.5 billion in a bond sale earlier this month, with the 10-year bonds priced to carry a negative market interest rate, or yield, of minus 0.257 per cent, meaning our creditors are effectively paying for the privilege of lending to us.

So when rating agency Moody's warned yesterday that the coronavirus pandemic heightened the risk of persistent secular stagnation in the euro area – in other words a prolonged period of long growth – it pinpointed Greece, Italy, Portugal and Cyprus as the sovereigns with the highest risk, noting they would find it tougher to cut debt in a persistently low-growth and low-inflation environment.

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Despite our large national debt, now in the region of €230 billion and rising, it didn’t put Ireland in the same category as these countries, presumably because of the health of our public finances.

The agency said the euro zone's combination of low growth, low inflation and interest rates at or below zero had drawn comparisons with the experience of Japan since the 1990s, but highlighted that there were important differences between the two regions.

Whether the Japanifcation of Europe is a relevant comparison or not, Ireland would be one of those countries finding it difficult to cut debt in a prolonged period of low inflation, but it’s no longer viewed as in the firing line if there’s another debt crisis.