Some clarification is in order for recent accounts of the EIU’s forecast for Ireland. Specifically, we do not expect a default, as was reported here (and repeated elsewhere). Instead, our central scenario forecasts that Ireland will need to access the IMF-backed European Financial Stability Facility in mid-2011, when the country must return to the capital markets to service its debt. Ireland’s beleaguered banks will likely require further bailouts next year, and the government’s economic projections look far too optimistic. Following the recent spike in Irish yields, the government will struggle to convince bond markets that there is much more it can do to calm investors’ nerves.
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