Ireland Recovers as Greece Sinks in Debt Market Affirming Kenny

Prime Minister of Ireland Enda Kenny
Enda Kenny, Ireland's prime minister. Photographer: Chris Ratcliffe/Bloomberg

Labros Chatzis, a plastic surgeon from Athens, settled in Dublin 11 years ago because he found the Irish similar to the Greeks. Now it’s their differences that are keeping him there as his homeland sinks deeper into crisis.

The 55-year-old says he’s more confident about the future of his adopted nation because Irish Prime Minister Enda Kenny is meeting the demands of an international bailout, while Greek premier George Papandreou is scrambling to raise money as the economy slumps more than forecast.

“Ireland is on the right track, but I’m very pessimistic about Greece,” said Chatzis, who is also president of the Hellenic Community of Ireland. “Kenny has a strong mandate and the power to do what needs to be done. Papandreou is very weak, nobody listens to him, even his own party oppose him.”

Six months after Kenny, 60, came to power by winning the most seats in his party’s history, investors as well as voters are supporting that view. While concern that Greece may default reignites speculation about the fate of the euro, Irish bonds delivered the best returns in the world the past three months.

The International Monetary Fund, which contributed to Ireland’s 85 billion-euro ($116 billion) rescue package last November, said Sept. 7 that it’s “very impressed” with Kenny’s government efforts to implement its austerity program.

“Somehow, through luck or brilliant strategy, or some combination of both, Ireland has put clear blue water between it and Greece, primarily by being seen to deliver,” Eoin Fahy, chief economist at Kleinwort Benson Investors in Dublin, said in a telephone interview. “I would give the government a minimum of a B-plus grade.”

Market Reward

Irish bonds with a duration of more than a year returned 17.4 percent in dollar terms since June 17, the most of the 26 government debt markets tracked in indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

The yield on Irish two-year government bonds was 9.38 percent yesterday, down from an all-time high of 23.2 percent on July 18. Greek bonds plummeted, with the two-year yield more than doubling to a record 76.73 percent in the same period. It was down to 61.4 percent yesterday.

While the difference in yield between the two widened to a record 67.3 percentage points on Sept. 13, the unraveling of Greece threatens Ireland’s ambition of restoring the nation’s economic sovereignty by 2016, the 100th anniversary of the Irish uprising against Britain.

Kenny plans to narrow the budget deficit to 3 percent of gross domestic product by 2015 and start persuading investors to buy bonds again in the public markets as early as next year.

‘Dangerous Precedent’

“A Greek default could set a dangerous precedent and revive fears that Irish bonds are a similar risk,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin.

European Union and IMF inspectors spoke with Greek Finance Minister Evangelos Venizelos yesterday and will do so again today to judge whether the country was eligible for an aid payment due next month. Kevin Cardiff, the Irish Finance Ministry’s secretary general, told a parliamentary hearing on Sept. 15 that “a Greek cough is also an Irish cough.”

Kenny inherited an economy that had shrunk three years in a row after a real-estate boom collapsed in 2008. Unemployment stood at fifteen-year high of 14.8 percent in November 2010 when Europe’s worst banking crisis forced the state to seek an international rescue from the EU and IMF. Joblessness was 4.8 percent three years earlier.

Winning more favorable terms on the loans in that bailout has been Kenny’s biggest success.

Gallic Spat

In July, after what he earlier termed a Gallic spat with French President Nicolas Sarkozy over tax rates, Ireland was given more time to repay the debt and a 2 percentage-point cut in its interest rate. The reductions are worth about 1.1 billion euros a year to Ireland, the Finance Ministry said.

What’s more, a line has been drawn under the banking crisis, after the government pumped another 17 billion euros into the financial industry.

Billionaire investor Wilbur Ross, chairman of WL Ross & Co., was part of a group that in July agreed to take a 34.9 percent stake in Bank of Ireland Plc, the biggest lender.

“Ireland will be the first of the euro countries to recover because they really bit the bullet,” Ross, said in an Aug. 30 radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “Once they get through all that, the fundamental advantages of Ireland are intact.”

Larger Majority

The country is meeting targets set for it by the EU, IMF and European Central Bank as Kenny’s government pushes austerity measures through parliament by controlling 113 seats in the 166-seat legislature. By contrast, Papandreou’s four-seat majority imperils the implementation of Greece’s bailout package.

Chatzis, the plastic surgeon, said he moved to Ireland in 2000 in part because the Irish were similar to Greeks in that “they both like to talk and have fun.”

The difference is “in Greece, the black economy thrives, many people avoid taxes, and you can get one price with a receipt and once price without,” he said. “Here, there is respect for the system. People will do what it takes.”

In six separate packages, the Irish have achieved 21 billion euros worth of savings since July 2008 by reducing pay for public servants, lowering welfare payments and introducing taxes. About 15 billion euros of the cuts came from initiatives announced by the previous government, led by Brian Cowen, before it lost the election in February.

Following Cowen

There’s at least another 3.6 billion euros of cost savings to come this year, testing Kenny’s popularity, which has soared even as his Fine Gael-led government has largely followed the fiscal policies of Cowen’s Fianna Fail administration.

“Kenny is doing a better job than Cowen, but that wouldn’t be hard,” said Brian Doolan, 66, retired law lecturer. “Look around, empty shops and shops closed. I remember the 1950s when it was hopelessness and emigration. I wonder if it hasn’t gone back to that.”

Kenny has simply stuck with Cowen’s policies, said Micheal Martin, the former foreign minister and now leader of Fianna Fail, in a Sept. 12 speech to his parliamentary party.

“The budgetary, banking and public service policies it has been implementing are overwhelmingly those which its members condemned and voted against as recently as January,” he said.

Even with the skepticism, Kenny’s satisfaction rating has climbed 16 percentage points to 53 percent since February, according to a poll published by the Irish Times on July 20.

Goodwill Boost

It’s the best support Kenny has drawn since taking over the leadership of Fine Gael nine years ago and makes him the nation’s most popular political leader. Before the election, his public support consistently ranked behind his party, prompting his deputy to unsuccessfully challenge Kenny in June 2010.

The government “is benefiting from the goodwill which attaches to any new government,” said Martin, 51. “This is natural, but it will only last for so long.”

Kenny’s instinct for symbolic gestures play well with voters. In his first days in office, he took a pay cut and walked to his office, having scrapped most ministerial cars. He’s been pictured walking the hills of his native Mayo in the west of Ireland, and taking part in a 112-mile charity cycle around the Ring of Kerry.

He’s also drawn plaudits in newspaper editorials for his attack on the Vatican’s handling of sex abuse allegations. In the sharpest language an Irish leader has used against the church, Kenny said in July that the Vatican’s handling of the scandals has been dominated by “elitism and narcissism.”


The speech “was one for which he will always be remembered,” the Irish Independent said on July 21. New York Times columnist Maureen Dowd two days later called Kenny’s actions “breathtaking.”

On the economic front, Ireland’s GDP will increase this year for the first time since 2007, the IMF said on Sept. 7. In Greece, Finance Minister Venizelos expects the country’s economy to shrink by about 5 percent this year, worse than the June estimate of 3.8 percent from the EU and IMF, and a deeper contraction than in the past two years.

Chatzis said a friend in Athens who runs his own publishing company is owed money by a university client and frets that he may never get paid.

“Greece could be bankrupt by Christmas,” said Chatzis, adding that his own business is up this year as more people seek cosmetic surgery. “You don’t spend 5,000 euros on a nose job unless you’re confident in the future.”


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