While other euro zone countries slip deeper into recession, there’s good news from at least one: Ireland. Bailed out two years ago by the European Union and International Monetary Fund, the country is starting to show signs of economic recovery.
A new study by the American Chamber of Commerce says that US investment in Ireland in 2011 increased 9% to $30.5 billion from the previous year, the second highest level on record.
Ireland was the only country in the euro zone to show increasing business activity in September, according to the latest Purchasing Managers Index (PMI) report, which combines manufacturing and service sector growth. The PMI survey also showed rising confidence in new business and jobs in Ireland, and the fastest rate of service sector growth since February 2011.
Market news is also promising. Holger Schmieding, chief economist for Berenberg Bank, says that Irish sovereign yields are in “sustainable territory” with the benchmark nine-year yield almost at the same level as Italy’s. Ireland’s two-year yield is at 1.5%, the lowest of any crisis country.
But Ireland is not out of the woods yet. National debt stands at 108% of GDP, (paywall) mostly the result of bank recapitalizations and bond repayments. The country needs €64 billion ($82.6) to bail out its ailing banking sector.
Last June, European leaders pledged to break the link between sovereigns and their banks, and examine Ireland’s problem. There is fear now that Ireland may be left to foot the bill on its own after ministers from Finland, Germany and the Netherlands issued a joint statement saying plans agreed in June to use the permanent EU rescue fund to directly recapitalize ailing banks applied to future problems, not past ones.
In high-level meetings in Brussels yesterday, Irish leader Enda Kennedy won some support from European Commission President Jose Manuel Barroso, who praised Ireland’s accomplishments so far and said:
I will make clear at the next European Council in October that we must stick to the commitments we made in the June European Council. This is a question of credibility for the European states and all the member states.