Photo: James Jordan on flickr
While there may be an Irish election as soon as March, feel free to ignore its result because it’s the one after that could be really frightening, according to Societe Generale.The likely result of March’s election will be a Fine Gael led coalition government. It’s ability to do much, like renegotiate the IMF-EU bailout package, will be limited, according to Societe Generale.
The real concern is that Ireland’s populace becomes disgusted with its new government, pushing for more austerity, and turns on it, voting in a nationalist government in a new election.
From Societe Generale:
Longer term however, the most significant political risk is likely to be that the incoming collation proves relatively short lived and is ultimately replaced by a more avowedly nationalist government that refuses to be bound by the terms of the IMF agreement…The incentives for a more nationalistic government to consider defaults on both government and senior bank debt in such circumstances would presumably be very high.
Before that nationalist nightmare has any chance of becoming real, the first new government is likely to pinch the banks and force creditors to take haircuts.
Worrying for markets in the short term, but nationalism is far more frightening an outcome.