(Bloomberg News) A majority of global investors predict Ireland will default on its sovereign debt, showing that weeks of efforts by the government of the onetime "Celtic Tiger" haven't allayed concerns about its creditworthiness.

As the Irish government puts the finishing touches on a plan to find 15 billion euros ($20.5 billion) in savings, 51% of respondents in the latest Bloomberg Global Poll say they regard a default as likely, compared with 42% who say it is unlikely. The ranks of those anticipating an Irish default have tripled since a poll in June.

"Ireland will default in the next 18 months," says poll respondent Ned Lott, senior vice president of MF Global Inc. in Chicago.

Ireland ranks behind only Greece--with 71% of those polled--and ahead of Portugal--with 38%--among nations seen as most likely to default, according to the quarterly poll of 1,030 Bloomberg customers who are investors, analysts or traders, conducted Nov. 8.

Irish 10-year bonds dropped for a 13th day yesterday, driving the yield up 26 basis points to 8.89% and the risk premium over benchmark German 10-year bunds to 646 basis points from 619 on Nov. 10. The premium dropped to 644 as of 7:50 a.m. in Dublin.

Ministers' Statement

European finance ministers said today plans for a new system to handle future euro-region debt crises won't apply to outstanding debt, in an effort to calm investors spooked by plans to make bondholders to share the burden of future crisis.

The plans, mooted by German Chancellor Angela Merkel on Oct. 29, "haven't been helpful," Irish Prime Minister Brian Cowen said in an interview with the Dublin-based newspaper Irish Independent today.

Ireland could avoid a technical default by drawing on a 750 billion euro stabilization fund set up by the European Union and International Monetary Fund. The Irish government says it will repay its debts, it has no need to borrow money until next year, has no plans to seek such assistance from the rescue fund and

Patrick Honohan, governor of the Irish central bank, said the budget cuts will eventually calm investor angst.

"There is no reason why Ireland shouldn't be able to go back to bond markets next year," Honohan told Bloomberg Television in an interview in Dublin on Nov. 10.

Bonds Fall

European bonds fell amid indications that France supports a German proposal to ensure that investors will share the pain involved in shoring up sovereign debt.

EU leaders agreed last month to consider German Chancellor Merkel's proposal for a permanent rescue mechanism that would involve restructuring with losses for private holders of sovereign debt. The proposal is part of discussions to create a permanent crisis facility to replace the rescue fund created in May after Greece's near-default.

"All stakeholders must participate in the gains and losses of any particular situation," French Finance Minister Christine Lagarde said Nov. 10 in an interview with Bloomberg Television.

The first advanced economy to fall into recession in 2008, Ireland also led Europe in tackling its budget deficit. A shrinking economy coupled with the costs of bailing out the nation's banks--equivalent to nearly one-third of the country's gross domestic product -- still have left Ireland with the European Union's largest budget gap. This year's one-time bank repair costs drove the Irish deficit to 32% of GDP, from an expected figure around 12%.

Budget Cuts

The Irish government plans to save about 15 billion euros over the next four years, including a 6 billion euro reduction in 2011, to cut the deficit to 3% of gross domestic product by 2014.

Ireland's gross funding need for 2011 will be 23.5 billion euros falling to 18.6 billion euros in 2014, the National Treasury Management Agency said in a presentation on its website dated yesterday. Ireland's government said in September that's it's fully funded until the middle of next year.
Even so, markets have soured on Ireland's financial outlook. The cost of insuring a notional $10 million in Irish debt rose to a record $597,198 from $590,991 on Nov. 10.

'Crossed That Threshold'

"Default is all about perception and investor psychology and I just think we have crossed that threshold," says Nicolas Lenoir, a poll participant and chief market strategist for ICAP Futures LLC in New York.

Investors haven't become more optimistic about the prospects for Greece and Portugal, two other European nations hamstrung by budget deficits. In the latest poll, 71% say a Greek default is likely, compared with 67% who said so in a Bloomberg poll in September. Those anticipating that Portugal will default rose to 38% from 36%.

Investors remain optimistic about the low risk of a default by Spain, the eurozone's fourth-largest economy. Of those polled, 71% called a Spanish default "unlikely," up six percentage points from the September poll.

"Spain's economy appears to be stabilizing and its short- term debt is serviceable. So unless some of the peripheral economies collapse, a Spanish default is highly unlikely," says poll respondent James Pillow, managing director for investments at Wells Fargo Advisors LLC in Orlando, Florida.
Leonardo Muller, a derivatives structurer at Banco Santander Central Hispano SA in Madrid, says Spanish banks were healthier than their Irish and Greek counterparts and that "markets can now differentiate" Spain's economy "from those other problematic peripherals."

Spain View

By a 2-to-1 margin, U.S. investors agreed a Spanish default was unlikely, though Americans were almost twice as likely as European investors to anticipate a default by Spain or Italy.

Bonds from all of the so-called peripheral European states--Portugal, Ireland, Italy, Greece and Spain--have fallen since Oct. 29, when Merkel proposed the permanent financial rescue system.

"Angela Merkel's suggestion that lenders must be ready to take a haircut means that a significant repricing of risk is possible," says Abhisar Upadhyay, senior global macro analyst for Close Asset Management Ltd. in London, who participated in the poll.

The Bloomberg poll showed little variation in investor sentiment toward Ireland. Majorities in the United States and Europe expect Ireland to default, while a 48% plurality of Asian investors agreed.

ECB Holdings

The largest holder of Irish government debt is likely the European Central Bank with an estimated 15 billion to 18 billion euros, according to Laurent Fransolet, head of European fixed income strategy for Barclays Capital in London. Eurozone banks own about 10 billion euros and other non-Irish investors own a bit less than 40 billion euros, he said. Irish banks own about 10 billion of their government's debt.

Investors showed little concern over prospects for four other countries included in the poll. Only 21% of respondents said it was likely that Argentina would default; Italy was chosen by 16%; the U.S. by 7% and the U.K. by 5%.

Bennett Gross, director of wealth management for Pacific Income Advisers in Santa Monica, California, says a debt restructuring will ultimately prove beneficial for Europe's peripheral economies.

"It allows a nation to focus internally and make progress on getting its income statement in better balance," Gross says. "While there is a big political price to pay, it may be better to get the negatives behind them."

The poll was conducted by Selzer & Co., of Des Moines, Iowa, and has a margin of error of plus or minus 3.1% percentage points.