According to the Wall street journal
Ireland is struggling to recover from one of Europe’s messiest real-estate busts, which has left its banks awash in souring loans to property developers that likely won’t be paid. The International Monetary Fund expects Ireland’s economy to contract by 0.5% this year, before growing 2.3% next year. Further headwinds could be in the cards. Exports fuel about 50% of Ireland’s economy, but signs of slowing recoveries have grown in the U.S. and Britain, two of Ireland’s biggest trading partners. The euro’s appreciation in recent months also could hurt Irish trade.
The danger is that Ireland’s economic woes will amplify its fiscal and banking problems. A weaker economy means less tax revenues, making it harder for the government to meet its goal of cutting the deficit to Europe’s limit of 3% by 2014. As the economy weakens, Irish borrowers will also find it harder to repay their loans, saddling Ireland’s banks with more bad loans. That, in turn, could force the Irish government to provide more financial assistance, eroding its own creditworthiness.
Even before Thursday’s figures, the cost to insure Ireland’s sovereign bonds against default jumped to a record as investors fretted over the government’s plans for winding down Anglo Irish.
It now costs roughly $475,000 a year to insure $10 million of Irish bonds for five years, according to data provider Markit. Earlier Thursday, Ireland’s credit-insurance costs hit $500,000 for the first time. Before October, Ireland’s central bank is expected to provide more details on plans to split Anglo Irish into a deposit-holding bank and an “asset recovery” bank that would be wound down over time.
Of particular concern to investors is the fate of roughly €2.4 billion ($3.2 billion) of riskier bonds issued by Anglo Irish Bank . Of that, €1.7 billion will no longer be protected by the government once a key guarantee expires at the end of the month.
Then we have this from WSJ to-day Friday
A daisy chain of disaster and desperation.
Of course, there was some news to trigger the latest volley of market misfortune aimed at Ireland. The second-quarter GDP figures make grim reading; the economy contracted by 1.2% from the previous three months. Read our coverage here.
And then there are the rumors about yet more ugliness in the Irish banking sector. Opposition politicians are calling for Ireland’s beleaguered banks to default on their bondholders, while there have been hints from the government that subordinated papercould be “renegotiated”.
Given the size of the liabilities of the Irish banking sector–vastly bigger than an economy Ireland’s size can comfortably support–and Ireland’s commitment, so far, to guarantee them, little wonder credit default swaps on Irish sovereign debt have blown out. The market clearly thinks Ireland runs a significant risk of going bust.
Sure, the Irish managed to flog some of their sovereign debt this week, albeit with a big thank you to European Central Bank guarantees. But investors are rationally wondering how much of a bill core Europe, namely Germany, will be willing to pick up from the periphery. After all, it’s not just Ireland, it’s Portugal and Greece and…
Not just that, there’s the additional question of whether the Irish (and the Portuguese and the Greeks) will ever really fit into the one-size-fits-all currency region.
The ECB has run monetary policy with both eyes firmly on Germany. During the late 1990s and early part of the new century, that meant keeping interest rates low to accommodate Germany’s struggles with financing reunification. Those low rates might have suited the German economy, but they were deeply negative in real terms across peripheral Europe, igniting massive booms. The Irish property bubble made Las Vegas and Miami look like amateurs.
And since the bust, Ireland’s inability to devalue its way back into competitiveness relative to Germany means that it’s now having to deflate. If you can’t erode wages through inflation, you have to cut them. The only alternative would be for Germans to accept much higher rates of domestic inflation. But they won’t.
So Ireland is condemned to continue a painful deflationary process engineered by austerity.
Unfortunately, even this won’t prove sufficient in the long run.
So when the Financial Times, and the Wall Street Journal have this kind of stuff splashed across their very influential pages it should come as no surprise that the money men get nervous and start to crank up interest rates.
We have leaders telling us that the Economy has stabilized in spite of negative growth of 1.25% in the last quarter compared to growth of 2.5% in the first quarter and we have turned god knows how many corners Jesus lads, are you completely living in La LA Land ?
With Anglo Irish Bank and Allied Irish Bank in the news to-day again has anybody thought of the possibility of the confusing nature of the names might have on the international bond markets and indeed on Allied Irish Bank?
This simple observation is an example of the incompetence of the people running our country
Even alcoholics know that the first step in handling the problem is to admit that you have a problem and come clean! .The Markets are not fooled, every time these jokers (Cowen and Lenihan ) try to pull the wool over the eyes of the international financiers they will respond in putting up interest rates until it becomes impossible to raise fresh capital or in becomes itself destructive to the economy, a point I believe we are already past!
sorry to say we are saddled with the worst government in Irish history and they are hell bent on pushing us all down a very big black hole buy dogmatically sticking to the disastrous course of bailing out gamblers that do not deserve to be rescued by the hard pressed taxpayers of our great nation
despite all this I personally believe there is a great future in store for Ireland we brought Europe out of the dark ages and we will in the future help guide Europe again once we get rid of the corrupt incompetent gombeen men and woman that infest our Dail
Our problems stem from the corrupt political system we have all become slaves to and it is the duty of every honest Irish citizen to stand up and fight this cancer that is eating away at our democracy
We are constantly been fed lies by unelected spin doctors the current political masters employ using taxpayer’s funds who distort and manipulate facts and figures and who segment sections of our population a tactic they hope will extend their hold on power
Thank God we have the internet and this will eventually help us rid ourselves of the current batch of leaches infesting the Dai sucking our country dry
God help and protect Ireland. The greatest country on earth!
- Why The Irish Debt Crisis Could Be Worse Than Spain, England, And Even Iceland (businessinsider.com)
- IMF’s Vinals Says Ireland Won’t Trigger European Debt Crisis (businessweek.com)
- Ireland Credit-Default Swaps Surge to Record as investers FLEE! (politics.ie)
- Irish Finance Chief Wages War on Two Fronts (online.wsj.com)
- Irish, Portuguese bond selloff fans EU debt fears (ctv.ca)