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Irish Debt Woes Revive Concern About Europe

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http://www.nytimes.com/2010/11/08/business/global/08debt.html?_r=1&ref=business

When interest rates soared last week on Irish government bonds, it served as a grim warning to other indebted nations of how difficult and even politically ruinous it could be to roll back decades of public sector largess.

An Irish bond market already in free fall plunged further after Ireland announced on Thursday that it planned to nearly double its package of spending cuts and tax increases to try to rein in its huge deficit. Investors took it not as a sign of resolve but rather of Ireland’s desperation and uncertainty about the true extent of its problems.

The yield on Ireland’s 10-year bond climbed to 7.6 percent on Friday, expanding the gap with the 2.5 percent interest rate on comparable bonds issued by Germany, which is emerging most strongly from the European debt crisis.

.......

For the moment, at least, that outcome seems improbable. Unlike Greece earlier this year, Ireland has enough cash on hand to allow it to finance government operations through June 2011. And it has, at least temporarily, withdrawn from the bond market instead of paying the new, higher interest rates, which Irish officials say do not adequately reflect the country’s true economic condition.

To a degree, Irish officials are correct. Market experts concur that the ever widening gap between the interest rates Germany pays on its debt and those of Ireland and other vulnerable euro zone economies is partly a reflection of technical factors, like the tiny number of bonds actually being traded. Low trading volumes mean that every time even a single spooked investor decides to sell an Irish or Greek bond, it can be a market-moving event, causing the price to plummet and the yield to rise.

Still, there is no denying that the recent run-up in interest rates highlights a real concern throughout Europe: that the first round of spending cuts and economic changes put forward by countries that also include France and Britain may not be enough to bring deficits down to the target levels of 3 percent of gross domestic product by 2014.

In this respect, Ireland, where the deficit is currently 32 percent of its G.D.P., is exhibit A.

A year ago, as cascading mortgage defaults brought down the biggest Irish banks, Ireland became the first major developed nation to impose an austerity program. The country was hailed worldwide as an exemplar of probity and national consensus.

I'm relieved it's all down to low volumes.

So when the Irish re-enter the bond market we can expect bond rates to move back towards German levels then?

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1.39529

Euro back below the 1.40 threshold (to the $). The Euro is not having a very good year despite the last few months of recovery following the massive drops at the start of the year. The SD crisis blew over far too easily IMO--lots of poison yet to hatch out of that mud.

Edited by Realistbear

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http://www.bloomberg.com/news/2010-11-08/irish-fight-to-end-bond-buyers-strike-as-eu-comes-to-examine-budget-plan.html

Irish Fight to End Bond `Buyers Strike' as EU Examines Budget
By Dara Doyle - Nov 8, 2010 12:01 AM GMT
Ireland will try to win support this week from the European Union to avoid a Greek-style bailout as investors balk at buying the country’s bonds...../
“It’s close to a buyers strike at this point,” said Jens Peter Soerensen, chief analyst in Copenhagen at Danske Bank A/S, a primary dealer in Irish government bonds. “Something needs to happen in the next few weeks to change the dynamic.”

If they can't sell their bonds it soff to the IMF they go as Germany have already indicated enough is enough with the Greek bail-out.

Edited by Realistbear

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  • 141 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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