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Irish bail out package fails markets’ test; growing fears about Portugal and Spain

Tuesday, November 30th 2010 - 05:45 UTC
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Germany's finance minister Wolfgang Schaeuble optimistic about Ireland and Portugal Germany's finance minister Wolfgang Schaeuble optimistic about Ireland and Portugal

The Euro has fallen against the dollar and major European markets have dropped sharply, a day after ministers agreed a bail-out for the Irish Republic. On Sunday, European ministers reached agreement over a bail-out worth about 85bn Euros.

On Monday, the Euro fell 1.4% to $1.309, a new two-month low. And Irish, Spanish and Portuguese bond yields remained stubbornly high, indicating the market is not convinced European debt problems have gone away. The leading European indexes all closed more than 2% lower.

Irish Prime Minister Brian Cowen had called the 85bn Euros package the “best available deal for Ireland”, but opposition politicians had their doubts.

Also on Monday, the European Commission said Ireland, which will have the biggest budget gap in the EU of 32% this year because of the cost of supporting its banking sector, will reduce the shortfall to 10.3% next year and cut it further to 9.1% in 2012.

However, for 2011 it has kept its forecast unchanged at 1.5%, down from 1.7% for 2010.

At the same time, Euro zone finance ministers have opened the way to a six-year extension to 2021 in the repayment period for a European Union and International Monetary Fund loan to Greece.

It would mean an increase in the interest rate charged to Greece, but the rate would not exceed the 5.8% rate the Republic of Ireland is paying for its bail-out.

Meanwhile Portuguese and Spanish Bond yields continued to rise throughout the day, indicating those heightened concerns about their ability to be able to pay back their debts. And the cost of insuring Portuguese and Spanish debt against default rose to a record high on Monday.

But Germany's finance minister Wolfgang Schaeuble attacked market speculation over the financial woes of Portugal as “irrational”. At the same time he praised the rescue deal for the Irish Republic.

“The speculation on the international financial markets can barely be explained rationally,” he told German radio station Deutschlandfunk.

And French Finance Minister Christine Lagarde said the bail-out was “sufficient” and that “irrational” markets were not correctly pricing the sovereign debt situation in Europe.

“The amount [of the bail-out] is sufficient because that will keep Ireland afloat for three years,” she told RTL radio.

France and Germany have also said the Republic of Ireland bail-out should draw a line under its debt crisis. And they have expressed confidence in Portugal's ability to correct its finances and avoid needing outside help.
 

Categories: Economy, Politics, International.

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  • NicoDin

    The market will never be satisfied as they are betting against the weak fundamentals of those economies forcing them to collapse.

    They will use all the tools available to make them collapse and there is the gain to buy later the bonds to a fraction of its nominal value.

    Next Spain and later UK where its the big portion of the cake to be taken.

    If Spain falls UK bank system will face another run as Spanish have taken important position into UK financial system, companies and even the Airports.

    The perfect storm like was in Asia in the later ’90.

    Nov 30th, 2010 - 12:07 pm 0
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