EU Voices Confidence in Ireland, Stops Short of Aid Agreement
By James G. Neuger and Stephanie Bodoni - Nov 16, 2010 11:25 PM GMT+0100 Tue Nov 16 22:25:07 GMT 2010
European finance ministers voiced confidence that Ireland will ride out its fiscal crisis, ducking investors’ pleas for an immediate bailout package and risking a renewed convulsion on bond markets.
Finance chiefs from the 16-country euro region lauded Ireland’s budget cuts and started consultations over possible help for Irish banks, echoing the rhetorical support offered in the early stages of Greece’s debt trauma before a rescue became necessary.
“The Irish government in the coming days has to make a definite decision on this,” Luxembourg Prime Minister
Jean- Claude Juncker told reporters after chairing the ministers’ meeting in Brussels tonight. He said European governments can act in a “determined and coordinated way to safeguard the stability of the euro zone” and said “markets have to understand this decision in a proper way.”
With Germany scolding Greece and the European Central Bank threatening to end emergency liquidity measures for banks, the public clashes over how to defuse Europe’s debt bomb marked a widening of the crisis that in May forced the EU to set up a 750 billion-euro ($1 trillion) rescue fund to keep the euro intact.
“The market is not going to react very well tomorrow because things are going to get worse before they get better,” said Sung Won Sohn, an economics professor at California State University-Channel Islands in Camarillo, California. “The European debt crisis will get worse before it gets better.”
Ireland Resists
Ireland, reeling from a record runup in bond yields that raised concerns about the soundness of its banking system, declined to make a formal appeal for European support. Finance Minister
Brian Lenihan said the government is “fully funded into the middle of next year.”
Concern that the EU would stop short of offering a bailout pushed down Irish bonds earlier, halting a two-day rally. The 10-year yield rose 28 basis points to 8.44 percent, raising the
extra yield over German bunds to 561 basis points. The spread, a measure of the risk of investing in Ireland, peaked at 646 basis points on Nov. 11.
“Technical” talks will start in Dublin with the ECB, European Commission and International Monetary Fund in an “intensification of a potential program with an accent on the restructuring of the banking sector in case a program is requested and deemed necessary,” EU Economic and Monetary Commissioner
Olli Rehn said.
‘Days Away’
Such a package could come together quickly, the officials said. “Is it six months or a few days away? I’d say it’s closer to days,” French Finance Minister
Christine Lagarde said.
Ministers refused to speculate about the size of an Irish aid offer, estimated by Barclays Capital at about 80 billion euros. Klaus Regling, manager of the rescue facility, said the EU could raise the money in five to eight working days.
Ireland’s five-member
ISEQ Financial Index of banking stocks is now worth 2 percent of the peak valuation reached in February 2007. Officials put the cost of cleaning up the banking system as high as 50 billion euros, equal to about a third of Ireland’s economic output.
To boost confidence, Lenihan may release the 2011 budget before a planned Dec. 7 publication date and will unveil a four- year deficit-cutting plan next week, according to a person familiar with the situation who spoke on condition of anonymity.
Deficit Balloons
Steps already taken to salvage Ireland’s banking system will billow the deficit to 32 percent of gross domestic product in 2010, a record in the 12-year history of the euro and more than 10 times the bloc’s 3 percent limit.
Investors watched the EU’s handling of Ireland for clues to the fate of Portugal and Spain, two other countries forced by the EU to impose spending cuts to rein in excessive deficits.
Today’s declaration echoed a Feb. 11 show of support for Greece, which ushered in three months of politicking -- centered on Germany’s reluctance to part with taxpayer money -- before the bloc crafted a 110 billion-euro rescue formula.
S
eparate statements saluted Portugal’s “appropriate measures” to meet deficit-cutting targets and said Greece is “broadly on track” with its austerity plans.
(Bloomberg)
