Irish Bonds Hit New High

uploading image of Irish Govt buildings. My im...
Image via Wikipedia

Things seem to be looking worse for the economic situation of Ireland today as interest on Irish Ten Year Bonds has hit a new high of 8.62% up from 7.96% yesterday. Looking at the chart over on Bloomberg, it is a frightening view. This now places Ireland’s bonds 650 basis points above the benchmark AAA German Bundesbank Bonds.

With this new increase, it will mean it will also cost more to insure against default.

Which all together will make it very expensive to borrow money next year, when we run out of money, with or without a budget!

It is obvious that the markets are showing no trust in the current FF/Green Government.But will they change tactics? I don’t think so. Will the markets trust them? Probably not without a General Election.

Businessweek reports that this move of the market also means that it will be more expensive to trade in Irish Bonds as LCH Clearnet are demanding “its clinets place a larger deposit when trading Irish government bonds”.

This has added further pressure to Irish bonds as they are adding 15% to the 5.26% they currently charge.

“This is LCH recognizing that the markets are quite serious about the potential for Ireland to default or restructure,” said Simon Penn, a market analyst at UBS AG in London.

Will Ireland default? Its looking more and more likely.

Enhanced by Zemanta

No Consenus

German Logo of the ECB.
Image via Wikipedia

Euractive have a very interesting article on the talks between EU Economic Commissioner Olli Rehn and the Irish Government and Opposition.

“He asked us our view and I told him […] we had no confidence in this government, and the thing that would give more stability to the country is an election and a government in place that had a significant working majority,” said Michael Noonan, finance spokesman for the centre-right Fine Gael party

This of course means the markets are jittery about Ireland. Will Fine Gael stick to the 4 year plan to reduce the deficit if they win the election? Will Labour? This worry and the Portuguese Debt Auction  has sent “the risk premium on Irish and Portuguese bonds to record highs and prompting market talk of European Central Bank (ECB) intervention.”

This is worry news indeed.

The Irish yield spread over benchmark German bunds reached a record peak near 574 basis points in late trading. The 10-year Portuguese/Bund spread also hit a euro lifetime high of 466 basis points and traders said the ECB had been buying bonds.

Credit ratings agency Fitch Solutions said the cost of insuring Irish and Portuguese sovereign debt against default had widened by 24 and 22% respectively compared to the sovereign debt market average in the last week.

Commissioner Rehn is still thinking positive though, he told RTÉ

“I believe that the markets have not yet internalised this plan and these decisions because they are still at the planning stage,” he said. “Once they have been decided by the government and passed by the parliament they will have a real effect, and then the market forces [will] believe that Ireland is able to cope.”

I personally hope that he is right. Next months Budget is going to be make or break, not just for the Government, but for the country as a whole. There is no doubt that cuts and taxes are coming, and a few holy grails will have to be given up, but can we accept that as a country? Will we protest on the street like the Greeks? Or will we grin and bear it?

The next four years are going to be tough. Can we make it? I hope so, but we need political will and not political point scoring.

Enhanced by Zemanta

Lucinda’s Argument for a Tallaght Strategy II

Lucinda Creighton TD has blogged about how she thinks the Government and Opposition should work together on the budget. She raises some interesting points.

Need for Patriotic Rather than Political Response to Economic Crisis

Some may say it is naive of Opposition politicians to suggest that now is a time when we must put aside the old fashioned confrontational, adversarial politics of old and replace it, albeit temporarily, with a constructive engagement with the Government and the Minister for Finance. I don’t consider myself to be naive, but I do believe that politicians on both sides of the Dail chamber need to start putting the country first.

We all know that Fianna Fail has made a dog’s dinner of our economy, our society and the lack of faith in politics generally in this country. I contend, however, that it is pointless repeating this mantra of blame. Our people are intelligent and savvy. They don’t need constant reminding. They will serve up a large helping of retribution to the Government when the time comes.

In the meantime, I think that we on the Opposition benches would be well advised to offer a Tallaght Strategy form of constructive engagement in the Dail. What this country needs desperately is a sense of optimism and some degree of certainty. This is not only important for those all important “international markets” to which Minister Lenihan repeatedly refers, but much more importantly, it is critical from the point of view of our people. Irish people are increasingly deflated and despairing. If they see some patriotism and true leadership coming from Opposition Deputies, I have no doubt but that the entire country will rise to the enormous challenges which face us.

In the coming weeks, there must be a meeting of minds between The Opposition and the Government. Garret FitzGerald is correct – there has been no serious effort by the Government to share necessary information with the Opposition. If this changes and the Minister shows a degree of openness and a willingness to work honestly with the Opposition, then we should reciprocate. We should agree the broad parameters of the Budget in the weeks to come. Major public spending cuts will be necessary, and I hold firm to my opinion that the quicker we can make a dent on our deficit the better (as per my previous blog). This can be accelerated by a serious effort at public sector reform as has been advocated and detailed by Richard Bruton over a period of several years. In addition, we must stimulate the small and medium enterprise sector through PRSI and VAT breaks, in order to restore competitiveness and growth to our business community. This is the only way we can eventually secure a return to job creation. A stimulus plan, along the lines of our New ERA proposals, financed by a combination of private investment and the National Pensions Reserve Fund would assist in stimulating shorter term job creation.

These are just some suggestions that should be on the table. They are not prescriptive, and we in Fine Gael would have to enter discussions with the other parties with an open mind. The sooner this happens the better. Ireland cannot afford to wait.

Let’s Work Together to Save the Country

To a certain extent I do find myself agreeing with Lucinda, but will the government be as open as it needs to be? Can they really work for the good of the country or will they as some have pointed out, use this co-operation as a way to implicate the opposition parties in the budget. Blaming them for the hardship and cuts that will follow?

Yes, the Government needs new ideas. But the opposition to help will need complete open access to the figures and to see where the money is going. Will the Government be willing to do that?

I think the Government will be willing to share the information. It will have a hard enough time as it is to pass the budget with its majority being so slim. The question is will the government remain above politics and take the opposition on board and not bash them with the budget. Of course the opposition will have to do the same. While they can fully blame the Government for past mistakes and budgets, they must not bash the Government with a budget they worked on.

This is a catch 22 for politicians. Can they ignore their instincts and work together for the betterment of us all? Here is hoping they can

Enhanced by Zemanta

IMF says we are screwed

International Monetary Fund
Image via Wikipedia

The Telegraph have an excellent article on the latest IMF report – “Will It Hurt? Macroeconomic Effects of Fiscal Consolidation” – and what it means for countries trying to make cuts.

In Ireland we cut to quickly. We forgot to bring in a stimulus like other countries. Cuts in budgets mean growth cuts, which will lead to a longer depression.

According to the report Southern Europe (Spain, Portugal, Italy and Greece) and Ireland could be in for an extended recession. With bug cuts coming in Germany and France, they could be joining them, as well as making it less likely for Southern Europe to recover as no demand for goods.

Has the article states:

We are seeing a pattern – first in Ireland, now in Greece and Portugal – where cuts are failing to close the deficit as fast as hoped. Austerity itself is eroding tax revenues. Countries are chasing their own tail.

So what are Governments doing? Cutting more. It doesn’t bode well for the future. We need something to encourage spending, we need something to get other countries to buy our goods. How will we do that? I am not sure, but by leaving out the stimulus we cut too hard and fast. We could be stuck for awhile. This is not good for our government as,

The lesson of the 1930s is that politics can turn ugly as slumps drag into a third year, and voters lose faith in the promised recovery.

Most of the country has already lost faith in the Government and the other political parties are having varying support levels, (see here).

We have no choice but to cut. The deficit is too high. Its that or leave Anglo fall. Maybe that would mean the cuts would not have to be so deep and therefore we would have a fighting chance of recovery. I some how doubt our government will take that chance.

a tip of the hat to Peebles for the link

Enhanced by Zemanta

Budget 2010: The Good and the Bad

Value added tax
Image via Wikipedia

If you are looking for indepth stuff on the budget, you wont find it here! Vists Suzy and Irish Election if you are looking for that sort of stuff! This is my reaction to the budget, which I mostly missed due to college. Hence why I wasnt tweeting.

General Reaction: My first reaction is that this budget won’t make a whole load of difference to me. Things may get cheaper with VAT and Excise cuts, but the carbon tax may cut the savings on it. Yes this is a selfish reaction, but this is how we all react to the budget. How will it effect me!

The Good: So what was good in the budget? The public sector pay cuts were needed. It is a pity there wasn’t an agreement on it, but it needed to happen. The 10% cut in the Taosieachs pay (he took the other 10% already) was a move in the right direction, and so is the cut in ministers pay. The reduction of VAT back to 21% was a good move, but maybe he should have taken a full per centage off it? I agree with the cut in social welfare if you refuse a job.

The Bad: The budget is a bit of fob in my opinion. Its tokenistic to being green. The forestry scheme (which was explained to me by Peter) is a complete and utter fob! The scrappage scheme is like what the hell? Who wanted that? The cut in social welfare is hard to defend and as Suzy points out wont be as protested against as the Pension cuts last time.

“Unlike older people, people with disabilities and their carers, children and the unemployed are not as mobile to protest or vote for that matter.”

The Carbon Tax then is another way of putting more excise on petrol and diesel and will actually increase the cost of everything as everything has to be transported. The 50c on the Medical Card Prescription Items is going to take a while to get used to. I am still still trying to fathom the drop in the excise on drink? Why did that happen? Also why no increase in tobacco excise? I had smokers giving out last night over that has they were hoping for an increase as an incentive to give up smoking!

So thats my opinion. There is no doubt that this budget is a half-arsed fob. Where are the concrete actions, where is the stimulus for Irish Business? Not the banks.

The Government has its priorities wrong and Richard Bruton was right to mention TK Whittaker and Sean Lemass in his remarks considering they had a vision for Ireland and pulled us up by our laces. This budget doesn’t even tie them!

Reblog this post [with Zemanta]