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.
The Government has today decided on an approach to the recapitalisation of credit institutions. The Government’s objective is to ensure the long-term sustainability of the banking sector in Ireland and to underpin its contribution through the availability of credit to individuals and businesses in the real economy. This initiative will help to foster and encourage the flow of funds to the economy, and limit the impact of financial market difficulties on businesses and individuals.
My question is, can we afford this recapitalisation? Gerard O’Neill of Turbulence Ahead has an excellent post pointing out the fact that Ireland is one of a few countries facing the possibility of Sovereign Default. The others are Belgium, Denmark, Luxembourg, Switzerland, Sweden, the Netherlands and the UK. Will this announcement make it worse?
The Government will use the National Pensions Reserve Fund to recapitalise the banks. This will be done through the purchase of “preference shares and/or ordinary shares and the State may where appropriate participate on an underwriting basis.” Excising shareholders “will be expected to have the right to subscribe for new capital on the same terms as the Government”
The question is will this do anything? In the UK there has been no easing of credit lines and that it is the point of this move as the statement says the “initiative will help to foster and encourage the flow of funds to the economy, and limit the impact of financial market difficulties on businesses and individuals”
I’m not so convinced.
The proof of the offering will be in the bank shares at close tomorrow. Especially Anglo Irish Bank who’s shares closed at 38c on Friday.
The scheme will come into operation next month following discussions and negotiations. I wonder will we see mergers?
At the weekend I attended Young Fine Gael’s annual Summer School which took place in Carlingford in County Louth a beautiful location.
It was a different summer school then normal with motions being discussed after a welcome from the local Councillor, Cllr Terry Brennan. Mairead McGuinness MEP chaired this session. We had 6 motions to be discussed and exactly half passed with the others failing.
The motions that passed were allowing Provisional Drivers to drive unaccompanied between 6am and 9pm and a curfew between 9pm and 6am; a motion backing staggered nightclub closing times; and a motion praising the Civil Partnership Bill.
The Moions that failed were on Removing God from Bunreacht Na hEireann; restricting free legal aid to repeat offenders; and the banning of Hijabs and Burkas in public buildings (including schools)
After we had a session on Social Partnership which was chair by Leo Varadkar TD. In this part we had Jim Power, of Friends First, arguing against Partnership and John White of the ASTI arguing for it. I went in with an open mind on where I stood on it, but no without an understanding. I knew what was involved since we had to study it at Uni. I came out with a clear impression that we do not need partnership “at any cost” like some in Government seam to be looking for. If there a partnership agreement it needs to be sensible, we are heading into uncertain times and we cannot afford frivolous agreements.
While partnership has played some role since the late 80’s in where we are today it is not be all and end all. There were many contributing factors. We can survive without partnership look at the number of countries that do use it to the level that it is used here.
Of course I will wait to see the new agreement before I will see whether or not I think it should continue!
David McWilliams had an interesting column in yesterdays indo. While he is on the right track on what caused the economic downturn we are now facing
In economic history, no sovereign country has faced a property downturn, inspired by a ridiculous credit binge, resulting in such huge personal debts without devaluing its currency.
Look at what is happening in the UK and the US. Both countries find themselves in the same bind as we do. They thought that they could get rich by buying and selling houses to each other using other people’s money.
But the idea that we ditch the euro? How much will that cost us?
Businesses will not be for this, they are the ones that will have to change signage, equipment etc. But also the government will have to print a new currency and all the things like that. Its just not economically feasible to spend money on a new currency when we have only had the current one for a (comparable) short period of time.
Germany has lived out a recession that has lasted over 10 years and now Germany is quickly becoming (again) the economic powerhouse of Europe. We will have to weather it out. Our business will have to take “the recession on the chin”, just like Germany did.
While I agree that the Euro is a part of the problem it is something we will have to stick with. It will keep us competitive vs the UK, in terms of dealing with the continent.
While I dont know much about economics, (Its one of the reasons I flunked College) I dont see how ditching it will help us!
Well the last of the Prizes have been announced today.
The Royal Swedish Academy of Sciences has decided to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2007 jointly to Leonid Hurwicz, University of Minnesota, MN, USA, Eric S. Maskin, Institute for Advanced Study, Princeton, NJ, USA, and Roger B. Myerson, University of Chicago, IL, USA, “for having laid the foundations of mechanism design theory”.
The tax cuts are terrific, as I am a supply-sider and am firmly convinced that reductions in the upper rate benefit people on lower incomes profoundly
Now I must say that is news to me. I left a comment on his blog saying
How can a lower upper rate benefit those on low incomes. I speak from a family in the lower band that the tax cuts introduced in the last budget on the upper tax band did nothing to help us. I just dont get it, it only helps the rich, those paying the top rate. The Labour proposal will help us, but the PD proposals will not
So here’s my scenario. I’m on the lower tax band, earning €30,000 a year, and the PD’s go ahead and reduce the top rate of tax to 38% and increase the tax band to €50,000. How does it help me?
It dosent on the other hand, here’s another scenario a I’m a single person €60,000 a year, current €34,000 of this is taxed and at 21% and the remainder (€26,000) is taxed at 41%. So if the PD’s go ahead and reduce the top rate of tax to 38% and increase the Standard Rate Cut Off Point €50,000, I’m singing and dancing in the street.
Above are banners from Make Trade Fair. I found out about it as my sister bought the Cake Sale album for my 21st (yes im getting old). Fantastic campaign. I always supported Fair Trade stuff when i can. Trying to decide which banner to use.
The Union of Students in Ireland (USI) has learned that some local authorities are improperly refusing maintenance grants to low-income students – because their parents are in possession of matured SSIAs.
SSIA subsidy cash (a State contribution of €1 to every €4 saved under the SSIA scheme) should not form part of the ‘reckonable income’ declared on student grant applications this year. Reckonable income is the amount families declare to local authorities or Vocational Education Committees (VECs), who then assess whether students are eligible for a maintenance grant.
Matured SSIAs should not be included in this year’s reckonable income declarations, as student grants are always based on the reckonable income for the previous financial year.
But Department of Education & Science instructions for completing the grant application are causing widespread confusion.
USI has learned that some low-income families are inadvertently including their SSIA subsidy cash in their reckonable incomes – and this type of error is escaping the notice of some local authorities.
USI Education Officer Bernadette Farrell said: “Families are confused as to whether recent SSIA payouts should form part of their reckonable incomes this year. It is shocking to think this confusion may result in some low-income students being denied a student grant, because this would effectively mean that some families have been punished for following the Government’s own advice to save and invest.
“The Department of Education and Science must ensure this does not happen.
“Responsibility for this latest confusion lies with the Department of Education and Science, which is guilty of producing opaque instructions for completing the grant application, and ultimately with the Education Minister. Minister Hanafin squandered an opportunity to reform the grants system properly earlier this summer. A thorough and sensible reform would vest responsibility for student grants in a sole agency at national level with dedicated resources.”
USI President Colm Hamrogue said: “Where the grants system is concerned, a series of unfortunate complications have stretched the patience of students and their families almost to breaking point this summer.
“USI maintains that neither local authorities nor VECs should play any role in the system for assessing or administering grants from next year.”