Ireland Nearing A Bailout?
Rumor has it that the European Central Bank considered whether to activate the saving fund of 750 billion euro to support Ireland in an attempt to refinance the state debt, according to the German newspaper Handelsblatt, citing government sources without revealing their identity, writes Bloomberg. The Fund was created in May after the Greek crisis and acts as a safety net for the euro area members.
More euro zone countries were announced to raise money for Ireland in the event that the state will need financial aid, according to the same newspaper.
But authorities have decided not to go ahead with this plan.
The spread, meaning an additional premium which investors require to opt for Irish bonds in exchange for the German ones, which are considered safer, rose to a record high of 411 basis points (4.11%) last week. The situation is mainly due to the poor state of the economy and as well as of the Irish banks. Ireland was especially affected in regards to its financing costs, while the other states along the periphery of Europe have had insignificant increase in the risk premium.
“We suspect that the powerful states in the euro area will remain more in the shadow, given that the debt crisis has worsened, because of the debts of Ireland and Portugal, and how it sees no events to calm the situation, we fear that the spreads in Portugal and Ireland could continue to grow, “said several economists at Crédit Agricole CIB.
If the European Central Bank and other central banks do not act “seriously” and become buyers of Portuguese and Irish government securities, Crédit Agricole CIB expects these markets which lack in liquidity to continue to dive, “exacerbating the fears of investors and affecting the bonds.”
Despite the austerity measures adopted in the two countries, the situation has worsened and investors fail to regain confidence in countries with problems.
Ireland’s borrowing costs hit a record high Tuesday after two credit rating agencies warned its debt is at risk of further downgrades, compounding political jitters over a budget that could break a shaky government.
Ireland is battling to convince investors it can afford to rescue its stricken banking sector and cut the biggest budget deficit in the European Union, given a weak economy and growing risks of a political crisis.
“I cannot pretend that the current rating is totally secure,” Chris Pryce, a senior analyst with Fitch, which has Ireland at AA- with a stable outlook, told Reuters.
Dublin is hoping a final bill for dealing with nationalized lender Anglo Irish Bank, expected later this week, will clear up fears that the cost will vastly exceed a current estimate of 25 billion euros ($34 billion).
Foreign Affairs Minister says no to bailout
Minister for Foreign Affairs Minister Micheál Martin has said he “absolutely” rules out activation of the European bailout package for Ireland. “By and large we are very confident we’ll come out of this,” Mr. Martin said in an interview with Bloomberg TV today in New York. “Clearly it’s challenging and so on, but there’s no necessity for the triggering of such a mechanism.”
Euro zone emergency funding for Ireland is not being considered, European Commission spokesman Amadeu Altafaj said on Tuesday.