Ireland in the Guardian – Euro Money for Irish banks not government

Comment: All we are talking of here is money for Irish banks – I thought that the ECB had been funding our banks since early summer. What interest rate is attached to ECB money for us? These British appear to suggest panic. I hope that the government does not panic. Stay on the basic principles. Don’t emote. No more mess-ups Lenihan.

Ireland told: Take EU bailout or trigger crisis
Dublin warned it has 24 hours to make decision as EU emergency talks loom amid fears Irish banks’ contagion may spread to other eurozone countries

Brian Lenihan, Ireland’s finance minister, will discuss the situation with eurozone finance ministers in Brussels tomorrow. Photograph Bloomberg via Getty Images
An increasingly isolated Irish government was coming under mounting pressure tonight to seek an EU or International Monetary Fund bailout within 24 hours amid fears that contagion from its crippled banking sector might spread through the weaker eurozone countries.
Portugal, Spain, the European central bank and opposition parties urged Brian Cowen’s coalition government to remove the threat of a second crisis in six months by putting a firewall between Ireland and its 15 partners in the single currency.
With finance ministers from the eurozone due to hold emergency talks tomorrow night, financial markets were expecting Dublin to finalise negotiations with the EU over the terms of a deal to allow Ireland to rescue banks laid low by the collapse of the country’s construction boom.
“The Irish problem is spreading, but it could get more volatile,” said Ashok Shah, chief investment officer at London Capital, a fund management firm. “They have to get this bailout, they have a period of time before it gets impossible, before nasty things happen. The longer they leave it, the more difficult it will get.”
Portugal has seen its borrowing costs rocket along with Ireland’s as speculation has grown that it too may have to consider a bailout. Its finance minister, Fernando Teixeira dos Santos, told the Wall Street Journal his country had been hit by a contagion effect caused by fears about Ireland’s ability to pay its debts.
“I would not want to lecture the Irish government on that,” he said. “I want to believe they will decide to do what is most appropriate for Ireland and the euro. I want to believe they have the vision to take the right decision.”
The Bank of Spain governor, Miguel Ángel Fernández Ordóñez, a member of the European Central Bank’s governing council, told a banking conference in Madrid he expected an “appropriate reaction” by Ireland to calm the markets. He later told reporters: “The situation in the markets has been negative due in some part to the lack of a decision by Ireland. It’s not up to me to make a decision on Ireland, it’s Ireland that should take the decision at the right moment.” Ewald Nowotny, another ECB governing council member, said in a radio interview the EU wanted a “quick, good solution to Ireland, so that there will be no spillover” to other heavily indebted countries such as Portugal and Spain.
Weekend reports that Ireland was holding bailout talks with the EU helped ease pressure on Irish borrowing costs today, with the yield on benchmark 10-year Irish bonds easing to 8.1% from a peak of over 9% last week. The premium that investors demand to hold Irish 10-year bonds over benchmark German bunds (known as the spread) also fell to 545 basis points, down from a record 652 basis points last Thursday.
Analysts warned, however, that the selling would quickly resume if Ireland tried to go it alone. “The expectation of a bailout for Ireland helped its spreads to recover from last week’s capitulation,” said Gavan Nolan, a credit analyst at Markit. “It’s good to talk.” Despite Ireland’s insistence that it doesn’t need to be rescued, investors say the country needs support, given the fragility of its moribund banking system, and the high borrowing costs limiting the capacity of companies to raise funds.
Ireland’s Europe minister, Dick Roche, said rumours that it was on the verge of seeking a bailout could be “very, very dangerous”.
He conceded: “There is continuous talk going on backwards and forwards about the level of our debt but the suggestion that that constitutes going to the IMF or the bailout is just irresponsible.” Ireland’s opposition finance spokesman, Michael Noonan, said he believed European intervention was “under way” and matters would come to a head within 24 hours. The government, he said, was “fighting a rearguard action for appearances purposes”.
Noonan said a bailout could lead to Ireland being suspended from the bond markets for three or four years.

Ireland bailout: UK taxpayers could face £7bn bill

Scale of eurozone crisis underlined as emergency bailout of Ireland appears increasingly likely and EU statistics body says Greek budget deficit was even larger than thought.

An emergency bailout of Ireland, which is looking increasingly likely today, could cost Britain billions of pounds.
Although Ireland continues to deny that it has asked for help, many analysts believe the country will have to tap a €60bn (£50bn) rescue fund set up by the European Union in May.
Under the terms of a deal agreed by Alistair Darling, the UK is liable for 13.6% of this fund. This means taxpayers could contribute as much as €8bn, depending on how the rescue package was structured.
The UK government declined to say how much an Irish rescue package could cost British taxpayers. “There has been no application [from the Irish government for emergency funding] and we won’t speculate on it,” said a spokesman for the Treasury this morning.
Miguel Ángel Fernández Ordóñez, the governor of the Bank of Spain, piled fresh pressure on Dublin today. “The situation in the markets in recent weeks has been very negative due in some way to the lack of a final decision by Ireland,” said Ordóñez, who is also a member of the European Central Bank governing council.
“It’s not me who should take a decision about Ireland, it’s Ireland that should take the right decision at the right moment,” he added.
A spokesman for Fine Gael, the opposition party, claimed today that the European Union had already intervened in the crisis. He predicted that a bailout will be hammered out during meetings between EU finance ministers this week.
Amid the uncertainty, the euro traded close to a seven-week low of 84.5p struck on Friday and the yield on Irish 10-year government bonds remained at crisis levels, trading at about 8.1%.
Fears that the financial crisis is entering a new phase also hit UK government debt, with British gilt futures tumbling against German bunds. The December gilt future was 26 basis points down at 122.11 – about 10 points ahead of the equivalent bund.
The scale of the eurozone debt crisis was underlined today when the EU statistics body Eurostat warned that Greece’s budget deficit was even larger than thought. Eurostat reported that the Greek deficit in 2009 was 15.4% of its GDP, up from a previous estimate of 13.6%.
Having revised several years of data, Eurostat also said that Greece’s deficit for the current year would be equal to 9.4% of GDP, missing the government’s target of 7.8% of GDP.

Support for Ireland

Irish newspapers reported today that Ireland is considering asking for money for its banks via the EU’s emergency fund.
While Ireland continues to deny reports it is negotiating a potential rescue from the EU emergency fund, it is locked in talks with other European governments over the strategy for tackling its debt crisis. The finance minister, Brian Lenihan, travels to Brussels for negotiations with other EU finance ministers tomorrow.
On Friday, the finance ministers from Europe’s biggest economies, including Britain, pledged their support to the debt-laden country. David Cameron signed a joint statement giving an assurance that the EU would step in to guarantee 100% of Irish debts if the country is unable to tap international money markets for extra funding.
Dublin is resisting pressure to ask for help because the bailout terms would be punitive. Ireland would have to partially surrender sovereignty over its budget and could also be forced to increase its low corporation tax rate of 12.5%.
EU leaders have a total of €750bn at their disposal to shore up distressed member states. As well as the €60bn “community facility” agreed in May, eurozone governments have guaranteed €440bn in a financial stability mechanism, while the International Monetary Fund has pledged €250bn. Any Irish bailout is likely to come from the €60bn community facility. As the UK is not a member of the euro, it is not part of the €440bn mechanism fund.
Britain’s support for the community facility is controversial as Darling took the decision on 10 May, four days after the general election and the day before David Cameron was invited to form the new government.

Ireland debt crisis worsens as Portugal warns of contagion effect on Europe

Investors pressure Brussels for solution but Irish officials deny any need for bailout.

The unfinished Anglo Irish Bank headquarters in Dublin’s Docklands. Photograph: Kim Haughton for the Guardian
The Irish debt crisis intensified today, after other high-deficit countries such as Portugal warned about a possible contagion effect, and investors pressured European officials to come up with a solution to calm markets. Irish officials reiterated that they don’t need any bail-out.
The crisis moved from trading rooms into the political arena, as European finance ministers are meeting tomorrow and the day after in Brussels. Investors expect them to announce a resolution, or at least to shed some clarity about how much money they would lose were any European country to default.
“The Irish problem is already spreading, but it could get more violent and volatile,” said Ashok Shah, chief investment officer at London Capital, a fund management firm. “They have to get this bail-out, they have a period of time before it gets impossible, before nasty things happen. The longer they leave it, the more difficult it will get.”
Pressure on the EU escalated after Portugal’s finance minister Fernando Teixeira dos Santos said his country was at risk of a possible contagion, as “we are not facing only a national or country problem – it is the problems of Greece, Portugal and Ireland,” he said.
Portugal and Ireland’s cost of borrowing escalated last week to unsustainable levels, of more than 7% -more than twice as much as Britain’s-, given the market’s lack of confidence in the two ailing economies. Last week’s sell-off also followed comments by German leader Angela Merkel, saying that private investors would also have to bear any costs related to any debt restructuring. EU leaders were forced to clarify her comments, stating that private investors’ potential losses would only apply to longer-dated bonds.
“Angela Merkel’s broadside comment was in itself a form of bullying directed towards the more vulnerable sovereigns in Europe,” said Donal O’Mahony, global strategist at Davy Stockbrokers in Dublin. “After that, this very volatile environment has now to be resolved, maybe by moral persuasion, in the interest of Ireland and of the entire system. If Ireland is forced (into a bail-out) or morally persuaded by partners in Europe, it will be discussed” over the next two days, O’Mahony said.
Despite Ireland’s insistence that it doesn’t need any rescue, investors say the country needs support, given the fragility of its moribund banking system, and as high borrowing costs severely impact Irish companies’ capacity to raise funds in the market.
Irish banks, on tax-payer support after a decade of over-lending in risky real estate projects, could be the receivers of any EU support, European Central Bank vice president Vitor Constancio said on Monday.
“We could use the funds, if offered to us, to support the banking system,” O’Mahony said. “The EU has the capacity to provide mid-term funding, and indirect lending.”
Through sovereign bonds or via a more sound banking system, investors want more reassurance before they start lending to the country again. “When budget deficits are not too high you can come up with a plan, but but after a critical point, you need support, you need to say who will hold your hand,” said Shah, of London Capital.
Until now, international investors perceived company bonds as riskier than government debt as few considered a relatively stable European country could go bust. This changed after Greece was forced out of international markets in May, and ultimately bailed-out by the EU and the International Monetary Fund. “They need to decide if there are going to be “haircuts” (losses), at which level of the debt, how big the haircut will be, etc,” Shah said. “It is not only for Ireland to sort this out. The EU needs to do it. What they agree, it can be rolled for Greece and Portugal as well. They need to agree the terms, they need to reduce uncertainty.”
Markets remained expectant to today’s action in Brussels. The premium that investors demand to hold Irish 10-year bonds over benchmark German bunds (known as the spread) fell to 545 basis points, down from a record 652 basis points last Thursday. “The expectation of a bailout for Ireland helped its spreads to recover from last week’s capitulation,” said Gavan Nolan, a credit analyst at Markit. “It’s good to talk.”
Regardless of the outcome of Brussels talks, investors await more turbulence, given the fragility of global economic recovery. “The global financial system needs to be on life support for many years to come,” said Jim Reid, a credit strategist at Deutsche Bank.