IRELAND: Finance Minister Brian Lenihan says uncertainty surrounding EU's future debt is reason why Irish bonds yields were rising

Record ID: 1535205

  • Title: IRELAND: Finance Minister Brian Lenihan says uncertainty surrounding EU's future debt is reason why Irish bonds yields were rising
  • Date: 12th November 2010
  • Summary: DUBLIN, IRELAND (FILE) (REUTERS) DUBLIN STREET SCENE
  • Embargoed: 27th November 2010 00:59
  • Keywords:
  • Location: Ireland
  • Country: Ireland
  • Topics: International Relations,Finance
  • Reuters ID: LVACVMGCLNG9A578TE36GGWS049B
  • Aspect Ratio: 4:3
  • Story Text: Ireland warned on Thursday (November 11) that a surge in its borrowing costs to record highs had become "very serious" and the EU said it was ready to act should the humbled former "Celtic Tiger" require a rescue from its euro partners.
    European officials said they were monitoring developments in Ireland closely but denied for a second day running that Dublin was seeking financial aid, in an ominous echo of the rhetoric that preceded an EU/IMF bailout of Greece six months ago.
    Unlike Greece, Ireland is fully funded through the middle of next year, meaning a liquidity crisis is not imminent.
    But a Reuters poll of economists and bond strategists showed pessimism running high, with 20 out of 30 respondents saying the country was unlikely to make it through the end of 2011 without external assistance.
    Irish Finance Minister Brian Lenihan said in Dublin the bond spreads were very serious and that it triggered international concern throughout the euro zone.
    He blamed part of the surge on "unintended" comments from German officials about a new permanent rescue mechanism for the euro zone that would force private debt holders to help shoulder the costs of future rescues.
    "We're looking and assessing market reactions; I rely on the NTMA (National Treasury Management Agency) for my advice on that. Their firm advice is that the latest bout is largely and exclusively caused by uncertainty about the future of European sovereign debt. However, it is correct to say that our spreads had already started at a high level and in regard to that baseline level that was there before the recent dramatic rises," he told a news conference in Dublin.
    Although Germany has made clear the new mechanism would not apply to existing debt, the plan has spooked markets, raising fears of a domino-effect on peripheral euro members that only weeks ago appeared to have weathered the worst crisis in the single currency's bloc's 11-year history.
    Lenihan said Ireland was seeking clarification of the German plans and would soldier on without aid.
    He also said it appeared that the markets did not fully believe the bank recapitalisation figures published at the end of September.
    "There is no doubt in my mind that while the announcement about the banking sector in September was not disbelieved by the market, it wasn't fully believed either because it's a wait and see policy of seeing whether it is an accurate account of exposures in the banking system. We saw some articles by economists on this recently, but the governor and the regulator are satisfied that they have identified the exposures in the system and recommended the correct capital provision for them, and the government have accepted their advice," he added.
    Deeply unpopular and clinging to a razor-thin majority in parliament, Ireland's government is battling to prove it does not need a Greek-style rescue to help it reduce a budget deficit that will total 32 percent of gross domestic product (GDP) this year, easily the highest in Europe.
    Markets are skeptical however, worried the government will struggle to win passage next month of a draconian 2011 budget that foresees 6 billion euros in cuts.
    Jitters have pushed the yields on 10-year Irish bonds up to 9 percent from 6 percent in just three weeks.
    Speaking to reporters at a Group of 20 summit in Seoul on Thursday, European Commission President Jose Manuel Barroso said the EU was ready to move should Ireland need assistance.
    Lenihan welcomed Barroso's comments and said it exemplified the "solidarity" of the euro zone.
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