So a mad rush on Sunday evening to agree a deal providing an EU & IMF loan to Ireland. Ireland were really put under pressure, a deal had to be announced before the markets (stock markets and currency exchanges) opened on Monday morning as any ongoing uncertainty over the detail, and consequent reduction in confidence in their economy, would have resulted markets crashing.
In brief - you should read the detail some place more informed than here - they have agreed an 85bn Euro loan. A truely massive debt given the size of their economy. And before anyone again calls it a 'bail out' they will be paying 5.8% interest on this debt - admitedly this is less Irelands current bond yeilds & so cheaper to do this than to issue new bonds, but when you compare it against the 2.5% that I am currently paying interest on my mortgage... Clearly the banks beleive that I am less risky as a debtor than Ireland is - quite a shocking statement when you think about it. By 2014 Ireland will be spending 20% of all it's tax income on debt interest - assuming it doens't default on this debt!
It was very important for Europe that this deal was done in the hope that the markets would calm, and specifically Spanish and Portugese bond yeilds would fall. Sadly it seems this rescue package has not done enough to calm nerves and these bond yeilds have risen yet further, while stock markets all across Europe have fallen today by over 2%. If bond yeilds don't fall for Spain and Portugal then surely it will be a matter of months before they will need to raise new capital & will find this route unaffordable & be in a similar situation. How much money does the EU & IMF have left to lend??
Just read this:
ReplyDeleteOn Thursday, German central bank boss Axel Weber said the bail-out fund could be increased in size by a further 100bn euros ($134bn, £85bn) if needed. It currently stands at 440bn euros.
that's probably enough to 'rescue' Portugal, but not Spain...