A reeling bond market has EU members pushing for Ireland bailout
An Ireland bailout is possible after government bonds tumbled in recent weeks. The country is under pressure to accept a $100 billion bailout that could prove a bitter pill for the former 'Celtic Tiger.'
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“France and Germany are pushing Ireland to tap into the stability fund mainly because they don’t believe figures that Ireland can finance its expenses until July,” says Bertrand Jacquillat, a member of the French Circle of Economists in Paris. “They want to reassure markets immediately, and avoid any contagion effect with Spain and Italy."Skip to next paragraph
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The role of Germany is a sensitive one. Irish officials and leading economists blame German chancellor Angela Merkel for causing the recent Irish bond sell off – claiming it stemmed from her insistence Oct. 29 on reopening the Lisbon treaty to create a permanent eurozone bail-out mechanism. The current $1 billion stability fund will expire in 2013 and Ms. Merkel and French president Nicolas Sarkozy pushed a new treaty at an EU leaders meeting.
The mere announcement of these new rules “proved devastating for confidence” in the Irish economy says Royal Bank of Scotland chief economist Jacques Cailloux. Irish prime minister Brian Cowen said they “haven’t been helpful.” Under the new rules private investors must share the burden of losses instead of having them covered wholly by stability funds – which caused a panic early this month.
Merkel defended the measures and helped calm markets last week in Seoul by clarifying that investors will not be responsible for current debts or losses in the bond market until the rules go into effect in 2013.
But some analysts say the reassurance was late in coming, that Irish markets were forced to their knees, and any antidote may come too late.
“The situation in Ireland now very much resembles that of Greece before the ‘quick package’ bail-out last May,” says economist Cinzia Alcidi at the Center for European Policy Studies in Brussels. “Ireland may want to focus only on its banks, but it may be too little too late.”
Burning bridges or burning bondholders
“We should have burnt the bondholders in 2007 – the French and German banks who own the bonds in Irish banks – but now we can’t because it’s them we’re turning to now for bailouts,” says Mr. Kinsella.
Political fallout from Ireland’s fall from grace has been immense, but confused, inside the country. The government is weak if not fragile, but no opposition has rallied, despite a prime opportunity.
The governing Fianna Fáil and Green party coalition is at an all time low in opinion polls as the public rejects its policies and blames is for the decline in the country’s fortunes.
However, the main opposition party, Fine Gael, has been unable to parlay this into mass support, claiming just an estimated 31 per cent of the vote.
Ireland’s Labour party, long a minority ‘third force’ in politics, has made gains – one poll saw it achieve a historic high with an estimated 23 per cent of the vote – but is unlikely to be able to garner enough support to lead a new coalition government, should an election be called.