This board has too many one time hits and not enough discussions. Still, the number of interesting stories out there is really high. So here's another...
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Aug. 12 (Bloomberg) -- A gauge of government bond risk rose to the highest level in three weeks on concern Europe’s deficit crisis will worsen as slowing economic growth exacerbates bank bailout costs.
The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose for a seventh day, climbing 1 basis point to 137, according to data provider CMA. The gauge is the highest since July 20 and up from a three-month low of 109.5 on Aug. 3.
Swaps on Ireland climbed to a two-month high on speculation the $32 billion bailout bill for Anglo Irish Bank Corp. will add to the country’s fiscal deficit. Germany may also have to absorb the holdings of two so-called bad banks, raising the nation’s debt to 90 percent of gross domestic product, Die Zeit reported.
“A weakening macro picture leading to increasing budget deficits for sovereigns has led to sovereign spreads widening again,” BNP Paribas SA strategists in London wrote in a note to investors. “The size of ‘Bad Anglo’ while not finalized yet will probably add quite a bit to the Irish national debt.”
Ireland’s borrowing costs rose at an auction of 1 billion euros ($1.28 billion) of six and eight-month bills today. The country sold 500 million euros of securities due Feb. 14, 2011, at an average yield of 2.458 percent, compared with 1.367 percent at a July 22 auction of similar bills.
Bailout Costs
The cost of the Anglo bailout may trigger a surge in Ireland’s budget deficit to 25 percent of GDP this year, before dropping to 10 percent in 2011, analysts at Dublin-based Davy Research wrote in a note today. The European Union limit for members of the euro area is 3 percent.
http://www.businessweek.com/news/2010-08-12/sovereign-debt-risk-rises-as-slowdown-may-deepen-deficit-crisis.htmlHere's Neil Shah with more on Ireland:
"It’s been a tough week for Ireland in terms of headlines. On Tuesday, the European Commission rubber-stamped Ireland’s plan to support ailing Anglo-Irish –- which most people think is the baddest apple in the bunch. The Irish government has said it needs to give the bank €8.6 billion over 10 years to maintain key capital levels. This injection into Anglo –- the third -– will enlarge the government’s massive budget deficit, which economists figure is roughly 20% of its gross domestic product at this point though this hasn’t been registered by Europe’s statistics agency.
On Wednesday, one of Ireland’s best-positioned banks, Bank of Ireland kept unchanged its tally of future “impairments,” or expected losses on loans. That isn’t encouraging. Meanwhile, the government’s bad bank, known as NAMA, is generally finding that the bad loans it’s removing from some banks are worth less than they previously figured.
Perhaps as important, analysts are wondering what Ireland is going to do about a government guarantee on the debt of its six biggest financial institutions –- one that expires Sept. 28.
So far, the Irish government hasn’t said what it’s going to do, and Ireland’s legislators are out of session"
http://blogs.wsj.com/marketbeat/2010/08/12/whats-up-with-ireland/Jesus... 3 years into the crisis and Ireland's banks are
still sinking... nearly 2 years into the acute phase with deep austerity and Ireland's budget deficit is still
exploding.
Make no mistake... I agree with the fellow Irish posters here who tend to argue their country had no choice but austerity. Yet... Ireland's continued problems should convince people of the inadequacy of
only austerity. Economies that have the ability, like
Germany, should be stimulating their consumption to help Europe's peripheral economies re-balance. And the
ECB should be loosening monetary policy by more aggressive QE to help economies recover faster. Otherwise, Germany will suffer through loss of markets to other European countries as they remain mired in recession or worse...
...
Heck, why beat around the bush? If the euro area has made a political decision to protect its member countries, and therefore itself, the ECB should practice yield targeting for GIIPS countries. Buy up the entire issue if necessary. Yes, it'll be a negative shock to the euro by increased quantity of currency supplied, but the increased economic stability would be a positive shock to the currency.
