In Brief
Analysts doubt Cowen’s estimate figure for bailout DUBLIN (AP) – Ireland’s bailout loan could total 85 billion euros, Prime Minister Brian Cowen announced yesterday, but some analysts said that figure would be much too small to save the nation from eventual default. Bank shares, meanwhile, plummeted for a third straight day on the Irish Stock Exchange in growing expectation that investors would be wiped out as the government is forced to seize total control of the country’s two dominant banks, Allied Irish and Bank of Ireland. «The government is completely in denial about the amount of money they’ll have to borrow,» said Constantin Gurdgiev, a finance lecturer at Trinity College Dublin and an economic adviser to IBM in Europe. Cowen told lawmakers the 85 billion euros would represent an overdraft or credit line, not the total required immediately, and was still subject to detailed negotiations with International Monetary Fund and European Commission experts who arrived in Dublin last week Irish broadcaster RTE said about half of the 85 billion euros would be earmarked for covering Ireland’s expected deficits through 2013, the other half made available to bolster the banks’ cash reserves. Some financial analysts declared that Ireland – crippled both by a runaway bank bailout program it can no longer afford and the worst deficit in Europe – will need far more cash to forestall national default in a few more years, when many government bonds and the developing EU-IMF loan come due for repayment. Portugal needs rescue loan; focus then on Spain Portugal will need a bailout and investors will then focus on Spain as there’s «little to stop the contagion» from Europe’s sovereign debt crisis, said Joachim Fels, co-chief global economist at Morgan Stanley. «I think investors have lost confidence in the ability of Portugal to turn around its situation, so it looks like Portugal will be forced into the EFSF,» Europe’s bailout fund, Fels said yesterday in an interview on Bloomberg Television’s «Inside Track» with Erik Schatzker. «I think the focus is now on Portugal and then I think the markets will turn to Spain.» Spanish Finance Minister Elena Salgado said yesterday the country won’t need a bailout as borrowing costs surged for Europe’s so-called peripheral countries after Ireland’s request for aid prompted speculation that other nations may need help. The difference in the yield, or spread, between Spanish 10-year bonds and German bunds surged to a euro-era high of 249 basis points yesterday. Portugal’s spread was at 434 basis points. Ireland this week became the first nation to tap the European Financial Stability Facility, the euro region’s 750-billion-euro ($1 trillion) rescue fund set up in May after Greece’s near-default. It asked for help after the cost of saving its financial industry made its budget deficit swell to an estimated 32 percent of gross domestic product this year, 10 times the European Union’s limit. (Bloomberg) Boundaries needed German Chancellor Angela Merkel said European governments must demand that bondholders share the cost of euro-area debt crises after 2013, saying financial markets need «boundaries.» «We have a very decisive question ahead of us,» Merkel said in a speech to the parliament in Berlin yesterday. «Do politicians have the courage to place the risk burden on those who make money? Or is trading in sovereign debt the only business in the world in which there is no need to take a risk?» Merkel is stepping up her insistence on what she called «the primacy of politics» over markets as she seeks to rally fellow European Union leaders behind her demand to impose risk on holders of future government bonds. Spanish Prime Minister Jose Luis Rodriguez Zapatero said on November 12 that he opposed Merkel’s plan for the euro-area rescue system from 2013, so «it won’t be easy» for her to get her way. The existing euro bailout fund set up in May worked as intended for Ireland, the second euro-region country to seek aid after Greece, Merkel said. While Germany views Ireland’s request «positively,» help will come with «conditionality» to ensure the country cleans up its finances, she said. (Bloomberg)
