Cost of Irish borrowing rises sharply as haircuts imposed on Greek investors
Published 11/10/2011 | 16:59
THE COST of Irish borrowing shot up on the day officials confirmed that Greece will not make its austerity targets for this year.
The spike also came as European Commission President Jose Manuel Barroso said that new recapitalisation plans for European banks will be released tomorrow and as EU/IMF/ECB officials arrive in Ireland to review our austerity measures.
Yields on 10-year Government bonds shot up to 8.5pc – they had been at 7.7pc earlier after reaching a peak of over 14pc in July.
As part of the Greek bailout, private investors will have to take a massive haircut or discount on what they are owed and some economists believe investors are factoring in a similar scenario for those exposed to Irish debt.
“Precedents are important for markets,” said Dermot O’Leary, chief economist at Goodbody Stocbrokers.
“The prospect of larger haircuts for Greek debt may be interpreted by markets to mean that euro-zone policymakers are now more accepting of private-sector burden sharing.
“This would have knock-on implications for Ireland which is grappling to convince markets of its debt sustainability.”
While we have already recapitalised our bank through the €67.5bn in bailout loans, tough new measure will have to adopted as we gear up for cuts of up to €4bn in the next budget.
It is also expected that the troika will encourage restructuring in the legal and health sectors and the Government will publish a legal services bill tomorrow.
The officials will also examine the results of the comprehensive review of expenditure - the mechanism by which the Government will implement spending cuts over the next three years, and assess progress on additional revenue raising measures such as a property tax.