All eyes are on the markets after Lenihan cancer shock
Tuesday December 29 2009
OFFICIALS in the Department of Finance and at the National Treasury Management Agency (NTMA) will be watching the bond markets closely this morning for any adverse reaction to the emergence of Finance Minister Brian Lenihan's ill health.
Mr Lenihan's ministerial colleagues continued to rally around him after his cancer diagnosis, with a fellow minister describing him as an "excellent minister and a great friend and colleague".
After the long Christmas weekend, the global markets will reopen this morning.
Rather than any focus on Mr Lenihan though, KBC Bank economist Austin Hughes said the markets will be looking for signs of slippage in the Government's will to force through tough Budget decisions.
"The markets want policies rather than personalities," he said. "The Government must ensure there is a complete commitment to forcing through its policies and any signs of a departure could have a critical impact."
"We have already seen some signs of slippage with the news that senior civil servants may have their pay cuts scaled back. Any more of this and there is a real danger that there will be an adverse reaction," Mr Hughes warned yesterday.
The economist said the international markets will be keenly watching government debt levels next year.
Backdrop
"The backdrop for 2010 is the massive focus on government debt, whether it is in the case of the US or Ireland, markets want to see governments managing their debt positions.
"Ireland is going to come under close scrutiny. We have taken the first steps and these now have to be sustained and built upon. The real danger is there is not a commitment to seeing through the changes and we have already seen an element of slippage with civil servants' pay.
"Markets need to be convinced that tough measures are being taken to address the deficit," he said.
Mr Hughes said the Government's continued firm stance on the measures in Budget 2010 will be vital to the markets.
"The Government has to implement further fairly major adjustments next year, but the hope is that it will have a bit of a tail wind behind it in the form of an improving global and domestic economy. The market will want to see the Government holding its nerve and any doubt about that causes concern," he said.
Mr Hughes also pointed out that despite the tough decisions taken in the Budget, there will be little improvement in the nation's finances next year, with the NTMA set to borrow a further €20bn to keep the show on the road.
Any departure from implementing tough policies will make that task more difficult and, at the very least, force up the cost of servicing the national debt, which now stands at €72.6bn.
- PAT BOYLE and FIONNAN SHEAHAN
Irish Independent
