In keeping with Halloween, here's a scary one
If the Budget fails to convince markets of our financial independence the game is truly up, writes Colm McCarthy
The Irish Government has taken a three-month holiday from borrowing, instead running down reserves of cash borrowed earlier in the year. The four-year plan, due in about two weeks, and the Budget on December 7, are just preludes to the main event -- the re-entry of the Irish Government into the bond market in the New Year.
The €1.5bn not borrowed in October plus the €1.5bn not borrowed in November represent borrowing postponed, not borrowing avoided. The decision to exit the market for a while was taken because the market had turned against Ireland, with interest rates on the benchmark 10-year bond moving above six per cent. But the cash reserves are finite and will run low in the Spring of 2011 unless Ireland re-enters the market with a pretty big issue.
Realistically the Government needs to do this in January, or February at the latest. And the first issue needs to be big -- maybe €4bn or €5bn. The decision to withdraw from the monthly sale of bonds in October was brave, but to work, it requires improving market sentiment as well as convincing budgetary action from the Government.