Sunday 17 November 2019

Debt Crisis: Fears of Greek default hits Irish borrowing costs

German Chancellor Angela Merkel. Photo: Reuters
German Chancellor Angela Merkel. Photo: Reuters
Protestors took to the streetes in Athens back in June to protest against government austerity measures. Photo: Getty Images
Riot police on the streets of Athens back in June. Photo: Getty Images reporters

Concerns that Greece will default on its debt pushed up the cost of Irish borrowing but European stock markets repaired some losses today.

Ireland’s austerity measures had allowed us to gain credence in the bond markets with yields on 10-year paper down from 14pc in July to 8pc last month.

But market sentiment is already turning and yields have risen about 50 to 100 basis points as the European crisis entered a newer phase following Greece’s repeated inability to meet fiscal targets.

A Greek default would revive fears that Ireland will be unable to pay its debts, particularly those related to banking, and send yields much higher, analysts believe.

Yields need to fall to between 5pc and 6pc before we can return to borrow on open markets – we are currently priced out of those markets and surviving on the billion euro loans from the EU/IMF/ECB.

The National Treasury Management Agency said last week that it is planning to dip its toes in the market late next year but that could all depend on what happens in Greece.

Germany has already made soundings that it will not tolerate Greece’s apparent lack of concern about the importance of austerity measures.

German Chancellor Angela Merkel tried to calm the uncertainty while some investors took solace in the fact that Italy turned for Chinese support to tackle its debts.

"The top priority is to avoid an uncontrolled insolvency, because that would not just affect Greece, and the danger that it hits everyone - or at least several countries - is very big," Ms Merkel told a German radio station.

She stressed that the euro zone had to remain intact.

And she hinted that if Greece were to leave the group, others weaker economies would quickly follow.

"I have made my position very clear that everything must be done to keep the euro zone together politically. Because we would soon have a domino effect," Merkel said.

In Germany, the DAX was up nearly 2pc and the CAC 40 in France was ahead more than 1pc when the European markets closed.

London’s FTSE also closed higher.

Ms Merkel also had encouraging words for debt-wracked Greece, which is trying to persuade an international team that it is getting its public finances back on track, a prerequisite for more aid.

"Everything I hear from Greece is that the Greek government has hopefully seen the writing on the wall and is now doing some of the things that are required," she said.

And in a bid to calm markets, which went into free fall yesterday after comments from German policymakers that an orderly insolvency for Greece or even a euro zone exit was possible, she urged politicians to choose their words cautiously.

"Everyone should weigh their words very carefully. What we do not need is volatility on the financial markets. The uncertainties are already big enough," added the Chancellor.

Greek Prime Minister George Papandreou is expected to hold a teleconference tomorrow with Ms Merkel and French President Nicolas Sarkozy.

"The teleconference was decided in view of the upcoming EU meeting in Poland," according to a Greek official.

EU and eurozone finance ministers and central bankers will have an informal meeting in Wroclaw on September 16-17.

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