Sunday 16 December 2018

Europe struggles to fund our 'bailout'

Nick Webb

AS EU leaders dither, the European Financial Stability Facility (EFSF) -- the limp pan-euro bailout fund -- may struggle to raise enough money to fund the payments to Ireland agreed under the €67bn IMF/EU bailout package. There is "genuine fear" that the fund may not be able to access the markets as investors shun the euro region, according to UBS.

But UBS indicated that there was no "immediate funding threat to Ireland" as money may also be available from the IMF and through bilateral loans from the UK, Denmark or Sweden.

But every 1 per cent rise in funding costs for the EFSF costs Ireland about €200m, according to calculations by Goodbody Stockbrokers' economist Dermot O'Leary.

Last week, the massive selloff of eurozone bonds continued. Asian fund managers are widely believed to have sold billions of them on fears that the single currency is about to break up.

A Spanish debt auction saw yields reach record heights, while markets were stunned when Germany failed to find enough buyers for a bond issue last Wednesday.

It now seems inevitable that Angela Merkel and Nicolas Sarkozy will seek to change European treaties, forcing countries to step into line and submit to budgetary monitoring. The creation of a euro bond-type system may be offered as a carrot in negotiations for any new treaty, although the Germans continue to rule it out.

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