Sunday 17 December 2017

Where we stand after a confusing few days

Thomas Molloy

Thomas Molloy

You know what? I just can't keep up any more. What the hell is happening?

I'm a bit confused as well to be honest but I usually just look at the bond markets to clarify things. After all, our political masters keep telling us that most of these changes are being made to keep the bond markets happy.



  • So are the mighty bond markets happy?

Not really. They were quite happy this morning but by the time the markets closed the dreaded yield on 10-year bonds was back around 8.31pc last night after falling to 8.11pc during the day.



  • Why? I thought they desperately wanted a bailout to make sure their money was safe.

They did but not a messy one like this. And especially not with an election in the middle.



  • But surely they understand an election won't make a blind bit of difference?

What you have to understand about the bond markets is that they are a little like men -- they can only think about one thing at a time. They don't want to be calculating political risk along with fiscal risk.



  • What about the rating agencies. What are they saying?

They're not happy either. The boys at Moody's are threatening a "multi-notch" downgrade in Ireland's Aa2 credit rating which suggests that Ireland's bonds could soon be rated junk. The others will probably follow suit.



  • Well, we know they are junk. What difference would that make?

A lot of pension funds and the like are not allowed to buy junk-rated bonds so the small circle of optimists who buy Irish bonds will shrink further.



  • Tell me there is some good news! Has falling on our sword at least made things safe for Portugal and Spain?

No. It's fuelled speculation that Portugal and Spain will follow us in tapping the European Union and International Monetary Fund.



  • And the 12.5pc corporation tax? I assume that's safe after all the promises from Messrs Cowen and Lenihan?

It's not safe at all. German government spokesman Steffen Seibert said in Berlin yesterday that "tough" conditions should be applied to the aid and that an increase in the corporate tax should be considered.



  • What would that mean?

More unemployment. Hewlett-Packard boss Lionel Alexander said yesterday the computer company may reconsider its investment in Ireland should the country raise the 12.5pc tax.



  • When we will know for sure?

Well, Brian Cowen has said an agreement with the EU and the IMF on the bailout will come "in the next few weeks" so it could be very soon indeed.



  • Do we know how much it will be?

Not officially but all the usual sources say it will be around €90bn, with two-thirds propping up government spending and the remaining third propping up the banks.



  • That's a lot! Or is it?

It's about 60pc of our gross domestic product. The Greek bailout was 47pc. So yes, you could say it is a lot.



  • And who will get their greasy hands on the money? The present crowd or the new lot?

We'll get it in tranches depending on how well the Government slashes and burns. EU officials estimate it would take three to five weeks from the application for assistance to the first disbursement of money. This means most of it will be given to the next Government.

Irish Independent

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