Fears - Irish Government will default on debt

Irish Government faces growing fears of debt default

Elena Moya

Monday, Feb 16, 2009

The Guardian

Fears are growing that Ireland could default on its national debt after the cost to insure against possible losses on loans to the country rose to record highs at the end of last week.

Credit ratings agency Moody's recently followed rival Standard & Poor's in warning it might downgrade Irish debt, amid fears that one of Europe's former success stories is falling into a deepening recession. The cost to hedge against losses on Irish debt tripled last week to a record 355 basis points - meaning that for every £100 of debt, investors have to pay £3.55 to insure against default, according to data firm CMA Datavision. It was about 262 basis points at the end of January.

Moody's has warned there is a more than 50% chance Ireland will lose its triple A rating within 12 to 18 months. The spread between Irish and German debt rose last week to 203 points, meaning Ireland has to pay 2% more interest than Germany to borrow in the financial markets because of its perceived higher risk.

Ireland last week announced an additional €7bn (£6.3bn) injection into its top banks, Bank of Ireland and Allied Irish Banks, which are suffering from an increase in bad loans. Thousands of Irish citizens are struggling to pay their mortgages which they arranged at the peak of the country's real estate bubble. Unemployment is at a 15-year high.

The IMF tried to calm investors by saying the country, once known as the Celtic Tiger because of its economic growth, did not need any financing from it.

Courtesy of Irish American GOP activist, Virginia

&

Irish American activist & unrepentant deviant, Queens

Sharp Shock, Slow Recovery for Celtic Tiger

www.irishtimes.com

Sharp Shock, Slow Recovery

THE MOST striking aspect of the current economic downturn has been the speed at which activity has decelerated. The economy was running relatively smoothly during 2007, with real Gross National Product (GNP) increasing by 4.1 per cent. But in the space of a few short months, it has lurched to a halt. The continuing downward revisions to the country's growth prospects for this year and next by the leading institutional economic forecasters bear witness to the alarming speed at which the outlook for the economy has changed.

The Central Bank, in its quarterly bulletin published yesterday, has cut its forecast growth rate for the economy this year from 1.9 per cent in March to just 0.3 per cent. In so doing, it is following in the footsteps of both the Economic and Social Research Institute (ESRI) and the Department of Finance, both of which have recently revised downwards their expectations for economic performance in the current year.

http://www.irishtimes.com/newspaper/opinion/2008/0801/1217368801144.html