Merkel: An Exceptional Serious Situation

German Chancellor Angela Merkel says that the euro is in an exceptionally serious situation, adding that politicians a year ago could not imagine what’s happening now. The German Chancellor’s statement Tuesday afternoon pushed the euro further down vs the dollar , and raised the yield on Spanish and Portuguese bonds. Later in the evening Standard & Poor’s lowered Ireland’s debt rating by two steps, with a negative outlook. The nightmare continues today.

“The financial stability of Europe is at risk.”

Lars Løkke Rasmussen

Late Tuesday evening  Ireland’s debt rating was lowered two steps by Standard & Poor’s, with a negative outlook. The Irish prime minister Brian Cowen prepares to unveil the four-year deficit-cutting plan, as the European Commission warns the Irish politicians not to topple the government.  Meanwhile, the contagion spreads like fire through the rest of the euro zone.

“The Irish government looks set to borrow over and above our previous projections to fund further bank capital injections into Ireland’s troubled banking system,” S&P’s says in a statement.

Brian Cowen

Adding that putting the rating on review for downgrade reflects the risk that talks on a European Union-led rescue may fail to stanch capital flight.

S&P’s cut Ireland’s long-term rating to A from AA- and the short-term grade to A-1 from A-1+, according to the statement.

The reduction leaves its long-term grade five steps above Greece, which has the highest junk, or high-risk, grade, Bloomberg reports.

Still, the euro – which dropped 1.9 percent against the dollar yesterday – rose 0.2 percent to $1.3336 as of 11:12 a.m. in London.

The yield on Ireland’s 10-year bond was little changed at 8.61 percent after jumping 34 basis points yesterday.

Exceptional Serious

“I don’t want to paint a dramatic picture, but I just want to say that a year ago we couldn’t imagine the debate we had in the spring and the measures we had to take,” German chancellor Angela Merkel said in a speech in Berlin yesterday.

“We are facing an exceptionally serious situation as far as the euro’s situation is concerned.”

Olli Rehn

The European Commission also on Tuesday issued a veiled warning to the Irish political class not to topple the government.

“Stability is important,” EU economy commissioner Olli Rehn said, speaking to reporters in Berlin.

“We don’t have a position on the domestic democratic politics of Ireland but it is essential that the budget will be adopted in time and we will be able to conclude the negotiations on the EU-IMF programme in time. The budget needs to be adopted,” Mr. Rehn said, adding:  “Ireland will pass the budget in the time foreseen and certainly sooner than later.”

Financial Stability At Risk

Lars Løkke Rasmussen

Danish prime minister, Lars Lokke Rasmussen, have announced that his government would participate in the euro zone’s bailout of Ireland alongside fellow non-euro-using-states, like Sweden, the UK as well as Switzerland and Norway.

“The financial stability of Europe is at risk so it is very important to make a broader effort to try to stabilise the situation,” Mr. Rasmussen told the Financial Times.

Norway’s finance minister, Sigbjørn Johnsen, says in a statement that Norway will support Ireland through the International Monetary Fund, and suggest that the country might come up with additional support.

Sigbjørn Johnsen

“Norway will contribute to the financing of the IMF part of the loan package to Ireland through the financing arrangements we already have in place with the IMF, including our bilateral loan agreement with the IMF,” Mr. Johnsen says.

“We have not received any request for additional financial support. If we receive a request from Ireland for a bilateral loan, we will of course consider it.”

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