Tag Archives: Deficit

Irish Finance Minister: Concerted Attack On The Euro Zone

The Irish Minister for Finance, Brian Lenihan,  says the recent surge in borrowing costs for some countries suggests there is a concerted attack on euro zone nations, warns reporters of a cosy cartel operating amongst economists and claims that the underlying trends indicates a remarkable turnaround for the Irish economy.

“There is a concerted attack on the euro zone, there is a concentration on weaker countries.”

Brian Lenihan


Ireland will counter a concerted attack that is threatening the euro zone by bringing its finances in order helped by a “remarkable turnaround” in the economy, the finance minister told reporters in Dublin on Friday as he criticized journalists for overstating Ireland’s economic difficulties.

Minister for Finance Brian Lenihan criticized some journalists for overstating Ireland’s economic difficulties to the detriment of the country, speaking at  a conference in Dublin Friday, the Irish Times reports.

At a conference titled “Confidence in the Media” Mr Lenihan said while most reporting had been fair, journalists needed to be aware of the self-fulfilling nature of any “doomsday scenarios” they wrote.

Journalists could undermine or promote confidence in the economy, the Irish minister stated as the price of insuring Irish government debt rose to all time high with a CDS spread of more than 500 basis points.

Climate of Fear

He acknowledged there was a “climate of fear” about the impact of financial markets on the economy, the loss of jobs and the stability of the banking system.

A crucial element in dispelling fear was the provision of accurate, reliable and balanced information, he lectured the professional media workers in Dublin.

“There is a tendency to paint black-and-white pictures, to overstate difficulties, to use sometimes emotive language. And God knows, our problems are bad enough without exaggerating the reportage to present doomsday scenarios,” he said.

Adding that he did not agree with those who claimed the media did not report enough good news.

It is facile to expect reporters to engage in “national back-patting,” he said,  and that journalists have to be skeptical in their treatment of stories.

Cosy Cartel of Economists

However, skepticism should not be reserved just for government, or political parties, and the same rigor should be applied to the reporting of interest groups and representative bodies.

Agendas were not exclusive to politicians and governments, and many interest groups had better communication resources than political parties, the Irish minster informs. Adding that a “cosy cartel” is operation amongst  economists, whereby they do not go head to head or disagree in public.

Euro Zone Under Attack

Ireland will counter a concerted attack that is threatening the euro zone by bringing its finances in order, helped by a “remarkable turnaround” in the economy, the finance minister also told the media as the premium investors demand to hold 10-year Irish bonds rather than German Bunds rose to a new euro lifetime high of 451 bps, a day after a surprise fall in Ireland’s Q2 GDP  posed a new threat to Dublin’s fiscal consolidation efforts.

Lenihan says Ireland will do its utmost to defend the euro currency from the market attack which he said was manifested in “disturbingly” high yields demanded for its bonds at sales on Tuesday.

According to Reuters (Dublin) the finance minister told reporters on the sideline of the conference:

“There is a concerted attack on the euro zone, there is a concentration on weaker countries.”

A Remarkable Turnaround

Data published Friday showed that the Irish economy contracted by 1,2%  in the second quarter of 2010, and that growth in the first quarter was less than previously estimated.

In recent weeks the extra yield investors demand to hold Irish bonds over German bunds has surged to record highs due to investor concern about the State’s ability to manage the cost of its bank bailout and reduce the budget deficit.

However, according to Mr. Lenihan, undeterred by the data,  the underlying trends indicates a remarkable turnaround for the economy.

“Exports are growing. New order books are expanding and business confidence has improved markedly since last year. Tax revenues are stabilizing, public expenditure is under control and our budget deficit will shrink next year,” Lenihan says.

Read also:  The big gamble: The inside story of the bank guarantee

Question Of The Day

Now, here’s the Econtwist’s Question of The Day:

Who is best at producing conspiracy theories?

A: Politicians?

B: Journalists?

C: Even?

Related by The Econotwist:

Irish Sovereign CDS Spread Exceeds 500 Basis Points

Ireland And Portugal Close To Collapse

Irish CDS Spreds Back To Record High After Bond Sale

Media Freedom Threatened In Most European Countries

Estonian Newspapers Protesting With Blank Front Page

Euro Area Under Massive Speculative Attack

Attacks Against Spanish Financial Markets?

Traders Short Record Amount of Euro

Dangerous Economic Misconceptions

Are Governments Producing Conspiracy Theories?

Markit Credit Wrap: The Week in Perspective

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Markit Credit Wrap: The Week in Perspective

It’s been another turbulent week in the European credit market, especially the sovereign CDS market.  Here’s this weeks market wrap by vice president Gavan Nolan at Markit Credit Research.

“The difference between the Markit iTraxx Europe and the Markit iTraxx SovX Western Europe is now about 40bp, and was as high as 50bp last week. This is even higher than the panic-ridden days of early May.”

Gavan Nolan


Sovereign CDS spreads have underperformed their corporate counterparts in recent weeks, the seemingly interminable problems of the euro zone’s periphery continuing to affect sentiment.

While the corporate sector has taken its cue from rallying stock markets, the sovereign world has been preoccupied with its own, familiar problems.

Their divergent fortunes can be seen by comparing the main benchmark indices for the respective asset classes.

The difference between the Markit iTraxx Europe and the Markit iTraxx SovX Western Europe is now about 40bp, and was as high as 50bp last week.

This is even higher than the panic-ridden days of early May.


Greece, of course

Greece, of course, was the driving force behind the sovereign widening during that period.

But the Hellenic Republic has faded into the background over the last few weeks, and has been one of the better performers among the peripheral countries (though its spreads are still trading around 800bp).

This time around it has been the western side of the periphery that has been causing volatility.

Ireland’s problems are well-known: the highest budget deficit in the European Union, a crippled banking system dependent on state support; and anemic economic growth.

The Sudden Collapse

But how Ireland is going to resolve these problems is far from clear, and it is this uncertainty that has contributed to the recent widening.

Rumors of a possible EU/IMF intervention last Friday caused its spreads to breach the 400bp level.

This week it has gone even further and on Thursday morning spreads exceeded 500bp for the first time.

What has caused this sudden credit deterioration?

Of the three problems above, the latter two are causing the first to get worse.

In particular, the fate of Anglo Irish Bank is weighing heavily on the sovereign’s credit standing.

The state has poured funds into the failed bank but investors are concerned that the eventual cost of the bailout will be too great for the country to bear.

Rumors abound that bondholders will be forced to share some of the pain.

The government has strenuously denied that senior debt will be restructured. Subordinated debt, on the other hand, is another question, and Finance

Minister Brian Lenihan’s denials on this issue have been less than emphatic.

Double-Dip Or Depression?

Ireland’s GDP figures on Thursday only added to the negative sentiment. The country’s economy shrank by 1.2% in the second quarter, confounding expectations of a small rise.

On a GNP basis – a more useful measure because of the high concentration of foreign multinationals – the economy shrank by 0.3%.

It could be seen as a double-dip recession, although former Citibank economist Michael Burke described the country’s predicament as an austerity-induced depression in a Guardian article today.

Expect the new UK Labor Party leader – due to be announced tomorrow – to
use Ireland as a stick to beat the coalition government.

Ireland’s dedication to austerity has not been matched by most of the other peripherals.

Portugal, in particular, has had problems getting its deficit under control.

The country’s minority government suffered a blow yesterday when its 2011 budget was blocked by the opposition party.

Investors are becoming increasingly concerned that the political class is unwilling or unable to get control of public finances.

The markets now view Portugal and Ireland as a more vulnerable subset of the peripheral sovereigns, the bifurcation of spreads making this clear.

Long Way To Go

There has been some stabilization in spreads today in a relatively bullish end to the week.

But the problems of Ireland and Portugal are a long way from being solved, and will continue to influence spread direction in the coming months.

Next week they will jostle for attention with key economic releases.

On Friday there is the Markit manufacturing PMIs and ISM survey and, of course, non-farm payrolls.

All will be closely watched given that data releases over the next few weeks will determine whether the FED goes ahead with the next stage of quantitative easing.

By Gavan Nolan

Vice President

Markit Credit Research

Markit Credit Wrap: The Week In Perspective

Markit Credit Research. Big Movers.

Related by The Swapper:

Irish Sovereign CDS Spread Exceeds 500 Basis Points

Ireland And Portugal Close To Collapse

Irish CDS Spreds Back To Record High After Bond Sale

Markit Launch Liquidity Metrics for Euro Loans

Survey: Market Surprised By Negative Derivative Perception

Bank Funding Crunch Deepens as Swap Rates Soar

Spec-Grade Liquidity Worsens

Killing My CDS Softly

Living In A Derivative World

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Summer's Over; Greek Protests Continues

About 15,000 protesters marched through the city center Sunday ahead of prime minister George Papandreou’s first speech after his summer vacation, chanting slogans such as “get the IMF out of Greece” and “make the banks pay for the crisis.” The Greek PM says no new austerity measures is needed if the country stayed its fiscal course. However, the people in the streets are still a bit skeptical; the police arrested a 49-year-old man for attempting to throw a shoe at Papandreou.

Vodpod videos no longer available.

“I have every confidence that at the end of the year we will have reduced, in accordance with our commitments and decisions, the deficit by 40 percent,” Papandreou said in Thessaloniki, northern Greece, yesterday.

“As long as we are progressing well, there is no need for any new measures.”

Papandreou also said his government averted “certain default” by agreeing to wage and pension cuts and tax increases in return for a 110 billion-euro ($139.5 billion) emergency-loan package from Euro-area nations and the International Monetary Fund on May 2.

The measures have hit employment and spending, with the economy shrinking for a second year and inflation rising to the highest since Greece adopted the euro.

The government plans to cut the budget deficit to 8.1 percent of gross domestic product this year from 13.6 percent last year.

Papandreou said a debt restructuring would have been catastrophic.

He also took the opportunity to announce a cut in taxes on retained earnings for companies to 20 percent in 2011 from 24 percent, and emphasized that the 4% tax cut will provide incentives to create jobs.

According to Bloomberg, about 15,000 protesters marched through the city center yesterday ahead of Papandreou’s speech, chanting slogans such as “get the IMF out of Greece” and “make the banks pay for the crisis.”

Police arrested and then released a 49-year-old man for attempting to throw a shoe at Papandreou.

Starting The Tax Hunt

Officials from the EU, IMF and European Central Bank, called the “troika” in Greece, begin a new round of visits in Athens tomorrow, primarily to discuss Greece’s planning for the 2011 budget, which is due to be submitted to parliament early next month.

The country expects to receive a second installment from the troika, of 9 billion euros, this week.

Papandreou said the country has begun seeking information from international banks to hunt down Greeks with accounts abroad who aren’t paying their taxes. A measurement already embraced by several other countries, amongst them USA and Estonia.

Look To Norway!

Greece’s economy contracted in the second quarter more than originally estimated, shrinking 1.8 percent from the first quarter. From a year earlier, GDP declined 3.7 percent.

The jobless rate in June slid to 11.6 percent from 12 percent in May.

Markets will be gradually convinced of Greece’s progress, Papandreou said, pointing to purchases of Greek debt by Norway’s $450 billion Government Pension Fund Global.

The extra yield that investors demand to hold Greek 10-year bonds compared with German bunds rose as high as 957 basis points on Sept. 8, just 16 points short of the record touched on May 7.

For those who are not too familiar with the investment strategy of the Norwegian Pension Fund, I’d like to add that at least 10% of total its total bond holdings are already invested in the PIGS-countries, (the fund refuse to disclose its holdings in Ireland), 50% of its equity investments are placed in the tumbling Chinese stock market and the so-called “Oil Fund” is the fourth largest shareholder in BP.

The smartest investment they’ve done so far is shorting the banks in Iceland just before they went down.

The Norwegian Pension Fund Global owns 1% of all the listed shares in the world, and 2% of all European.

Related by the Econotwist:

Default Now Or Default Later; Greece Still Withholding Critical Data

Morgan Stanley: Governments WILL Default

Brussels Tells Athens To Shut Up And Take The Pain

Greece About To Enter The Death Spiral

A European Revolution by December?

2000yr-Old Secret Organization Makes Threats Against Greek Navy Supplier

EU: Trading Bailouts For Weapons

Greece: Corruption Behind Crisis

Norway’s Government Pension Fund Takes $25bn Hit

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