–Irish 10 Yr Spreads Widen Over Bund On National Press Report

BRUSSELS (MNI) – Ireland’s 10-year sovereign bond spreads widened
sharply Tuesday against benchmark German Bunds after a local newspaper
reported that the country could need as much as E5 billion in additional
cuts next year to meet its deficit targets.

The cost of fixing the banking system will push Ireland’s budget
deficit to 32% of its GDP this year. The Irish government has committed
to getting the deficit below the EU’s 3% limit by 2014. Stripping out
the banks, the deficit is around 11% this year, still the largest in the
Eurozone.

The Irish Times – quoting sources from the country’s finance
ministry and from opposition parties – reported that “the crisis in the
[Irish] public finances is worse than feared and a package of spending
cuts and tax increases of close to E5 billion could be on the cards for
next year.”

Irish 10-year sovereign debt spreads widened on the news by 21
basis points over the Bund to 383 basis points.

According to the report, the finance spokespeople of the key
opposition parties in Ireland met senior officials from the Department
of Finance on Monday and were told that “growth over the next four years
was likely to be much lower than forecast and the adjustment to the
public finances would be much greater than the E7.5 billion originally
announced.”

The government currently forecasts 3.25% growth next year, more
optimistic than other forecasters, who see a lower profile, and this
creates a financial gap that needs to be filled.

The International Monetary Fund has suggested that the total
adjustment needed next year is more than E10 billion, but according to
the Irish Times report, the government is saying it will be more than
E11 billion.

Ireland’s economy suffered badly in the global recession,
contracting by 3.0% in 2008 and 7.1% in 2009.

European Central Bank President Jean-Claude Trichet has repeatedly
called on the Irish government to present a convincing four-year plan,
setting out how it will bring its deficit under control.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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