BRUSSELS (MNI) – Irish bond spreads Wednesday hit their widest
level since the start of European Monetary Union as traders speculated
that the country won’t be able to manage its large budget deficit,
exacerbated by the expensive problems of its troubled banking system.
The Irish government is meeting on Wednesday to debate the future
of Anglo Irish Bank after saying on Tuesday that it would keep the bank
on state funded life-support until the end of the year.
That promise did little to calm markets, who worry about the
knock-on effect on the already heavily-indebted Irish economy and fear
the government may be forced to tap the European Financial Stability
Fund, which was created earlier this year as a last-resort backstop for
Eurozone members.
Irish bond spreads rose to +396 basis points above the benchmark
German Bund in early trading on Wednesday. The spreads have since
narrowed only slightly to 394 basis points. The cost of insuring Irish
debt against default rose 21 basis points on Wednesday alone to 401
basis points, a new record high.
EU officials said the most likely scenario is a wind-down of Anglo
Irish Bank bank over 10-15 years, an option that would have to be
approved by the European Commission. A Commission verdict on the plan
chosen by the Irish government is expected to come later this month.
The Irish Times reported on Wednesday that the bank is expected to
cost the Irish taxpayer an extra E3.5 billion if it is wound down over
10-years, on top of the E25 billion it has already cost.
–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com
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