Ireland announced this morning that the worst case scenario for bailing out its banks to be 50B Euros ($68B). The cost of Anglo Irish Bank will be approx 34B Euros. This is higher than the original estimate of 25B euros. The nation will also likely raise its stake to a majority in Allied Irish Banks which will need an additional 3B Euros this year.
The public debt in Ireland will now be approximately 99% of GDP and Dublin-based Davy Stockbrokers expects that figure to peak at 105% in 2012.
The support for the banking system will drive up the 2010 deficit to 32% of GDP, which as a reminder is 10x the EU's maximum allowable deficit. (Reuters).
Spain's credit rating was cut one notch by Moody's from AAA to Aa1. This was expected however as Moody's was the last rating agency to still maintain Spain at AAA.
Spain will release its 2011 budget today. Reuters, who obtained a copy of the budget ahead of its presentation to Parliament today showed that the government plans to cut net debt issuance in 2011 to 43.3B euros from the 76.2B that was originally planned for 2010. The budget includes much greater austerity measures with a 7.9% reduction in public spending with 16% average cuts for government departments.
In Portugal, PM Jose Socrates, announced that civil service pay would be cut by 5%, public sector pensions would be frozen, and the VAT will be raised to 23% from 21%.
While it's nice to see Ireland admit its woes (perhaps the rest of the world could learn something here...) the numbers are in fact horrendous, Spain was downgraded, and austerity measures in these three nations will make growth and economic health that much more difficult going forward. One might expect the Euro to be weak this morning on some of these disclosures, but afterall its the last day of the quarter and Brian Sack is on deck with a possible record amount of POMO. We are much more commmitted to destroying the value of the dollar than the Eurozone has been to destroy the Euro. When German exports begin to take a hit from the higher euro, we will likely see more aggressive action by the ECB.
Until then, keep your seatbelt securely fastened...To the moon Alice!
Dow Jones newswire reports that Irish CDS actually tightened on the news, as the shorts had expected far worse. Seems to argue for transparency, a lesson the European bank regulators didn't seem to heed.
ReplyDeleteSpanish bonds are rising not just on the reduced supply news but because the market feared a worse cut by Moody's. Moody's sees growth in the 1-2% range for the next several years, and Zapatero proudly declares the funding crisis over.
All of this hurts Euro shorts since it continues the perception driven feedback cycle. Everybody else is in QE mode, buying weak USD with their own currencies and rebalancing reserves into EUR. Do you still believe there is negative EUR newsflow ahead?