The Irish crisis heats up

Although some diplomats say it is to Ireland’s advantage that the Government is not at present borrowing from the investors, fear of contagion emerged again yesterday as the premium on Spanish and Italian debt jumped to record levels.

The article is here.  The Irish have enough funds on hand to finance their government through next summer and they mention this repeatedly.  But is that good?  The lack of an ongoing market test increases uncertainty about market opinion and perhaps leads more people to wonder about the worst.  From other sides it encourages denial about the basic problem.  What will that first bond auction look like when it comes?  (What will China ask for in return?)  Extant bonds are traded, but that market is thin.

Ireland used to say "We are not Greece."  These days it is Greece saying "We are not Ireland."

Here are data on Irish competitiveness.  The unofficial word is that the hat is being passed for the actual bailout.  Merkel is holding tough, which is building pressure on the other weak euro economies.  It is a common mechanism that denying a bailout raises the ultimate cost of the bailout you must make.


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