Last weekend, Ireland agreed to an 85 billion Euro bailout ($112.5 billion), details of which should be announced this weekend. But that hasn’t stopped the turmoil. Today, Irish bond yields hit euro-era high, banks sink:
Yields on Ireland’s bonds reached a new euro-era high Friday as investors dumped the nation’s debt securities, and Irish bank shares also kept falling in expectation the banks are heading toward greater state ownership.
Analysts said Ireland’s bonds and banks are getting battered because deep skepticism remains that an international bailout loan – whose details are expected to be unveiled Sunday – will be enough for Ireland to resolve its debts.
The Irish Times said an agreement on an euro85 billion ($112.5 billion) IMF-EU loan for Ireland could be announced Sunday, one week after Ireland formally applied for a financial rescue. It would be used as a credit line by Ireland’s government and banks, which both have been priced out of the bond markets.
Yields on Ireland’s 10-year bonds rose to 9.22 percent from 9.02 percent Friday, a new high since Ireland joined the euro in 1999.
Wasn’t the whole point of the bailout to end or at least alleviate this crisis? But now, the crisis is getting even worse as traders/investors lose confidence in Ireland’s ability to resolve its debts and the Eurozone’s ability to help.
Now, the Eurozone and IMF are proposing a bailout of Portugal. Will that bailout fare any better than this one? As I’ve written previously:
And all the bailouts in the world won’t end this madness until these countries get their fiscal and monetary houses in order.
So far, the bailouts have been a reward to countries that behaved poorly by spending more than they had and making bad investment. Conversely, the bailouts are punishing those who successfully avoided the urge to over-leverage and over-spend.
Bailouts will only work when they reward those who made mistakes in the past but are now behaving well. However, all these at-risk countries are proposing to reduce their budget deficits to three percent of GDP. I do not call that behaving well. I call that behaving less badly than before. Until these countries propose balanced budgets and plans to pay off their debts, they should receive no bailout money. But that is unlikely to happen because those “strong” countries that are providing the bailout money, such as Germany and France, have no plans of their own to balance the budget and pay off debt. Thus, we are in a situation where countries needing to bailed out are providing money to those who are in even more desperate need of a bailout.
The blind leading the blind… And the sovereign debt crisis continues.