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Greenback Stands to Rally Amid Irish Crisis

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Tuesday, 23 Nov 2010 12:28 PM Current | Bio | Archive

The post-Ireland bailout euphoria for the euro has run its course.

Ireland is continuing to cause trouble in the markets as it has only received a temporary benefit from markets for its EU-IMF bailout package.

Secondary Irish bond-market yields cease to matter if Ireland's funding is away from the market, which is the whole point.

It should be noted there is a serious probability, and therefore danger, that Moody’s will downgrade Ireland's credit rating by more than a single notch in the future, which should imply substantial extra costs for Irish sovereign debt — and that would reach far beyond the four-year EU-IMF bailout duration.

The bailout plan is estimated to be worth 80 billion euros to 95 billion euros ($107.05 billion to $127.12 billion) and will be subject to strict conditionality, including a four-year, 15 billion euro “austerity” plan that would involve 10 billion euros in public spending cuts and 5 billion euros in tax rises that comes on top of the two years of harsh austerity and recession already endured in Ireland.

Yes, there are red lights blinking.

Markus Ferber, the chairman of the CSU group (German conservative Christian Democrats) in the European Parliament, wants to tie aid for Ireland to strict conditions. “We also managed to obtain tax increases in the case of Greece,” he said. “The same thing has to happen in Ireland … It is unacceptable if a country relies on the solidarity of the community while continuing to secure competitive advantages over its benefactors through the use of tax dumping.”

Investors should also note the threat of contagion hasn’t noticeably diminished as a result of the EU-IMF Ireland bailout. Irish Prime Minister Brian Cowen’s junior coalition partners, the Greens, said yesterday that they would support the government only until the new budget was passed in December and the EU-IMF bailout was in place.

Now, in the Irish parliament, we see the defection of two independent members on whom the government depends for budget-passage support. Independent Member of Parliament Michael Lowry said he would support the 2011 budget only if the main opposition parties, Fine Gael and Labor, took part in devising it, which is, I think, highly unlikely.

Besides that, Cowen defied mounting pressure to quit, saying he would stay in office until parliament had passed the austerity budget needed to secure the IMF-EU bailout (and then he would call an early election in January).

Yes, in Ireland they will first vote a budget and then quit while leaving the execution of that budget to whatever the next Irish government will be. Strange world, isn’t it? More trouble to come? You can bet on that.

Don’t write off the dollar, at least not for now.

Watch the dollar. Dollar up, most of the rest down, and vice versa, of course ...

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HansParisis
The post-Ireland bailout euphoria for the euro has run its course. Ireland is continuing to cause trouble in the markets as it has only received a temporary benefit from markets for its EU-IMF bailout package. Secondary Irish bond-market yields cease to matter if...
hans,parisis,dollar,euro,ireland
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2010-28-23
Tuesday, 23 Nov 2010 12:28 PM
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