Tags: IMF | Official | Eurozone | Default | Overdone

IMF Official: Risk of Eurozone Default Is Overdone

Friday, 19 Nov 2010 09:43 AM

The risk of default in the eurozone's debt-troubled states has been overplayed and the premium for holding Irish, Portuguese and Spanish debt will fall as such worries ease, a senior IMF official said on Friday.

"Markets are overreacting in the sense that the risk of default in the countries in Europe under pressure is overestimated," the head of the International Monetary Fund's fiscal affairs department Carlos Cottarelli told Reuters.

Asked whether spreads for Ireland, Portugal and Spain would come down, he said: "Yes of course ... I would expect this, but it's going to take time. After the beginning of an adjustment process ... it may take up to 18 months before things calm down."

Debt yields for euro zone periphery countries have hit euro lifetime highs on concerns a debt crisis, which began in Greece in May and is now forcing Ireland in to talks on EU and IMF aid, would spread.

The spread between 10-year Irish bond yields and the German Bund was last around 559 basis points, or bps, on Friday down around 6 ticks on the day and compared to highs of almost 680 bps earlier this month.

Spanish and Portuguese 10-year spreads were up slightly on the day but remain much lower.

Cottarelli rejected concerns the Irish debt crisis would affect other vulnerable eurozone economies. Some economists believe any help offered to Ireland would have to be extended to Portugal to calm markets.

"I don't see a domino effect, I see cases of specific countries with fiscal problems," Cottarelli said.

A joint European Commission, European Central Bank and IMF mission arrived in Dublin on Thursday to examine the country's heavily indebted banks and discuss an aid package which could be worth tens of billions of euros.

© 2017 Thomson/Reuters. All rights reserved.

   
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The risk of default in the eurozone's debt-troubled states has been overplayed and the premium for holding Irish, Portuguese and Spanish debt will fall as such worries ease, a senior IMF official said on Friday. Markets are overreacting in the sense that the risk of...
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2010-43-19
Friday, 19 Nov 2010 09:43 AM
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