Irish Bonds Rally as EU Bank Deal Fuels Hopes of Market Return
Irish government bond yields Friday fell sharply to levels last seen before the country was bailed out in late 2010, as investors anticipated a decline in the government's debt burdens as a result of measures agreed at the European Union summit in Brussels.
EU leaders late Thursday agreed to recapitalize Spain's beleaguered banks directly from the euro-zone's bailout funds, without piling more debt onto the Spanish state, and suggested that a similar program could be applied to Ireland.
The Irish government spent EUR63 billion recapitalizing and repairing its stricken banks, enabling them to repay their bond debts. If the euro zone's bailout funds were allowed to retrospectively finance the support the Irish government has given to the banks, that would significantly reduce its debts and could potentially pave the way for Ireland to regain access to bond markets.
Prime Minister Enda Kenny Friday hailed the move as a "seismic shift" for Ireland.
"What was deemed unachievable has now become a reality," he said.
Irish bonds rallied strongly, pulling the yield on the bond due October 2020--the closest Ireland currently has to a 10-year benchmark--three-quarters of a percentage point lower to 6.21%, according to Tradeweb.
The move means the Irish government could potentially borrow more cheaply than its Spanish equivalent, which for the time being retains access to the bond markets.
Ireland had to ask for 67.5 billion euros ($90 billion) in loans from the EU and the International Monetary Fund when it lost access to the bond markets in November 2010. Irish bond yields Friday hit their lowest level since shortly before that request for help was made.
"For Ireland, the euro-zone summit is a big deal," said economists at French bank BNP Paribas.
"The Spanish bailout highlighted the difference in the EU's treatment of Ireland, which to date has shouldered the full burden of its banking-sector recapitalizations. It seems other euro-zone members and the European Central Bank have at last conceded that such inequality is no longer tenable."
In its statement on Thursday night, the Eurogroup said it will "examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment program."
EU leaders also said the European Stability Mechanism, the euro zone's permanent bailout fund, could be used to bailout struggling banks in the single currency area once a centralized supervisory body is set up.
The details of any restructuring of Ireland's bank bailout remain to be worked out. But the removal of EUR31 billion euros of promissory note--injected into collapsed banks including Anglo-Irish--from the national balance sheet "could make a very significant dent in its debt-to-GDP ratio", BNP said.
"In simple terms, Ireland's debt ratio could peak below 100%," the bank added.
Without relief on the bank debt, Irish government debt will reach 120% of GDP next year, and possibly hit a higher level in later years if economic growth remains sluggish. At those levels, bond investors would likely be reluctant to provide new funds.
Moreover, any easing of the annual promissory note repayments of EUR3.1 billion--similar to the amount by which Dublin is attempting to slash its budget deficit--would provide a welcome boost to Ireland's fiscal position.
Eamon Gilmore, Ireland's deputy Prime Minister, said the new steps could help avoid Ireland having to seek a second bailout once its current program of financial assistance ends next year.
"[The EU agreement] will have a real impact on our debt level and will greatly improve our ability to get back into the market," Gilmore told Irish broadcaster RTE Radio.
Moves to ease the burden of Ireland's bank debts would be a major boost for the government, which identified just such an agreement as its main objective on when it took office in February 2011.
Mr. Kenny has been frequently criticized by his political opponents for having been too "passive" in his dealings with other EU governments and the ECB on the issue, but has insisted that steady diplomacy rather than threats and ultimatums would yield results.
The government's bailout funds run out in 2013, and without access to the bond markets it would have little option but to seek a second bailout to fund it from 2014.
Earlier this month, the International Monetary Fund warned that despite making good progress under its bailout program, the government wouldn't be able to return to the markets unless the euro zone came up with a plan that promises to end its long-running fiscal drama. The Fund also backed the government's plea for a rescheduling of the promissory notes, saying that would significantly increase its chances of regaining access to the bond markets.
Euro Zone Leaders strive for fiscal unity & maybe a Joint Banking Union
Details of a plan for greater fiscal unity in the euro zone, including the creation of a sort of finance ministry for the currency bloc, began to emerge this week at a crucial meeting of European Union leaders eager to find a lasting solution to the region’s debt crisis.
The two-day summit of E.U. leaders, which began yesterday Thursday, had raised some hopes of a breakthrough in the two-year-old debt crisis that has escalated to threaten Spain and Italy, both of which face borrowing costs many believe to be unsustainable in the medium term. An auction last Tuesday of Spanish short-term debt confirmed the trend, with the issue selling out amid strong demand but at two to three times the cost of earlier auctions.
But expectations for a short-term solution have been lowered by Germany’s chancellor, Angela Merkel, who has asserted that big changes such as issuing common debt will have to wait until countries that use the single currency have agreed to a broader revamp of the political architecture of the euro zone. Those changes could include surrendering more power over their budgets to European authorities in Brussels.
ITALY AND Spain on Thursday have urged EU leaders to take emergency action to contain their borrowing costs and raised the prospect that they may refuse to back Europe’s €120 billion growth plan if immediate steps are not taken.
The two countries, which are under mounting pressure on bond markets, made their plea on the opening session of a two-day summit in Brussels.
The meeting, which is expected to continue into the early hours, comes as Europe confronts mounting doubt over the rescue strategy for Spain’s stricken banks and anxiety that the turmoil could soon shut Italy out of private debt markets.
Tension was palpable in Brussels as leaders gathered for their fourth summit of the year and their 20th since the outbreak of the crisis in late 2009.
The summit, which will be followed by a separate meeting of euro zone leaders on today Friday, is expected to focus on agreeing on the elements of a banking union, which is seen as a concrete step even though it would not come into operation until 2013 at the earliest. Those elements would include a system to liquidate insolvent banks, a central deposit guarantee fund, and a bigger supervisory role for the European Central Bank, among other measures.
The leaders will discuss a paper, released last Tuesday, on the future of the euro zone that keeps open the possibility of issuing common debt so long as it is a gradual process accompanied by robust fiscal discipline.
The process towards the issuance of common debt, the document says, “would be accompanied with commensurate steps towards the pooling of risks.”
Under one scenario, national governments would have to agree on upper limits on their spending, in order to balance budgets, and on debt levels – and would then have to seek prior approval for exceeding those limits.
“Under these rules, the issuance of government debt beyond the level agreed in common would have to be justified and receive prior approval,” the document says. “Subsequently the Euro area level would be in a position to require changes to budgetary envelopes if they are in violation of fiscal rules, keeping in mind the need to ensure social fairness.”
The document, which sketches the path to a banking union, also discusses the possibility of the ultimate creation of a new “treasury office,” effectively a finance ministry for the euro zone.
The proposals will be outlined in a paper written by the president of the European Commission, José Manuel Barroso the president of the European Council, Herman Van Rompuy; the president of the European Central Bank, Mario Draghi, and the head of the euro zone finance ministers, Jean-Claude Juncker.
Spain, along with Italy, is likely to press at the summit for more urgent action to lower borrowing costs, which are close to levels that might, if sustained, force the government in Madrid to seek a full bailout later in the year.
Italy, whose borrowing costs have also risen on fears its economy could be the next under attack, has already proposed measures to reduce the difference in borrowing costs between euro zone countries.
But Germany is determined that it should not finance a country that indulged in excessive spending, and the scale of the changes wanted by the government in Berlin has been made clear by the country’s finance minister, Wolfgang Schäuble.
“In an optimal scenario, there would be a European finance minister, who would have a veto against national budgets and would have to approve levels of new borrowing,” Mr. Schäuble told the German magazine Der Spiegel over the weekend. He added that such changes might also necessitate a referendum in Germany.
But a big shift of power to Brussels would prove highly controversial for many countries inside the euro zone, none less than France, which fiercely defends its national sovereignty.
The European Commission, the executive agency of the European Union, is already expecting to gain powers that would permit it to question a country’s budget if public finances deteriorate.
Plans for a banking union will initially be proposed for all 27 E.U. nations, although Britain has said it will not take part. The British government is expected to be offered specific exemptions. Alternatively, a group of other countries might agree to go ahead with the plans without it.
Some of the details of the bank union plan remain vague, according to the draft document to be discussed at the summit. “A European deposit insurance scheme could introduce a European dimension to national deposit guarantee schemes for banks overseen by the European supervision,” it says, for example.
As the diplomatic pace intensifies ahead of the summit, France’s finance minister, Pierre Moscovici, said he would meet his German, Italian and Spanish counterparts in Paris on Tuesday. The leaders of the four nations met last Friday in Rome but without any significant breakthrough over how to end the most pressing problem: the rise in Spanish and Italian borrowing costs.
In the meantime, the backdrop to the upcoming summit has been worsening steadily. Spain filed a formal application on Monday for up to 100 billion euros, or $125 billion, in aid for its banks, whose balance sheets have been wrecked by a real estate crash. The tiny island nation of Cyprus also said Monday it would need assistance. The sums required for Cyprus will be much lower, but the request has some symbolic significance as the country is about to assume the rotating presidency of the European Union on July 1.
European stocks were down slightly by midafternoon, giving up gains from early morning after falling sharply on Monday. The Euro Stoxx 50, a measure of European blue-chips, was down 0.08 percent. European benchmark indexes were also down slightly.
The euro was at $1.2468, down from $1.2500 late Monday in New York.
Asian stocks were mixed, with the Nikkei 225-share index closing down 0.81 percent and the Hang Seng in Hong Kong up 0.45 percent.
The Spanish Treasury auctioned 3.1 billion euros of debt Tuesday, with the interest rate on 3-month bills was 2.36 percent, compared with 0.85 percent in the last such auction on May 22. The rate on the 6-month bills was 3.24 percent, up from 1.7 percent in May.
Dangerous Radon gas found in 341 Irish homes
A total of 341 homes were identified with high levels of radon gas in the first five months of this year, according to new figures by the Radiological Protection Institute of Ireland.
The highest levels of the cancer causing gas were found in Galway, where 32 homes were found to have radon levels that were between four and ten times the acceptable level.
Other areas with similar readings included Tipperary (3), Clare (2), Cork (2), Wexford (2), Kerry (1) and Sligo (1). One home in Galway city was 19 times the acceptable level, the highest amount ever found in a home in the country.
According to the Institute, the occupants of the house were receiving the equivalent of 13 chest x-rays a day.
“Our research indicates that there are over 91,000 homes with high levels of radon and only about 7,500 have been found to date,” said Ms Stephanie Long, Senior Scientist at the RPII.
Exposure to high radon levels causes lung cancer and many families are unknowingly living with a high risk to their health. People need to take the radon test and if high levels are found the problem should be fixed.
Radon is the second biggest cause of lung cancer after smoking in Ireland and is directly linked to up to 200 deaths a year. Ireland is beleived to have one of the highest radon levels in Europe.
A revolutionary new drug can cut the risk of stroke for diabetics
A new drug could slash the risk of type 2 diabetes patients having heart attacks, research has revealed.
The revolutionary new treatment could help thousands of patients who do not respond to the commonly used first-line treatment, metformin,
Metformin can become ineffective in the long term for many patients, according to an article published online in The Lancet.
Patients are then offered a class of drugs that is known as sulphonylureas in addition.
However, these drugs can lead to low blood sugar levels that is known as hypoglycaemia, and weight gain, putting patients at increased risk of heart attack and stroke.
The new drug, linagliptin, results in significantly less weight gain and also less hypoglycaemia, experts from Tubingen University Hospital, in Germany, has found.
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