Gillian Tett (who was in Dublin this week) writes on the Irish situation: Ireland has shown grit but must find a magic formula
The Joint Oireachtas Committee on Finance and the Public Service’s report on a new fiscal framework is now available. It can be downloaded here (MS Word file). Unfortunately, Philip Lane’s background report for the Committee does not appear to be available for download at this time.
Update (from Philip): The full report (including the background paper that I prepared) is now available in PDF here.
There is a lot of focus every day on this site and in the media on the ten-year bond rate rate and Bloomberg’s web page showing the yield on this bond is regularly linked to. However, the movements in the ten-year bond only tell part of the story of the past couple of weeks. There have also been dramatic movements in the shorter-term bond yields.
Here‘s the Bloomberg page for the two-year bond yield and here‘s the page for the four-year bond yield. Also, here‘s NTMA’s daily bond report.
The four-year bond yield, which had been about 3% in early June, reached 5% in late October and, as I write, stands at 8.34%, not so far short of the 8.92% prevailing on the ten-year bond. This suggests that the market is pricing in a debt restructuring in the next few years. (See this earlier post for a discussion of the relationship between bond yields and default probabilities.)
Even more disturbing have been the movements in the two-year bond. The yield on this bond had been about 2% as recently as June. It started November at 4% and, as I write, has now soared to 6.66%. Given that pessimists are likely to be assuming that Ireland will be borrowing from the EFSF in two years time, the implicit pricing in of a high probability of a debt default\restructuring as early as 2012 strikes me as unwarranted. But it illustrates the scale of the current negative sentiment towards Ireland in the bond market.
As of yet, the government has not been able to turn this sentiment around. An optimist might argue that passing the budget, resolving the political uncertainty via a general election and the emergence of solid evidence of a return to sustained growth might, together, achieve the required improvement in sentiment. A pessimist would argue that it’s too late.
Whoever’s right, the government needs to at least play it’s role in providing the first step in attempting to make the optimistic scenario come about by passing the upcoming tough budget. If it could achieve that goal, then after that point, there’s a strong argument that the best thing the government can do is deal with the second element of the optimistic scenario by resolving the political uncertainty as early as possible with a January general election. As to whether the third element of the optimistic scenario—the emergence of growth—occurs, one could argue that this is largely out of the government’s hands at this point
The EPA has released the latest of its annual reports on air quality. Its a technical report, and the media highlight different things. The Examiner reports that Irish air is best. The Times reports that some of Dublin’s air exceeds the NO2 limit. Both are true.
The Independent reports that smoky coal may soon be banned. That is speculation. The EPA report concludes that the ban on smoky coal has improved urban air quality; and argues that a nation-wide ban would be good for environment and health. The current ban is peculiar: It is a ban on selling smoky coal in cities — rather than on burning. The Solid Fuel Trade Group, who sell smoky coal, argue that a nationwide ban would not be effective, because people would smuggle coal from the North. As Dubliners do not smuggle large amounts of smoky coal from Meath into Dublin, chances are that cross-border smuggling would be limited too.
Economists Constantin Gurdgiev, Brian Lucey, Stephen Kinsella, Ronan Lyons, Karl Deeter, Shane Whelan, David Madden, Brendan McElroy, Valerio Poti and John D Masson suggest a way to provide relief to stressed mortgage holders.