The Central Bank of Ireland has appointed Stefan Gerlach to the position of Deputy Governor. The press release is here. Stefan will bring to the job an exceptional set of qualifications in the areas of macroeconomics and monetary policy. For those interested in finding out more about Stefan’s qualifications, his personal web page is here and his RePEc page is here.
Month: July 2011
Reuters reports that, because Ireland will likely need more financing, it is downgrading Ireland’s credit status to Ba1–of questionable credit quality. The expectation is that there are further falls to come as the prospect of burden sharing, refinancing, or some other combination of unpleasant events, looks increasingly likely. RTE report that the Department of Finance think this is a ‘disappointing development’. Me too.
I’m interested in commenters’ reactions to this news. Does it matter? Is it a sign of things to come?
Colm was right when he said we should fasten our seatbelts.
Here‘s a link to the Eurogroup statement from last night. This is promising
To this end, Ministers stand ready to adopt further measures that will improve the euro area’s systemic capacity to resist contagion risk, including enhancing the flexibility and the scope of the EFSF, lengthening the maturities of the loans and lowering the interest rates, including through a collateral arrangement where appropriate. Proposals to this effect will be presented to Ministers shortly.
But I’m not holding my breath waiting for an impressive intervention.
In yesterday’s Sunday Independent, noting that Italian and Spanish ten-year yields had closed Friday at just under 5.30 and 5.70 respectively, I wrote:
‘The sole priority for the Eurozone should be to prevent the spread of bond market contagion to Spain and Italy, launching a new financial crisis on a scale beyond the rescue capability of the EU and IMF. If the crisis affecting Greece, Ireland and Portugal can be confined to those three countries there is a reasonable chance that Spain and Italy will retain access to the markets. If the contagion-spreaders in control of European policy continue the shambolic performance of recent months…… Spain and Italy will be swamped and the costs of resolving the Greek, Irish and Portugese problems will begin to look like a bargain. The Spanish Treasury managed to sell some three- and five-year bonds during the week….. But at some stage solvent-for-now issuers such as Spain must face the music in the ten-year market or their outstanding debt bunches shorter and shorter. If the Spanish ten-year interest rate edges much above 6%, the game will probably be up.’
Spanish ten-year yields breached 6% this morning, with Italian yields approaching 5.7%. EU Finance ministers are meeting this evening and might ponder this comment from Reuters:
‘Gary Jenkins, head of fixed income at Evolution Securities, said that while Italy is still a long way from the tipping point in terms of bond yields — markets have focused on yields of 7 percent as unsustainable — recent experience shows how quickly things can get out of control. Greece, Ireland and Portugal spent an average 43 consecutive days trading over 5.50 percent before they went north of 6.00 percent on a consistent basis, Jenkins said. That fell to an average of 24 consecutive days before rising above 6.50 percent, and just 15 days before the 7.00 percent level was breached on a consistent basis.’
In a low-growth economy like Italy and with an inflation target of 2% I am not confident that the ‘tipping-point’ is as high as 7%. But not to worry, the EU Commission is on the case, this from RTE:
The EU has called for a ban on rating agency decisions on countries under internationally-approved rescue packages. Speaking in Brussels, Internal Markets Commissioner Michel Barnier also said that governments should be fully informed before being downgraded by ratings agencies.
So the agencies would have to quit rating Greece, Ireland and Portugal, but could fire ahead rating Italy and Spain. Jose Manuel Barroso, the EU Commission president, also targeted the agencies last week, alleging market manipulation no less, and anti-European bias. The problem, in the estimation of these two EU luminaries, has been caused by the ratings agencies. With no Plan B apparently, the failure of Plan A needs to be assigned somewhere, and US ratings agencies will do fine.
What precisely is the proposal of the EU Commission to deal with the contingency that Spain and Italy are forced to exit the bond market over the next few months?
Meanwhile the Italian authorities have banned short selling of bank stocks, which older readers will recall was the source of the problems at Anglo.
Both Spain and Italy need to tap the markets on a continuing basis. The yields they now face at ten years are about the level that persuaded Ireland to take a holiday from the market last September. Their yield curves are also beginning to flatten ominously, with shorter rates rising more quickly than mediums.
The bank stress tests Mark II are due on Friday. This could be a long week.
Congratulations to regular commenter Dreaded Estate for producing this spreadsheet comparing sales prices at last week’s Allsop auction with the earliest available asking prices. Across the 46 properties for which previous asking prices could be found, the weighted average discount relative to the earliest asking price was 69 percent.
One can complain about this small sample (though Namawinelake points us to this map, showing a nice geographical mix) and also about extrapolating from the prices recorded at these kinds of “fire sale” auction. However, my inclination is that this is useful information about where the property market is likely to bottom out. (Of course, even with seventy percent discounts, most people will still need to find a bank willing to give them a mortgage to buy a house.)