Failure to Catalyse

While the change of government has brought a welcome fresh start, long-term bond yields – and the implied probability of an Irish default they signal – continue to rise.   The 10-year yield is now above levels that forced Ireland to seek the EU-IMF assistance programme in November.  It is of course early days.    But there is no getting away from the message the bond market is sending.  

The hope behind the programme is that it would catalyse private funding.    With this in mind, it is interesting to look at the literature on the catalytic effect of official funding, much of it originating from the IMF itself (see here for an example).   The basic idea is that official funding can be a complement to private funding.