European sovereign risk: Focus on Ireland
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European sovereign risk: Focus on Ireland

Ireland has led where other European countries have followed during the financial crisis. The Irish government maintains it does not need financial assistance from the EU and the IMF. But the country has a battle on its hands to convince bond investors that it can responsibly manage its debts down in a defined time frame demanded by a European Union battling for its own credibility.

Yields on 10-year Irish government debt have risen as much as 200 basis points to 9% since European leaders reached an agreement on October 29 for a "crisis resolution mechanism,'' which will be implemented in 2013. The mechanism will see sovereign bondholders share some of the costs of future country bailouts, with taxpayers, via so-called bond ``haircuts'' Bond investors have taken fright at the prospect, with Irish 10-year yields trading above 9% on Nov. 11, after the clearing house, LCH, increased its collateral requirements for counterparties trading Irish debt. This spurred a technical sell off in Irish 10-year bonds, though they have since fallen back to about 8%. As of November 15, the Irish government has maintained it does not need to ask for financial assistance from the European Union and the IMF, tapping into the European Financial Stability Facility (EFSF), stating it does not need to seek funding from the international bond markets until June 2011.

Ireland: Lenihan’s room for manoeuvre

November 2010

The Irish government must push through an austerity budget and stabilize its finances before returning to the capital markets next June. It hopes to resolve its banking system and property sector problems through early recognition of losses. If this bold experiment fails, the country might yet be a test case for euro sovereign debt rescheduling.

Matthew Elderfield, financial regulator: The future face of Irish financial services November 2010

There was no honeymoon period for Matthew Elderfield when he was appointed as Ireland’s new banking regulator in January. He quickly had to roll up his sleeves and deal with the solvency issues of one of the country’s biggest insurers, Quinn Insurance. “I knew we had some big problems on the banking side,” he says, “but to find that one of the largest insurance companies in the country had a severe solvency problem and needed to be put into administration, within three months of me arriving, was a big challenge.”

Bond haircuts: Anglo Irish may be the tip of the iceberg November 2010

Being a fixed-income investor in Europe just got a whole lot trickier.

Sovereign bond markets: CDS liquidity benefits sovereign deficit funding November 2010

In the case of Europe’s peripheral sovereigns, such as Greece, Ireland, Spain and Portugal, an efficiently functioning derivatives market is crucial.

Merkel flexes her muscles October 2010

As recent events in Ireland highlight, unity in the face of continuing sovereign debt concerns gives the EU a better chance of heading off a deeper crisis.

Against the tide: Sovereign discredit! May 2010

There is an increasing risk of a series of sovereign debt defaults. The crisis over Greek sovereign debt might spread to the other big-deficit/high-debt economies in the eurozone, such as Spain, Portugal, Ireland, Belgium and Italy. Even if the EU succeeds in drawing a line in the sand around the eurozone, the sovereign debt crisis will migrate elsewhere.

Video commentary

Martin Egan, BNP Paribas on the debt crisis May 2010

Martin Egan, global head of primary markets, BNP Paribas speaks with Euromoney's Hamish Risk, markets editor on whether the debt capital markets can function amid the sovereign debt crisis. 

HR: “It seems we will have a tiered system here. What jurisdictions should have easy access to the funding markets and which should have difficulty?” ME: “Investors are uncertain about Greece Portugal Ireland and Spain.”

Spencer Lake, HSBC: The European debt crisis June 2010

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