Emergency talks between EU finance ministers last night concluded with the EU piling more pressure on the Irish government to accept the bailout measures on offer from the wider Eurozone. A terse "it is the responsibility of the Irish government to decide" was the distinctly ominous sound bite of note. Having thought they had sailed out of the stormier waters of earlier this year, the EU are understandably concerned about the contagious sap in confidence that the debt crisis could again have on other EU members currently in a weakened state, notably Portugal. Angela Merkel, the German Premier, implied over the weekend that further damage to the Euro undermines the EU, and the concept of political and economic unity as a whole. It seems that the powers that be in Europe are almost zealous in their desire to aid the Irish in order to avert such a conclusion.
As seems to be the norm throughout the brief history of the post 2008 financial crisis, it is those that most enjoyed the boom that are most suffering the bust. The Irish public finances actually operated at a budget surplus in the years leading up to the crisis, as the country rode the wave of a huge property bubble. To no-one's great surprise, it’s all ended in tears. Property prices have fallen around 50%, the total market capitalisation of the major banks has fallen by 98%, despite the Irish government being one of the first in the world to offer a full guarantee over all of its banks, and unemployment is rising sharply as the government is forced to slash spending.
All of this uncertainty leaves the euro at relatively weakened levels against Sterling and the Dollar, though largely at yesterday’s levels as markets wait for IMF and EU Commission teams to arrive tomorrow in Ireland to discuss a bailout package for the banking system. Having fallen to a seven-week low against the US dollar yesterday, the euro has stabilised around $1.35, but remains vulnerable to further falls in sentiment. Sterling has strengthened this morning on the back of some positive unemployment figures. The claimant count fell during October, the first fall since July, after consensus expectations for an increase. Meanwhile, the minutes of the MPC meeting for November show a similarly divided committee to last month, with this having no major effect on Sterling after its release.
Posted in Daily Market News on May 30 2014