|10-year bond yields over 12 months: from top; Greece, Ireland, Portugal, Spain Source: Bloomberg |
The credit ratings agency Moody's, downgraded Spain's sovereign
debt on Thursday. On Wednesday, borrowing costs of debt issued by Ireland,
Portugal and Greece hit euro period record highs.
Meanwhile, opposition to bailouts of peripheral economies is growing
in so-called 'core' countries.
Portugal’s Treasury and
Government Debt Agency on Wednesday sold the maximum planned €1bn worth of
2-year sovereign bonds but it was at a steep yield.
The €750m to €1bn auction of the 5.45% September 2013 bond was closely
watched as Portugal struggles to avoid a bailout.
The average yield of 5.993% was down from recent levels on the secondary
market but compared with the 4.086% level set at the previous auction.
The yield on 10-year bonds on Wednesday rose to 5.51% for Spain; 7.63%
for Portugal, 9.58% for Ireland and 12.90% for Greece.
When the market price of
a bond with a fixed interest rate falls, its yield rises.
The Financial Times says that the rise in
10-year yields for the peripheral Eurozone countries has been
inexorable over the past five months. Italy has seen a jump of 1.3
percentage points, Spain 1.5 percentage points and Portugal 2 percentage
points. Greece and Ireland, have seen rises of almost 4 percentage points.
Investors Service downgraded Spanish debt by one notch to Aa2 from Aa1 on Thursday morning. The outlook on
the Aa2 ratings rated as negative.
Moody’s said it
moved because of the expectation that “the eventual cost of bank
restructuring will exceed the government’s current assumptions,
leading to a further increase in the public debt ratio,” according to
Moody’s said it
has “continued concerns over the
ability of the Spanish government to achieve the required
sustainable and structural improvement in general government
Spain raised €4bn in
15-year bonds on Tuesday and Portugal has issued nearly €7bn in sovereign
debt in 2011, or around 35% of this year's total funding needs.
US investment bank Morgan
said earlier this week on Spain: "Our core views have not changed, i.e., Spain
is still dealing with balance sheet repair and looking for a new growth
engine - - unlike most of its European neighbours. This process of
rebalancing away from domestic demand and towards foreign demand is
necessary and welcome. But, as long as it continues, we think that economic
growth is unlikely to accelerate meaningfully - especially this year.
Yet, while we still think that a quick turnaround story is unlikely to
unfold, the consensus view is now too pessimistic on the Spanish economy, in
our opinion. The latest published economists' polls point to growth of
around 0.6% in 2011. We expect almost twice as much - and a pace of
expansion of 1.5% in 2012. But that's not even half the rate of growth seen
during the decade prior to the financial crisis, and it's far below
a feature today, the FT highlights the political backlash in countries
such as Germany, the Netheralnds and Finland to financial support for the
stricken economies in the currency union.
The newspaper says the
political party, True Finns, is within striking distance of becoming
Finland’s largest bloc in national elections on April 17th - - using a
potent mix of economic populism and anger at recent EU bailouts
True Finns' leader,
Timo Soini, would likely find many counterparts among the Irish bbb - - burning
bondholders' brigade - - and vice-versa.
Economic populists can take strong but contrary
positions depending on the vantage point - - some no doubt are of strong
conviction but would also be so, in changed circumstances where the boot was on
the other foot.
Rational critics have tended to lament the
'jellyfish' politicians who have failed the test of leadership in critical
It's also a test of leadership to avoid boosting
support for extremist parties that promote ethnic discord.
Finfacts has argued that countries like
Ireland have to show a serious commitment to reform of failed systems. It would
be both helping itself and also showing to other countries that it is prepared
for necessary change.
We have made a start with the new government.
It has been clear that the new Dutch government
has taken a more severe position on support for periphery countries than
We need to build alliances in Europe by looking
forward; former Taoiseach John Bruton's apportioning of blame for the
bubble has its place but at this stage, this focus will be no help to Ireland
as it would only provide fuel for the likes of Timo Soini.