|Portugal's caretaker Prime Minister José Sócrates, Taoiseach Enda Kenny and German Chancellor Angela Merkel, Brussels, March 24, 2011.|
A summit of European Union leaders endorsed a
package of measures to shore up the euro, in Brussels on Thursday
but the event was overshadowed by the collapse of Portugal's government on
Wednesday night after the parliament in Lisbon rejected a fourth austerity plan.
Meanwhile, also on Thursday, yields on Irish 10-year sovereign debt hit a euro
era record of 10.2% compared with Spain's more modest level of 5.2%.
"We took important decisions today, " European Council president, Herman Van
Rompuy, told reporters early Friday. "We confirmed the
'operational features' of the permanent Stability Mechanism. We will make sure
that €500bn is available with triple-A status. We have agreed to ensure that the
temporary Facility has an effective lending capacity of €440bn. It will be in
place in June. Finally, in order to repair the financial sector, we underline
the importance of credible stress tests.
Banks must do the tests; governments must be
ready to deal with the outcome of the tests."
Van Rompuy said in respect of the economy:
"Some people fear this work is about dismantling the welfare states and social
protection. Not at all -- as I said it during lunch - - It is to save it.
What we do is to make sure that our economies are competitive enough to create
jobs and to sustain the standard of living for all our citizens -- that's what
our work is about."
The president said the governance and
competitiveness pact that will be in effect from mid-2013, is to be called the
'Euro Plus Pact' as six EU members that are not among 17 Eurozone countries.
have agreed to accept the same level of economic coordination. They are:
Denmark, Poland, Latvia, Lithuania, Bulgaria and Romania.
Taoiseach Enda Kenny said in Brussels that he had
spoken to Van Rompuy on Wednesday and they decided to defer discussion of the
interest rate on Irish bailout funds until the Irish bank stress test results
The stress tests will be published next Thursday
yesterday's national accounts data for the fourth quarter of 2010, which was
worse than expected, may result in even higher estimates of bank losses
because of a downgrade of forecasted Irish growth.
"Obviously from an Irish point of view,
I’d prefer to deal with substance rather than theory... I’d like to have a much
clearer picture of the outcome of the bank stress tests which are going on,"
Kenny told reporters in advance of the meeting.
In the Dáil on Thursday, Joe Higgins, Socialist Party TD, claimed the Taoiseach
was in “full flight from the wrath of Angela Merkel” and branded it a
It is better to get facts and then discuss a
comprehensive solution with Europe rather than demand piecemeal changes.
|Leaders of the 3 embattled economies of the Eurozone: Portugal's caretaker Prime Minister José Sócrates, Taoiseach Enda Kenny (mainly hidden)and Greek Prime Minister George Papandreou, Brussels, March 24, 2011.|
Aníbal Cavaco Silva, Portugal’s conservative
president, is expected to meet political parties Friday, after the government’s
defeat on Wednesday.
A general election is expected and a bailout of
up €70bn is viewed as inevitable.
The 10-year yield on Portugal's sovereign bonds
rose three basis points to 7.66%, giving a spread of 4.42% with equivalent
The Irish 10-year bond yield hit 10.21% on
Thursday -- a new record since the launch of the euro in 1999.
If Portugal falls, focus will then turn to Spain
- the single currency's fourth biggest economy.
Spain's banks are exposed to their neighbour but
in recent times, the markets have taken a more positive view of the Spanish
economy as it has a low level of public debt.
The yield on the Spanish 10-year bond closed at
5.17% on Thursday.