Goldman should know, Whether or Not Ireland Will Face a Greek-Style Crisis... After all, Goldman facilitated the Greek Crisis, by Selling Greece Derivative Products that Obscured Greek Debt from the E.U.
http://blog.jmhamiltonpublishing.com/2010/02/22/goldman-sachs-says-greek-swaps-not-inappropriate.aspx
Goldman Says Ireland Won't Face Greek-Style Crisis
(Bloomberg)
Ireland is “very unlikely” to experience a financial crisis as severe as the one that forced Greece to seek an international bailout earlier this year, said Goldman Sachs Group Inc.
“A repeat of the Greek debt turmoil in Ireland is very unlikely,” Michael Vaknin, a senior fixed-income strategist at Goldman in London, said in an e-mailed note. “With Irish spreads already at all-time highs, we would argue that refinancing risks in the Irish debt market is aggressively priced-in already.”
The extra yield that investors demand to hold Irish bonds over German bunds has surged to a record as investors fret about the country’s ability to cap the cost of its bank bailout and cut the budget deficit. The spread today widened 12 basis points to 430 basis points and has swelled 112 basis points in the past month.
Ireland’s economy contracted 1.2 percent in the second quarter from the previous three-month period and Goodbody Stockbrokers said today that the government may need to step up its austerity drive in December’s budget. Finance Minister Brian Lenihan said it’s “too early” to signal a tougher budget for next year. He has pledged to cut the deficit to 3 percent of gross domestic product by 2013 from 14 percent last year.
Liquidity Shortages
Goldman said that Irish banks can avert liquidity shortages by turning to the European Central Bank’s emergency lending operations. Another positive for Ireland is that the ECB is now prepared to buy European sovereign debt, unlike at the depths of the Greek crisis in April and May, Goldman said.
Ireland’s government can also turn to the European Union’s rescue fund if needed, Goldman said. The investment bank also noted that the country has a “fairly significant” cash buffer worth 10 percent of gross domestic product.
Investors have dumped Irish bonds partly on concern that the cost of nationalizing Anglo Irish Bank Corp. last year will widen. While the state has already poured 22 billion euros ($29 billion) into the bank, Standard & Poor’s estimates the final bill may be 35 billion euros, equivalent to 20 percent of GDP.
To contact the reporter on this story: John Fraher in London at jfraher@bloomberg.net
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