Yesterday evening the yield on the Irish 10-year was up near 9%; Merkel reaffirmed her tough line on bond haircuts:
Speaking in Seoul, where she is attending the G20 summit, Dr Merkel acknowledged her demands have upset the markets but insisted it was unfair for taxpayers to be saddled alone with the cost of sovereign rescues. “Let me put it simply: in this regard there may be a contradiction between the interests of the financial world and the interests of the political world,” Dr Merkel said.
“We cannot keep constantly explaining to our voters and our citizens why the taxpayer should bear the cost of certain risks and not those people who have earned a lot of money from taking those risks.”
And Christine Lagarde waded in too, despite hints of nascent contagion to Portugal and Spain.
French Finance Minister Christine Lagarde said yesterday that investors must share in the cost of safeguarding sovereign debt. German bunds advanced on demand for the safest assets, while Portuguese debt recovered from earlier losses. Italian bonds fell.
“Lagarde’s comments mentioned restructuring, and that’s another nail in the coffin” for so-called peripheral nations’ debt, said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London. “There’s still a big constituency of investors and traders who have not recognized until now that restructuring could happen.”
It was going to be all eyes on Ireland and the Euroauthorities today, with bets being taken that the weekend was going to be a busy one in Dublin, Berlin, Paris, etc.
But lo, this morning the Irish 10 year yields 48bps less, the Portuguese one is a wee bit firmer, the Spanish one only a wee bit softer. This clarificatory communique from Seoul might have something to do with it:
(Reuters) – EU leaders sought on Friday to reassure bondholders unnerved by Ireland’s fiscal problems they would not be forced to take a writedown, but Ireland’s Prime Minister said recent French and German comments had aggravated the problem.
A statement by France, Germany, Italy, Spain and Britain was issued at the Group of 20 summit in Seoul after spreads on Irish 10-year government bonds over German bunds surged to a record high, hitting the debt of Portugal and Spain and the euro.
“Whatever the debate within the euro area about the future permanent crisis resolution mechanism and the potential private sector involvement in that mechanism we are clear that this does not apply to any outstanding debt and any program under current instruments,” the statement said.
So – no haircuts for Irish bondholders then, when it comes to a bailout.
Give me chastity and continence, but not yet, said Saint Augustine. Chancellor Merkel’s concern for her taxpayers seems to be of the same postponable kind.
I could easily be very wrong about this, but I think these latest developments mean that for the moment, Irish and European politicians are back in the driving seat. Back to the usual milestones for Ireland – vote on the Irish budget, Q2 11 funding. Electoral pushback in Germany or Ireland might change the picture again.