Investors face uncertainty of political support

ONE of the reasons why European authorities are keen to see Ireland activate an external assistance programme is their desire to address the risk of market stresses spreading to other countries.

The idea was that getting Ireland under the umbrella of a large and comprehensive support package would relieve the severe strains in what had become a very prominent stress point for financial markets, and thus exert a stabilising influence on market conditions in other vulnerable countries.

However, for a variety of reasons, markets didn’t follow that script last week. There was a modestly positive initial reaction: Irish government borrowing costs relative to Germany did fall to a two-week low of about 5.2% during last Monday’s morning trading session. However, this early move quickly gave way to renewed pressure, and the so-called Irish bond spread was under considerable pressure for the remainder of the week. On Friday, the spread made a new crisis high of about 6.55%.