Cost of borrowing to state hits 6.53% high amid investor worry

THE cost of borrowing to the state hit a new high of 6.53% yesterday as investors worry the bank crisis will cause us to default on our mounting debt which will hit close to €180bn in 2012.

The interest rate demanded by investors to buy Irish bonds rose to new historic highs despite assurances from Finance Minister Brian Lenihan over the weekend that Ireland will be able to service its mounting debt without international assistance.

His department said there was “absolutely no truth” in recent market rumours that the Government may have to call in outside financial help to cope with its growing debt problems.

Those assurances failed to ease market concerns and the net result is that the Government faces a very high premium if it is to raise €1.5bn in 4-year and 8-year bonds as the cost of 10-year borrowing went above 6.5%.

The Central Bank governor Patrick Honohan said the Government might have to take more radical action in forthcoming budgets to ease market fears that it has the national debt under control.

Unless international lenders are convinced the long-term plan for the budget is going to be adhered to, these (debt funding) costs would continue to go up, he told a European Money and Finance forum in Dublin.

“Some explicit reprogramming” of budgets for the coming years had to be delivered soon to reassure investors, he said.

He added the upcoming assessment of Anglo Irish Bank’s rescue should help “narrow the range” of the estimated burden the banking system will place on the country’s finances.

The International Monetary Fund (IMF) backed the Government’s claims that it has its debt situation under control, rejecting reports that Ireland would need an IMF bailout.

In Brussels yesterday the Economic and Monetary Affairs Commissioner, Olli Rehn, also rowed in behind the beleaguered Irish state.

“I have full confidence in Ireland and its capacity to act with determination to complete the financial repair and the necessary restructuring of the banking and financial sector,” the commissioner said.

In recent months the NTMA has pointed out that Ireland is fully funded for this year.

Its chief executive, John Corrigan, said in an interview some time ago that the country has €20bn in cash balances it can call on to fund its debt servicing if that becomes necessary in the short-term.

Domenico Crapanzano, responsible for trading government debt at Jeffries & Co in London, said uncertainty about the extent of the banking losses remains the key worry for international investors.

He told RTÉ Radio his company would participate in the issue.

Meanwhile Klaus Regling, chief executive of the €440bn emergency guarantee under the European Financial Stability Facility, to contain the region’s sovereign debt problems suggested eurozone states will not default on their debts.

Regling said he did not expect the fund will have to be activated.

“The central scenario for me and eurozone finance ministers is that we don’t need to become operational,” Regling told Reuters.

“It is only important to be here in case of need, but the central scenario is that there is no need,” he said.


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