After the financial problems of Greece kick-started the outbreak of this year’s Euro crisis in early 2010, a new wave of panic is now causing trouble on the world’s financial markets: Ireland is spotlighted as the next EU member to fear a bailout.
This week, I could read headlines about Ireland’s financial distress in nearly every business website that I visited. As I experienced the outbreak of the Euro crisis first hand and saw what damage it caused for financial markets and investors, I was shocked to read this news. Would the whole panic about the PIIGS burst again?
I found an interesting article on bloomberg.com called “Irish Deepen `Last Chance’ Budget Cuts as Trichet Backs Squeeze“ by Dara Doyle and John Fraher. The article makes aware that “Ireland is struggling to convince investors it can deal with the mounting cost of bailing out its banking system and avoid the fate of Greece…”.
Moreover, the authors highlight that “The premium investors charge to hold Irish 10-year debt over the German equivalent, Europe’s benchmark, widened…[to]…the most since Bloomberg began collecting the data in 1991.”
Another Bloomberg report (Ireland Hasn’t Asked for Bailout as Investors Dump Bonds, EU’s Rehn Says) quoted Goldman Sachs Group Inc. Chief European Economist Erik Nielsen who warned “there’s a “big probability” that Ireland and Portugal, which is also trying to cut its deficit, will turn to the EU and the International Monetary Fund for help.”
I think that nervousness and shakiness due to the critical states of several of EU countries will remain for a longer period.
Moreover, most investors have already spotted further EU countries which are facing economic problems. I would suggest you to have a look at Belgium. They might worsen the situation on markets further in the near future.
But what I think so astonishing about the panic this time is the investors’ perception that the austerity program of Ireland might be too much and drastic. Nonetheless, I am not convinced whether mere austerity will result in both – economic growth and diminished deficit. What do you think?