Britannia Radio

Ireland  is moving into a new phase when the very stability of the 
state itself is in question.

Since it is unquestionably a victim of being a member of the euro-
zone this would force the ECB and the other 14 member states to do 
something!  That something is unlikely to include a bail-out since 
countries towards the Mediterranean are in no position to help, and 
the European Central Bank is forbidden by its statutes to act as a 
vehicle for such a move.

Ireland itself cannot move under euro-rules to alter its interest 
rates and it has no currency of its own to float and thus devalue.  
It can't raise taxes either.  There would seem to be a looming 
possibility that Ireland might quit the euro which could well have a 
domino effect.
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TELEGRAPH   20.11.08
Markets wary of Irish debt as fresh rescue looms
Ireland's bank rescue has begun to unravel despite a blanket debt 
guarantee for the country's top lenders, prompting concerns that 
Europe's credit crisis may be entering a second and more menacing phase.
By Ambrose Evans-Pritchard, International Business Editor

The Taoiseach, Brian Cowen, told the Irish parliament yesterday that 
he was exploring "all options" to shore up the banks after the 
collapse of their share prices over recent days.

While talk of a fresh bail-out has helped revive the battered stocks 
of Anglo Irish, Bank of Ireland and other lenders, it appears merely 
to have shifted the risk to the Irish state itself.

Michael Klawitter, a strategist at Dresdner Kleinwort, said the cost 
of insuring Irish sovereign debt through credit default swaps (CDS) 
has surged to 133 basis points. "The markets have begun to see a risk 
to the solvency of the Irish government. They are questioning whether 
it has the financial muscle to back up the guarantees," he said.

This is a disturbing pattern across Europe as the global credit 
crisis drags on, with extreme cases in Iceland, Ukraine, Russia, 
Hungary and Latvia. There are fears that investors could start to 
shun sovereign debt in Western states where banks have outgrown the 
underlying economy.

Ireland is vulnerable because financial services make up 9.8pc of 
GDP, including its 'Canary Dwarf' enclave of hedge funds. The 
liabilities of its lenders are twice Irish GDP. Britain, Switzerland, 
Belgium, Austria and Luxembourg are in the same boat.

Mr Cowen said the original ?440bn (£368bn) bail-out agreed in 
September had been successful in containing a liquidity crisis but 
had since been overtaken by events in the global markets.

Officials from Ireland's treasury and central bank are scrambling to 
put together a new package, this time involving a direct infusion of 
money into the banks to raise core capital ratios to safer levels.

Dublin hopes to attract money from buy-out firms such as JC Flowers, 
but this is becoming ever harder as the Irish property crash plays 
havoc with the banks' asset books. The government may have to dip 
into its Pension Reserve Fund.

Ronnie O'Toole, chief economist at National Irish Bank, said 
construction was in free fall, dropping towards 20,000 homes a year 
from 90,000 at the peak of the bubble. Retail property prices have 
fallen 33pc and office prices have dropped 26pc.

Ulster Bank gave warning that Ireland's economy will contract by 4pc 
next year. As a member of the eurozone, Ireland cannot devalue or 
slash interest rates to cushion the downturn. Nor can it resort to a 
fiscal boost since the budget deficit is nearing 8pc of GDP.

Dr O'Toole said Ireland had low debt, a young population and would 
"get through this".