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Investor fears push Ireland onto G20 agenda

France and Germany issue statement from G20 summit in South Korea amid fears that Irish debt default concerns will spread to other countries.

Germany's Chancellor Angela Merkel arrives for the opening plenary session of the G20 Summit this morning.
Germany's Chancellor Angela Merkel arrives for the opening plenary session of the G20 Summit this morning.
Image: Michel Euler/AP/Press Association Images

GERMANY, FRANCE, SPAIN AND BRITAIN have released a joint statement at the G20 talks in Seoul in response to Ireland’s sovereign debt crisis.

Ireland made it onto the G20 agenda as international investors worry about the country’s risk of default.

The spike in Irish bond prices has been putting pressure on the debt of other eurozone countries such as Portugal and on the euro, Reuters reports. The euro has fallen to a one-month low against the dollar.

The statement said that whatever the debate on future permanent financial crisis resolution and the possible role of private sector involvement in that, it does not apply to outstanding debt.

A new system which would force private investors and bondholders to shoulder more debt could be in place by 2013.

Germany blamed for Irish bond woes

According to CNN, Germany Chancellor Angela 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.

Taoiseach Brian Cowen responded by saying her comments were not helpful and may have had an unforeseen consequence: “The consequence that the market has taken from it is to question the commitment to the repayment of debt.”

He said bond markets were behaving irrationally at present, and insisted to the Irish Independent that the government’s budget strategy was on track.

Minister Brian Lenihan also blamed Merkel’s comments for Ireland’s bond spreads, and said last night that the country’s bond problems were “very serious”.

EU emergency fund

The Irish Times reports that informal contacts are underway between Brussels, Berlin and other EU capitals to check the preparedness of the EU rescue fund in case Ireland applies for it.

The political anxiety in Europe centres on the government’s ability to pass its budget next month, including €6m in cuts and tax increases.

The Germany economist, Klaus Regling, who heads the EU’s €440bn emergency bailout fund said previously part of the reason it was initially set up was to calm the markets, the Financial Times reports. Regling also said earlier that he didn’t think the fund, which is supported with a further €310bn by the IMF, would ever be used.

The FT reports that the temporary confidence the establishment of the fund gave the markets has apparently evaporated following Merkel’s call for bondholders to bear more debt in a default.

The cost of Ireland’s borrowing has fallen from yesterday’s record 8.9% to 8.575% this morning on 10 year bonds.

Moodys said that it will wait until the government’s four-year plan is released later this month before deciding whether or not to downgrade Ireland’s credit rating, according to Reuters. A downgrading could see Irish debt spreads rise even higher.

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