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Lenihan admits: Ireland's bond problems are "very serious"

The Minister for Finance acknowledges international concern about the risk of an Irish default.

Is the water of investor fear beginning to creep above Brian Lenihan's head?
Is the water of investor fear beginning to creep above Brian Lenihan's head?
Image: Julien Behal/PA Wire

BRIAN LENIHAN has admitted that the rising cost of Irish state borrowing is a “very serious” problem – but said that the rising price of Irish bonds was down to German comments that bondholders would have to share the burden of a country’s financial difficulties.

“The bond spreads are very serious and there is international concern throughout the euro zone about that,” Lenihan admitted this afternoon, according to a Reuters report.

Today, the cost of Irish borrowing reached 8.9% for the first time – and seems set to spike through the 9% barrier in trading tomorrow morning.

In a poll of 30 economists and bond strategists undertaken by Reuters, 20 out of 30 respondents believed Ireland was unlikely to make it to December 2011 without requiring some degree of financial assistance from either the European Financial Stability Fund or the IMF.

The statement came after officials in Brussels said that while Dublin was not seeking financial aid, they were keeping a close eye on the Irish situation – language Reuters suggests is reminiscent of the language offered in April shortly before Greece ended up requiring outside assistance.

The surge, Lenihan said, was down to “unintended” comments from German officials about the prospect of bondholders having to share the burden of refinancing individual countries.

Those comments, it is understood, referred to financial rules that would be introduced under a prospective ‘Lisbon Treaty 2′, though the substance of the remarks has scared investors nonetheless.

Business Insider, meanwhile, quotes the influential Calculated Risk blog which writes that some traders believe fears over an Irish default – whether based on substance or not – are resulting in some investors being unwilling to lend to Irish banks for overnight funding.

If such rumours are true, Ireland may find itself having to borrow from the EFSF or IMF simply in order to keep the banks in supply of cash.

About the author:

Gavan Reilly

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