Leading Investor Warns Over Irish Crisis
9:55pm UK, Thursday November 11, 2010
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Speaking on Jeff Randall Live, Luke Johnson, chairman of private equity firm, Risk Capital Partners stated he feared the Irish government could default on its debt within months.
“I think there is a serious risk at some point next year of sovereign default, which is a tragedy,” he said.
Mr Johnson went on to caution that this could trigger further problems here in the UK.
“In many ways we are a larger version of Ireland. We are also hugely dependent on property. We have also had a lot of personal and property debt throughout the system and I find the unravelling of Ireland very frightening indeed.”
His comments came as borrowing costs for the Irish government have hit a record high as debt markets doubt Dublin’s capability to bring its public finances under control.
Falling tax revenues and high unemployment have caused Ireland’s budget deficit to reach 12% this year or 32% if the cost of bailing out Irish banks is included.
The cost to bond holders of insuring their Irish debt investments has also hit a peak of 680 basis points prompting a firesale of Irish government bonds.
Finance Minister Brian Lenihan blamed the markets’ reaction on uncertainty surrounding EU plans for future bailouts after the German government suggested that bond holders could be asked to share in the cost of future sovereign rescues.
The European Commission President Jose Manuel Barrosso stated that the EU would support Ireland “in case of need”.
At the G20 summit in Seoul, South Korea he said: “What is important to know is that we have all the necessary instruments in place now to support Ireland if necessary.”
On a visit to Dublin this week, the European Economics Commissioner Olli Rehn endorsed the Irish government’s austerity plans and stated there were no discussions about Ireland accessing the EU’s emergency bailout fund.
The Irish coalition government is due to outline a four year recovery plan which aims to save €15bn, the first €6bn of which will be announced on December 7 in the 2011 budget.
The government, which has a majority of just three, is relying on the votes of several rebel MPs to secure the budget’s safe passage through the Irish parliament.
Ireland has enough funds to last until spring 2011 and it’s hoped that borrowing costs will have retreated before it has to go to the bond markets again.
source : news.sky.com
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Submited at Friday, November 12th, 2010 at 12:00 am on Business by steve
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