The EU’s bailout of Ireland is unlikely to halt expectations that the eurozone debt crisis will spread to Portugal, or provide reassurance that a firewall can be built around Spain.
Europe’s debt contagion has moved on from Greece to consume Ireland in a matter of months, even though Ireland had complained it was not like Greece and did not need help to sort out its bad banks or a gaping budget deficit.
Sunday’s decision by EU finance ministers to prop up Ireland with 85 billion euros (US$112.5 billion) may temporarily halt financial market pressure on eurozone debt.
PHOTO: REUTERS
However, renewed pressure is likely to be applied to Portugal and Spain, where yields on 10-year government bonds rose sharply last week as debt markets priced in the risk that Iberia could be next in line after Ireland.
“I think it is almost impossible now to stop the contagion,” said Mark Grant, managing director of corporate syndicate and structured debt products at Southwest Securities in Florida.
“If Ireland is dealt with, it will not be solved and then bond owners will turn their attention to Portugal, Spain, Italy, Belgium et al as the monetary union is full of structural defects. With the possible exception of Germany, it appears to me that no sovereign debt is safe,” Grant said.
Spanish Prime Minister Jose Luis Rodriguez Zapatero said last week there was no chance Madrid would follow Dublin and Athens in requesting aid, a line repeated by his economy minister as she arrived for Sunday’s EU talks in Brussels.
Portugal’s prime minister has said similar things about Lisbon, but the words may not be enough to stop it happening.
Ireland’s situation may be different to Greece’s, Portugal’s different to Ireland’s and Spain’s different to Portugal’s, but they all still have enough bad ingredients — whether high deficits, low growth prospects, large debts or bad banks — to create market uncertainty and raise their risk profiles.
“If we look at the wider situation, markets are already concerned about contagion spreading to Portugal, and then Spain, and to a certain extent the European Union are playing catch up to market fears,” said Philip Shaw, chief economist at Investec.
“There’s absolutely no indication that the agreed package for Ireland is going to soothe those concerns spreading from the Iberian peninsula,” he said.
EU leaders and senior finance officials now find themselves confronted by an array of unappealing challenges.
If Ireland’s bailout does not stop the rot, they will have to convince financial markets they have the capacity to bail out Portugal and potentially Spain, too. Otherwise yields on Portuguese and Spanish debt will go on rising and further contagion would be self-fulfilling.
In theory, they have the money to help both.
The European Financial Stability Facility, a joint EU-IMF fund created in May, started with 750 billion euros in the kitty. After Ireland’s bailout, there is 665 billion euros left — Greece’s package was a separate 110 billion euro arrangement.
If Portugal were to seek EU assistance, economists estimate it would need up to 100 billion euros, well within the fund’s reach. Spain, however, is a very different case. Its economy is twice the size of Portugal, Ireland and Greece combined.
While there may in theory be enough funds to help Spain as well, such a bailout would come close to using up everything, which would be a red rag to those determined to see what the EU would do next if, say, Belgium or Italy came under pressure.
In terms of macroeconomic fundamentals, Portugal and Spain do not need a bailout, but this has become a sentiment-driven crisis, with bond market fears driving up yields, raising the cost of funding and forcing EU states to crisis point.
“The problem is that the markets have moved,” said Alan McQuaid, chief economist at Bloxham stockbrokers.
“I don’t think they really care about Ireland any more, they’ve moved on to Portugal and Spain. The crisis has moved on. The politicians don’t seem to realize, but the markets have,” he said.
In the long term, the best defense against attack will be Portugal, Spain, Ireland and others retooling their economies to improve primary budget balances, increase productivity and growth, and lower unemployment — but that will take years.
In the short term, the EU is faced with dealing with the immediate problems and communicating better on how it plans to overcome them. Past communications have been patchy and may well have exacerbated the crisis.
On Sunday, as well as agreeing on the Irish bailout, finance ministers discussed how a permanent mechanism for resolving future eurozone sovereign debt crises — which the EU plans to introduce from 2013 when the European Financial Stability Facility expires — will work.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
TRANSFORMATION: Taiwan is now home to the largest Google hardware research and development center outside of the US, thanks to the nation’s economic policies President Tsai Ing-wen (蔡英文) yesterday attended an event marking the opening of Google’s second hardware research and development (R&D) office in Taiwan, which was held at New Taipei City’s Banciao District (板橋). This signals Taiwan’s transformation into the world’s largest Google hardware research and development center outside of the US, validating the nation’s economic policy in the past eight years, she said. The “five plus two” innovative industries policy, “six core strategic industries” initiative and infrastructure projects have grown the national industry and established resilient supply chains that withstood the COVID-19 pandemic, Tsai said. Taiwan has improved investment conditions of the domestic economy
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day