How heavily will Irish sovereign debt influence Euro currency?

Market Leader informed

According to numerous analysts, over the short run the EUR currency rate will be determined by the economies of such countries as Portugal, Spain and mainly Ireland.

Investors’ concerns over Ireland’s economic situation have recently made EUR lose its ground a little bit. Over the last week EUR has declined by 5% against USD. The reason for the panic were rumors that in 2010 the budget deficit could make up 32% of the national GDP. Besides, EUR was pressed by the considerable spread between the Irish treasury bonds and other EU states’ securities. Over the last 3 months the difference between the German and Irish bonds has become 3 times as big.

What were the initial causes of it all?  Masterforex-V Academy defines the following ones:

·         The financial crisis of 2008 turned out to be a real test for the EU, especially for its peripheral countries like Greece, Spain, Portugal and Ireland. Ireland started experiencing serious economic problems a long time ago. According to the statistics, in 2009 the budget deficit was 14.3% of the GDP (even more than in Greece). At the same time the volume of the public debt exceeded the limit of the Stability and Growth Pact (SGP) only by 0.9%, making up 65.55% of the GDP.

·         At the same time in 2009 the GDP level declined 7.1%, however it didn’t undermined the authorities’ confidence in being able to overcome the crisis on their own. Besides, the stabilization of the economic situation around the world in late 2010 was inspiring. That is why in 2010 austerity measures and support of risky banks were chosen the main strategy of fighting the crisis.

 

What measures are planned to save the Irish economy from collapse?

·         In late March 2010 the Irish government published the plan of rescuing the banking sector. They planned to provide major aid to 5 financial institutions: EBS, Irish Nationwide, The first Bank of Ireland, Anglo Irish and AIB. In the meantime numerous experts were saying that such measures had little difference from nationalization.

·         It was expected that the National Asset Management Agency (NAMA), specially created for that, would buy all the risky assets to the sum of about 80 billion euro. The assets were planned to be paid at the expense of those 10-year bonds. The main share of such assets included construction and home credits. Because of the downfall at the Irish housing market their prices declined 50%, which resulted in a 47% discount when buying them back. Moreover, the discount sales of the trouble loans was expected to end up with writing off a certain sum of the bank funds at the expense of losses, which in its turn would lead to a decrease in the main rating characteristics of the mentioned financial institutions. The Irish government planned to solve such a problem by public lending in exchange for the banks’ shares.

What is the joint rescue plan in 2011?

·         In 2011 the government and the central bank of Ireland are planning to allocate 50 billion euro to rescue the national economy. The major strategic guidelines of the financial recovery are not going to be changed.

·         Keeping in mind the social consequences of solving Greece’s economic problems with the help of the IMF, Ireland tries to avoid big-scale external borrowing.  Nevertheless, fulfilling the rescue plan may imply external loans to the sum of 23.5B euro by mid 2011, with further reduction down to 19B euro by 2014.

Masterforex-V Academy experts draw your attention to the fact that by late 2010 Ireland’s financial problems became so serious that they were noticed even by the IMF. Being afraid of a new circle of financial problems in the Euro-zone (with further decline of EUR) some EU representatives together with the IMF started urging Ireland to accept the offered financial aid, the sum of which may reach 90B euro. The Irish authorities keep rejecting the offer, saying that everything is under control and goes according to the plan. So they say they won’t need any external financial aid, at least until mid 2011. Anyway, the ballyhoo and concerns about restructuring the public debt have already led to a decline in the value of the Irish 10-year bonds, increasing its e yield from 7% to 9% on average. According to some experts’ estimates, in order to avoid the possible default Ireland will need 5B euro of external loans in January –February 2011.

EURUSD chart:

 

 

 

According to experts from the Department of studying Masterforex-V trading system , during the last week EURUSD formed bullish wave a(C ) of Monthly level(downward movement). At this point the price is developing b(C ) on MN. During the process of its formation there is a possibility of a prolonged downtrend with a possible stop around 1.33. On coming out of the MF sloping channel, which defends the long-term uptrend (1,1876-1,42811), and making up a D1 FZR*, the further downtrend of EURUSD with testing the bullish MF pivot will be the most probable scenario.

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D1 FZR = Fractal-Zigzag Reversal of level D1

 

 

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