Michael Taft: During the Greek debt crisis, we were constantly told that we weren’t Spain or Portugal or Italy, that the international markets were treating us differently, better, because we had taken the difficult fiscal decisions (i.e. spending cuts). This was despite the fact that the main indices showed otherwise, that we were competing with Portugal for the worst bond performance once Greece exited the market. It was just one more case of commentators making excuses, after they had spent all last year assuring us that if we took harsh economic medicine, our borrowing costs would fall.
The excuses keep coming. Our deteriorating bond performance is due to S&P’s ill-informed ratings downgrade. Another excuse: it’s not so much that Irish bonds are weakening; the gap between the German 10-year bonds has more to do with the fall in German yields.
First, our bond performance was in pretty poor shape even before the downgrade. It was already 323 basis points above German bonds prior to S&P’s announcement – well above the level at which some commentators suggest we should all start drinking ouzo.
Second, the growing spread between Irish and German bonds is a combination of falling German yields and rising Irish yields. But 60 percent of the gap that has grown since August 16th has been deteriorating Irish bonds – not the fall in German yields.
I’m sure when the whole thing goes over the edge many of our commentators will find more scapegoats (I suggest here that it could be culinary).
One could despair of even getting a factual description of the problem, never mind an analysis that bears some relationship with reality. All we will get is ever more excuses from people who claimed that the bank guarantee was ‘bold and visionary’, that deflationary policies would please the international markets, that our bank bail-out policy is ‘affordable and manageable’ and that we are, finally, back in recovery mode.
Thank god it’s Friday.