IRISH BORROWING costs have spiked to new records, piling pressure on the Government as it readies a four-year plan of cutbacks and tax increases to reassert control over the public finances.
Although the Government is not currently raising money from international lenders, the escalation in borrowing costs will erode the benefit it derives from new austerity measures if there is no significant decrease before the National Treasury Management Agency returns to the market as planned in the new year.
With expenditure on public services already set for a steep decline, the prospect of higher interest costs means the Government will have to set aside more funds to service the increasing national debt.
Amid intensive scrutiny of the Government’s proposals in Brussels, EU economics commissioner Olli Rehn will discuss preparations for the plan at meetings in Dublin early next week.
Final details remain to be clarified but Mr Rehn plans to meet Minister for Finance Brian Lenihan on Monday, after which a press conference is planned. He will meet Opposition figures and the social partners on Tuesday.
The difference or “spread” between the yield or interest rate on Irish 10-year bonds and comparable German debt rose by 0.12 percentage points to 4.74 per cent yesterday, the greatest for almost 20 years. As the spread widened, the interest on 10-year bonds was 0.10 percentage points higher at 7.34 per cent during the day. The same Irish bonds traded around 6 per cent in October.
The rates seen in recent days mark a decoupling from Portugal, whose bond yields have shadowed Ireland’s in most of the period since the rescue of Greece in May. Last night, however, Portuguese 10-year yields closed more than a full percentage point below comparable Irish debt at 6.22 per cent.
The renewed turmoil, a week after the Government pledged to double the scale of the four-year budget correction to €15 billion, has fanned anxiety in Government circles about the seepage of market confidence.
It comes as German chancellor Angela Merkel steps up her demands for new insolvency procedures in which lenders to euro countries would have to bear a burden in the event of a sovereign debt crisis.
As market volatility resurfaced yesterday, the chancellor insisted that nothing in the Greek bailout or the temporary rescue net for other distressed euro countries had changed.
Dr Merkel brushed aside concern about her plan yesterday when she met in Bruges when Belgium’s acting prime minister Yves Leterme. “I don’t see that it shouldn’t be possible to say where we want to go. What we are doing is talking about the future.”
“We will set it up in such a way that European taxpayers will no longer be on the hook for possible new mistakes and turmoil on the financial markets,” she said.
The Minister for Finance confirmed yesterday that the 2011 budget will be announced on December 7th after the publication later this month of the four-year economic plan.
