Karl Whelan: “They have taken far too long to admit the scale of the fiscal problem that we are facing”

Today the Irish Economy blog called for a little escapism, with Irish 10-year bonds at 7.601%… 

And the Irish Independent noted yesterday that Irish yields had risen for six days in a row. [Make that seven? – Ed]

“The amount of selling has been relatively small, but the market is all sellers and no buyers, which drives up the yield. The ECB has come in to prevent this becoming a rout,” said Padhraic Garvey, Head of Developed Markets Debt at ING Bank in Amsterdam.

Zero Hedge’s Tyler Durden added on Tuesday that “as this is happening, the EUR is pushing north of 1.40, and stock markets everywhere are gunning for new 2010 highs”.

This is the kind of central banking-cum-centralized planning garbage that can make people plead insanity after a period of brief ultraviolence.

A point which the Daily Telegraph‘s Ambrose Evans-Pritchard may, or may not agree with

The bond crisis is snowballing out of control before the country has had enough time to let its medical, pharma, IT, and financial services industries (don’t laugh, some of it is doing well) come to the rescue.

Yields on 10-year Irish bonds surged this morning to a post-EMU high of 7.41pc.

Yes, Ireland is fully-funded until April – and has another €12bn in pension reserves that could be tapped in extremis – but that is less reassuring than it looks. The spreads over German Bunds are mimicking the action seen in Greece in the final hours before the dam broke.

Once a confidence crisis takes root in this fashion it starts to contaminate everything, as we are seeing in punitive borrowing costs for Irish banks.

The uber-strong euro does not help. Under the IMF’s rule of thumb, currencies should fall by 1.1pc to offset every 1pc of GDP in fiscal tightening, ceteris paribus. Given that Ireland is going through the most wrenching fiscal squeeze ever conducted in a modern economy – though Greece is catching up – it needs a devaluation to match. Instead, the euro has risen by 18pc against the dollar since June. (less in trade-weighted terms).

Read the whole thing.

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