DUBLIN (Reuters) - Ireland will counter a concerted attack that is threatening the euro zone by bringing its finances in order helped by a “remarkable turnaround” in the economy, the finance minister said on Friday.
The premium investors demand to hold 10-year Irish bonds rather than German Bunds rose to a new euro lifetime high of 451 bps on Friday, a day after a surprise fall in second quarter gross domestic product (GDP) posed a new threat to Dublin’s fiscal consolidation efforts.
Finance Minister Brian Lenihan said Ireland will do its utmost to defend the euro currency from the market attack which he said was manifested in “disturbingly” high yields demanded for its bonds at sales on Tuesday.
“There is a concerted attack on the euro zone, there is a concentration on weaker countries,” Lenihan told reporters on the sidelines of the conference.
The government’s mandate to reduce Europe’s biggest deficit via further spending cuts in December’s budget weakened further on Friday when an independent MP said he was withdrawing support in protest at proposed health cuts.
Analysts estimate Ireland’s deficit, including bank bailout costs, could reach 25 percent of GDP this year and Lenihan said the government was undeterred and that encouraging underlying economic trends helped.
“Tax revenues are stabilizing, public expenditure is under control, our budget deficit will shrink next year but the recovery is still at a tentative stage,” Lenihan said.
Lenihan said the 1.2 percent drop in GDP and 0.3 percent fall in gross national product (GNP) in the second quarter could be seen as stabilization and a turnaround after a GNP plunge of 11 percent in 2009.
Having raised enough debt to see it through to the middle of 2011, Ireland is also not facing a funding crisis, Lenihan said, but he added he was concerned by yields investors demanded at Dublin’s latest monthly bond sale on Tuesday.
“We will do everything that is essential to protect the common currency and also to put our own economic house in order,” he added.
He said he was ready to revise fiscal plans as needed and will give new projections next month after getting fresh data on monthly exchequer borrowings, jobless claims and calculations on the capital needs of nationalized Anglo Irish Bank.
However, he said he still aimed at getting the budget gap down to 3 percent of GDP by 2014.
“Neither international markets nor our EU partners will tolerate a slippage from our stated targets,” he said.
While the state does not face any imminent refinancing hurdles, Irish commercial banks will need to venture out to debt markets soon to meet tens of billions of euros of obligations.
The head of the agency which conducts Ireland’s debt sales and also oversees a “bad bank” scheme to cleanse balance sheets said concerns about banks’ funding challenges were overdone and authorities stood ready to make up any shortfalls.
“We’ve characterized concerns around that like the millennium bug,” John Corrigan, chief executive of the National Treasury Management Agency (NTMA), told reporters at the conference.
“We all thought the planes were going to fall out of the sky, the trains were going to stop, the clocks weren’t going to work.”
Editing by Patrick Graham/Ruth Pitchford
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