The Irish Suffer Austerity in Silence

Ireland is pounded by budget cuts that will amount to 20 percent of GDP, but protests are rare and with none of the violence seen in Greece or Italy.

In a village in County Cork in southern Ireland, about 50 farmers and business people meet after Mass on Sundays to protest against taxpayer bailouts of bankers. They hold up a banner, wait for the traffic to stop, and set off on their march 200 yards up the road and back to bemoan the collapse of the economy. 

As the first anniversary of Ireland’s €67.5 billion ($91.1 billion) bailout by the European Union and International Monetary Fund approaches, organizer Diarmuid O’Flynn says the group has struggled to break the 70-person mark ever since it started in March. “Where we’ve gone we’ve met with almost universal support, but nobody will fall in,” he says. 

“It’s what is called the bystander theory. The more people who witness a crime, the less likely somebody is to intervene.”

Not all protests are tiny. Irish police say 15,000 students in Dublin protested the government’s reintroduction of college fees on Nov. 16. A version of Occupy Wall Street has also sprung up there. 

Yet the protests haven’t approached the violence and chaos in the streets of Athens and Rome. In Ireland there was only one strike in the third quarter, and it involved about 17 people, according to a statement by the Irish Central Statistics Office. 

Greek unions have fought the government’s spending cuts by grounding airplanes, halting public transport, and allowing garbage to pile up on Athens streets. 

Portugal is set to face a general strike on Nov. 24, its second in a year. The peaceful, often subdued nature of Ireland’s protests supports the government’s insistence that the nation shouldn’t be lumped in the same category as the Mediterranean states.

“It is very clear that it sets Ireland apart from some other countries,” Istvan Szekely, a European Commission official overseeing the country’s bailout, said in Dublin recently.

Ireland was a relatively poor state until the 1980s, when the government intensified efforts to lure multinationals in cutting-edge industries such as software and pharmaceuticals with low taxes and a well-educated labor force willing to work for modest wages.

While Ireland boomed for years, the banks financed a real estate bubble that burst in 2008. Unemployment has tripled, most of the financial system has been nationalized, and government austerity measures from 2008 to 2015 will amount to more than €30 billion, or about 20 percent of gross domestic product.

The coalition government of Prime Minister Enda Kenny, who defeated his opponent in a general election on Feb. 25, has largely followed the austerity policies of his predecessor. Polls indicate he remains popular. “While the Irish are angry, they haven’t moved to active opposition,” says Eugene McCartan, who is part of a group that wants Ireland to leave the euro.

Analysts suggest a mix of reasons for the Irish willingness to accept austerity. Austin Hughes, chief economist at KBC Bank Ireland, says it’s partly because many Irish realize they fueled the boom and bust by pushing up property prices and seeking pay hikes that led to a loss of competitiveness. “There is a sense that everyone was at a party that went a little too wild,” he says.

Other analysts point to unions’ decision to work with the government. Finally, many of those who might have taken to the streets have left the country to find work. “This history of migration from Ireland is one of the reasons why we haven’t had more revolt and social protest,” says Chris Curtin, professor of political science and sociology at NUI Galway. “The protest is a walk-out.”

The markets have rewarded the Irish with yields of 8 percent on Irish bonds maturing in 2020. Comparable Greek bonds are yielding more than 25 percent. Yet there’s no end in sight for the austerity the Irish must endure. 

“The new government really doesn’t have any fixes or policy options that will better people’s lives in any kind of near-term future,” says Sean Kay, a professor of politics and government at Ohio Wesleyan University in Delaware, Ohio.

In Cork, the protester count in the village has dwindled to fewer than 50 as sports and farm work draw locals away. Says organizer O’Flynn: “Everybody is waiting for somebody else to protest.”

The bottom line: Ireland’s austerity measures from 2008 to 2015 will equal 20 percent of GDP. So far the Irish are taking them in stride.

 

Royal Alliance Capital Currency Review

Berlusconi exits as debts spiral

The 17-year political career of Silvio Berlusconi came to an end on Saturday, whilst Italy attempts to contain its current debt levels from spiraling out of control.

Berlusconi’s departure came after the country's lower house of parliament approved an urgently needed package of economic reforms designed to tackle the country's €1.9 trillion debt, revive its sluggish economy and prevent it from going the way of Greece. Sunday saw the appointment of Mario Monti. His task is to form a new government in an effort to shore up Italy’s government bond market; the third largest in the world.  

Euro fears escalated on Thursday as Italian bond yields went through the critical 7% level, prompting concerns a bailout will be needed. Sterling reached intra-week highs of €1.1784, taking the exchange rate to its highest level since March.

Euro zone economic data offered little support to the single currency. Investor confidence data weakened to a two-year low, whilst there was a 0.7% decline in European retail sales for October. There was also a 2.7% slide in German industrial production, whilst the EU Commission cut the 2012 growth outlook sharply to 0.5% from 1.8% previously.

Sterling fell to lows of $1.5864 versus the US dollar, before reversing losses on Friday to finish the week at $1.6080.  As widely expected, the Bank of England (BoE) left both interest rates and quantitative easing (QE) on hold in Thursday’s meeting. Markets will await the release of the meeting’s minutes on 23 November to find out the voting pattern of the Bank’s policymakers. Industrial production remained flat in September, whilst manufacturing rose 0.2%; its first rise since May this year. However, the UK’s trade deficit widened from £8.6bn to £9.8bn, increasing the risk of a downward revision to UK economic growth in the third quarter of 2011.

In a sparse week for economic announcements, the US dollar found itself tracking investor sentiment and the performance of global stock markets. With mid-week developments in Italy taking a turn for the worse, the US dollar added over three cents versus the euro. However, the dollar’s gains were short lived. Rumors of Berlusconi’s departure buoyed global markets, as the dollar pared gains made earlier in the week.

The Chinese yuan was unable to make any headway during the week as consumer inflation showed a decline in September. The Swiss franc continued its recent decline against both the pound and euro as Swiss consumer inflation data proved weaker-than-expected. Global commodity prices remained fragile, hindering the performances of both the Australian and New Zealand dollars. An increase in the number of new homes being built in Canada helped the Canadian dollar gain over half a cent versus sterling.

FTSE rebound stalls as Italy debt jitters flare again

Other stock indices in Europe also pull back, after markets send Spain, France and Austria’s borrowing costs higher. 

A tentative rally in Britain’s FTSE 100 stalled on Monday after Italy was forced to pay a high price to sell five-year bonds, amid mounting uncertainty over the ability of the country’s new government to resolve its debt woes.

The UK index of blue-chip shares eased 0.47%, or 26 points, to 5,519 and the All Share index gave up 0.44%, or 13 points, to 2,844.

Markets had earlier welcomed the resignation of former prime minister Silvio Berlusconi, and were also cheered by news that former EU commissioner Mario Monti had been given the task of forming an emergency government in Italy.

But Angus Campbell at Capital Spreads said that despite political changes in both Italy and Greece, investors remained sceptical that the eurozone debt crisis ‘could actually be resolved’.

‘The sombre mood was caused primarily by uncertainty that a new Italian administration would find itself with enough support in order to push through badly needed reforms,’ he said. Gains for equities would remain ‘hard to come by’ until there is more detail on how Monti would manage to achieve that, Campbell added.

Italy paid 6.29% in its €3 billion (£2.6 billion) auction, a euro-era high, up from 5.32%. However, the sale was covered 1.47 times, reflecting slightly better demand than at the earlier sale.

The yield, or interest rate, on benchmark Italian 10-year government bonds subsequently climbed 20 basis points to 6.72% – close to levels seen as ruinous in the long-term – after earlier retreating as low as 6.34%.

‘The unelected Mr Monti may well regret taking on this job and I don't expect him to last terribly long (like most Italian governments),’ warned Louise Cooper, markets analyst at BGC Partners. ‘I will be cutting and pasting scary Italian bond yield charts in the months, if not years, to come.’

Other stock indices in Europe also pulled back, as markets sent Spain, France and Austria’s borrowing costs higher in a sign that the crisis is continuing to spread. Germany’s DAX index fell 1.2% to 5,985, France's CAC 40 index slipped 1.28% to 3,109, and the FTSEurofirst 300 index of top European shares was 0.86% lower at 976.

Resources stocks were among the biggest fallers, amid the concerns over global demand and as commodities prices dropped. Vedanta Resources (VED.L) dropped 42p to £11.20 and Glencore International (GLEN.L) slid 12p to 429p.

Financials also suffered: Standard Chartered (STAN.L) weakened 46p to £13.56, Barclays (BARC.L) was off 5p at 174p and Royal Bank of Scotland (RBS.L) slipped 0.5p to 21.9p.

ITV (ITV.L) topped the leader board on the FTSE 100, taking on 2p to 67p, after a bullish third-quarter trading update from the broadcaster. Burberry (BRBY.L) claimed second place, taking on 44p to £14.21, ahead of interim results from the luxury goods maker.

Wall Street halted a two-session rally, tracking losses in Europe. The Dow Jones Industrial Average eased 0.17% to 12,133, the Standard & Poor's 500 index lost 0.58% to 1,257, and the Nasdaq Composite index shed 0.19% to 2,674.

Elsewhere, sterling sank 1.13% versus the dollar to $1.59 ahead of UK inflation data on Tuesday, and strengthened 0.14% against the euro to €1.166.

 

Overnight Markets: Wall Street rebounds on positive corporate news

The Dow Jones was up 113 points amid strong corporate earnings report and positive economic data. 

US stocks rebounded sharply on Thursday from the previous session's losses as positive corporate and economic news overshadowed gloom over worsening eurozone debt crisis.

The Dow Jones industrial average was up 113 points, or 0.96%, at 11,894. The Standard & Poor's 500 Index was up 11 points, or 0.86%, at 1,240. The Nasdaq Composite Index was up four points, or 0.13%, at 2,625. 

US companies released positive results, with Merck raising its dividend and Cisco reporting strong earnings, reinforcing the view that corporate America is showing strength.

Italy paid sharply higher rates for its one-year borrowing, but not as much as some had feared. French bond yields surged amid concerns over the country's credit rating. Standard & Poor's later blamed a technical error for the distribution of a message suggesting it had downgraded France's credit rating. 

Adding to the positive sentiment, Thursday's economic data showed new US weekly jobless claims declined to the lowest level since April, while the trade deficit unexpectedly decreased in September to its narrowest level since December.

In Greece, former European Central Bank vice-president Lucas Papademos was appointed to head the country's new crisis coalition.

Merck gained 3.5% after the drugmaker raised its quarterly dividend by 11%, its first increase since 2004. 

Cisco Systems jumped 5.7% after the network equipment maker's earnings beat estimates.

Energy shares rose after US crude oil gained 2.1%. Hess Corp added 4%.

Elsewhere, United Technologies rose 1.3%, while 3M added 1.7%. After the market closed, Walt Disney gained 2.9% in extended trading after reporting fourth-quarter revenue that beat expectations. 

On the negative side, Nordstrom sank 4.1% after the retailer didn't raise the upper end of its full-year profit forecast.

In Asia, equities bounced back on Friday in the afternoon session after positive US jobless data and the selection of a new Greek premier tempered concern Europe’s debt crisis won’t be contained.

The MSCI Asia Pacific Index gained 0.9% to 117, as of 1:52 p.m. in Tokyo. Australia’s S&P/ASX 200 rose 1% and South Korea’s Kospi Index jumped 2.5%. Hong Kong’s Hang Seng Index advanced 1.1%, while China’s Shanghai Composite Index added 0.6%. Japan’s Nikkei 225 Stock Average added 0.4%.

In company news, Sony climbed 2.9%, Hynix Semiconductor advanced 1.9% in Seoul and Genting Singapore slumped 4.8%.

 

Royal Alliance Capital Currency Review

Political tensions hurt euro

European political tensions again dominated headlines last week as the euro endured further losses against both the US dollar and sterling.

Greek Prime Minister, George Papandreou, called a referendum to seek wider support for the new bailout package, despite having undertaken protracted negotiations to agree its terms with other European leaders. However, Papandreou later withdrew the plan for a referendum after intense opposition. 

The added uncertainties prompted the euro to fall to intra-week lows of 1.1698 against the pound. Further political developments on Sunday saw the Greek Prime Minister announce his imminent resignation as Greek political leaders sealed a pact to form a national unity government. 

The new coalition comes in an effort to show that Greece is serious about taking the steps needed to stave off bankruptcy. Concerns Italy could become further embroiled in the crisis intensified on Monday morning, as fears grew over Italy's political uncertainty ahead of a second vote on Tuesday regarding the country's budget and a potential confidence vote on Prime Minister Silvio Berlusconi.

In his first meeting as President of the European Central Bank (ECB), Mario Draghi and the ECB council unexpectedly lowered interest rates from 1.5% to 1.25%, compounding the euro’s woes. The ECB's move reversed its decision to lift interest rates in July, at which time the sterling/euro rate had fallen to lows below 1.12. Although the pound has found it difficult to break through €1.17 in recent months, this resistance level might be broken if the ECB decides it has to cut rates further in the coming months.

A first estimate of UK Gross Domestic Product (GDP) indicated the UK economy grew by 0.5% during the third quarter. This represented a bounce in activity, after a second quarter performance which had been weighed down by the early Easter timing and an extra public holiday for the Royal wedding. 

However, this meant the year-on-year growth rate was also just 0.5%, which still points to a very subdued pace of recovery. A third fall in manufacturing activity in four months in October underpinned some pessimism over the outlook for the final quarter of 2011.

The US dollar lacked a clear direction against sterling last week, generally following wider stock market trends and changes in investors’ optimism levels. There were relatively few domestic surprises for the currency. 

The US Federal Reserve repeated its commitment to keep interest rates close to zero until at least mid-2013, although one Committee member wanted the central bank to take further measures to stimulate the economy. The latest non-farm payrolls jobs report fell slightly short of expectations, although revisions to past data suggested the employment picture might not be quite as bleak as previously thought.

The Australian dollar fell more than three cents against sterling last week as the Reserve Bank of Australia (RBA) lowered interest rates for the first time in more than two and a half years. In a move to bolster the Australian economy, the RBA cut its key interest rate to 4.5% as weaker global growth threatens to slow the nation’s resource-driven economy. 

The Japanese yen carried on its recent decline amid rumours the Bank of Japan is continuing to intervene to prevent its currency from appreciating further. The Canadian dollar lost support versus the pound as Canadian employment fell by 54,000 in October, contrary to the 15,000 rise expected by forecasters. Worse-than-expected employment data in New Zealand saw the New Zealand dollar fall to intra-week lows of 2.035 versus sterling.

 

Greek PM, opposition reach power-sharing deal

Greece's Prime Minister George Papandreou, left, Greek
President Karolos Papoulias, center and opposition
leader Antonis Samaras sit at the Presidential Palace
in Athens on Sunday, Nov. 6 2011. Greece's embattled
prime minister and the head of the main opposition party
reached an initial agreement to form an interim
government that will ensure the country's new European
debt deal and then lead Greece to early elections, the
president's office said.

Greece's embattled prime minister and main opposition leader agreed Sunday to form an interim government to ensure the country's new European debt deal, capping a week of political turmoil that saw Greece face a catastrophic default that threatened its euro membership and roiled international markets.

As part of the deal, Prime Minister George Papandreou agreed to step down halfway through his four-year term. He and conservative opposition head Antonis Samaras are to meet Monday to discuss who will become prime minister and the makeup of the Cabinet.

The new unity government's main task will be to pass the European rescue package, reached after marathon negotiations between European leaders barely a week ago _ a move considered crucial to shoring up the euro. The interim government will then lead the country into early elections, expected early next year.

Officials had been anxious to reach some form of agreement before a meeting of eurozone finance ministers in Brussels on Monday.

"Of course it's a breakthrough," government spokesman Elias Mossialos said. "It is a historical day for Greece, we will have a coalition government very soon, early next week. The prime minister and the leader of the opposition will discuss tomorrow the name of the new prime minister and the names of ministers."

Papandreou sparked the latest crisis by announcing last week that he was taking the hard-fought debt agreement to a referendum. That outraged European leaders, who said such a vote could raise the specter of Athens leaving the common currency _ setting off an unpredictable chain reaction that could drag down other European countries.

They also warned a vote would jeopardize the disbursement of a vital $11 billion (euro8 billion) installment of Greece's existing $152 billion (euro110 billion) bailout, which the country desperately needs to avoid the potential of a catastrophic default within weeks.

In the ensuing market turmoil, Italy _ which also faces severe financial difficulties, but is considered too big to bail out _ saw its borrowing costs spiral, sparking fears it could be dragged into the fray.

Papandreou withdrew the referendum plan Thursday in the wake of European anger and after it sparked a rebellion among his own Socialist lawmakers, many of whom called for him to resign. The turmoil also pushed the conservative opposition party to publicly declare it would back the debt agreement.

Any interim government that is formed with the support of both major parties will be almost guaranteed to push the European rescue package through parliament, even if it has to be approved by a reinforced majority of 180 of the legislature's 300 lawmakers.

The new European deal would give Greece an additional $179 billion (euro130 billion) in rescue loans and bank support. It would also see banks and private investors write off 50 percent of their Greek debt holdings, worth some $138 billion (euro100 billion).

The goal is to reduce Greece's debts to the point where the country is able to handle its finances without relying on constant bailouts.

Greece's lawmakers must now approve the package, putting intense pressure on the country's leaders to swiftly end the political crisis so parliament can convene and put it to a vote.

A planned meeting with the leaders of all political parties in parliament, which was to take place Monday evening, was canceled after two leftist parties refused to attend, the president's office said.

Sunday's agreement came after a late-night meeting between Papandreou and Samaras called by President Karolos Papoulias at Papandreou's request to end a two-day deadlock. Direct talks had failed to get off the ground because Papandreou had said an agreement had to be reached on a new government before he stepped aside, while Samaras insisted Papandrepou resign before the start of negotiations and demanded quick elections.

An opposition conservative party official said Samaras' New Democracy party was "absolutely satisfied" with the outcome of the talks and that party officials were to hold meetings late Sunday night with Finance Minister Evangelos Venizelos and his advisers to discuss how long it would take to finalize the new debt deal and when elections could be held.

"Our two targets, for Mr. Papandreou to resign and for elections to be held, have been met," the official said, speaking on condition of anonymity to discuss the process.

The Finance Ministry said a late-night meeting between Venizelos and opposition party members determined the "most suitable" date for elections was Feb. 19.

Two turbulent years after coming to power in a landslide election victory, Papandreou has seen his popularity plummet as his government has been forced to severely cut spending while hiking taxes to tackle a runaway deficit and debt that led Greece to become the first eurozone country to seek an international bailout.

Ireland and Portugal have since followed suit, but European leaders have been desperate to ensure other countries with larger economies are not also dragged down.