The sense of unreality about the true nature of Ireland's status on the sovereign bond markets was broken last weekend when the Sunday Tribune reported on what many key players in the world markets had been saying about Ireland for months.
This newspaper quoted one of the most senior bond market players saying that it was already too late for the Irish government to play its card about harsher budgetary measures and the front loading of €6bn in deficit cuts to save us from bond market hell.
This was because all the key people overseas had long stopped listening to what the authorities here had to say about the economy and the scale of the debts in the banks and of our national debts.
Having access to sovereign bond markets equates to national sovereignty. It is the only economic story that matters. But before this, we still had to endure the spin from the authorities here about "thin markets" and "market speculators" and silly commentary that Ireland didn't require the debt markets anyway because there was enough in the kitty to last till next summer. The guff was designed to be lapped up locally.
But the people who matter – the overseas business press, foreign governments and, most significantly, the international sovereign markets – had been increasingly sceptical over the past year. The mishandling by the government of the banks and the sovereign markets are interlinked.
By this weekend, Ireland was facing being the first to tap Klaus Regling's €440bn bailout in Luxembourg, probably dragging a few fellow European states along with us. (Athens had its own special bailout last May.)
Incredibly, the problems of Ireland, one of the smallest economies in the eurozone, last Friday reached the biggest world stage as leaders of the 20 largest economies met in Seoul.
It is hard for many to imagine the significance of what a 9% interest rate on a 10-year Irish bond means for the world. But the Reuters report captured it perfectly: "The Group of 20 laboured on Thursday to agree how to put the world economy on a sounder footing as renewed fears over Ireland's ability to pay its debts underscored the lingering fallout of the global financial crisis."
A Financial Times columnist opined that bond holders were right to be worried about Ireland. "This is a quote to strike fear into every Irish heart: George Papaconstantinou, Greek finance minister, said last week that 'Greece is not Ireland'. He meant to emphasise the strength of the Greek banking system, rather than its economy – after all, reports suggest he is poised to revise the Greek budget deficit sharply upwards. But even a deficit of 9.3% will look rosy compared to Dublin's 32%."
Nov 7 Splash Sunday - The Sunday Tribune splashes with a story quoting one of the most senior market players in Irish bonds saying that a change in German policy would keep Ireland locked out for good from the sovereign bond markets, regardless of the €6bn in deficit cuts. Berlin is talking about forcing bond holders to default on Greek, Irish and Portuguese national debts. Some sort of joint EU/IMF bailout therefore looms – contradicting the Irish authorities-derived spin that record sovereign interest rates were somehow to do with "thin markets" or "irrelevant" because the state had the cash to stare out the markets for the next 30 weeks.
The Sunday Tribune also reports that the European Central Bank now owns about €18bn of our sovereign bonds, a fifth of our current €90bn of national debt, because no one else in the world wants to buy and hold our devaluing sovereign bond paper.
Even by last weekend, the two key measures of our national economic sovereignty were already flashing red. Markets were demanding the equivalent of subprime annual loan interest payments of about 7% for the government to borrow money from abroad over 10 years – the next highest in Europe after bailed-out Greece. Irish sovereign bonds were the fifth-riskiest and – costliest in the world to hold and insure against default on the so-called CDS insurance markets – behind Bolivia, Greece, Argentina and Pakistan. Things were about to get worse.
Nov 8 Fallout Monday AM
Bloomberg News picks up on the Sunday Tribune story about the ECB's purchase since June of €18bn of our sovereign bonds.
Reuters in London on Monday reports that the euro fell after the Sunday Tribune story: "A report in the Sunday Tribune newspaper, citing an unnamed 'senior market player', said the government's bet that €6bn in cuts will help Ireland return to the debt markets in 2011 would be hard to implement. Widening of other eurozone peripheral bond spreads also weighed on the single currency." Separately, Reuters quotes a London bond dealer on "reports in the Irish Times and Sunday Tribune about Ireland's ability to issue more debt, suggesting that Dublin won't be able to raise money from international investors next year". UCD Professor Morgan Kelly writes in The Irish Times that the Irish banks (and by implication the state) are insolvent because of what he infers as the mortgage debts of 200,000 households.
Monday is bookended as EU monetary affairs commissioner Olli Rehn grimly tells a packed press conference late in the evening at the Department of Finance that Ireland has no choice but to take the first part of its bitter medicine in December – the first large €6bn spoonful of €15bn in deficit cuts over the next four years. Journalists wonder whether Rehn's trip is a dry run for the EU/IMF bailiffs.
The two key market indicators on Monday of our national sovereignty show Ireland is dropping into the regulation zone: Irish 10-year bond interest rates leap close to 8% and Ireland is the third-most likely country in the world to default on repaying its foreign creditors, say the markets. Greece has a 52% probability of defaulting, Venezuela 49% and Ireland 42%, says CMA Datavision. With the markets seeing a surging probability of national bankruptcy, bank bonds issued by Anglo Irish Bank and Irish Life & Permanent deteriorate – the fastest of all corporate bonds in the world in Monday trading. Irish bank shares fall amid risks of full nationalisation.
Nov 9 Sneering Tuesday -The Financial Times reports that Ireland's sovereign debt concerns weigh on the euro: "The euro suffered, as the cost of protecting against Irish default using credit default swaps reached a record level on Tuesday amid anxiety that Dublin would have to be bailed out by its eurozone partners." It quotes a UBS Bank bond expert that "the speed and extent of the deterioration is worrying".
As the international business press descends on Dublin, Brian Lenihan does a pre-recorded interview with Jeremy Paxman on BBC's Newsnight. Some viewers say Britain's gruffest presenter fails to land a glove on barrister Lenihan and reverts to sneering about Ireland, the euro and Irish national bankruptcy, while failing to mention that Britain's annual budget hole is close to that of Ireland and Greece. But sneers and grimaces are enough to win out in the London television studio: the cost of Irish 10-year money soars to a new record on Tuesday night.
Nov 10 Woeful Wednesday AM
The international press has arrived and is filing on Ireland's "new troubles". The Wall Street Journal leads the front of its online edition with two major articles: "How Did Ireland Go So Wrong" and "Ireland's Fate Tied to Doomed Banks". The WSJ online poll of the day puts Ireland ahead of Spain and Portugal as the economy most likely to lose its national sovereignty first, but all three are seen as likely to collectively default on their national debts. A WSJ correspondent also writes that one key sign that Ireland is heading to the wall is that the Irish own "too many holiday homes".
The Financial Times reports that stockmarkets across the world are hit by Ireland's sovereign woes. Meanwhile, Twitter catches up on the crisis, as Twitter Ireland's local twitterati mention bonds, Lenihan, Rehn, Olli and Paxman, ahead of X Factor and Mary Byrne, as their 'top trending terms'. On the more traditional markets, the annual cost of Irish sovereign 10-year money reaches a new record at 7.8%, as rumours sweep Europe that Brian Lenihan is about to make 'that call' to his fellow eurozone finance ministers requesting a bailout.
Central Bank governor Patrick Honohan is quizzed by the Oireachtas Economic Regulatory Affairs Committee. When the session starts at 2.30pm, the interest rate on Irish 10-year bond rates is trading at a new record of around 8%. When the governor stops speaking at 5pm, the rate has risen close to 9%. Bank of Ireland will need to cough up about €250m as a London clearing house imposes higher costs on trading Irish sovereign bonds, the international press reports.
Nov 11 Soulful Thursday AM
Reuters reports that leaders of the G20 countries meeting in Seoul were "struggling" as the Irish sovereign debt crisis deepens. "The Group of 20 laboured on Thursday to agree how to put the world economy on a sounder footing as renewed fears over Ireland's ability to pay its debts underscored the lingering fallout of the global financial crisis," says the newswire.
Irish sovereign bonds soar to a new all-time record. The annual cost of borrowing for 10 years reaches ultra subprime lending levels, at 9.2%.
Nov 12 Frightgul Friday - The problems of Ireland's insolvency go global: the G20 finance ministers release a statement that senior bond experts across Europe interpret as calling time on Ireland.
Irish newspaper headlines quoting Brian Cowen's advice of "don't panic" are ridiculed on financial markets. Commentary by Davy Stockbrokers – effectively a contractor of the Irish government in flogging bonds around the world – on the "gyrations of the bond markets" in the Irish Times are scoffed at by Europe's senior market players. Market pressure eases slightly as |EU?leaders lend support. Cowen denies talks on bailout, but?EU?sources confirm "technical" discussions on aid have taken place.
Nov 12 & 14 Worrying Weekend - Ireland is quarantined and cut off from sovereign and corporate financial markets, as national sovereignty seeps away.