Ireland Hopes For Bank Clean-Up

Irish banks were rallying on Monday ahead of an emergency budget aimed at hauling one of Europe's hardest-hit economies out of the downturn. But investors could be disappointed if Finance Minister Brian Lenihan gives only a vague outline of Ireland's plans for clearing up bad bank debts.Tuesday's announcement will most likely concentrate on improving the state of the public coffers and provide minimal detail on Ireland's strategy for clearing up bad debts. The budget is expected to detail drastic steps the Irish government will take to shave billions of euros off its budget deficit, currently expected to be in the region of 12.75% of gross domestic product for 2009, following pressure from the European Central Bank on Ireland to shore up its public finances."We expect levees to be increased by about 3.5 billion euros ($4.7 billion), with 2.0 billion euros ($2.7 billion) from increased taxes and 1.5 billion euros ($2.0 billion) through spending cuts," said Oliver Gilvarry, head of research at Dolmen Securities in Dublin.The tax increase should also include some structural changes, by taxing property rather than property transactions, which have slowed down dramatically as the property market has dropped.The big question remains whether the government will reveal any details on the creation of an asset-management company to take on hard-to-sell assets from Irish banks. No formal announcements have been made to indicate whether the assets will be taken off the balance sheet, insured in the way they are in Britain, or if Ireland will implement a mixture of the two systems. Late on Sunday, though, First Minister Brian Cowen said the government would be making "big, strategic decisions" regarding the banking sector.Shares of ( IRE - ...
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Euro Shares Resist RBS Malaise

It was a dim day for Royal Bank of Scotland and the euro zone's economic prospects, but leading shares in Europe still managed to make gains on Monday thanks to a strong performance by stocks in Asia and news that the U.K. government was launching a second rescue plan for British banks. The Dow Jones Euro Stoxx 50 of Europe's leading shares was up 1.4% at midday on Monday in London, with Britain's FTSE 100 one of the strongest indexes, up 2.4%. The British government said it was providing banks with protection against future defaults on their loans and that the Bank of England would start buying high-quality private sector assets, in what could be interpreted as the first steps toward quantitative easing (effectively, the printing of money). British interest rates, currently at 1.5%, are widely expected to be cut to near zero in the coming months. Ireland's ISEQ20 index was in the red, though, down 3.8%, following the announcement of plans last week to nationalize (other-otc: AGIBY - news - people ). (See "Nationalization Knocks Irish Banks.") (nyse: RBS - news - people ) plummeted 40.9%, or 14.2 pence (13 cents), to 20.5 pence (36 cents) in London, a price level not seen since 19...
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State Borrowing Gets Pricey

Markets have more to worry about than the health of the banking sector, they've got another big money holder to worry about: governments. In Europe, governments have already been borrowing billions more than usual from the debt markets to fund rescue attempts for troubled banks and economies, and some look more at risk than others. Spreads on government debt from countries that were Europe's most famous economic success stories not long ago -- Greece, Spain and Ireland -- have reached record highs over German bunds in recent weeks on concerns about their public finances. They spiked again on Friday after Ireland nationalized one of its biggest lenders, (other-otc: AGIBY - news - people ). This is a problem for these governments, especially if it turns out they underestimated how much the credit crisis would impact their economies and how much they'd need to borrow to finance their stimulus packages. That is why many are racing to hold bond auctions now, before the rate of interest they are expected to pay back to bond holders gets eye-wateringly high as bond investors hold out for wider spreads. The higher it gets, the more taxpayers from countries like Greece and Ireland have to pay out. "Spreads will probably continue to widen because the news-flow is pretty negative as far as the real economy is concerned," said Jacques Cailloux, an economist from Royal Bank of Scotland. Some traders believe the Greek spread, which is current...
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