Bailout - a few questions

#15

I have a few questions that I hope you could answer for me.

1) Why are the EU supposedly pushing for the bailout to take place now? And not a few months ago, or in a few months time? Why has it become an issue now?

2) Does Ireland's situation threaten the euro? And if so, how exactly?

3) What knock-on effects is the Irish situation having on the rest of the PIIGS?

Sorry if you've been over this many times before, it's hard to know what info is reliable over on the other economy forum.

edit: also, just saw this on the IT website

First, the “contagion effect” – the unsustainable level of Irish 10-year bond yields has pushed up the borrowing costs of other euro-zone countries. Even though Ireland may well be fully funded into next year, this is not necessarily so for other countries.

Why does the interest on Irish bonds create problems for other countries?
Thanks.

Time Magazine

#15 wrote: »

1) Why are the EU supposedly pushing for the bailout to take place now? And not a few months ago, or in a few months time? Why has it become an issue now?

The riskier an investment, the higher a return is needed. The bond markets (the people who lend governments money to fund deficits) have started demanding much higher interest rates on Irish (and other European nations') debt. Whether or not the threat was there a few months ago is debatable, but the rise in interest rates indicates that the risk finally "hit home", so needed to be addressed.

2) Does Ireland's situation threaten the euro? And if so, how exactly?

3) What knock-on effects is the Irish situation having on the rest of the PIIGS?

Sorry if you've been over this many times before, it's hard to know what info is reliable over on the other economy forum.

Why does the interest on Irish bonds create problems for other countries?
Thanks.

These three questions are almost the same. The main reason: our banks owe money to Germans. If we default, they lose. This picture gives you a sense of the interconnectedness of the markets.

gerry87

Time Magazine wrote: »

The riskier an investment, the higher a return is needed. The bond markets (the people who lend governments money to fund deficits) have started demanding much higher interest rates on Irish (and other European nations') debt. Whether or not the threat was there a few months ago is debatable, but the rise in interest rates indicates that the risk finally "hit home", so needed to be addressed.

These three questions are almost the same. The main reason: our banks owe money to Germans. If we default, they lose. This picture gives you a sense of the interconnectedness of the markets.

Hey, could anyone clarify what the figures in that link actually include? Is it purely bank debt? Is bank debt not considered national debt at this stage with the guarantee, if so then why is the reported national debt standing at 88bn? Where would I find a breakdown of this debt by institution?

mono627

Time Magazine wrote: »

The riskier an investment, the higher a return is needed. The bond markets (the people who lend governments money to fund deficits) have started demanding much higher interest rates on Irish (and other European nations') debt. Whether or not the threat was there a few months ago is debatable, but the rise in interest rates indicates that the risk finally "hit home", so needed to be addressed.

These three questions are almost the same. The main reason: our banks owe money to Germans. If we default, they lose. This picture gives you a sense of the interconnectedness of the markets.

Quick question about that graph you have there Time, why can't countries cancel the debt they have lent to each other to give a net debt figure? For example, if Ireland owes Italy 18 billion and Italy owes Ireland 46 billion then why doesn't that cancel to a net of 28 billion owed to us by Italy? Is it just something as simple as they are being loaned at different interest rates?

Time Magazine

mono627 wrote: »

Quick question about that graph you have there Time, why can't countries cancel the debt they have lent to each other to give a net debt figure? For example, if Ireland owes Italy 18 billion and Italy owes Ireland 46 billion then why doesn't that cancel to a net of 28 billion owed to us by Italy? Is it just something as simple as they are being loaned at different interest rates?

John in Ireland is owed €100 by Luigi in Italy.

Paolo in Italy is owed by €100 by Mary in Ireland.

John and Paolo won't be happy if those debts are just cancelled.

Time Magazine

gerry87 wrote: »

Hey, could anyone clarify what the figures in that link actually include?

I'm not certain, sorry.