As many readers have mentioned in their emails (some quite angry), the previous post was not really about moving your business to Ireland. It was pointing to some dire economic difficulties the nation is facing. And this morning we got two further confirmations of these difficulties:
WSJ: Government data released Thursday showed that gross domestic product fell 0.2% from the third quarter, having fallen by 1.1% in the third, a figure that was revised from a 1.9% contraction.
That places Ireland in a recession under the definition of two successive quarters of declining GDP. The Irish economy last contracted for two straight quarters in late 2009.
|Ireland GDP (Bloomberg)|
But there is a more ominous sign of Ireland's troubles. Ireland has to make a EUR 3.1bn promissory note payment due next week and the government just doesn't have the resources (readily available) to pay it. So the Finance Minister is negotiating with the EU to basically kick the can down the road (roll the debt). The idea is to make the payment not in cash but by delivering a newly issued bond.
Reuters: "We are now negotiating with the EU authorities, and principally with the ECB, on the basis that the 3.06 billion euro cash installment ... could be settled by the delivery of a long-term Irish government bond," Finance Minister Michael Noonan told parliament.Ireland borrowed cash under these promissary notes to bail out its banks. And it's been trying for a while to roll this debt.
The payment will be replaced with a bond maturing in 2025, a source with knowledge of the negotiations told Reuters.
The government has been negotiating with its international creditors - the European Central Bank, the European Commission and the International Monetary Fund - to replace a 30 billion euro promissory note with another instrument, lengthen the maturity and cut the interest rate.
Reuters: Dublin has pursued a months-long campaign to reduce the cost of its bank rescue by refinancing around 30 billion euros worth of promissory notes - the IOUs used to recapitalize failed lenders Irish Nationwide Building Society and Anglo Irish Bank, now merged as the Irish Bank Resolution Corporation (IBRC).Irish 5-year CDS has widened to 617 bp this morning, which is still way below the highs of 1180 bp reached on 7/18/11. Sovereign risk is alive and well, and Ireland could be in the crosshairs.
Update: See Comments (below) for the latest on Michael Noonan's proposal and the ECB's rejection.