Bond crisis: If all else fails... blame the Germans


Angela Merkel and World Economic Forum Last Friday we reported on the mounting crisis of Ireland's sovereign debt bond yields. Particularly how the announcement of Lenihan's "Shock and Awe" 6 bn cuts plan had failed to move the markets.  This week, as bond yields have moved from the business pages onto the front page, the search for an explanation for this failure began. By the middle of the week, the story was set - blame the Germans!

Earlier attempts by visiting EU commissioner Olli Rehn to big up the cuts plan and the Irish economy weren't working, ditto the central bank governer Patrick Honohan's reassurance that all was well in the garden. Reminiscent of the Saddam's ebullient press officer "Comical Ali" reassuring western journalists that US tanks would never reach Baghdad as they rolled past behind his shoulder, these heroic efforts of reality denial simply weren't getting through. Hence the switch to plan B, find a convenient scapegoat and blame them for the mess.

Now it's true that at a meeting of Eurozone heads the Friday before last German premier Angela Merkel and her minions were heard to be musing about making bond holders pay for some of the losses in any future national defaults. However the most recent phase of Irish bond yields rising had begun over 10 days previously, on the 19th of October. The meeting where the German musings on "sharing the pain" were heard was on Friday the 29th. In the week from Merkel's musings to Lenihan's cunning plan, the yield rose 80 basis points, from 6.9 to 7.7%. However, so impressed was the market by Lenihan's cuts proposal, that in the week following the yields soared to yesterday's high of 8.9%, a full 120 basis points.

As the credibility gap for blaming the Germans seems to have dawned on the hapless residents of the Treasury press office, a new scapegoat has appeared. Yes, it's the naysayers again! If nationalism is the last refuge of the scoundrel then surely blaming the knockers is the lasp gasp of the terminally incompetent. Yet here is RTÉ asking, rhetorically, "are we in danger of talking ourselves down?" in last night's Frontline. Today's Irish Times carries a piece by a Davy Stockbrokers financier blaming that nasty Morgan Kelly for unleashing "the destructive forces wreaked by the politics of anger in this country" and feeding the bad news stories that are apparently driving bond prices down. Yes folks, the solution to all our problems is to take a happy pill, stop worrying about the mortgage, losing your job or paying for the kids university fees, lie back and think of Ireland and all will be well.

WORDS: Paul B. IMAGE: World Economic Forum flickr