News from DNB Markets

Ireland Rescue Plan Approved

(29.11.2010) Details for the Ireland rescue plan were released yesterday and the plan was approved by the EU finance ministers. A new mechanism for dealing with debt crisis in the Euro zone was also outlined.

By Kyrre Aamdal, Senior Economist at DNB Markets

dealingroom DNB marketsEU countries and the International Monetary Fund will provide up to €85bn in total under the Irish package, which may be drawn down over a period of up to 7½ years according to Financial Times. About EUR 50bn is aimed at bolstering Ireland’s public finances. Of the remaining EUR 35bn, EUR 10bn will be used to recapitalise Ireland’s hard-hitten banks, while another EUR 25bn will be a contingency fund to help support the banking system if necessary. The IMF will contribute with EUR 22.5bn towards the overall package. This will also include three bilateral loans from the UK, Sweden and Denmark, with the British contribution being around EUR 3.8bn.

 

Along with the rescue package follows a EUR 15bn austerity package for the next four years. Also interest rates for the loans will vary on different parts of the package but generally would be close to 6 per cent according to various statements. The opposition parties are concerned over the higher interest bills for Irish banks.

 

Unexpectedly a permanent mechanism for dealing with debt crises in the Euro zone was presented. The plan would replace the present  EUR 440bn eurozone rescue fund, due to expire in 2013, with a permanent “European stabilization mechanism - ESM”. Governments that borrow from the facility would be bound by the sort of strict conditions regarding their fiscal and economic policies that were attached to Greece’s bail-out in May. At the same time, private creditors would be involved in any future debt rescheduling or restructuring through collective action clauses attached to Euro zone government bonds after 2013 – in line with current International Monetary Fund practices, according to Financial Times. A central element of the plan is that future debt crises in eurozone member states would be dealt with on a case-by-case basis, rather than according to any automatic mechanismThe plan was developed by Germany, France, EU Commission and the European Central Bank. The plan was expected to be released in December.

 

Today at 08:30 Statistics Sweden releases GDP-figures for Q3. The consensus forecast is 1.2 per cent quarterly growth on a seasonally adjusted basis, in line with the Riksbank's forecast. We expect a 1.3 per cent growth rate. In Q2 the growth was 1.9 per cent. In the third quarter the industrial production has increased further, but in a lower pace than in Q2. Retail sales have continued strongly and household's optimism is generally high. Other indicators as PMI, business surveys, auto sales and imports indicate high domestic growth. But exports are set to slow. Also the very high contributions from inventories are not expected to be repeated.

 

Later today Norges Bank's expectation survey will be released. The survey reveals wage and price inflation expectations for various groups. Normally market reactions to this survey are small.

 

Later this week several Norwegian short-term data will be released, among other retail sales, credit growth and existing home prices. Norges Bank releases tomorrow the semiannual Financial Stability Report. In the US, the most important statistics will be consumer confidence tomorrow, manufacturing ISM on Wednesday and non-farm payrolls at Friday.