THE REPUBLIC’S borrowing costs have returned to a pre-bailout point as investors see the Irish economy distancing itself from the most financially troubled euro zone countries.
The price the State would pay on the markets to borrow money over 10 years closed below 8 per cent yesterday after a fall of almost one percentage point.
Over the summer the borrowing costs that would theoretically apply to the Republic climbed higher than 14 per cent. Although the State is in practice being funded by the EU-IMF bailout, a decline in the cost offers hope of an earlier return to fiscal independence.
Taoiseach Enda Kenny said, however, that while the Republic’s international reputation had improved dramatically over the past few months, there is “a very long way to go” before economic sovereignty can be restored.
“Of all the countries in Europe at the moment where there’s economic turmoil, Ireland’s perception and reputation has changed radically in the last six months,” Mr Kenny said, citing the fall in bond yields and the lower interest rate being charged for the bailout.
Davy stockbrokers bond specialist Donal O’Mahony said the storm in the bond markets had shifted to “Club Med” countries, adding that the gains in Irish bonds were “all the more impressive” given ongoing uncertainty over the Greek bailout.
Formal talks resume today in Athens between the EU-IMF troika and the Greek government on a swingeing new austerity plan. Greece adopted the measures last week in an attempt to secure the €8 billion loan it needs to avert default next month.
Europe came under renewed pressure from the US to intensify the struggle with the debt crisis as US president Barack Obama called for more action to address persistent weakness in the banking sector.
“In Europe, we haven’t seen them deal with their financial system and banking system as effectively as they need to,” Mr Obama said.
His remarks came ahead of today’s crucial vote in the German parliament on the first phase of the overhaul of Europe’s temporary bailout fund, the European Financial Stability Facility (EFSF).
Several government MPs are wavering, but German chancellor Angela Merkel was upbeat: “I’m confident the government parliamentary parties will have their own majority.”
The move has sparked controversy among the government parties, although opposition leaders have vowed to back the Bill, making it almost certain to pass.
At the European Parliament in Strasbourg yesterday EU Commission president José Manuel Barroso, in addressing the Greek debt crisis, called for faster action from political leaders.
He said the €500 billion EFSF should be brought forward from mid-2013, to show EU determination to extinguish the crisis, and reassure financial markets.
“Greece is, and Greece will remain, a member of the euro area,” he said, warning that the issues it faced would require long-term structural change. “This is not a sprint but a marathon. Greece must implement its commitments in full and on time. In turn, the other euro area members have pledged to support Greece and each other.”
The recovery in Irish bond yields came as Dublin expressed scepticism about a proposal from the European Commission to levy a transaction tax on financial institutions in the European Union. The aim of the tax is to raise about €55 billion a year, Mr Barroso said.
The initiative is already being resisted by Britain and by financial sector lobbies in Brussels, including those that represent the interests of the Republic’s State-backed banks.