Currency watch: Ireland bail-out carries heavy risk

The picture is darker than a pint of Guinness for our Irish friends and they look ready to take a bail-out from the EU/IMF in the coming days.

The Irish government’s continued assertions that they have enough money to keep them going until the mid part of next year have served to unnerve markets and, according to some reports, make ECB governor Jean-Claude Trichet absolutely irate.

In the short-term the injection of cash will likely bring down the crippling bond spreads that Ireland and other peripheral nations have had to deal with in the previous few months, but putting money into the banks while the government’s own growth projections are far too optimistic is a dangerous game.

We could be revisiting the Dublin question in the next couple of years but with a more permanent solution (restructure/default).
 
Elsewhere, the Bank of England is still in a "wait and see" stance over further quantitative easing here in the UK. It is still too early to tell whether it is needed or not and we expect that come February the picture will be much clearer.

The minutes of the bank’s latest meeting suggest it is fully aware of the inflationary problems we have in the UK (earlier this week CPI remained stubborn at 3.2%) and this may act as a stumbling block for those who have their heart set on further stimulus in the UK.

Consumer spending is staying strong here in the UK in the meantime but with a major fiscal pinch on its way it is unlikely that it will stay this hardy.

Jeremy Cook, chief economist at World First, 19.11.2010