Ireland Bailout Weakens Euro
By Adam Jordan
If the currency market was blinkered a fortnight ago, it was definitely suffering from tunnel vision last week. One subject alone dominated the proceedings and this was the Irish
government’s apparent rejection of a bailout, which everyone else believed to be inevitable. The situation put the euro under strain. Even the pound came in for a hard time, partly as a result of the UK banks’ alleged £140 billion exposure to Irish risk and partly because UK taxpayers would have to foot a major chunk of the bill.
At the weekend the Irish government agreed to accept a bailout. All was well for the euro. Then, suddenly, rebels in the Dublin coalition demanded a general election. Whoops! Would a shaky government be able to see the rescue deal through or would it all collapse? And what if the market began to pick on Portugal for the same reasons it had targeted Greece and Ireland?
Investors are far from convinced by the rescue plan. That does not guarantee an unobstructed upward passage for the pound against the euro but it should make its life easier on that front. If investors are not overly keen on Britain’s austerity they are at least as worried by Euroland’s disarray.
Adam Jordan is a currency specialist at foreign exchange provider Moneycorp