Markets react to Irish bailout

European stocks fall but others rise following $113bn EU-IMF loan to Ireland, which has sparked fears of debt contagion.

The Irish press has said the EU-IMF bailout will sentence generations to ‘horrific debt’ [AFP]

World markets have shown mixed reactions to the $117bn bailout for Ireland, with European shares and the euro shared currency both falling.

By midday on Monday the FTSE 100 index of leading British shares was down 0.8 per cent, while Germany’s DAX and France’s CAC-40 both fell 1.2 per cent.

The drop came after a short-lived rise, with the pan-European FTSEurofirst 300 index up 0.8 per cent early in the morning.

The shared euro currency also fell to a two-month low against the dollar.

“The impact on the euro was stark,” Mitul Kotecha of Credit Agricole was quoted by the AFP news agency as saying, adding that the currency was “failing to hold its initial rally following the [bailout] announcement.”

However some markets made gains following the bailout, with Japan’s Nikkei 225 stock adding 0.9 per cent, Hong Kong’s Hang Seng index climbing 1.3 per cent and Australia’s S&P/ASX 200 index rising 0.4 per cent.

Banks also made gains with the National Bank of Greece up 4.1 per cent, Allied Irish Banks climbing 7.3 per cent and the Royal Bank of Scotland rising 2.7 per cent.

Investors are now looking to the finances of Portugal and Spain, which some worry could be the next casualties in the euro zone debt crisis.

Despite concerns over debt contagion, a survey from the European Commission published on Monday showed that economic sentiment in the 16 euro zone nations improved in November.

The European Commission said its economic sentiment indicator for the euro zone rose to 105.3 from October’s 103.8, an increase bigger than expected.

The survey is expected to fuel hopes that the recovery in the euro zone is on a fairly sound footing despite the debt crisis gripping the single currency zone.

‘Generations of debt’

Ireland is the second eurozone country after Greece to be bailed out by its partners in Europe and the International Monetary Fund.

The country’s banking system, which had invested heavily in a property boom that later collapsed, will be subject to a “fundamental downsizing” following the bailout.

The Irish press has been scathing about the loan, saying that the deal “sentences us all to generations of horrific debt”, with the government agreeing to contribute $23bn to the loan facility.

“It is pure fantasy to think the Irish people can afford to pay this bill. The taxpayer is being saddled with all the pain, while the bondholders get off scot free. It is scandal, pure scandal,” The Irish Sun said.

Brian Cowen, Ireland’s prime minister, said he expected the country to pay an average interest rate of 5.8 per cent a year on the loans, subject to market conditions.

“Without these loans the necessary tax increases and spending cuts would be far more severe,” he said.

Source: News Agencies

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