By Russell Glaser – Headlines today are reporting a joint EU/IMF proposal to save the Irish banking system in order to prevent a spread of panic to the rest of the euro zone. This is despite public statements from the Irish government that is determined not to cede control over its finances to outside influences. The bailout may be enough to prop up Ireland but may not save periphery Europe from further contagion problems which would be a negative for the euro.
A packaged deal by the EU/IMF to support the collapsing Irish banking system is being strung together in negotiations with Irish government officials.
The EU/IMF bailout would come on top of the already 50 billion euros ($67 billion) aid package the Irish government has pledged to prop up its banking system. The largest Irish banks are crumbling due to poor performing property loans. Officials are currently examining the finances of Irelands banking system to identify those banks that will need more funding as the EU/IMF is of the opinion that the present Irish bailout plan will not be sufficient.
However, the 750 billion euro EU funding mechanism for member states is designed to be activated once a state requests aid. Ireland has been adamant in its refusal to accept outside aid while ceding control of their financial destiny. The EU/IMF has an interest in arriving at a deal with Ireland to prevent contagion. The longer the crisis carries on, the greater the chance market fears will spread to other EU periphery states such as Spain, Italy, and Greece.
Should the Irish banking/debt crisis carry on it will weigh on the EU and be a negative for the euro.
Technical studies suggest the EUR/USD is in line for a bearish correction with the next price target for the pair resting at 1.3270. Traders should remember the previous fiscal crisis with Greece led to the EUR/USD trading as low as 1.1875.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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