Monday, November 22, 2010 7:42 PM

Irish PM Dissolves Government; Spanish Banks Face Debt Challenge; Greece May "Shut-Down"; Meaning of "Guarantee"; Should Ireland Ditch the Euro?

Things continue to simmer in Europe with problems appearing on multiple fronts in Ireland, Spain, Portugal, and Greece.

Here are a few of highlights: Irish Prime Minister Brian Cowen announced he would step down once a series of fiscal packages and budgets were in place next month; Portugal Struggles to Meet Deficit Goal; High Frequency Economics Ltd. says Greece May ‘Shut Down’ on Cash Shortage.

After a look at a few articles I take a look at suggestions for Ireland to abandon the Euro, and a critical look at the meaning of "guarantee".

Irish Leader to Dissolve Government After Budget Passes

The New York Times reports, Irish Leader to Dissolve Government After Budget Passes. http://www.nytimes.com/2010/11/23/busin ... ml?_r=1&hp

Prime Minister Brian Cowen said late Monday that he would step down once a series of fiscal packages and budgets were in place next month, acceding to the demands of the opposition and its coalition partner, and injecting the threat of political instability into a financial crisis that already has markets on edge.

Earlier in the day, the minority Green Party declared that the public had lost faith in the government after its acceptance of a $100 billion rescue package over the weekend and that it would pull out of the government. It called for elections early next year, when a second round of austerity measures, forced on Ireland as a condition of the bailout, will be put before voters who have already suffered through three years of recession.

Ireland faces a stark choice between accepting cutbacks in popular middle class social programs or rejecting them and jeopardizing the rescue package, which would invite default. Most analysts expect that Mr. Cowen, whatever the condition of his coalition, will be able to pass the budget — even though it will have put into law such severe measures as a decrease in the minimum wage (one of the highest in Europe) and changes to the country’s generous child benefits.

The always churning Dublin rumor mill is now in overdrive, with speculation mounting that a back bench revolt might be brewing as Fianna Fail ministers contemplate the possibility of going into a new election with a new party leader.

The 2011 budget is to be presented before the Irish parliament on Dec. 7. It will call for six billion euros in savings and will be the first major hurdle that the government must clear to prove to the European Commission and the international Monetary Fund that this recession-battered country can come together and pass brutally painful budgets.

European Banks Drop As Contagion Concerns Spread

Bloomberg reports European Banks Drop on Concern of Ireland Contagion
http://noir.bloomberg.com/apps/news?pid ... TgKF0bnD.4

European banking stocks fell, led by Bank of Ireland Plc and Banco Santander SA, on concern that countries including Portugal and Spain may need external help to fix their finances.

Bank of Ireland, the country’s largest lender, plunged 19 percent to 39 cents in Dublin trading. Santander, Spain’s biggest, dropped 4 percent to 8.19 euros in Madrid. The 53- member Bloomberg Europe Banks and Financial Services index fell 2 percent.

Credit Default Swaps Soar as Portugal Struggles to Meet Deficit Goal

Yields spreads in Portugal have declined seven consecutive days although Credit Defaults Swaps suggest a different picture as Portugal Says Will Do Everything to Meet Deficit Goal http://noir.bloomberg.com/apps/news?pid ... JOBNJNEgmQ

Portugal will do all it can to meet its target of cutting the budget deficit to 4.6 percent of gross domestic product next year, Finance Minister Fernando Teixeira dos Santos said after Ireland became the second euro country to seek a rescue.

The yield premium that investors demand to hold Portugal’s 10-year bonds instead of German bunds narrowed to 404 basis points today, on track for a seventh straight daily decline, after a euro-era record of 484 basis points on Nov. 11. Portugal carried out its last bond sale of the year on Nov. 10 and faces its next redemption in April.

“The Irish bailout announced over the weekend will likely provide some relief to peripheral bonds, but this could be short-lived, with Portugal likely to soon return under the markets’ spotlight, as the government is finding it hard to meet its fiscal targets,â€