From Volume 8, Issue 8 of EIR Online, Published Feb. 24, 2009

Global Economic News

Ireland May Default

Feb. 15 (EIRNS)—Ireland may soon default on its national debt. The cost of buying insurance against Irish government bonds rose to record highs on Feb. 13, having almost tripled in a week. Debt-market investors now rank Ireland as the most troubled economy in Europe.

Simon Johnson, the former chief economist of the International Monetary Fund, called for this past weekend's meeting of G7 finance ministers to put Ireland's troubles at the top of the agenda, the Times of London reported. Johnson said, "Don't, please, tell me more about the basic principles of financial reform unless and until you have addressed the Irish problem. And don't tell me the Irish have to sort this out for themselves. Eventually, the world always comes to help; check your notes on Iceland."

Royal Bank of Scotland: £30 Billion Loss; Thousands of Job Cuts

Feb. 15 (EIRNS)—The Royal Bank of Scotland (RBS) is expected to announce this coming week that it has incurred some £30 billion in losses, and that it plans to cut between 10,000 and 20,000 jobs.

The bank is reportedly considering selling off parts of ABN Amro that it acquired in 2007 as part of a three-way consortium with Spain's Santander and Belgian bank Fortis, the Times of London reports.

RBS has already axed 13,000 jobs internationally since last April, including 3,000 in its investment-banking business. The bank had announced 2,300 British job cuts last week, shortly after the its former chief executive Sir Fred Goodwin was grilled by the Treasury committee.

Japan, Korea To Buy Corporate Bonds

Feb. 19 (EIRNS)—The Bank of Japan said it will buy 1 trillion yen ($10.7 billion) in corporate bonds from financial institutions and extend lending programs to prevent a shortage of credit. The Central Bank said it will extend programs to buy commercial paper and provide unlimited collateral-backed loans to financial institutions until September, and continue accepting lower-rated assets as collateral until December. Only bonds rated A or above are eligible for the purchase program.

The collapse is making it difficult for companies to raise funds by selling debt or shares, and banks are struggling to meet an increase in demand for loans. The cost to protect Japanese corporate debt against default soared to a record this week, due to concern that bankruptcies will sharply increase as the economy worsens.

In Korea, similar measures are being undertaken using a different agency. The Korea Asset Management Corp. will form a fund to buy distressed corporate bonds from South Korean financial institutions to revive an industry weighted down by defaults. The state-run distressed asset specialist will also expand its purchases of bad loans made to construction companies, the Financial Services Commission said today.

"The government has the choice of leaving the companies to go under or try to cull out the more viable ones and focus temporary support for them, and obviously they have taken the latter option," said Go You Sun, an economist at Daewoo Securities Co. in Seoul.

All rights reserved © 2009 EIRNS