President Obama caught a lot of flack for the bank bailouts that were used to stabilize the US economy, especially after yet another year of extravagant bonuses in Wall Street. These critics would have preferred austerity measures that would have reduced our national debt, eventually to zero, so that investors would have confidence in the economy again. However, the austerity theory was put to the test in Ireland, who has undergone two years of budget cuts that have not restored investor confidence, and are now about to receive an estimated 95 billion euro stimulus from the European Union.
Despite this promised bailout the euro fell .4 percent on November 22nd 2010 to $1.3618. This could be because the money is coming with â€œtough conditionsâ€ like the possibility of raising tax rates, which businesses (like Hewlett-Packard for one) do not like. In fact, a Hewlett-Packard representative said that they had chosen Ireland specifically for the tax rate and that that should be taken into consideration. Put in the tough position of negotiating with large businesses, the EU, and the Green Party (who recently withdrew their support), it seems impossible for prime minister Brian Cowen to please everyone.
However, fearful of another collapse like Greece, the EU has been pressuring Ireland to take the bailout for a long time and Cowen has finally relented. Indeed, this bailout is going to be a larger percentage of Ireland’s gross domestic product than the bailout in Greece (60% as opposed to 47%). The hope is that this bailout will prevent the so-called contagion from spreading to Spain and Portugal. Although some critics are fearful that the contagion will spread regardless others insist that there is no cause for alarm.
Ultimately, for investors this means that the euro is currently a currency to watch, not jump to invest in.