Erikka Askeland: Ireland edges nearer the precipice as yields soar

JUST when you think things couldn't get worse for Ireland, they did. Although first, some irony. On the day most people began to believe Ireland was insolvent, the food retailer Iceland announced plans to open 100 stores in the republic.

Like the Irish need any reminding of the country on the arctic circle that failed after being dragged down by its banks. Iceland, the country, of course no longer has a stake in the retail chain - although when Baugur bought a 13 per cent share in the firm, it was a terrific bit of fun that Iceland bought a bit of Iceland. Until it all went horribly, horribly wrong. For Iceland, the country. And as it is now for Ireland.

Until yesterday, it was just about believable that Ireland could cope with its massive bank bail out as long as it squeezed a painful 15 billion out of its budget over the next four years. But then yields on its sovereign debt broke through record highs after 13 straight days of rising, and opinion shifted to the belief that Ireland was heading for a bail-out from Europe - or the country would go bust.

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Two thirds of economists and bond strategists polled by Reuters yesterday said they believed Ireland would not make it through 2011 without having to tap the European Union or International Monetary Fund. Last month, a similar poll showed a slim majority of economists thought it could pull through without aid.

Yet the country insists it can keep its fingers in the dyke. Ireland's central bank governor Patrick Honohan certainly thinks so. Ireland's policymakers argue that the country has enough money to tide it through until June when it is set to refinance its current debts. Until then, the cost if sovereign debt is academic - except that in this case it isn't.

LCH Clearnet, the London-based clearing house, sounded the klaxons on Wednesday when it said anyone trading Irish bond positions would have to deposit 15 per cent of the value against a rising risk of default. Some suggested it was merely a technical matter that would eventually smooth itself out, but in these times such a signal has worrying weight. It caused a rush of Irish sovereign debt holders to dump their bonds. It was estimated Ireland's own banks have to stump up $1bn (620 million) by tomorrow to keep their positions. And where's a country, whose banks are near nationalised or on the verge of it, going to come up with that sort of cash?

Scary times, because an Irish bail-out by Europe's new rescue mechanism would probably mean Portugal would have to go cap in hand too.

The upset also spread across the water here to the UK. Shares in part-nationalised Royal Bank of Scotland were down 4 per cent at one stage as investors fretted over its vulnerability to an Irish crisis through the group's Ulster Bank subsidiary.Some estimated RBS had exposures roughly totalling 42.2bn worth of Irish debt, with the threat of default risking a "domino effect".

But at least Ireland has Iceland, the retailer, which said it would create 2,000 jobs in the republic and provide cheap, frozen goods to its cash-strapped citizens. Although it is not Iceland's catch phrase that goes: "Every little helps."

The lady's not for turning, and ignore 16% discount

Katherine Garrett-Cox, head of Alliance Trust, is planning to ignore the upstart rebel investor who wants her to start buying back shares to decrease the gap between the firm's assets and its shares.

She has gone so far as to admit she has received the letter from London-based Laxey Partners, which claims to have a 1.3 per cent stake in Dundee's favourite FTSE-100 investment trust. But that doesn't mean she's going to change tack.

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Garrett-Cox has bought shares twice already - once when DC Thomson fancied selling a stake and when an Norwegian investor did too. But the group insisted this was absolutely not to be confused with adoption of a discount control mechanism. Garrett-Cox tends to shoo away pestering from analysts and other investors when they start worrying about the gap. Laxey can write as many letters and suggest as many board agenda items as it wishes. As far as the board of Alliance Trust seems to think, the 16 per cent discount be damned.