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Which way will the Irish economy move?

Yesterday's news that the 10 year yield on Irish government bonds has reached 6.78% saw a number of investors running for the hills amid concerns that the bailout of Anglo Irish bank could top the $35 billion forecast by credit rating agency S&P. This is a bitter blow for the Irish authorities who have battled all week to contain a situation which has the potential to run out of control fairly quickly. Indeed the government received some support from various banking institutions last week with some voicing the belief that the economy would recover and an international bailout was not required.

At this moment in time it certainly seems as though the "tail is wagging the dog" and investors are dictating the short to medium term momentum in this issue. There is serious concern that if the Irish economy was to collapse and an international bailout was required then this could prompt further money market issues within Europe. If the money markets were to freeze this would cut off the life-support for European businesses and potentially push the European and worldwide economies back into recession.

This is an issue which will be prominent over the next few weeks and one which needs to be addressed by the European authorities sooner rather than later.

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