Luck of the Irish
Much less noticed was Ireland, which returned to long-term debt markets the same day.
From every angle, Ireland's auction was a rousing success. The National Treasury Management Agency sold 4.19 billion of five- and eight-year debt at average yields of 5.9% and 6.1%, respectively -- below comparable Spanish and Italian yields at the time. Demand was robust, roughly twice coverage for both offerings.
Funnily enough, the auction almost didn't happen. Treasury officials initially planned the offering as a swap, where holders of debt maturing in 2013 and 2014 could exchange their holdings for longer-term maturities -- essentially helping ease Ireland's near-term refinancing burden.
But with Irish sentiment riding high after EU officials reaffirmed Ireland's debt reduction progress and suggested they may relax some bailout terms, Treasury officials made a game-time decision to open the auction to new buyers. Only 1 billion worth of debt was swapped; the remaining 4.2 billion was purchased with fresh capital.
Why is bailed-out Ireland attracting new investors who don't demand Spanish- or Italian-sized risk premia, to borrow Draghi's pet phrase? Certainly it helps that Ireland was an outlier from the start, with a competitive economy and a relatively manageable debt load.
Ireland's problems stemmed largely from troubled Irish banks, which needed big state bailouts in 2010. Ireland had to borrow heavily to fund the rescues, which ballooned that year's deficit to 32% of GDP, sent borrowing costs markedly higher and ultimately forced Ireland to tap the EFSF for state funding.
Put another way, Ireland had a milder form of Spain's banking troubles, which recently earned a much less stringent EFSF assistance package. Had EU officials been this flexible in November 2010, Ireland likely would have remained on its own two feet.
But Ireland was bailed out, and it received a full austerity mandate from the EU and IMF, a mandate it complied with even though, from a competitiveness standpoint, Ireland didn't need much EU babysitting.
Irish officials dutifully cut spending, trimmed the already lean public sector and raised tax revenue, and the nation has met every deficit target with flying colors.