Investment Research General Market Conditions 24 January 2011Flash CommentIrish Government latest casualty of debt crisis• The ruling coalition in Ireland broke apart on Sunday, as the junior party in Danske Banks forecast Government (the Green Party) withdrew its support. A general election scheduled for March 11 may now be brought forward to some time in February. 2010 2011 2012• The immediate passage of the Finance Bill, which gives full legal effect to the GDP -0.4% 0.9% 1.9% Personal Expenditure -1.2% -2.0% 0.5% EUR6bn austerity measures, as mandated in the EU/IMF deal, looks likely as the Public Spending -5.0% -4.0% -2.0% Green Party has committed to supporting it. Gross Fixed Capital Formation -30.0% -5.0% 0.0% Exports 10.4% 5.5% 5.5%• The general election is likely to be fought around key elements of the EU/IMF Imports 6.0% 3.5% 4.5% Unemployment 13.3% 13.3% 12.3% deal. However, the rhetoric doesn’t suggest an appetite for a root-and-branch HICP -1.6% 0.2% 1.0% renegotiation. Source: Danske Bank• Just as the euro debt crisis seemed to be easing, Ireland may again be a cause for ongoing market nervousness until the end of February, at the earliest.DetailsThe ruling coalition in Ireland broke apart on Sunday night, as the junior party inGovernment (the Green Party) finally withdrew its support. It had already indicated that itwanted an election in early-2011, during the fraught days of the EU/IMF negotiations inDecember 2010, when opinion polls showed that confidence in the Government hadslumped. A general election scheduled for March 11 may now be brought forward tosome time in February.The withdrawal of the Green Party was finally brought about by the resignation of theIrish Prime Minister Brian Cowen as head of the ruling Fianna Fail party. Cowen, whoplans to remain as Prime Minister until parliament is dissolved, had become hugelyunpopular and was personally associated with the austerity measures and bank supportpolicies.It is not expected that Parliament will be dissolved and an election formally called untilthe Finance Bill is voted through. The Finance Bill gives full legal effect to the austeritybudget introduced in December. The core of the EUR6bn in cuts and other austeritymeasures set out in the EU/IMF agreement do not look to be in immediate jeopardy,although uncertainty remains. The Green Party has indicated that it will support theFinance Bill from the opposition benches. Other opposition parties may also facilitate itspassage in return for an earlier election. In any case, most of the difficult politicaldecisions have already been voted through. For example, the hourly minimum wage is setto fall from EUR8.65 to EUR7.65 on February 1, come what may.The real political question surrounds the rhetoric during the general election, which willbe held against the background of continued high unemployment and very weakconsumer confidence. Opinion polls suggest that the current Government will be votedout, and will be replaced by a coalition of Fine Gael (right of centre) and the Labour Party(left of centre). The election battle will be to determine the relative strength of theseparties in the new government. Chief Economist National Irish Bank Ronnie OToole +353-1 484-20716 email@example.com www.danskeresearch.comImportant disclosures and certifications are contained from page 3 of this report.
Flash CommentParty campaigns will focus on key elements of the EU/IMF deal, with an incomingGovernment likely to look for changes in how it will be implemented. At this stage, therhetoric doesn’t suggest an appetite for a root-and-branch renegotiation, such as imposinglosses on senior debt holders in Ireland’s banks. An incoming Government is likely topush hard for other changes, such as a reduction in the interest rate Ireland is paying,which domestically is seen as very high.However, until the party manifestos are published it won’t be known how muchrenegotiation any incoming government will push for. This uncertainty will be anunwelcome distraction for financial markets just as the euro debt crisis seemed to beeasing. Ireland may again be a source of market nervousness until a new government is inplace. Irish government bond spreads have tightened at the short-end today in line withmost other peripheral sovereign spreads.Opposition parties lead polls 35% 21% 14% 14% 12% 4% Fine Gael Labour Fianna Fail Sinn Fein Green Party IndependentsSource: Red C, January 20112| 24 January 2011 www.danskeresearch.com
Flash CommentDisclosureThis research report has been prepared by Danske Research, a division of Danske Bank A/S ("Danske Bank").The author of the research report is Ronnie O’Toole, Chief Economist.Analyst certificationEach research analyst responsible for the content of this research report certifies that the views expressed in theresearch report accurately reflect the research analyst’s personal view about the financial instruments and issuerscovered by the research report. Each responsible research analyst further certifies that no part of the compensationof the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressedin the research report.RegulationDanske Bank is authorized and subject to regulation by the Danish Financial Supervisory Authority and is subjectto the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. DanskeBank is subject to limited regulation by the Financial Services Authority (UK). Details on the extent of theregulation by the Financial Services Authority are available from Danske Bank upon request.The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’rules of ethics and the recommendations of the Danish Securities Dealers Association.Conflicts of interestDanske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in theresearch policies of Danske Bank. Employees within the Danske Bank Research Departments have beeninstructed that any request that might impair the objectivity and independence of research shall be referred to theResearch Management and the Compliance Department. Danske Bank Research Departments are organisedindependently from and do not report to other business areas within Danske Bank.Research analysts are remunerated in part based on the over-all profitability of Danske Bank, which includesinvestment banking revenues, but do not receive bonuses or other remuneration linked to specific corporatefinance or debt capital transactions.Financial models and/or methodology used in this research reportCalculations and presentations in this research report are based on standard econometric tools and methodologyas well as publicly available statistics for each individual security, issuer and/or country. Documentation can beobtained from the authors upon request.Risk warningMajor risks connected with recommendations or opinions in this research report, including as sensitivity analysisof relevant assumptions, are stated throughout the text.First date of publicationPlease see the front page of this research report for the first date of publication. Price-related data is calculatedusing the closing price from the day before publication.General disclaimerThis research has been prepared by Danske Markets (a division of Danske Bank A/S). It is provided forinformational purposes only. It does not constitute or form part of, and shall under no circumstances beconsidered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments(i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/oroptions, warrants, rights or other interests with respect to any such financial instruments) ("Relevant FinancialInstruments").The research report has been prepared independently and solely on the basis of publicly available informationwhich Danske Bank considers to be reliable. Whilst reasonable care has been taken to ensure that its contents arenot untrue or misleading, no representation is made as to its accuracy or completeness, and Danske Bank, itsaffiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including withoutlimitation any loss of profits, arising from reliance on this research report.The opinions expressed herein are the opinions of the research analysts responsible for the research report andreflect their judgment as of the date hereof. These opinions are subject to change, and Danske Bank does notundertake to notify any recipient of this research report of any such change nor of any other changes related to theinformation provided in the research report.This research report is not intended for retail customers in the United Kingdom or the United States.3| 24 January 2011 www.danskeresearch.com
Flash CommentThis research report is protected by copyright and is intended solely for the designated addressee. It may not bereproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank’s priorwritten consent.Disclaimer related to distribution in the United StatesThis research report is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealerand subsidiary of Danske Bank, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S.Securities and Exchange Commission. The research report is intended for distribution in the United States solelyto "U.S. institutional investors" as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for thisresearch report in connection with distribution in the United States solely to “U.S. institutional investors”.Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independenceof research analysts. In addition, the research analysts of Danske Bank who have prepared this research report arenot registered or qualified as research analysts with the NYSE or FINRA, but satisfy the applicable requirementsof a non-U.S. jurisdiction.Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant FinancialInstrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non-U.S. financial instruments may entail certain risks. Financial instruments of non-U.S. issuers may not beregistered with the U.S. Securities and Exchange Commission and may not be subject to the reporting andauditing standards of the U.S. Securities and Exchange Commission.4| 24 January 2011 www.danskeresearch.com