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Bloomberg reported this morning that the ECB was in the market for Irish bonds yesterday in an attempt to calm surging yields:

“Aug. 12 (Bloomberg) — European central banks bought Irish government bonds today, according to two traders who witnessed the transactions, following a week of speculation about the health of the nation’s banks that sent the securities plunging.

The central banks made light purchases of Irish debt with maturities no longer than two years, the people said, under condition of anonymity because their trading is private. The ECB returned to the market in afternoon European trading to buy more 2012 Irish notes, one person said.

Borrowing costs rose at an Irish debt auction today even as central bank Governor Patrick Honohan said the premium investors demand to hold the nation’s bonds instead of German ones is “ridiculous.” The European Commission this week approved an injection of as much as 24.5 billion euros ($31.5 billion) into Anglo Irish Bank Corp., the lender nationalized in 2009 as the property boom collapsed. That’s more than the 22 billion euros Finance Minister Brian Lenihan had said the bank might need.

“The ECB buying allows the Irish government to take a little longer to get its house in order, or dig its own hole,” said Ciaran O’Hagan, a fixed-income strategist at Societe Generale SA in Paris. “We have yet to see concrete evidence of progress in reining in the budget deficit.”

Ireland has shown little signs of being able to control its bloated budget deficit and investors have begun to question the usefulness of austerity measures:

“True, the news this week hasn’t been great. Bank of Ireland reported a loss, and worries about bank funding needs rose again. The European Commission gave temporary approval for another €10 billion ($12.88 billion) of government capital to be injected into Anglo Irish Bank, raising the total amount of support to €24.3 billion. Depending on how this is accounted for, it could blow the 2010 budget deficit sky-high, above 20%. A new Anglo Irish bad bank could further weaken Ireland’s debt ratios, judging by a Eurostat ruling on how Germany accounts for its bad-bank vehicle.”

The Euro has made an astonishing about face in recent days and credit default swaps in the euro region have begun to tick higher.  The problems in Europe are far from over – not shocking considering the structural problems in the single currency system were not dealt with and probably won’t be for some time to come.