“We are in some pickle now”

Vincent Browne tracks the history of Ireland’s banking crisis in yesterday’s Sunday Business Post, ending with what must be the biggest understatement of the new millennium (see title).

He argues that the EU will not countenance a restructuring / default of debts run up Ireland’s banks.

But getting rid of some or all Of the bank debt will not be a runner in the EU, according to a source that knows. And disowning it all would cause massive problems, not just with the bondmarkets, but otherwise.

If Ireland is seen to breach contracts at will, what confidence would any prospective investors or traders with Ireland have in the sanctity of their contracts?

Meanwhile, David McWilliams and friends have set up a new website, The Peoples’ Economy, that argues persuasively the case for negotiated restructuring of that debt.

The Irish problem is a European problem and requires a European solution. The Irish, Spanish, Portuguese and Greek banks owe the German and French banks over 900 billion euros. We should get together with the other debtor nations, form a bloc and negotiate from there.

We need to work together with our EU partners to make sure that the entire EU banking system is made stronger by the changes in the next few years.

At True Economics, Constantin Gurdgiev runs the numbers on the outstanding banking debt held by bond holders.

The total amount of bonds outstanding for the six guaranteed credit institutions is €50bn. Of this
ca €28.1bn is guaranteed senior bond debt – standard haircut assumption for CDS pricing – 40% or €11.24bn;
un-guaranteed senior debt roughly of €11.7bn (we can assume a haircut of 50%, which is smaller than the simple average of the senior guaranteed and subordinated un-guaranteed debt), to the potential savings of €5.85bn;
subordinated debt (all un-guaranteed) of €10.2bn (which can be subject to a 100% write-off, but let’s assume it is haircut at 70%) generating potential for savings of €8.4bn.

He argues there are between €25.49bn and €33.14bn of savings to be made here.

While everyone’s focus these days is on the banking crisis, back at The Peoples’ Economy Ronan Lyons reminds us of how structural fiscal issues are also driving our sovereign debt ever higher. Internal imbalances between taxation and spending largely escaping the economic narrative dominating our airwaves.

No bio, some books worth reading – The Rational Optimist: How Prosperity Evolves – Matt Ridley .

Crisis Economics: A Crash Course in the Future of Finance -Nouriel Roubini, Stephen Mihm