During the weekend, there are fresh voices in Ireland explaining how restructuring is unavoidable and also why and how to escape the severe bailout program. Updates on the developments in Ireland and Greece that could send the Euro further down.
Greece
One member of the Germany’s junior coalition party the FDP, Frank Schäffler, said that Greece can leave the Euro-zone and that Germany should help it do so. But for now, it seems that such worries were played down by politicians.
So, the report about Greece leaving the Euro-zone was likely exaggerated, but it did have a major role in legitimizing an option of restructuring / bailout in Greece.
The finance ministers of selected EU countries discussed various options for Greece: using collateral (such as some Greek islands) for ensuring that Greece can pay, lowering the interest rate, and yes, also restructuring. Merkel acknowledges that she should move on this sooner than later.
The unlucky Irish
There’s a major difference between Ireland and Greece: In Greece, it’s mostly government debt, and a significant part of it is held by Greek pensions funds. That’s a good reason for the government to oppose a default.
In Ireland, it’s the banks – they owe too much money to German, French and British banks. The government was doing OK before it assumed responsibility over the banks’ troubles.
Irish taxpayers were forced to participate in the European bailout for the banks. The previous government was kicked out, but the new government doesn’t prove to be different so far.
Irish solution?
Morgan Kelly, a professor of economics in Dublin’s UCD, published a long and fascinating opinion post in the Irish Times, explaining that the current program will make Ireland bankrupt, and how paying its debt is just impossible. He explained how Ireland got into this situation, bashing the governor of the Irish Central Bank, the US and the European Central Bank, which he named “loan sharksâ€.
But Kelly didn’t just play a blame game but also offered solutions – he said that Ireland must decouple itself from the sick banks and leave it to the ECB. This dramatic move will release the Emerald Isle of piles of debt.
But, it may make the access to new loans problematic for some time. So, Kelly said that government must balance its sheet immediately and also offered his own salary as part of the cuts.
This article became the talk of the day due to its comprehensive view of the situation, the solution offered and the figure behind it. The analysis came from a highly regarded academic: Professor Kelly is highly regarded in Ireland, as he warned about the real estate bubble.
No denial of trouble
What were the reactions? Some, such as in the ministry of finance, focused on downplaying the numbers that Kelly suggested, while others criticized him for his nasty language in describing some people. But voices insisting that Ireland can live up to the bailout program? These weren’t heard.
On the contrary: one minister of the Fine Gael ruling party said that Ireland already plans on restructuring the gigantic 250 billion euros of debt. .
Trichet’s firm denials about Greece and stubborn attitude towards Ireland can continue, but the wheels are in motion. These words from the Irish minister are also a result of the legitimization of restructuring the Greek debt. In one word: Contagion.
Update, 20:40 GMT: Another sign of contagion appears as an Irish minister that did identify, Pat Rabbitte, said that any extra help to Greece means more help to Ireland. And he also mentioned restructuring:
Quite frankly the (interest) rate on Ireland must be reduced and in my own view the debt must also be rescheduled but that’s another issue
The restructuring contagion has begun. This comes as the bailout for Portugal is facing hurdles in Germany and Finland.
Euro
The common currency already lost 5 cents against the dollar – some account for Trichet’s softer stance on inflation, but also for the breaking news about Greece on Friday. As events move rapidly, there’s lots of room for falls from the close at 1.4313. EUR/USD is likely to face another turbulent week.
For events shaking the euro and technical analysis for Euro/Dollar, see the EUR/USD forecast.
