Is Ireland the next big bomb in the global debt crisis?
Ireland's main stock index dived 4% today, the fifth straight decline, after European media reports over the weekend focused on the possibility of the once-booming Emerald Isle reneging on its debt.
"Fears are mounting that Ireland could default on its soaring national debt pile, amid continuing worries about its troubled banking sector," Britain’s Sunday Times reported.
In the credit-default-swap market, the cost to insure $10 million in Irish sovereign debt against default jumped to $377,000 on Friday, up from $262,000 at the end of January and just $24,000 a year ago, MarketWatch.com reported.
The Times noted that pledges made by Ireland to support its crumbled banking sector amount to 220% of the country’s annual economic output. Loans outstanding at Irish banks are more than 11 times the size of the economy.
Ireland still has a "Aaa" credit rating from Moody’s Investors Service, but the rating was placed on "negative outlook" last month, meaning it’s at risk of a downgrade.
Across the North Atlantic, tiny Iceland already is a financial basket case. But the rest of Europe has much more at stake in Ireland, because the latter is a member of the European Union and one of 16 countries that use the euro currency.
Ireland’s euro-zone membership means the country’s problems also become the problems of the European Central Bank. That's a good thing, or a bad thing, depending on where you sit in Europe.
From MarketWatch.com:
Ireland differs from Iceland in one important respect, said Nick Stamenkovic, fixed-income economist at RIA Capital in Edinburgh: "Ireland has recourse to the European Central Bank and a lot of funds," he said.
Iceland didn’t. As a result, comparisons between Ireland and Iceland are "overdone," he said.
Of course, there is the matter of the so-called no-bailout clause of the Maastricht Treaty, the agreement that established European economic and monetary union. The clause ostensibly prohibits fellow euro members from coming to the rescue of a member state in risk of default.
But the threat of a default would likely force fellow members to come to Ireland's aid "to keep the currency intact," Stamenkovic said.
Economist John McHale, writing on the Irish Economy blog, asserts that Ireland is "well removed from a full-blown financial crisis," despite what the credit-default-swap market is implying.
-- Tom Petruno
Photo: The Bank of Ireland's offices in Dublin. Credit: Crispin Rodwell / Bloomberg News
All CDO's and CDS's are worth NOTHING, and the sooner everyone wakes up to that simple fact, the faster we can square the balance sheets and move forward with cash in hand, without worthless IOU paper issued by greedy jerks only wanting that hot-ticket commission.
Posted by: Bill | February 16, 2009 at 07:15 PM
I have been this country several times and the labor laws are out of control, they deserve to hit the wall
Posted by: Steve | February 17, 2009 at 06:06 AM
Ireland is bankrupt. The country is filled with empty houses. The banks are continuing to loan money to the developers rather than put all of these loans on their books as non-performing. The Irish government in turn is loaning more money to the banks. The sad part is that it is the Irish tax payer that is being made to pay. The government has to let the Irish banks go down. There is no reason why other banks in Europe could not come in to a fellow Euro country and setup shop. The joke here is what is the difference between Iceland and Ireland? One letter and six months.
Posted by: Kevin | February 17, 2009 at 10:14 AM
Ireland and several other Eurozone countries are playing the greatest game of chicken ever played. Ireland has declared that it will guarantee its banks. But since it no longer has a soveriegn currency, it does not have the ability to write a check that large. (it would be like New York State trying to guarantee Citibank) If there is an actual run on Irish banks, they will be powerless to do anything and will probably be forced to withdraw from the Euro - and that might cause a series of events which could cause the whole thing to come crashing down. Ireland the next Iceland? Hell, the whole damn continent is the next Iceland!
Interesting times...
Posted by: jim | February 17, 2009 at 01:47 PM
every person writting about Ireland being the next Iceland...I think its a joke you can even compare us to Iceland. Sure our banks have problems, but so do every country. And it is not like NY guarantee to citibank...that outrageous!
America started this mess, with there gross overlending within the property market!Plus, to Kevin, we have not guaranteed solvency to every bank.read the news
Posted by: john | February 24, 2009 at 03:16 AM
ireland got itself into the housing mess,why greed greed.yu pay five dollars fr breakfast.but in ire they skrew yu fr 15 if yur lucky.now drop the prices or ire will be eating its own breakfast,enjoy the bacon and eat the spuds lol
Posted by: tom | May 25, 2009 at 10:46 AM