Time to count up the systemic implications of the Irish crisis, following up on some of today’s links and other news.
First, the usual contagion to Portugal and Spain is now in full swing, propelled by another barrage of bumbling Euroannouncements:
Weber announced that if necessary, the EU would increase the ceiling of the EFSF (to a level that looked intended to accommodate a Spanish bailout); the EU and German government immediately denied any such intention.
Ex-European commissioner Prodi said it was all Merkel’s fault for shooting her mouth off, and puffed his mate Draghi as the next ECB head; nice sense of priorities there.
Someone or other in Portugal said ‘Portugal’s not next'; but we are all getting bored with that sort of thing.
The market noticed Friday’s Irish Times story, repeated now on Bloomberg, that senior bondholders might take haircuts as part of the bailout, leaving alea, the bondholders, and the bond market (Irish 10 years now yield 9.18%, that’s another +14bps today; Spanish are 5.21, +3bps, after an excursion to 5.28), all equally unimpressed.
..and also by doubts about whether the bailout would work at all, nicely recapped here. We are told to expect an announcement of the terms on Sunday, by the way.
Second, there is the coupling to the UK, both financial, as mentioned here en passant, and economic.
Third, there is the shadowy shadow banking connection to Germany and elsewhere, set out here.
Fourth, the “elsewhere” may include not only France and the UK, but also the States. Back at the beginning of the year, the staff at Naked Capitalism caught a glimpse of the massive presence of shadow banking funding vehicles in Ireland, during our attempt to dig into into GS’s Abacus programme. Such public listing particulars as there are, are to be found on the Irish SE’s web site, along with scrillions of other shadow-banking-related entities. One imagines there’s a tax angle, as well as a disclosure and reg-arb angle. I have no idea how much has run off in the last couple of years, perhaps lots, which would rather deflate my point; and finding out what’s still there might be hard. But anyway, there do seem to be *tons* of liabilities for international banks via Ireland: to the tune of $500Billion, according to Eurointelligence, who explore what happens if this unconvincing bailout of the very possibly hopelessly insolvent Irish state goes ahead.
So if you are looking for systemic couplings, then, pending further research on exactly what Irish debt restructuring scenarios blow up the shadow banking system (again), it might be time to lightly pencil in Ireland-US and Ireland-France, via whatever’s left of CDO funding vehicles, and the zoo of VIEs, SIVs, etc, apparently still pullulating in Dublin.
Fifth, there’s even a Belgian connection.
If you couldn’t tell by now, Ireland really is more than a sideshow, and even proximately, it may not just be about the Eurozone or the European banking system.
One one side, global politics and Finanzcapital; on the other, the Irish electorate (maybe) and some Irish MPs. This guy perhaps. Or this one, if he sorts his thinking out, to say nothing of his drinking, and his language: be warned. (Hat tips to @LorcanRK and Scott F, respectively, if I remember correctly).
Quite the showdown.