Ireland at the Forefront of Euro/Transatlantic crisis

Ireland is currently the front line of the euro section of the Transatlantic crisis. It is becoming clearer by the day, that the Irish government has no chance of facing the immense debt burden of Anglo-Irish Bank and of the other liabilities of the national banking system. People are starting to realize that it doesn't matter how much Ireland cuts its budget: The bank bailout is unsustainable.

We earlier reported that on Aug. 31, Anglo-Irish Bank said it needs another Eur25 billion—which is two-thirds of the national tax revenue. So far, the bailout of the Irish banks has included a direct government injection of Eur33 billion, and another Eur13 billion of toxic assets put into the Irish "bad bank." If you add the above Eur25 billion, then the total becomes Eur71 billion, which doesn't include whatever other bailout that banks might need, in addition to what they have gotten already. Banks' balance sheets continue to be filled with toxic mortgages.

Under the headline "In Ireland, Dangers Still Loom," Peter Boone and Simon Johnson wrote yesterday in their NYT Economix blog, that what is blocking a default procedure in Ireland, is "a strong lobby of real estate developers, the investors who bought banks' bonds and politicians with links to the failed developments (and their bankers)." They also write that "Ireland, simply put, appears insolvent under plausible scenarios with current policies."

This is the background to the angry question raised by Irish journalist Arthur Beesley at European Central Bank head Jean-Claude Trichet's press conference, when Beesley accused Trichet of "preventing any bank closure in Europe." Yesterday, he reported the full text of his question and of Trichet's arrogant answer ("it is an Irish problem").

An informed Irish source told EIR that the Irish government is looking with hope at the German initiative for a European-wide insolvency law. At EU home-base in Brussels, the procedure is stalling, he said, but he is convinced that "as soon as volatility is there again, the bill will be back on the table."

On this, there was an important conference in Frankfurt yesterday, organized by the Hessen state chapter of the Social Democratic Party (SPD), featuring the head of the Federal Financial Supervisory Authority (BaFin) Jochen Sanio. Sanio reported on the state of the "too big to fail" discussion, and said that they have identified 16 SIFIs (Systemically Important Financial Institutions). Even the definition of such banks was difficult: It is not only about the dimension of the bank, but also those banks which are so interconnected with other banks, that their failure would provoke a chain-reaction, and even those which are so close to politics that the state cannot afford to let them sink.

However, once the 16 SIFI in Germany have been identified, Sanio said, problems start: As the Frankfurter Allgemeine Zeitung reports, "Almost all of them are internationally operating financial groups. And as soon as insolvency procedures start for one bank, all third states would immediately start their insolvency procedures to protect the money located on their territory, for the home creditors." An issue which Sanio characterized as "partly unsolvable" for policymakers and financial watchdogs.

But exactly this is the evidence why only a "global Glass-Steagall" would work.