The "irish" banks did get in trouble and had to be were rescued by crooked Fianna Fail politicians because of the housing bust: Mortgages, breakdown of the construction sector.

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Now in 2008 there was  a high exposure of international banks to Ireland.

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Problematic was and is the exposure to the "Irish" banks. But of course all banks have cut back their exposure now for over two years.

The question is to what extent they have unwound it. I don't think they have. And to the extent that they have, they have foisted it on their own sovereigns or the ECB. I have no problem defaulting on a foreign sovereign who decided to relieve its banks of garbage assets. If you want to bail out your banks, you should get to pay for it yourself. I also have no problem with defaulting on the ECB - if the ECB were acting like a proper central bank, we wouldn't be having this discussion in the first place, because then the ECB would simply fix prices in all €-zone sovereign bonds.

The losses of the "Irish banks" did first eat up the capital, so owners did get wiped out. Then the Irish State had to took leave of its senses and decided to pay. Creditors on the other hand, depositors, bondholders, other creditors escaped scot-free.

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Now my theory is that there are not many private bond-holders left. They have used the last two years to get rid of their credits to Irish banks. The obligations of the Irish banks have shifted to the Irish state and the ECB.

Well, yes. That's why we're talking about a sovereign default, not a bank default. There has been a swap of Irish bank debts for sovereign debt, but the ultimate creditors remain roughly the same people. So defaulting on the government debt will force the people who used to be creditors of Irish banks to take a haircut. Obviously it won't hit every former creditor, and it will hit some financial institutions who weren't creditors of Irish banks. But that's how things go in financial meltdowns. Beats flagellating the Irish economy.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.