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Specifically, although there are many issues to be agreed in relation to Greece (which now look like being delayed even further), Germany's clout is likely to mean a form of burden-sharing between the private and public sectors is likely to play a part. Up until yesterday, we were surprised that the debate around burden-sharing in the Irish banks in wind-down had gone somewhat quiet, while intense focus has been placed on Ireland receiving a lower interest rate on its official European loans. A 50% haircut on the unsecured, unguaranteed debt in Anglo and Irish Nationwide is equivalent to about eight years of the savings that would be made if the Irish interest rate was reduced to the level that Portugal is accessing funds.

European policymakers may not appreciate Ireland highlighting this issue again, especially at a time when markets are fragile because of what is happening in Greece. However, setting a precedent that Government's will not continue to bail out bankrupt financial institutions at the cost of sovereign debt sustainability could be to the advantage of Europe too. Anglo and Irish Nationwide would then represent a test case in how to deal with similar situations in the rest of the bloc.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 16th, 2011 at 06:11:12 AM EST

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