El Pais Editorial "The failure of the Dublin bank plan"

Irish whirlpool

The failure of the Dublin bank plan affects Greece, Portugal, and to a lesser extent, Spain

IF AN explanation were needed for the
financial storm that on Wednesday
pushed the risk premium of Ireland, Portugal,
Greece and Spain to levels last seen
during the crisis in May, the main cause
would have to be the lack of confidence
felt by the markets over Ireland’s ability
to resolve the problems in its banking sector
and the permanent doubts over the
involvement of Germany in European
bailouts.

Ireland, which was responsible for the
convulsion in bond differentials on
Wednesday, has a financial system that’s
on the brink of bankruptcy, and the expensive
recapitalization plan designed by
the government has raised suspicions in
its own central bank and in Europe. The
most likely outcome is that bankruptcy
will force the country to default if it does
not apply for a loan from the ¤750 billion
European Rescue Fund, with clear and
sufficient requests.

When they refer to the Rescue Fund,
the markets look to Germany. When a
crisis breaks out, such as that of Ireland,
investors speculate on the conditions
that Angela Merkel, Finance Minister
Schäuble and the Bundesbank will impose
on the operation. The speculation in
the Irish case indicated that Germany
could impose a substantial deduction of
debt. Calm will only return to the markets
when the German authorities decide
to announce that they will not place onerous
conditions on the rescue of Ireland.
The political problem is nearly as serious
as the financial one. It appears that it
is not enough to set up a rescue mechanism
for Europe. Nor is it enough for the
governments on the periphery of the euro
zone to have committed to painful cutback
programs. It appears to be necessary
and urgent to outline the tiniest details
in terms of rescue protocol in order
to avoid a semi-catastrophic situation occurring
in countries that are disconnected
from Ireland.

Greece and Portugal are always up
against the wall; on Wednesday, their
debt differentials were close to 1,000 basis
points and 500 basis points, respectively.
The Spanish economy is suffering less
punishment than Greece and Portugal;
its cutback plan is in order and its banking
system, while pending a recapitalization,
is more solid than the European average.
But it is vulnerable to financial
storms, and as such, cannot permit mistakes
such as not quickly concluding financial
reforms, tackling the deficit or
wavering on the other issues that are
pending.

And as printed by RTE/Govt/Irish media…

I was thinking exactly the same thing …