In case you were wondering about why there is intense pressure on Ireland to accept a bailout from the EU and the IMF, look no further than the fact that European banks have $650 billion Exposure to Ireland.
Nonetheless, in a clear backhand slap in the face to Ben Bernanke, Germany’s Economy Minister says “the European Union cannot throw money from Helicopters”. Let’s explore this messy situation with a peek at a couple of articles.
Pressure Mounts on Ireland
The New York Times reports New Push for Ireland to Consent to a Bailout
As Ireland tried to fend off pressure to accept a bailout on Tuesday and other European nations raised objections to participating in a rescue plan, Europe again found itself confronting a crisis of confidence in the euro and, ultimately, in its ability to manage its economic problems.
A very public struggle over how to grapple with the latest market unease over the fiscal stability of several European countries illustrated the touchy questions of sovereignty and difficulty of reaching consensus that have kept Europe from reacting quickly. The latest episode also raises questions about tapping an existing bailout fund that Europe created earlier this year to prevent a debt crisis in Greece.
The pressure on Ireland grew as officials feared that market jitters could spread rapidly if nothing was done, putting the squeeze on other fiscally weakened countries, like Portugal and Spain, the fourth-largest economy in the euro zone.
But officials in the more fiscally sound nations, like Germany and Finland, raised concerns about turning over money to nations without a coherent plan.
The European Union cannot “throw money from helicopters,” Germany’s economy minister, Rainer Brüderle, said during a visit to Rome. “You have to create confidence in institutions, in the state, in public authorities.”
European Bank Exposure to Ireland Explains Bailout Push
The New York Times reports Banks’ Exposure Stirs EU Contagion Worries
All told, European banks were sitting on more than $650 billion of exposure to Ireland as of March 31, according to the Bank for International Settlements.
The U.K. banks are the international lenders with the most at stake. As of March 31, the latest data available, the banks had exposure of about $222 billion to a variety of Irish institutions, according to BIS. That’s about one-fourth of the world’s exposure to Ireland. About $42 billion of the U.K. banks’ exposure is in the form of lending to Ireland’s battered banking sector.
German banks aren’t far behind the U.K. They had a total of almost $206 billion in exposure to Ireland, according to the BIS, including $46 billion of exposure to the country’s banks.
Rat’s Ass Perspective
The other countries in the EU do not give a rat’s ass about Ireland. All they really cares about is $650 billion in loans on the books of UK, German, French, Italian, and Spanish banks.
The US is of course the third most interested party and will no doubt apply pressure on the IMF to apply pressure on Ireland to accept some sort of bailout.
Ireland is sitting on a pile of cash. That cash will last much longer if Ireland defaults and that I believe is just what Ireland should do.
The IMF may be prepared to “Help” but I repeatedly ask and answer whether or not it can do any such thing in IMF Ready to “Help” Ireland; Can the IMF “Help” Anyone?
The short answer is for Ireland to tell the EU and IMF to “Stuff It”.
Every country for itself. There is simply no reason for Irish citizens to bailout UK, German, French, and US banks.
Mike “Mish” Shedlock
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