The rolling farce that is called the European Union continues to amuse anyone who is following it, with out having to live in it. They have a bailout strategy based on everyone bailing each other out with Germany and the IMF putting up the actual money. At least that is how it is being sold to the masses.
However if you look at the bail out in Ireland, It was the Irish themselves that are providing the first real capital in the bail out. Europe is having the Irish save themselves via a 10 billion dollar draw down of their own national retirement account.
The hard brutal reality is that the bond markets in Europe are a mirage. The ECB is buying up Greece debt, Irish debt, Spanish debt, and Portugal’s debts to provide funding to the underlying banks themselves. This has caused the ECB to run into real world issues like a lack of available bonds in Irish government debt to be converted for Irish bank debts.
In simple terms, the Irish banks funding needs are bigger than the national debt they are hiding behind. So when the ECB ran out of available Irish sovereign debts to buy in the open market, their defacto funding mechanize froze up. The ECB had to force the Irish nation to change the rules.
The ECB was and in my opinion still is painted into a corner. The Irish people are fools to accept this deal, that they are funding themselves. The ECB has purchased Billions of dollars worth of Irish debt. I have seen rumors north of 100 billion in total debt.
If the Irish people defaulted on that debt, it would effectively end the ECB and EU project in one quick fatal moment. The Irish would be free of their national debt costs, at the cost of being kicked out of the EU.
The Irish banks would be in receivership. The TBTF banks in England, Germany, & France would find themselves taking real world haircuts on all of the senior debts they hold. Those cuts would be fatal to their balance sheets, effectively destroying the ECB in its tracks.
The irony is that the economic storm has now moved to Spain and Italy debt spreads over German Bund bonds. No one is watching the Irish rescue. Its not a done deal yet. The collation of the lame duck government has said it will vote on the rescue, however their margin of error is only 1 vote.
1 Vote stands between Irish people giving up their future, so that European Union has one. That’s a lot to ask of a people, who are also expected to actually pay for it as the same time. I believe the Celtic Tiger is not done yet showing Europe it has fangs. Will Europe survive that bite?