WITH EUROPE ON THE BRINK OVER IRELAND, NO BANK OR COUNTRY CAN FEEL SAFE FROM DISASTER.
Did you know that despite its booming export business, Germany has a foreign debt at 150% of its gdp?
Did you know that foreign bank exposure to Ireland is over 700 billion euro – or 500% of Irish gdp? And I bet you didn’t know that with €206bn and €224bn of exposure to Ireland respectively, German and UK banks are its biggest creditors?
This morning, I can reveal that within the Irish Government, the need for eurozone stability funding (ESFS) is already accepted. Yesterday, Wolfgang Munchau – a big Slog hero and talker of consistent sense – observed that the ESFS is a sort of Groucho Marx club, where as far as the markets are concerned, anybody becoming a member would immediately be blackballed for credit.
“Ireland is past the point of no return” a senior US credit manager observed to us last night, “and right now, it’s hard to see how it can carry on without massive stability fund help. But the big losers in this are going to be the eurobanks.”
And the British ones too, chum. Sharp observers may have spotted that RBS fired a further 500 people yesterday. Ireland owes RBS a mountain of money – as do Russian property speculators who speculated on a lot of property that went south. Or didn’t exist in the first place.
What the Irish Problem enables one to do, however, is allow some more pieces in the debt jigsaw that is Who Owes Franco-German banks money. Yesterday (Monday) Portuguese debt worries increased as some instititutions there began to let out a few woe-is-me-warnings. With a hint in the right direction (thanks to a loyal Portuslogger for that) and some numbers research, I’d estimate that Barclays alone has a £30 billion exposure there. Also yesterday, Moodys massively downgraded both Portugal and Ireland.
But this is chickenfeed compared to German exposure to Spain (£190 billion), French exposure there (£140 billion), and some of the now emerging sovereign ‘cross-debt’. For example, Portuguese, Italian and Irish banks are themselves exposed to Spain big-time.
This also highlights why the Cameroonian Clowns were wrong from Day One to see the US as a bigger game for Britain than the EU. Britain is owed a cool £120 billion by Spain, and in or out of the Euro, our banks are exposed all over the place. But in the short-term, Irish debt stands at a staggering 3.5 times that of Greece….which was (in retrospect) very, very lucky to be first in the queue for funds, when yields and rates were considerably lower than they are now – and will be from here on.
It’ll be interesting to hear Trichet trying to talk his way out of this one. If the ESFS can’t stabilise things (and market sentiment yesterday was that it couldn’t) then Ireland will default quite quickly – and at least two eurobiggy banks will be down.
Let’s watch what the euro does today. But trust me, this is going to make Coalition cuts and Miliband futures pale into insignificance now….as of course, they were always going to do as long as Britain stayed in the EU. We are going to get sucked down by the Titanic unless Osborne and Hague wake up.