Ireland recently announced its latest round of recapitalizations and restructurings of its stricken banking sector, pumping in a further €4 billion to take the mounting total to around €70 billion.
Reaction to the news was understandably mixed, especially as the former Irish government has previously announced stress test results which they claimed at the time would shore up the banking system.
Will it be any different this time? Let’s have a look at what the Irish finance minister Michael Noonan said, and what could be read between the lines.
Noonan: “Our medium-term objective is to strengthen fiscal sustainability by separating bank risk from that of the sovereign but this will require significant state support in the interim.”
So this “interim” is the period when you nationalize the entire banking system which is entirely propped up by ECB funding, without which every single deposit would have fled.
Noonan: “We will, of course, repay our debts but we must ensure that the debt is sustainable and not such a burden that it could cripple the economy for generations.”
So we should probably all expect the increasingly inevitable haircut for bondholders.
Does it remind anyone of the old saying...everything before the ‘but’ is bullshit.