Irelands Death Grip, the Dollar and Ben Bernanke
by Bruce Krasting
Ireland is high on the list of, “Things that Could Go Wrong Big Time”. The numbers are so scary that they are encouraging. Ireland is a TBTF. If there were to be a problem it would cripple the rest of Europe’s banks. Therefore they can’t let if go.
Robert Peston (BBC) wrote a blog about his conversation with Irish finance minister Brian Lenihan. He spells out the death grip of debt that Ireland is in. A good read. Some cut and pastes:
Total foreign bank exposure to Ireland’s economy is $844bn, or five times the value of Ireland’s GDP or economic output.
BK: By way of comparison the CIA puts total external debt of Germany at 1.5X’s GDP. The US is 1:1 Canada has a ratio of 0.7. And Ireland is 5X’s? How did they get so deep into hock? (That same ratio for Russia, India and Brazil: 0.4X, 0.2X and 0.2X respectively. Ahem….)
German and UK banks are Ireland’s biggest creditors, with €206bn and €224bn of exposure respectively.
BK: About $600b. Just the UK and Germany. What’s a good “haircut” estimate on this? My answer is it starts with 20% and could be as high as 30%. That would come to $150b. This would be a lights out event for the banks.