Call it The Big Renege:
Well, the Irish voters tossed out the entire lot, and the new government has been looking for an excuse to renege on that deal. It looks like they got it after their most recent stress tests, when the government uncovered a €24 billion ($33.9 billion) capital shortfall:
In a bid to end a 30-month banking crisis that forced Ireland to accept a €67.5 billion international bailout package and contributed to the ousting of its government, Finance Minister Michael Noonan said Thursday that he will reorganize the sector around two heavily capitalized “pillar banks,” Bank of Ireland and Allied Irish Banks PLC. At least three other lenders will be shut down or merged into other banks, he said.
The government already has pumped €46.3 billion into its banks since 2009, meaning the tab could swell to €70 billion if the government has to foot the entire bill. That would represent more than €15,000 for each of Ireland’s 4.5 million residents. Some of the new cost will ultimately be covered by the €67.5 billion bailout, but some funds may also come from either private investors or capital-raising actions by the banks.
Understand that this is about more than merely temporarily nationalizing the banking sector. The absurdity of the panic decision to rescue bankers by screwing taxpayers was simply untenable. The bailouts are pushing Ireland to the brink of insolvency.
Hence, we may be seeing an early look at not only these banks getting nationalized, but a near future reboot: A pre-packaged bankruptcy reorg for every Irish bank.
The alternative is liquidation — of either the banks, or Ireland itself.
Good for the Irish to have finally figured this out! (Too bad we Americans have not)
Irish Banks Move Toward Nationalization
WSJ, March 31, 2011, 4:28 P.M. ET