Greece is in the Cross Hairs, but Don't Forget About Ireland



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The devolution of the Greek financial crisis into a political crisis is the main focus. There have been signs of contagion through the euro zone. However, even if the situation in Greece was not deteriorating, developments in Ireland would draw investor interest.

Currency in Crisis

The new Irish government has been in office for 100 days. Its position on bank bond holders has wavered since the campaign, but Finance Minister Noonan is making a clear bid for senior bond holders of Anglo Irish and Irish Nationwide to share in losses.



According to the central bank, Anglo Irish has about 3.2 bln euros of unsecured, non-guaranteed senior debt and another 2.9 bln euros of guaranteed senior bonds. Irish Nationwide is considerable smaller with about 600 mln euros in senior bonds. One of the reasons this is important is that the ECB has been opposed to forcing senior bond holders in Ireland from getting taking a loss.

At the end of last year as Ireland negotiated its package, reports suggest that the Ireland want to have the bond holders participate, but the EU and ECB blocked it. The IMF reportedly was more sympathetic. As a side note, a widely read if controversial, op-ed piece in an Irish paper earlier this spring, claimed that US Treasury Secretary Geithner was also opposed to forcing senior bond holders to take a loss. However, that was then and this is now.

While Noonan reportedly made his case to the IMF, the EU has said they are open to the discussion but have not received a formal proposal. Reports indicate that Noonan's argument was limited to only those two banks and not the Bank of Ireland and the Allied Irish Banking Group.

The ECB's concern ostensibly was that a move by Ireland could call all of the guaranteed bank bonds into question and because of their widespread use, could pose a systemic risk. The Irish stock market is among the better performing euro zone equity markets this year. In fact today's loss puts the Overall Index down on the year. The Overall Index is off 0.65%, but the financials are off 3%+.