It seems Ireland is basically insolvent. All hail the banks.
WHEN I wrote in The Irish Times last May showing how the bank guarantee would lead to national insolvency, I did not expect the financial collapse to be anywhere near as swift or as deep as has now occurred. During September, the Irish Republic quietly ceased to exist as an autonomous fiscal entity, and became a ward of the European Central Bank.
Morgan Kelly is an Irish Economist who is predicting an 80% drop in Ireland home prices. He estimates their own bank bail out is sinking their nation:
This €70 billion bill for the banks dwarfs the €15 billion in spending cuts now agonised over, and reduces the necessary cuts in Government spending to an exercise in futility. What is the point of rearranging the spending deckchairs, when the iceberg of bank losses is going to sink us anyway?
What is driving our bond yields to record levels is not the Government deficit, but the bank bailout. Without the banks, our national debt could be stabilised in four years at a level not much worse than where France, with its triple A rating in the bond markets, is now.
As a taxpayer, what does a bailout bill of €70 billion mean? It means that every cent of income tax that you pay for the next two to three years will go to repay Anglo’s losses, every cent for the following two years will go on AIB, and every cent for the next year and a half on the others. In other words, the Irish State is insolvent: its liabilities far exceed any realistic means of repaying them.
Meanwhile Bloomberg is reporting Irish Bonds are tanking:
While Ireland has the funds to avert the need for an immediate rescue, its cash may run out in the middle of next year unless it can raise money from the bond market in 2011.
The Irish bond is doing a cliff dive thing:
The yield on the Irish 10-year security climbed 21 basis points to 8.04 percent at 4:32 p.m. in London. The difference in yield, or spread, between the debt and bunds widened to a record 550 basis points, or 5.5 percentage points, Bloomberg generic data shows. The 5 percent bond maturing October 2020 slid 1.21, or 12.1 euros per 1,000-euro ($1,391) face amount, to 79.74.
Naked Capitalism has more commentary on why Morgan Kelly is right.