by Guest

contribution by David Malone

The Irish are now openly saying they want to make the Senior bond holders take some of the bank losses. That is most definitely not in the European Financial Class’s game plan.

Neither France nor Germany nor the UK will like the sound of it. Because for senior bond holders read their banks, big funds and insurance companies. Not only would it be a very public humiliation but it would also tell the world which banks were weakest. Ireland doesn’t even have to go through with it. They need only engender a worry that they might.



Of course the obvious answer is for the big European players to use the ECB to quietly and confidentially buy up those bonds and make all Europe’s tax payers pay by a more indirect and less democratic route. The problem is, while it prevents a convulsion and a nasty leak of raw truth in the short term, it doesn’t undo the real damage.

The real damage is that if Ireland sticks to their threat nearly all possible outcomes for the Big Banks become very bad. Which, providing they have the balls, puts Ireland in a very strong position.

It would also mean people in other countries, who are being told day after day that they ‘have no choice’ but to impose even greater ‘austerity’ measures or that they ‘must’ have an IMF/EU ‘rescue’ package imposed upon them, might decide they too are going to simply call everyone’s bluff and say ‘no’.

Even the possibility of such a contagion of rebellion would be quite sufficient to induce another credit crunch of banks refusing to lend to each other.

Who would know which banks would be affected next if Portugal or Hungary or even Spain or Italy were to start talking about their senior bond holders? That kind of uncertainty is what stopped banks lending to each other the first time.

Equally bad for the Big Banks and the financial class/senior bond holders is if the ECB bails them out and buys the bonds. Because once that happens for Ireland, after all the adamant proclamations that it would never happen, then who is going to believe that Portugal or even Greece, couldn’t force the same concession? Or Spain?

Then it becomes a political nightmare. Merkel is already wounded. If it looks to her domestic enemies that she is further losing control then the fragile Franco/German unity, such as it is, will collapse. The UK will not hold it together.

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Davi Malone is author of Debt Generation. A longer version of this post is here.