Search ForexCrunch

The Irish government will unveil a new plan for rescuing the Irish-Anglo bank on Thursday. The Irish finance minister said that a failure to keep the bank alive will “bring down” Ireland. Up to now, nothing has stopped the Euro rally. But saving the bank can have a contagious cost and could stop the impressing rally.

In a late interview, Brian Lenihan said:

“Any Anglo failure would bring down the sovereign. It is systemically important not because of any intrinsic merit in the bank. But because of its size relative to the national balance sheet. No country could contemplate the failure of such an institution,”

Who will pay the price?

Anglo-Irish published the biggest corporate loss in Irish history. The nationalized bank is now “Too big too fail”. So, the Irish government will do its best to save the bank. Ireland already undertook severe austerity measures that curbed its growth. It could digger into its pockets.

Or let debt owners pay the price. They come from other European countries such as Germany and France.

While there is almost unanimous agreement now that the subordinated bondholders should be either given nothing or very little by the Irish State, the more pressing issue is whether Ireland, which now owns Anglo, should welch on obligations to the senior debt holders, most of them German, British and French asset and pension funds.

Another option is to call in the IMF – meaning money external to the Euro-zone. But currently, the government dismissed this option.

Anyhow, the Irish government will have to be very creative in order to stabilize the bank and stabilize the price it pays for new debt. Contagion to other European countries sure is optional.

EUR/USD enjoyed an excellent rally, pushing higher day by day. It stopped at around 1.3650. The next barriers are 1.37 and 1.3850. Support appears at 1.3530, 1.35 and 1.3430.

The markets are currently disregarding the Irish troubles that are reflected in bigger yield spreads between Irish and German bonds. The talk about printing dollars in the US weakens the dollar and the Euro enjoys this more than most currencies.

Will it stop now?