How are Irish banks doing?

Depending how you do the count, at best the headline “ECB plans emergency €60bn scheme for Irish banks” is the seventh lead article on www.irishtimes.com right now.  (It’s a much bigger story on www.ft.com.)  It’s right between “Jesuits pay $166m to abuse victims” and “Mammies prefer hugs to presents.”

Forthcoming stress tests this week will reveal that Irish banks need a good deal more capital to keep going.  You will recall that “silent runs” on Irish, Portuguese, and other banks are the main force which can require a rather sudden end to euro membership, by bringing capital controls and convertibility suspension (with completely hollowed out domestic banks as the alternative).

The first country which can, with no shame, credibly threaten to leave the eurozone or outright default can blackmail Brussels and Berlin into further aid, due to fear of contagion effects.  Some are arguing that Portugal is already assuming that strategic stance.

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