Irish CDS Explodes Higher---Is Ireland the Next Greece?

   While everyone is well aware of the problems facing Greece, Spain, and Portugal the next crisis country could be Ireland. Irish 5 Yr CDS is exploding higher and currently trades at 375 bps, up 11% today alone and closing in on the all time high of 400 bps reached back in 2008. Ireland is plagued by an insolvent banking system which is much larger than the general economy. The banking system is heavily exposed to Irish real estate which experienced a 20 year boom which ended in 2008. Prices are continuing to fall as the economy struggles to recover from the 2008 financial crisis. This recipe makes the country vulnerable to total economic collapse similar to Iceland. The major difference is that Iceland had its own currency, while Ireland has given away that right to the ECB (sovereignty has its advantages). This means Ireland cannot adequately respond to to its economic problems with monetary policy. Fiscal policy is not viable after the whole Greek debt crisis made investors weary of European debt. In fact, fiscal policy in Ireland is currently contractionary as a result of the recently announced austerity measures. No wonder CDS is moving considerably higher.

Black Swan Insights


1 comment:

  1. This whole financial crisis is made worse by the creaton of the eurozone.