Eventual Irish default

Ireland is caught in the debt trap:

Ireland’s new leader Enda Kenny faces a daunting task as he tries to change the terms of his country’s €67bn (£57bn) EU-IMF package, either by cutting the penal rate of interest or changing the remit of the rescue fund to help Ireland claw its way out of a debt trap. The three parties in Chancellor Angela Merkel’s coalition have issued a paper ruling out use of the bail-out machinery to purchase the bonds of eurozone states in trouble, or engineer a “soft” debt-restructuring by lending to these countries so that they can buy back their own debt cheaply from the market.

They’re going to default sooner or later. They have to. It’s not as if they can even convincingly play Extend-and-Pretend, given that what they’re pretending is a mathematical impossibility in the short term. At least in the case of the United States, the pretense is still potentially credible in the short term.

It is irrelevant if Merkel and the Euzi bankers manage to cow the new Irish government into backing down again. Ireland will not be able to pay the debt however it is framed and decorated. Better Kenny and company follow the example of Iceland and tell the bankers that they’ll have to pay their own debts with their own money… and if they don’t have it, then their creditors will have to book the loss.