Yesterday PIMCO’s Mohammed El-Erian made some headlines talking about the run on Irish banks, and today he expands on his thoughts in an FT Op-Ed on the need for Europe to act FAST to stem the Irish contagion.
The key thing to bear in mind here is that while a bailout has been agreed to in principle, there’s a ton of work to be done in terms of the technical aspects, and even getting the Parliament to agree to accept the cash under the terms.
First he makes an important observation, which is that it’s rare when the folks providing the bailout — i.e. the rest of Europe — are so eager to see the bailed-out country take the cash, which is obviously a sign of how fearful they are that the crisis could spread.
As for the stakes:
Having already experienced some outflow of deposits, Ireland itself is getting uncomfortably close to a devastating banking crisis that would derail growth, employment and wealth creation for a whole generation. Now that its sovereign balance sheet is so closely interlinked to those of its banks, a banking crisis can also no longer be differentiated from a sovereign debt crisis.
So is this:
A tremendous amount of complicated technical work must be done collaboratively by several Irish and European agencies. Both solvency and liquidity challenges must be addressed.
There are just so many cooks in the European kitchen, both EU-wide (all the different heads of state and ministers) and then all the internal players (the fractious Irish parliament.. not to mention the divided governments everywhere else). The odds of them performing a complicated coordinated task seems nigh impossible.