Nash Equilibrium Fail: Ireland Wants Senior Bondholder Haircuts

Tyler Durden's picture

And so the great decade + old eurozone game theory project of Europe is about to come crashing down. Following Europe's decision to leave Ireland out in the cold, due to the country's ongoing unwillingness to pander with unilateral concessions to the global banking syndicate, the Emerald Isle has apparently decided to call the EU's bluff. Reuters reports: "Ireland's government wants to impose losses on some senior bondholders in Irish lenders to reduce the burden on taxpayers from a prolonged banking crisis, a senior minister said on Sunday...Analysts widely expect the government to impose losses on senior
bondholders in nationalized lenders Anglo Irish Bank and Irish
Nationwide because they have sold their deposits and are being wound
down. Hitting any unsecured unguaranteed senior bonds in Bank of
Ireland and Allied Irish Banks (AIB), which amount to over 11 billion
euros, would be more controversial
." Yet most controversial would be the fact that the Eurozone is now unable to control its wayward son, which seems set on actually following the will of its people than that of the plutocrats. And just like Tunisia set a precedent to the MENA region with an act many thought was unthinkable, should Ireland follow through with this near-revolutionary act of a debt impairing chain-reaction, most other countries are set to follow suit, leading not only to the inevitable end of the one currency block, expected for so long by many euroskeptics, but yet another US taxpayer funded bailout, as was revealed on Thursday of last week, when we observed the upcoming "threat to the international monetary system" as predicted by the IMF.

More from Reuters:

Dublin wants to impose losses on banks' senior unsecured bonds not covered by a state guarantee, which currently amount to over 16 billion euros, as part of a new deal with the European Union, the European Central Bank (ECB) and the International Monetary Fund (IMF).

"A sustainable and comprehensive solution for Irish banking that involves recapitalization but also involves an element of burden-sharing ... That is certainly the outcome that the government is looking for," Simon Coveney, minister for agriculture, told state broadcaster RTE.

Under an EU-IMF bailout agreed late last year Ireland can impose losses on banks' junior debt, but the ECB is opposed to treating senior bondholders, which are ranked on a par with depositors, in the same fashion for fear of a contagion risk.

Ireland's new government, elected in February, has said the state cannot afford the current EU-IMF bailout deal and European finance ministers will decide on what sort of concessions they can offer Dublin in coming weeks.

They are awaiting the results of fresh stress tests on Ireland's banks, expected to show a capital hole of around 25 billion euros, on March 31 before deciding on any new deal.

This latest batch of bad news comes just in time for Merkel to suffer her latest political crushing defeat in today's Baden-Wuerttemberg election:

Chancellor Angela Merkel's party on Sunday faced a possible loss of power in a state that has been a conservative stronghold for six decades — as German voters appeared increasingly skeptical about her stance on nuclear plants.

Eight million Germans were voting in a closely watched race in the wealthy western state of Baden-Wuerttemberg, where recent polls suggest Merkel's Christian Democrats are poised to lose by a narrow margin in an election clouded by Japan's nuclear crisis. The issue could help the anti-nuclear opposition Greens win their first-ever state governorship.

The chancellor's abrupt about-face decision to order a temporary shut down of seven of the country's older reactors has raised doubts about her credibility in a country that remembers well Ukraine's 1986 Chernobyl disaster that spewed radiation across Europe.

The Baden-Wuerttemberg election is viewed as the most important of Germany's seven state ballots this year. The prosperous southwestern region around Stuttgart — home to carmakers Daimler AG, Porsche SE or software house SAP AG — is the only state where the same center-right coalition that governs Germany has to face state voters.

For Merkel's coalition partner, the Free Democrats, the stakes in the state are equally high. The party is fighting for its survival, with polls putting them around 5 percent — the minimum threshold to enter parliament.

We can't wait for the EURUSD reaction at 4 pm today on this double whammy of rather horrible eurocurrency news.