The Global Moral Hazard Dawns: Merkel Says "It Must Be Prevented That Others Come Seeking A Haircut" As Ireland Cuts GDP Forecast
Just about 48 hours after it was duly noted as the greatest threat to the Eurozone in the post bailout world, Germany finally grasps the enormity of what global moral hazard truly means. As we said before, the biggest risk facing Europe, and by that we mean undercapitlized French banks (all of them) obviously, is not Greece or what haircut is applied to the meaningless €100 billion in Greek debt when all the exclusions are accounted for. It is what happens when everyone else understands they now have a carte blanche to pull a Greece at will. And while until now we had some glimmer of hope there was a behind the scenes agreement for this glaringly obvious deterioration to not manifest itself, Merkel just opened her mouth and proved our worst fears wrong. As Reuters reports, "Chancellor Angela Merkel said on Friday it was important to prevent others from seeking debt reductions after European Union leaders struck a deal with private banks to accept a nominal 50 percent cut on their Greek government debt holdings. "In Europe it must be prevented that others come seeking a haircut," she said." Too late, Angie, far, far too late. Because, just as expected, here comes Ireland and literally a few hours ago, launched the first warning shot that will imminently lead to what will be demands to pari passu treatment with Greece. Next up: Portugal, Spain, and, of course, Italy, which however won't be faking its own economic slow down.
From Business Week:
Ireland's government may cut at least 1 percentage point off its 2012 economic forecast, as a global slowdown curbs the country's export-led recovery, according to two people familiar with the matter.
Finance Minister Michael Noonan said last month that the country may cut its gross domestic product forecast from 2.5 percent, published on April 29. The government details its medium-term budgetary outlook on Nov. 4 and may lower the forecast, according to the people who declined to be identified because the figures haven't been finalized.
“Work is under way on the medium-term fiscal statement,” said Eoin Dorgan, a spokesman for Noonan, declining to comment on the growth forecasts.
Slowing global economic growth and Europe's debt crisis is hampering the region's recovery. French President Nicolas Sarkozy said yesterday his country's economy will grow by about 1 percent next year, as he lowered an August forecast of 1.75 percent. In Ireland, Noonan has said the government may need more than the planned 3.6 billion euros ($5.1 billion) of budget savings, though “not an awful more,” to hit its 8.6 percent fiscal deficit target.
“Ireland is showing the characteristics which are required to put the economy back on the right track,” Brian Devine, an economist at NCB Stockbrokers in Dublin, said in a note on Oct. 26. “However, one must not forget that Ireland is recovering from the largest credit and housing bubble in OECD history.”
Indeed, Ireland is just the beginning in the global race to sequester what remaining global put funds remain, a race which will end with the ECB unleashing the printer, and, as Albert Edwards predited yesterday, with Germany making a decision whether or not to leave the Eurozone.
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