- The EU lends Ireland around EUR 100B to recapitalize its banks;
- This “allows” the ECB to continue to lend to the banks;
- Ultimately, the banks regain market access and all is well.
Here is what I see as the problem with this plan: it will ultimately result in the ECB becoming the Irish banks’ sole creditor; and it will expose the ECB to perhaps EUR 200B of Irish bank exposure. Also, I don’t expect the Irish banks to regain market access without a credible guarantee from a AAA rated entity (either the ECB or the EFSF).