European banking system looking screwed again re: Ireland/EU banks (update 3). Bank default on the cards

Either a bank default or bank bailout re: Anglo Irish Bank. Ireland will not be able to bail out the bank at the costs of it's insanely high budget deficit, very shaky sovereign debt sales (ref: high yields on the 2yr/ CDS spreads blow out) now crunched GDP.

All and all as the market winding back risk, a EU zone bank bailout of AIB will have a contagion effect on the rest of the EU banking system, especially Spanish banks that are extremely reliant on ECB backstops and investor confidence. Trichet (ECB governor) house of cards...is collapsing.

from IT.com 23rd Sept 2010

"A DEFAULT on Government-guaranteed debt at State-owned Anglo Irish Bank would lead to a funding crisis for the State and the bank system, former attorney general and European commissioner for Ireland Peter Sutherland will say in a speech in Dublin today.

Mr Sutherland, chairman of Goldman Sachs Ireland, will tell the Institute of Directors’ autumn lunch that the maximum saving the Government can make on sharing Anglo’s rising losses with the holders of senior and subordinated debt would be €5.1 billion.

He will argue that whatever the final cost of Anglo, only a small proportion would be saved by a default, and that such a move for a small country would “surely precipitate a funding crisis both for the sovereign and the banking system as a whole”, adding that the collateral damage of such a decision would be “very serious”.

Criticising the Financial Times for repeated calls on the Government to stop protecting bondholders against bank losses, he will say the newspaper’s proposal is “flawed in theory and extremely damaging in practice”.

Sounds paniky.