European banking system looking screwed again re: Ireland/EU banks (update 3)

Irish banks with no external funding keeping them alive (except for the European Central Bank pouring liquidity into Ireland), a default option/restructure option on main Irish banks is inevitable; the country may face default on sovereign debt once yields begin to climb pass the 4.5% on 2yr and 10yr bonds. Coupons payments of debt will be delayed as budget constraints and failed austerity measures backfire.

from WSJ 23rd Sept 2010

"Brian Lenihan, the 51-year-old finance minister who has so far guided Ireland through a financial minefield, is under pressure once more as Ireland returns to the center of Europe's debt crisis. This week, even as the country successfully raised funds from the capital markets, investors fretted about Ireland's cost of bailing out troubled Anglo Irish Bank Corp. On Wednesday, the cost of insuring the country's sovereign bonds against default hit a record high.

"All the while, Mr. Lenihan has been fighting his own battle against pancreatic cancer. Since discovering his disease in December 2009, he has undergone chemotherapy and radiation treatments that have so far allowed him to stay at the forefront of one of Europe's most painful property busts. He says doctors have stabilized his cancer for now.

That will let him focus on the heart of Ireland's latest woes: Anglo Irish, which earned the nickname "builders' bank" for its reckless lending to property developers during Ireland's rollicking economic boom.

The finance minister has already pumped capital into the tottering lender, Ireland's third-biggest. Last year, the government seized the bank and started shifting its souring loans to a government-run "bad" bank at the taxpayers' expense.

Even so, Anglo Irish and some other Ireland-based banks remain shut out of capital markets, forcing them to rely on emergency funding from the European Central Bank. Ireland-based banks got €95 billion ($125 billion) of ECB cash in August, according to research by Royal Bank of Scotland Group PLC"