Threat of contagion is real and dangerous Antoin Murphy
Published 28/11/2010 | 05:00
This weekend the troika (the European Central Bank, European Commission and the International Monetary Fund) that is attempting to solve Ireland's financial crisis has some very tough decisions to make, decisions that will not only have considerable ramifications here but which also have the potential to destabilise the international monetary system.
The ECB is believed to be the institution that unleashed the most recent elements of the crisis. Faced with a rising lending commitment of over €165bn to the Irish banking system -- €130bn directly lent to the Irish banks plus €35bn euro lent indirectly to the banks through the Central Bank of Ireland -- the ECB decided to raise a red flag to further Irish bank borrowing.
This action was accompanied by a link-up with the European Commission and the International Monetary Fund so as to share part of the risk of lending to Ireland's Government and banks, and also to provide some solutions to the fiscal crisis (the sizeable budget deficit and its financing) and the banking crisis.