So what's in the parcel? In the case of Ireland's banks, a lot of distressed real estate assets. Some commercial and residential developments will recover as economic growth recovers. But real estate restructuring advisors say Irish banks also lent money to developers who had nothing more than planning permission for construction on farmland in rural Ireland. If the developer is bust and the demand for new property was an illusory bubble driven by excessive credit during the boom, recoveries on these loans will be negligible.
In which case, it is hard to justify the Irish government's decision to guarantee the senior debts of these banks if their asset base is so depleted. Or the decision of Ireland's eurozone partners to guarantee the Irish government's guarantees. Or the eurozone's decision to underwrite a Greek government debt burden that could take years or even decades of fiscal austerity to reduce to sustainable levels. Or the European Central Bank's agreement to underwrite the whole debt merry-go-round by buying sovereign debt from commercial banks as part of its Securities Markets Programme - a decision that now seems to trouble the conscience of Bundesbank president Axel Weber.
