Ireland is in economic meltdown, with forex trading yet again being reminded of the delicate balance of the Euro. If you thought that the incoherent panic of the Greek Debt crisis had been swept under the carpet, think again. Traders are yet again being pounded by European disdain as yet another country weakens at the heels. Ireland is far from falling into economic disrepute but it is beginning to walk a very thin line in terms of reputation and confidence.
The Euro is not contained within one country and therefore its value is intrinsically linked with the economic paths of many countries. While in times of prosperity the value of the Euro is locked in and somewhat endorsed by multiple successes, it only takes one small cog in the constantly churning Euro zone wheel to fracture the fragile economic machinery.
So why has the “luck of the Irish” been so shattered and how will this ricochet into the foreign exchange markets? The Irish NAMA model squeezes bank balance sheets and as a result the Irish system is forced to inject a significant amount of capital. These “injections of capital” mean that the Irish debt is noticeably high, with Greek hindsight playing on global minds the European ministers are beginning to panic. The reason for this panic is that foreign exchange markets and trading in general simply does not react well to surprisingly high deficits particularly if the feasibility of containing the debt is questionable. Examples of this market knock on effect include the rising value of the US dollar, as doubt creeps into Euro value and a fall in the value of US stock indices since a mass global sell off has ensued, as euro zone finance ministers look for a way of keeping Ireland out of default.
The US Treasury Secretary has suggested that political reaction to the Irish debt crisis needs to speed up, stating that the “lesson of that (Greece) experience, which I think Europe learned a little painfully last summer, is that you want to do this quickly and decisively and not wait.” However the historical experience derived from the Greek situation may not necessarily be beneficial for Ireland. This past “experience” is leading European ministers to push for Ireland to opt for financial assistance when it may well be capable of healing its own wounds. The situation has become a waiting game and an equilibrium of ideas, with ministers balancing the urge to protect their own countries and European value with the danger of sending Ireland plummeting into further uncertainty with financial backing it did not necessarily require.