Global markets are abuzz with speculation that Ireland will become the eurozone's next state to need a bailout. Those who are most entangled in the web of debt may be forced to support such a bailout.
The Irish state has invested heavily in bank bailouts
As the European Commission, the European Central Bank and the International Monetary Fund on Thursday send representatives to discuss Ireland's potential need for a bailout, several financial institutions across Europe and the world await a decision on the worth of their investments in the country.
According to data from the Basel-based Bank for International Settlements, the Irish government, banks and companies owe foreign investors $731 billion (540 billion euros). Banks in Britain hold the highest stake with $149 billion, followed by Germany with $138 billion, the United States with $69 billion, Belgium with $54 billion and France with $50 billion.
Should the Irish banking system or the government - which has heavily invested in bank bailouts - become unable to pay their creditors, British and German banks would be left with the greatest risk of losses and depreciations.
Particularly entangled in the situation are the Royal Bank of Scotland and Hypo Real Estate, each of which had to be nationalized by Britain and Germany respectively to save them from bankruptcy. Thus by pressing for a bailout for Ireland, those countries would be indirectly working in their own financial interests.
Hypo Real Estate holds 33 billion euros in debt in the currency's weakest states
Web of debt and lending
According to numbers from the most recent European Union "stress test" of the continent's biggest banks, Hypo Real Estate loaned 33 billion euros to the weak eurozone member states Ireland, Greece, Portugal and Spain.
In comparison, private German banks Deutsche Bank and Commerzbank and the public bank of the state of Baden-Wuerttemberg loaned between seven and eight billion euros to the same four countries.
All big German banks, public and private, hold a total of $400 billion in claims in Ireland, Greece, Portugal and Spain. German banks together thus stand to take a serious hit if the debt crises in these countries comes to a head.
In Greece, where the debt crisis has already necessitated a 110-billion euro emergency loan from the EU and the International Monetary Fund, France is the greatest creditor. German banks take second place in Greece, while they are the greatest stakeholders in Spain.
All these data from the Bank for International Settlements show that Great Britain, Germany and France all have a vested interest in the financial stability of Ireland, as well as the other problem states of Portugal, Greece and Spain.
Author: Bernd Riegert (acb)
Editor: Chuck Penfold