by Alen Mattich
Wall Street Journal
April 1, 2011
Every grain of news coming out of the euro zone's periphery suggests the inevitability of sovereign default by Ireland, Greece and Portugal. And this can only mean a massive recapitalization of core Europe's banks.
To be sure, Germany and other Northern European countries will battle hard to avoid both. But in the end, political barriers will prevent them from engineering the sort of transfer payments necessary to lift the huge debt burdens off the euro zone's beleaguered fringe. The transfer payments will instead be made to their banking sectors, with the quid pro quo of much tighter regulation.
Ireland shows just how big a mountain the periphery needs to climb. During the past two years, Ireland has spent €46 billion ($65 billion) propping up its banking system. The latest banking stress tests show the government could well need to provide another €24 billion.
These sums have been crippling for the Irish, whose economic output in 2010 was worth around €154 billion. Without the intervention of bailouts from core Europe, Ireland, Portugal and Greece would have defaulted already.
But even with the bailouts, peripheral European debt burdens are still so onerous as to be unpayable.
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