The ECB has been adamantly opposed to senior bond holders in Irish bank debt taking a haircut (just as opposed to Greek bondholders being coerced into lengthening maturities.
If I were Ireland, I would not get in a fight with my banker. The ECB and the ECB alone is funding the Irish banking system. Don’t want to strain that relationship too much, even if the bondholders should have been left holding the bad months ago…
If Trichet allows an exception in this case, the market will assume no European debt is safe from default risk.
That’s why EUR/USD is in a free fall.
