Remember when I said that, by ignoring its legal mandate to not be the lender of last resort, the ECB was the only thing holding the EMU together? Here's what I meant:
As the scope of the Irish losses has grown clearer, private investors have been less and less willing to leave even overnight deposits in Irish banks and are completely uninterested in buying longer-term bonds. The European Central Bank has quietly filled the void: one of the most closely watched numbers in Europe has been the amount the E.C.B. has loaned to the Irish banks. In late 2007, when the markets were still suspending disbelief, the banks borrowed 6.5 billion euros. By December of 2008 the number had jumped to 45 billion. As Burton spoke to me, the number was still rising from a new high of 86 billion. That is, the Irish banks have borrowed 86 billion euros from the European Central Bank to repay private creditors. In September 2010 the last big chunk of money the Irish banks owed the bondholders, 26 billion euros, came due. Once the bondholders were paid off in full, a window of opportunity for the Irish government closed. A default of the banks now would be a default not to private investors but a bill presented directly to European governments. This, by the way, is why there are so many important-looking foreigners in Dublin, dining alone at night. They’re here to make sure someone gets his money back.
To put that into perspective, 86bn euros is roughly 112bn dollars. Irish GDP is about $230bn, so they've borrowed 50% of GDP from the ECB. Without those funds, they'd have to default and (probably) leave the EMU.
That's from Michael Lewis' story on Ireland. I wonder where he's booked his next ticket? Portugal?
UPDATE: Okay, I just finished Lewis' piece. This part stood out:
Ian turns out to have a good feel for what I, or anyone else, might find interesting in rural Ireland. He will say, for example, “Over there, that’s a pretty typical fairy ring,” and then explain, interestingly, that these circles of stones or mushrooms that occur in Irish fields are believed by local farmers to house mythical creatures. “Irish people actually believe in fairies?,” I ask, straining but failing to catch a glimpse of the typical fairy ring to which Ian has just pointed. “I mean, if you walked right up and asked him to his face, ‘Do you believe in fairies?’ most guys will deny it,” he replies. “But if you ask him to dig out the fairy ring on his property, he won’t do it. To my way of thinking, that’s believing.” And it is. It’s a tactical belief, a belief that exists because the upside to disbelief is too small, like the former Irish belief that Irish land prices would rise forever.
Apparently Lewis has a thing for mystical creatures, because that immediately reminded me of his story about the Icelandic belief in elves that lived underground, from his Iceland article (now gated, unfortunately). Among other facts and descriptions in the Iceland piece, the elves story was widely disputed; perhaps the fairies will be too. I don't remember anything from the Greece article, but I may go back and check.