[Morgan] Kelly expects the economy to contract by 20%. And his latest prediction - to which he attaches a 25% probability - is that Ireland will default, and that Anglo Irish Bank, the recently nationalised bank that has become a reviled symbol of rampant lending and corruption, has not only underestimated its loan losses but has a swelling book of derivatives contracts gone bad.
The result, he warns, could be bank losses at Anglo Irish and other banks that supersede the Irish government's promise to guarantee all liabilities in the banking sector. What would follow would be a run on the banks, inability of the government to finance its 12% budget deficit, and ultimately a bailout by the European union.
"That is the optimistic scenario," Kelly said, arguing that his worst fear is a collective economic failure of several countries in eastern Europe, along with Ireland and those on the southern periphery of the eurozone - Greece, Italy, Spain and Portugal - that would be beyond the capacity of any government or group of governments to stem.
http://www.guardian.co.uk/world/2009/mar/01/ireland-economic-crisis
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