First Iceland collapses...now Ireland?

Spreads highlight Ireland fears
By William L. Watts, MarketWatch

Last update: 12:37 p.m. EST Feb. 16, 2009

LONDON (MarketWatch) -- Fears that Ireland's banking woes will send the Emerald Isle the way of Iceland has sent the cost of insuring sovereign Irish debt against default to record levels.

Spreads on Ireland's five-year credit default swaps rose to a record 377 basis points on Friday, analysts said. That means it would cost $377,000 a year to insure a notional $10 million of debt against default. That's up from around just $24,000 a year ago.

Ireland's fiscal position has eroded sharply due to a steep economic slump. On top of that, add in the effective nationalization of the country's three largest banks and expectations for further outlays.

Iceland was left virtually bankrupt after its outsized financial sector collapsed under the weight of massive foreign-denominated debt.

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