McCarthy on Greece and Ireland

This to me seems to be the key point:

“A sustained adverse level of borrowing costs could require that the budget come earlier than December, and there is no downside to indicating a willingness to contemplate such acceleration now.”

Basically he is saying bring forward the budget and take the pain now and in the long run we will fair better.

Colm McCarthy has repeatedly said that we need to minimise the states exposure to junior borrowers after the Guarantee expires. I think we all agree on that an I don’t know who would be an Anglo subbie now. However, it appears that the amount that can be saved this way is extremely limited. Even if we way “work-out” now but secretly mean “wind-down” in the future then we still won’t save enough to impress anyone.

I see Germany approved the Greek bail-out. I can’t imagine it was too difficult to talk them around in the end, what with all those lovely graphics of who was owed what by the Greeks! However, one wonders how their legal limits on deficits will affect them in years to come if that Greek debt is restructured. Will the money come straight out of German Social welfare as recently suggested in the FT?

It appears to me that now that the EU and IMF have bought themselves some control by interposing themselves between Greece and its creditors their next task will be to devise an effective quantitive easing programme to kill any contagion. Stemming contagion is beyond our power to a large extant.

In the meantime, we best follow Colm McCarthy’s advice of saying Novena’s and not spending money we don’t have, i.e. the economic policy preached but not assiduously practised by the senior Irish generation. Approving the Croke Park deal would probably help too.

You might like to know that Irish 10-year quoted 6% this pm, at mid-prices. But did’nt trade – the bid-asked spread was 500 bp! Effectively the secondary bond market for most European sovs has closed.

Busy week coming up for the ECB.

@All
Courtesy of poster Dreaded_Estate on another forum:
“According to CMA this morning Ireland is now considered the 10th most likely sovereign to default/restructure its debt. Placing us just behind Iraq, Latvia and Dubai but ahead of Iceland.

Portugal and Greece also make the top 10.”

Entity Name Mid Spread CPD (%)
Greece 1007.69 55.19
Venezuela 1078.10 52.35
Argentina 1013.70 49.80
Pakistan 724.00 38.73
Portugal 502.37 35.12
Ukraine 616.29 34.78
Dubai 456.49 27.07
Latvia 407.87 24.66
Iraq 392.20 24.29
Ireland 308.47 23.47″

http://www.cmavision.com/market-data

I know we’re bad but just behind Iraq? We had a so-called “civil war” over Roy Keane and Saipan – they had a CIVIL WAR. This is an insane gambling racket run by crazed financial speculators.

@LorcanRK
Fair enough. But Pakistan (civil strife and (possible nuclear) war risk) is not all that much worse than Portugal and much better than Greece. Are we really 40% as risky as Pakistan? There was fierce fighting last year in the Swat valley. Is it only twice as dangerous as Liffey Valley?
http://uk.reuters.com/article/idUKSGE6430HS._CH_.2420

@Al
Does that mean Pakistan can’t be attacked as long as they do what the IMF says and nothing bad happens? Up to now perhaps yes but never say never…

@Edgar Morgenroth
Good comment by Delaney. We need disclosure, analysis and above all reform. I fear though that as like Britain we now have a big financial services sector we will be in the anti-reform camp. We will let the bond cannibals take a chunk out of us because they generate jobs and income. Britain seems to have made a Faustian pact where every 20 years it risks humiliation by the markets (1970s IMF, 1990s ERM, Today, (1930s Gold Standard?)) in return for the benefits between times.

I don’t speak speculatorish but I would have thought if we outline future deficit reduction measures in great detail that’s a big plus point. Will it be enough to save us? If they can get us, they will.

@Michael

“The cave-in by Cowen on a change in the link between public sector pensions and current grade salaries”

It’s unreal. Every time. Every time.

@ Sam

Funny the way oul Constantin keeps hammering away on his own. Does he know something we don’t ?

@ Paul quigley
Constantin knows that the banks are seriously damaged and that was ever before the current bout of sovereign debt crisis switched up a few gears. How many years do you think it will be before AIB or BoI will be paying dividends again? They are staring down the barrel of the new regulatory capital requirements of Basle iii even before their NAMA has partially bailed them.

Anyone see investors running to buy Irish bank shares? Anyone see investors running to buy government bonds? We cannot even get these auctions away. And it is going to get a lot worse. Merkel’s idea of setting up and ECB ratings agency to “compete” with Moody’s, Standard & Poor and Fitches shows how desperate they are becoming.

If Canadian banks are admitting that under Basle iii they will have to raise their regulatory capital requirements by 20% where does this leave Irish banks? Constantin does more than just bang away. “True Economics” cuts through the relentless, dishonest spin designed to obfuscate rather than shed light. BTW less than 12 hours after the British election UK property falls is that just a coincidence.

@myself
“Multi-National related” above should be IFSC related. The comment says, “A sub of a foreign bank that borrows from it’s parent to invest in foreign securities in its Irish sub should be excluded from the total debt stats.
These entities’ debt is not repayable in any way by the Irish people and to the extent that they mostly buy international assets their activity does not affect the Irish markets either.”
Presumably this is what Mr Morgenroth referred to above.

@All
“But even if the banking sector is removed from the total external debt number, Ireland would still have a 748% debt-to-GDP ratio, keeping the country at the top spot.”
http://www.cnbc.com/id/33506526
Courtesy of poster Arbitrager on The Property Pin. Discussed in their good Central Bank forum, “The World’s Biggest Debtor Nations, GUESS WHO’S STILL NO. 1”.

Poster Bob3367 disputes the above:

“No we are not on the hook for $1.32trn, but I couldnt be to tell you why.

This stuff really is tabloid finance, I’ll give a hint intercompany balances.

If a break down was given ie categories would help, but of course that would require work, so that.

I have been involved with companies registered here, who debt could be as high as $15bn per balance sheet.”

@All
The Eurovision Debt Contest:

“Europe’s Web of Debt
Banks and governments in these five shaky economies owe each other many billions of euros — converted here to dollars — and have even larger debts to Britain, France and Germany. Arrow widths are proportional to debt amounts.”
http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html

Courtesy of poster Disgruntledcitizen on another forum.

The more Ireland does now, they less we will need to do later.
This is just common sense. Colm seems to be telling GFF off. Very politely. He wants them to continue with the necessary steps. Now.

It is a fact I have touched upon before, but is obvious to all. We have had an intermittent fight, currently dormant, over hundreds of years, with much bloodshed on both sides to regain our sovereignty. We have since agreed to surrender a large part of it by treaty. And an even greater amount, unwisely, by allowing pump and dump on our land. We always had the land, but due to a touch of black magic it was made to appear far more valuable.

The debts remain and that loss of sovereignty was sneakily done by unknown persons. By “inaction” and by systemically important parts of the banking sector. As banks all need licences, and we have regulators, do we really want to pretend to ourselves that it just happened to be the reverse of what was known to be necessary? We are in danger of whatever

I am hopeful that we are all part of a devaluation stroke, but it is unlikely that the destruction of Irish capital by way of land bubble was a part of it. That seems to be a permanent loss. Anyone want to quantify it?

We still do not know what has been going on in Anglo.

@ Robert Browne

Sorry. I was being ironic. Must find out how to put those funny little faces.
It would be interesting to hear someone unpick Constantin’s figures, as he sure puts in the effort.

@ Oliver Vandt

Re ‘social silence’. It’s not even that certain points of view are rejected or dismissed, it’s that they are defined as illegitimate and entirely unworthy of response. That’s censorship, which we Irish know a thing or two about.

The science of economics is, sadly, mostly ideology at this point in history, as it rules out of consideration the things which matter most to people, principlally social status. Pierre Bourdieu’s sociological work is essential reading for anyone who is interested in how the economy actually works. Fair play to Gillian Tett for seeing that.

The power of suggestion is an economic fact as well as a psychological one. In very broad terms, the best way to control people is to control the boundaries of the debate or discourse. That way people don’t need to be ordered about. They simply do what they perceive is expected of them, as Milgram’s experiments demonstrated so well.

Lifestyle and aspirations drive business, so the struggle for control of the MSM is accordingly fierce.. Celebs, game shows and other manufactured role models are not some kind of epiphenomenon. They are central to the consumer credit-basded globalised economic model developed by Greenspan and the Washington consensus. Like ancient Rome, our civilisation is in a decadent phase.

The distance between Hello magazine and scientific journals is not as great as one might imagine. Much private and corporate capital goes in ‘supporting’ departments and institutes. Like the philosophers of old, the technical display often seves to obscure some points of view which would be shockingly crude if expressed in plain language.

Colm McCarthy who is right about the need for serious reform in Ireland, but it seems ironic that, having just been sold the consumer society, we should now be asked to buy into austerity.

@Michael Hennigan.

I’m relaxed. I don’t have an axe to grind one way or the other about the Euro. I suspect we/markets are all skating on thin ice though.

One question: where is that 600bn actually coming from? i.e. Is it ‘real’ money? Are they just going to print it? Or is it some kind of ‘guarantee’ from the various EU governments?

Show me the money!

btw I notice that you nicked my Eagles/Hotel Calfornia/’You can check out but you can never leave’ quipp on this blog the other day and put it in your Finfacts article! That’s OK. My ideas that I put in the public domain are free. 🙂

Joseph, have also nicked your Eagles lyrics for newspaper article. Copyright belongs to Eagles though.

@ zhou

‘I suggest that the primacy/importance of statistics in the foundations of the abstract concept that is today’s “money” explains somewhat how influential transparently misleading statistics can be’

As a social construct, the statistics derive a great deal of their power from the very fact that they are trusted. They produce a ‘truth effect’ as Michel Foucault would put it. Having the ‘government’ stamp or the ‘academic’ stamp of ‘objectivity’ is the key.

One can accept that the statistics are, in many respects, ‘true and objective’, while recognising that both their truth and their objectivity are inevitably limited by the institutional process whereby they are constructed. Political considerations are often tacitly at work in the actual construction of the figures, and not just in their subsequent interpretation. Those processes are quite subtle, and I am not accusing any statistician of ‘fiddling the figues’ as such.

Ulrich Beck and Anthony Giddens have written extensively on the way in which trust operates in modern economies. The ordinary citizen, no matter how well educated, cannot hope to grasp more than a fraction the technical basis which underlies the systems we use every day. We put the card in the ATM and have to trust that the cash comes out. (We had to trust fiat currency long ago and, pace Drumroe, there’s no rational way back to gold).

I think it was Weber who defined organised religion as a ‘well founded illusion’. Insofar as it has become the dominant worldview, much of modern economics functions as a secular faith, which precents us from seeing how the world works. No wonder we are up a gum tree.

The capture of the ratings agencies was fundamental to the looting, which is still driving much of the sovereign crises. The blood sports are nicely described by Yves Smith in Econned. The public sector requires major reform, but that must not be permittred to deflect attention from the need to eradicate gross manipulation and undeclared conflicts of interest from capital markets.

Good business governance is good political governance as the medieval trading cities knew well. There are no truly objective views, and all ‘official’ commentators are spokespersons for some institutional opr corporate interest. Nothing wrong with that, as long as it is acknowledged as such.

You really can’t fool all of the people all of the time, so the battle between democracy and plutocracy will be fought, with outcome unknown.
Notwithstanding the IFCSC and FDI, our economy seems increasingly, rather than decreasingly, peripheral.

It is in our interest to grasp as many of the global and European dynamics as possible, if only to avoid being cast in the role of austerity pawns in the looting game.

@ Joseph

I didn’t see your reference!!

That song was on my playlist long before I had heard of the iPod!!

@Michael Hennigan – the track for the upcoming week might be Simply Red’s “Money’s Too Tight To Mention” 🙂

@AMcGrath
“Where is the “contagion” between Greece and Spain (or the other so-called pigs) or why not the other way round. I mean what is the logic of the Markets in pusuing these pigs in any particular order. Why not all at once?”
Since no-one else answered, I’ll have a go!

The contagion comes from comparative analysis of the failings – Greece – high deficit, high debt, low growth outlook, government sector too high a proportion of the economy. So, Greece having failed (based largely, one suspects, on the shock admissions of debt gaming) the search is on for others in similar positions.

As to the order, I couldn’t tell you. I suspect it is down to the individual government’s willingness to take action and its population’s willingness to accept it. We had effectively three budgets in a year cutting spending or raising revenue. We may have another one this year, my bet has been on June for a while! In June, I’ll bet on September… 😉

@yogan
On the subject of the ratings agencies it is good to see that their roles are bieng questioned in more detail in another thread today. Most commentators stop short of accusing them of deliberate fraud. My belief is “he who pays the piper calls the tune” so to see what influences their ratings decisions, you need to look at who are their biggest customers, and how their decisions affect those guys.

One difference between Greece and Ireland is military spending. You can consult Wikipedia, it seems Ireland spends little on its military while Greece spends a fortune. In fact Greece spends so much, others now have to pay for it, like the people who sold them the U-Boats (hint hint) to begin with.

Air force: Ireland 7 Propeller planes, Greece 159 F-16s

Whether or not Germany and others derived some security advantage from the large Greek military, or they just needed a customer for their armaments industry in a post cold war world and didn’t care about being repaid is up for grabs. The amount of corruption involved in weapons sales in general is also something to contemplate, but is probably unknowable.

Greece may be better off than Ireland in the sense that they can probably just stop buying expensive cold war weapons systems. Or perhaps others will just stop selling the stuff to them. Barman make that a double …

@Aidan R – “Their GNP will drop when they implement cuts and their debt will remain the same”

I imagine their debt will actually continue to go up!

Of course it’s just a passage to safe haven for the European (and other) banks. You didn’t think the people who actually run the world had come over all sentimental did you? 🙂