Maturity of Irish Bank Debt

Following on from John McHale’s post over the weekend, here‘s an expanded version of the document I sent to John. There seems to be some confusion out there about the extent of Irish bank bond debt, about the various types and about how much is covered by the September 2008 guarantee. The document draws together the relevant information on maturity of bank debt from the annual reports of Anglo, AIB, BoI, INBS and Irish Life and Permanent.

This information isn’t completely timely or perfect: A full Bloomberg trawl is perhaps the best way to do this. Importantly, none of the banks list September 2010, the end of the guarantee, as a maturity date in their tables. Instead, they list debt maturing up to the end of this year. It is well known, though, that the vast majority of the debt of Irish banks matures prior to the fourth quarter. An advantage of these calculations is that they come from publicly available sources and we can be clear about what it is we’re discussing.

The bottom line. By my calculations based on the annual reports showing the state of play at the end of last year—and feel free to correct me if I’ve got this wrong—these five banks had €71.7 billion in bonds due by December of this year with only €0.7 billion of this being subordinated. They then had a further €51.8 billion due after 2010, €14.4 billion of which are subordinated.

The very significant figure for bonds due this year shows that conjectures that the need to roll over bank debt could lead to a serious problem for the Irish government are essentially correct. Whether this scenario will actually happen, we don’t know, but one should be careful to dismiss those who say it could.

Update: The document had tables splitting debt securities into subordinated and senior debt. Because the total includes commercial paper and certificate of deposits, this might cause some confusion. I’ve edited the document to list the split as subordinated and other.

62 thoughts on “Maturity of Irish Bank Debt”

  1. A liquidity cliff looms….but Im sure the taxpayer will be there to act as a trampoline for the banks.

  2. @Brian Lucey

    Speaking as a taxpayer… “Oh no I won’t.”

    You make a serious point though.

    It would be interesting to see similar figures – what the position is with other European banks.

  3. @ Brian Lucy

    By the taxpayer you mean the taxpayers across the EU who are now being forced to carry the burden for the profligate expansion of our banks loan books. BoI alone increased its book from 100bn in 2004 to 200bn by 2008. Lenihan, on our behalf, decided to socialise the debts of our banks, decided that we must guarantee those debts, including the ones that were being moved over and back like yoyo’s to disguise the holes in balance sheets. Then he went for his NAMA solution. An “Irish solution to an Irish problem” if ever there was one. I was aghast to read the gloating editorial splashed across the Indo last sunday which contained the information that “secretly” we are delighted the EURO is crashing and burning? What a crazy deluded and reckless people we are? Ireland will shortly be making a request for funding to have these corporate bonds rolled over under the new EZ sticking plaster rescue package.

    Irish banks, not including the dead in the water ones and European banks in general are still very, very toxic despite what Honahan and the regulator are telling us. They are judging these banks on faulty criteria they have not provisioned enough for further write downs that have yet to materialise and by American standards European banks are still massively under capitalised not to mention about Basel 3 compliance.

    Cumulatively, these bailouts of corporate debt across the EZ will start to mount dramatically now that they have a sure fire purchaser the EU for its bonds. Where will this lead? We know it will lead to serious inflation and weakening of the currency (hopefully just weakening) and ergo interest rate rises. Then the fun will really start. We should temper our joy of a weaker Euro with the fact that Germany may decide enough is enough and start implementing an exit strategy.

  4. There were six in the bed and the little one said “rollover, rollover”,
    so they all rolled over and luckily the government stepped in with an unlimited guarantee to make sure none of them fell out…

  5. Readers of this blog may be interested in the following:

    What to do with Anglo Irish Bank? – an analysis within the macro-economic and market context

    About the Event:
    At this roundtable meeting of the IIEA Economists Group*, Maarten van Eden, Chief Financial Officer of Anglo Irish Bank, will deliver a presentation entitled What to do with Anglo Irish Bank? – an analysis within the macro-economic and market context.

    About the Speaker:
    Mr van Eden is Chief Financial Officer of Anglo Irish Bank since January 2010. Previously he was Head of Capital Management at ING Group. In addition to his extensive experience in international finance, Mr van Eden has served in the Royal Netherlands Navy and in the Dutch Ministry of Finance.

    *Attendance at IIEA Economists Group meetings is by invitation only. Please direct any queries to Shane Fitzgerald at 01 874 67 56.

  6. Pointing out the size of the bank debt rollover problem is valid and important. But on a day when the rest of the world is disappearing up its own exhaust pipe, surely this site should be focussed on other things?
    Karl et al, I know you wouldn’t be starting from here, but the time has come, I would humbly suggest, to assume that you are adressing a wider audience than just each other. Imagine you are addressing leaders (don’t laugh) who want the identification of the problems but also need the solutions. A manifesto for what we do from here is badly needed. We all know what we would have done. Things are getting very messy in the real world, again, and good ideas, one hopes, would be much appreciated.

  7. Completely off-topic, but in line with what Simpleton noted about the big bad world today…

    *GERMAN PROPOSAL FORESEES BAN OF SOME DERIVATIVES ON EURO RATE

    …oh yeah, Ze Germans are startin’ to get ugly on this….

  8. @Karl
    Ah, c’mon, the last time I looked, the Irish economy was small, open and lived on planet earth. Or maybe I really am missing something.

  9. @ Karl

    two things on you piece about irish bank debt:

    – BoI subordinated debt will be a good bit different after their capital restructure.
    – NAMA debt will at least help from a liquidity point of view as it can be used at repo (ECB and private), where as the bad loans previously on their balance sheets could not be.

    But yes, overall its a big ugly figure that needs to be rolled-over.

  10. @Shane Fitzgerald – “In addition to his extensive experience in international finance, Mr van Eden has served in the Royal Netherlands Navy… ”

    Assuming that some of the posters on this site attend, Mr van Eden may well need to employ all of his experience in handling broadsides and coping with being lashed to the mast then?

    Does Long John van Eden also know where the treasure’s buried?

  11. @ Simpleton

    I think you’re right to be honest,

    and that’s the problem with a lot of academics (nothing massive against them at all, there mostly all quite intelligent individuals, can’t deny) but in terms of giving (simply) a solution to a problem you’re not going to get it from them, and why would they? No one is holding a gun to there head for it there just commentating and they only have to come some of the way, and that some of the way is a discussion forum/blog.

    We don’t really have a solid group of Government economists and policy analysts to turn to that you would have in most other developed political/governmental systems so you’re faced with this…. hoping that politicians take in what little (valuable) advice they get from what little resources they have to fix a problem of massive proportion.

    That’s a lot of weight on AAs shoulders.

  12. @ Consaw

    So let me see if I understand today’s discussion correctly.

    1. Prof provides potentially useful information on Irish bank debt to clarify some confusions that may be out there on this issue of considerable local interest, consistent with name of blog.

    2. Prof gets attacked as example of how useless academics are because they’re not solving the global economic problems that are driving world stock markets down.

    Am I following this correctly?

  13. The debt game: a game for every country with capital left.

    Those that are too poor cannot play, you have already lost it …..

    Rules:
    Pay those “in charge” of OPM (in this case, the tax base and many years worth of GDP by borrowing) to give away that OPM to those paying them.

    To do this for a long time, make it look like it is an investment in the future, else other countries will not go along and we want as much as we can get! And make the payment abroad, in a tax have that does not co oeperate with anyone but is now desperate for income as the Yanks have cut off tax avoidance recently.

    Sorry, I got distracted, totally off topic ………
    .
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    Why have banks if they can’t lend to anyone? We only need them if they can be regulated, and governments can make this money just as validly as banks. Especially if the banks cost as much as this!

  14. I think comments such as consaw’s are profoundly misplaced.

    Irish academics such as Whelan, Lucey and Kelly have gone out of the way to place their necks on the chopping block of media attention.

    People reading this forum forget that Whelan & Co have contracts (and professional responsibilities) to engage in academic research and to teach 3rd and 4th level students – quite unlike the journalists and the politicians who have singularly failed to engage the public, though it is their paid responsibility to do!

    Whatever extra value-added academics give to the taxpayer in the form of blogs or contributions to the IT etc. should be gratefully received, instead of thankless requests for panaceas…

  15. @Karl

    Given we’re 5 months on from December 2009, are there any indications as to how much of the €71.7 due this year might already have been rolled over?

  16. Apologies for suggesting real world issues should get under very thin academic skins.

  17. @ Tull/Tc

    well, for both AIB and BOI about 55% of the “debt maturing within 12 months” would appear to actually be “debt maturing within 3mths” (at 31/12/09), so its more likely commercial paper or a similar instrument, and has already been rolled over once or even twice since the start of the year. This will be less problematic to roll over either in the lead up to or even outside of the guarantee, though it probably wont be particularly cheap then. AIB and BOI actually have very little (relatively speaking) long term debt maturing before September (when they have tons of it).

  18. @ Simpleton

    To be fair, I think most of those I’ve engaged with here or elsewhere know that I’m pretty thick-skinned. My original response to your comment was a joke. Follow up comment was also basically a joke.

  19. no no,

    Sorry not the way I meant it to come across at all.
    I mean as a resource within policy, be it banking but mostly government the information as useful as it is over a discussion isn’t really in reality because its not used or interpreted by anyone with an ability to implement it (which is what should be happening) is what I’m saying. For such a base of resources we have in academics there is the flipside of such a silent cry for resources of this level in government and policy making. Not of anyone’s fault here.

    It’s all well and good for discussion here, which I enjoy, but that’s essentially where it stays. Pity.

    @ Ribbit,

    They can all interact with the media all they want (and again its useful to hear but its never implemented and forgotten a day later),but sticking there necks on the line?? Come off it, no one is going to come knocking on their door for an explanation… they’ll go one higher instead.

    and to be fair…there is of course appreciate all the research and teaching/mentoring of students…but they’re well paid for it and aren’t bent over backwards with work, if that was transferred to a politician they’d be crucified in the public.

    Sorry bit of the topic.

  20. Come now thin skins. Simpleton has a point, although is maybe missing one too.

    The point that simpleton is, I believe, missing is that it is bank debt rollover that is likely to be the critical point for sovereigns. One has begat the other; guarantees, not just in Ireland, and the insistence of France and Germany that their banks not bear a responsibility for their foolish investments has resulted in a parasitic relationship between banks and states. The deadly embrace is now such that it is not clear who is host and who is parasite, but it does seem likely that in the current setup the death of one will lead to the death of the other.

    Where simpleton does have a point is that solutions are required. Colours need to be nailed to masts. We had a ludicrous situation at the time of the guarantee where almost no-one (barring some nuts on thepropertypin and the Labour party) thought it was a bad idea. 71 bn chickens are going to come home to roost at the end of the year. FF are already gearing up for an election (why do you think Mama O’Rourke has been doing the interview rounds and the church-gate collections); they want to be out of power just in case the ‘rescue’ involves leaving a few limbs behind.

  21. @Eoin
    Commercial paper: – “This will be less problematic to roll over either in the lead up to or even outside of the guarantee, though it probably wont be particularly cheap then.”
    I’m not so sure about this; it makes me a little nervous. Libor had quite a jump today; a credit crunch could see CP markets dry up again. Given interbank markets are already pretty dry, how many teats on the liquidity-cow remain in action?

  22. on rereading that… apologies to come off the point in such a tangent, its a useful thread all I was getting at was this point…

    “Where simpleton does have a point is that solutions are required. Colours need to be nailed to masts.”

  23. Consaw,

    I disagree on the ‘neck on the chopping block’ comment. Frankly, it is quite something for someone with a professional profile to make strong comments in the public sphere. Google never forgets, you know.

    But I do agree with you that people need to be nailing all kinds of colours to all kinds of masts – just not those of the academic economists. All I’m saying is start demanding answers from the people whose job it is to give them to you.

    For instance, the quality of radio presentation on economic matters has been deplorable ever since Ireland Inc went broke. Ministers who clearly do not have a bull’s notion are let get away with the most outrageous utterances as they red-herring their way to the last sound bite…time and time again.

    Academic commentators have made strong, clear statements and demanded actions (for instance, demands for debt-for-equity swaps, demands for an independent banking enquiry) but they have been just ignored, or worse, maligned by the bearers of vested interest.

  24. Absolutely ribbit. As you say, the academics have been in the lead (as they are leading over the scale of the ghost estate problem aswell); I meant to put in a dig about ‘professional’ or ‘bought’ economists… I must be getting soft in my old age!

  25. @ YM

    well a lot of people feel that Libor is a somewhat meaningless reference point these days, and that its reference rates are only catching up with the market reality now (ie ‘real’ interbank rates have been this high for a while). The jump in rates has been mainly confined to USD as well, which is a structural problem the market has, with lots of european banks missing out on domestic US liquidity pools these days. For instance, both Euro Libor and Euribor have only barely budged in recent weeks. Libor settings have also been suspect for a while now on account of there being such a small pool of contributors relative to euribor. However, your general point is a fair one, that liquidity in the market could quite easily tighten at some point, particularly if the Spanish banking problems were to get worse.

  26. @ All,

    I read Austin Hughes articles from May 21st 2010 in Irish Times, Euro’s fall from grace provides valuable breathing space. It deals with the subject of de-leveraging of many economies across the world, in a quite broad sense. Also dealing with the broad issues, Charlie Fell’s piece about gold, Gold will shine in the era of bailouts, in the same paper on the same date, dealt with price stability. Charlie Fell noted now the dispersion of possible future outcomes, (inflation or deflation) has rarely in history been wider. I agree with that assertion, and Charlie makes the point that gold is a decent hedge against either outcome. I stepped out of a local store at the weekend (the cheapest in my area in Dublin) with a half full bag of grocceries and the price mark nearly hit €20.00. I honestly cannot see the depreciation in retail that everyone seems to talk about. And I tend to look more at what I’m buying today than what I used to. BOH.

    http://www.irishtimes.com/newspaper/finance/2010/0521/1224270806297.html

  27. Simpleton wants you to lie like the Government Karl. Don’t do it. They’re a busted flush. Hands under the table across Europe.

  28. @ Punter

    No, no, Simpleton’s a great guy, he’s not asking me to lie — it appeared I just wasn’t focusing enough on the global problem de jour. Or Bono’s neck for that matter …

  29. Eoin, funding for many European has become far more difficult in the past weeks. The degradation has accelerated in the past days. There will be serious repercussions for the banks and for the economy should the difficulties persist. So I wouldn’t try to minimise the risks.
    Funding troubles however are not hitting all banks in the same way – there is quite some differentiation. So be careful in making inferences from averages (indexes).

    The last financial deal in the eurozone was the 15 April – a guaranteed Irish Permanent. Rabo came on 14 April with a €2bn issue. The last corporate deals were 5 May from Casino and ADP. Two small covered bond offerings got out the door last week.

    The rollover of Irish bank debt seemed to be going well enough – if at an ever higher contingent cost for the Irish taxpayer – until mid April.
    Even if markets were to remain closed, there are ways of maintaining the weaker banks on life support for quite a while yet. Again, those means would involve an ever higher contingent cost for the Irish taxpayer. The decision will be political, and not easy to debate prior to taking it.
    My preference goes towards ringfencing the sovereign and the taxpayer against the troubles that could lie ahead. Today’s difficulties in Europe shows that aid packages have to be credible and realistic, and need the support of business and the public. More importantly still, the governments need to have the means to achieve their ambitions. So the sovereign’s own finances need to be seen to heading in the right direction. Unfortunately that means in many instances accepting that our wealth and incomes have taken a serious and non recoverable hit.
    Many of these pennies have yet to drop. Otherwise the agony will continue, and most likely intensify. Time can be bought to fend off each new crisis, but only at the cost of gambling for ever higher stakes.

  30. Ciaran,

    What do you think of the German intention to tighten fiscal policy in the near term. I understand the imperative in the preriphery, but in the core?

    Also,, do you think the ECB should just cut to the chase and go for full blown QE without the attempts to sterilise?

  31. @Ciaran
    “My preference goes towards ringfencing the sovereign and the taxpayer against the troubles that could lie ahead.”
    😆 Talking your book there? Oh well, it’s also my book (as a taxpayer and sovereign bondholder!). I can’t disagree with anything you’ve said. Nobody of stature has had the nerve of Mervyn King to stand up and tell us that we are facing a lower quality of life.

    I too am interested in tull’s question, so if you get a chance…

  32. Everyone agrees I think that fiscal re-convergence is imperative if the eurozone is to hold together in the years to come. That is particularly important for the larger economies – Germany, France and Italy.
    In the past few months, there were a number of comments outside Germany suggesting that Germany could usefully stimulate domestic demand. Instead the German government has indicated it will take moves to do the very opposite. At the same time, France and Italy have almost made it clear their intention to speed up fiscal stringency and have announced a number of significant measures in the past fortnight (including a 24bn austerity package in Italy this evening).
    Germany’s austerity measures have however stolen the limelight (signs too that 2010 borrowing will come in better than expected and some German economic figures has been strong). All of this has served to stoke the demand for German Bunds.
    I think the challenges of cutting the budget deficit substantially in Germany are immense and that the security of Bunds is overrated (they should redeem in euro no matter what). But I wouldn’t stand in the way of a headlong train just now.
    Effectively the easiest – and safest – way out of this crisis would be to allow inflation pick-up. Olivier Blanchard at the IMF tried flying this kite 3 months ago, but unfortunately made no headway. I’m not even sure full blown QE would create any inflation just now, not for a year or two.

    And on previous post, interesting to note that after the Lehman crisis, corporate issuance was suspended for about 6 weeks, and financials 4 months. What bets today’s suspensions will be resolved sooner?

  33. So it is to be Japan after all?

    I don’t really see how you can “allow” inflation to pick up given the scale of debt and asset destructions that have taken place. The debt destruction has sort of been sterilised by states, once equity holders have lost out (both now and in the form of future profits), but the problem is that the equity holders (whether in shares or in bust property bubbles around the world) have lost real money/cash. States have taken on real debts too for these imaginary assets. All this is sucking money out of economies, both within states and across europe. The Germans I know feel poorer by the losses on their pension funds/savings, paper though they may have been. They are not in a mood to spend.

    The Japanese have thrown money at their problems without success, indeed, their public debt might indicate failure, except that Japan had a lot of money it had to put somewhere. Perhaps pretend and extend is entirely the right solution? After all, europe is reaching, if not declining, then steady state population. The requirement for growth may not be present?

  34. Thanks are due to Karl Whelan, Morgan Kelly, Brian Lucey and all I haven’t mentioned. The only faintly reliable data we are getting on a problem that will determine the future of the country and indeed the EU for the next generation or two is from academic economists who haven’t been bought. The official channels are hopelessly polluted with propaganda and wishful thinking.

    The solutions lie in political movements well beyond academia, so it is unfair to expect academics to provide them.

  35. Correct me if I’m wrong, but isn’t it expected that Lenny will extend the bank guarantee until December 31?

  36. @yoganmahew – “europe is reaching, if not declining, then steady state population. The requirement for growth may not be present?”

    That’s a very interesting point and has all sorts of ramifications. The ratio of old/retired to younger/working is another interesting parameter to throw into that mix. If populations decline and people are retiring less well off than the previous generation, insufficient ‘workers’ and tax take to support the pensions and services for those in retirement, lower consumption, etc. etc. The decline of the Roman empire sets in.

  37. @Sarah: there are at least two arguments for a *little* bit of inflation. The first is that it helps erode the enormous debt burden out there. The second is that it is difficult to cut wages; inflation makes it possible to cut real wages while leaving nominal wages unaffected.

  38. KO’R says:

    The second is that it is difficult to cut wages; inflation makes it possible to cut real wages while leaving nominal wages unaffected.

    Some insertions if I may, for the sake of bringing up some issues. The other instrument for roundabout ways to impose real wage cuts, without the associated political maelstrom we have witnessed in Ireland, is currency devaluation. In the sense, that purchasing power for all goods imported from abroad goes down for the entire population. I read a comment recently about the 10% wage decrease imposed on the entire British population in recent times. The other thing that springs to mind in this context, is the subject of national debt – as it was considered in the olden days of closed, protected economies – compared to nowadays, when a lot of trading goes on between various nations. In the past, economists did not worry about national debt so much, because goods and services were traded between agents within the one sovereign location. Even Ireland as I understand it did aim for the small protected type of economy during the De Valera years. Now because economies tend to be more open, we have to worry about de-valuations more maybe. If my memory serves me correctly though, I believe that Joseph Stiglitz had a chapter on ‘protection’ for smaller young nations in one of his books. Arguing that maybe the policy imposed on developing economies to open their trade barriers wasn’t a good thing as native industries try to get bedded in. Stiglitz argued if my memory serves me correct, that younger economies aught to protect themselves for a period, before opening themselves for trading on a global scale. If one were to read a book such as Alan Greenspan’s The Age of Turbulence, you would hear the polar opposite side to the argument – where he argues that keeping economies closed for any reason, is a recipe for a disaster. Certainly, in the Irish context, a book such as Tom Garvin’s Judging Lemass, would provide some interesting insights. Peter Schiff has an expression he used in his book Crash 2.0, where he said the United States in the past used to export its inflation to the Asian countries. With the trade imbalance gone out of whack now between the US and Asian exporters, it seems that much of the ‘inflation’ in the US, will remain on home soil. What the policies in relation to inflation are set to be in the EU region, I’m not fully aware. BOH.

  39. @ Sarah Carey,

    Another bit of rambling if I may. I was thinking about inflation/deflation and what Charlie Fell described as the dispersion of possible outcomes in his article, Gold will shine in the era of bailouts. Robert Shiller has an interesting Open Yale lecture about portfolio diversification, which I think ties in nicely with Charle Fell’s points made about gold. Namely, in times of deflation people tend to flee away from assets. So I guess the point that Charlie was making is, the composition of the portfolio altered to include things such as gold. Robert Shiller is a really big believer in the idea of portfolio diversification, as a means towards protection of livelihoods. Shiller is also a student of behavioural economics though, and one cannot understand Ireland’s patent lack of portfolio diversification during the bubble years, without trying to understand human psychology. BOH.

  40. @ Ciaran O’Hagan,

    I agree that some QE and inflation is an option (after all, that and stable growth eroded the huge debt mountain after WWII), but I don’t think there’s a single silver bullet. All available levers must be pulled and instruments deployed. And that may include some sovereign debt restructuring (aka haircuts for holders of the PIIGSs’ sovereign and bank bonds). Politically, the bailing out of bondholders by all citizens and residents in the PIIGS is probably unsustainable; and, economically, the debt service capacity of these countries is also probably unsustainable.

    I know Mr. Bond..Eoin Bond will point out that these bondholders advanced funds in good faith and sought a minimal (10-15 bps) risk premium, but we have to recognise both the failures of democratic governance that caused this mess and the legitimate global strategic objective of Germany (shared to a great extent by the other core EU members, the Scandinavians and the smaller central and eastern EU members) to create an economic zone with strong monetary and fiscal discipline and with efficient production of high quality goods and services that can go toe-to-toe with the BRICs.

    The initial failure of democratic governance lay in the exercise of executive dominance by President Mitterand and Chancellor Kohl. Without securing popular consent Kohl browbeat the Germans into relinquishing their beloved Deutschmark on the basis that the Euro would be governed by the same monetary and fiscal discipline. But the Euro’s monetary regime provoked irrational exuberance in the PIIGS and they exhibited a genetic disposition towards fiscal incontinence. This was the second failure of democratic governance in that the system exercised no restraint on governments that failed to recognise the requirement to employ strict fiscal discipline to lean against the significant monetary easing (both in terms of the cost and supply of funds) that Euro membership entailed.

    Chancellor Merkel is no confronting the bitter legacy of Kohl’s steam-rolling and the total irresponsibility of successive governments in the PIIGS – and German popular opinion is in no mood to fund an easy resolution. As Colm McCarthy has pointed out previously, Greece has lost its fiscal sovereignty. Merkel is compelled to seek powers to strip the other PIIGS of their fiscal sovereignty – and in this she is confronting opposition from the Commission and other members. But German popular opinion presents her from doing anything else.

    The choice is between forcing the PIGS out (Italy excepted) and creating a hard Eurozone or imposing the fiscal discipline to maintain the existing EZ, primarily as a political project. The EU elites will fight to preserve the latter, but Merkel must bring German voters along – and the price they will exact for their consent will be severe.

    I expect some fudge witll be engineered that will preserve the EZ as a political project and will ensure the sullen and grudging consent of German voters, but, as usual, it will fail to address the underlying failures in democratic governance that caused the mess in the first place.

  41. @ YM

    saw that earlier, but was waiting for today’s updated rate to comment! Actually back down from 0.48% yesterday to 0.39% today! Ha! Patience is indeed a virtue!

    But yes, starting to see a few jitters in the CP markets, rmr going round this afternoon that Spanish megbank BBVA has been unable to roll about $1.0-1.5bn of its US CP since the start of this month (though they still have $9bn in outstanding US CP, most of which is still rolling easy enough, and god knows how many billions more in Euro funding).

  42. @ YM

    actually, the BBVA story is being downplayed by a lot of analysts, they’ve actually more than filled the gap on their Euro CP program, and it seems to be more a pricing issue than anything (they’ve refused to widen their spreads to match other issuers widening theirs).

  43. @Eoin
    Yeah, it always comes down to price! I think the problem is that it looks like a risk premium for the weak is returning. There seems to be a lot of ‘weak’ out there! In contrast to the UK (and even Ireland!), most weak European banks have not been recapitalised; in contrast to the US they are not being closed down.

  44. PS It could also be related to the general squeeze on dollar funding as it looks like it is their USD CP program that they are having trouble filling.

  45. @Karl

    Sorry, coming back to this rather late. Thanks for the kind words. Yes, i fully accept that you must have one of the thickest skins around for all the (mostly!) unwarranted stick you take around here.

    Clumsily as ever, I was trying to make a point. Not to solve all the world’s problems but more to appeal for solutions as well as identification of problems. All in an irish context of course. Many people are very good at one part of this task, but not both pieces. My reference to the outside world was an expression of concern that things are deteriorating at a rapid rate of knots, euro project wise.

    Colours to the mast; i think the eurozone has 12-24 months to form an effective fiscal union or it breaks up. By ‘effective’ I mean the creation of a eurozone debt market that leaves markets as interested in ireland’s debt as they are in New Jersey’s.

    If this fiscal union proves unachievable I think core europe (germany and the usual suspects) will leave the euro and reconstitute the DM, leaving the rest with the euro. Chaotic i know.

    The strategic choices facing irieland are (1) do we want to be part of a fiscal union (2) do we want (if invited) to be part of a breakaway core (3) how do we get invited?

    Lots of strategic thinking required. Not a strong national trait I fear.

  46. @simpleton
    Interestingly, many of us I suspect think of “fiscal union” as federal budgetary oversight while losing track of the “and they get money from where?” issue. I think the answer to your three questions are a) yes, b)no, c) keep fudging.

  47. @Simpleton

    How can you have fiscal union without political uniion. The obvious fiscal union we are familiar with has a democratically elected President, 435 Representatives and crucially 100 senators who go in to bat on behalf of their state and ensure a fairly decent split of the federal transfers. The European Union has no such democractic foundation.

    The available evidence is that we have not fared well in monetary union, largely but not exclusively self inflicted. Who is to say a fiscal union where we had very little influence would serve us any better. Rather we would then be operating in an environment where we had 1% control over monetary, fiscal or exchange rate policy.

    My answers would be 1) no 2) not sure…maybe 3) since 1=no, don’t care. In 5 years time it will be 100 years since the declaration of independence by Pearse. MAybe we should go again but make a better fist of it this time.

  48. @Tull
    I would answer your question with a question: how much sovereignty to we have to give away to form a de facto political union? We gave away monetary policy over a decade ago. The banking system cannot order a new roll of toilet paper without Brussels approval. The main parameters of the annual budget are now set by Brussels, leaving the minor details to be fought over in the DoF. Their is a raft of European law that is applied here, with more to come. OK, we still drive on the left.
    Another question: how much actual (as opposed to imagined) sovereignty do we have now compared to 1916?

  49. @ Simpleton,

    We have less fiscal autonomy than an English Shire. But there is a lack of democratic accountability. Our govt has less influence in the Halls of Power than a medicre US senator.

  50. On the EU level:

    Ciaran O’Hagan’s point that even substantial QE may not cause inflation is sobering. Are we back to Krugman’s and Hendry’s previous views that the hole of debt and wealth destroyes is so big that it is hard to over-fill it to the point of inflation.

    The concept of ring-fencing sovereigns is interesting. What mechanism might be used to this end? Anyone?

    It is worth a substantial amount of economic pain to keep the EU together. The optimum medium term economic solution is not necessarily the optimum long term political solution.

    On the National level:

    Whereas one might have feared that announcing a resolution scheme could prompt a flight of capital, if capital flies in any event then surely one should have a resolution scheme ready. In fact, resolution for weaker banks and institutions may increase the credibility of the guarantee vis-a-vis other institutions.

    Whether or not the EU keeps it together, and I think it will, there is going to be a huge amount of enforcement of debt. There is a huge drag where banks micro manage borrowers to the point of paralysis and/or borrowers are enslaved for the rest of their lives. Borrowers need to be cleaned out quickly and let start again. It is a matter of profound failure on the part of the the DoF and the DoJ that there is still no published bankruptcy reform.

    Now that people are starting to accept that “NAMA for the People” is as unaffordable as its title is misleading, we need to implement reform of debt resolution. Borrowers must be allowed to force banks to face up to the situation and reach a speedy resolution which allows borrowers to start afresh in short order. This should be a cheap, straight forward, state-facilitiated process based on financial institutions investigations, obligations of disclosure and affidavits of means.

    The borrower must have the right to choose rapid bankruptcy based on the disclosures made in the streamlined process as opposed to any scheme proposed by the banks.

    Whilst this may reduce recovery rates for banks, it should benefit banks by lessening enforcement costs and re-invigorating the economy.

    Those who should be rapidly developing these systems need escape their current paralysis in order to help the economy escape its paralysis.

  51. First time commenter: I read today on Bloomberg that the Irish economy may be recovering, but the story feels as if I’m missing something. Anyway, this blog provides great info!

    In Bini Smaghi’s letter as quoted on ZH, he writes “a monetary union is de facto a political union” (quoting someone else). I’m no prof.dr. – anything but academic – but to me it’s the reverse: first political union, then the rest. Judging from the state of integration – and I find blaming the Greek crisis on some moral deficiency of Greeks in general extremely telling – we’re as close to a full political union as we are to Starship Enterprise.

    As for the mountain of debt, it’s obvious that it only exists in the present framework. Not quite rosecolored lenses, but you get the idea. Change said framework and the problem might not be so huge. One solution I’ve heard (from an Australian leftist) is for the ECB to buy the debt and hitting the delete key. I like it!

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