S&P Downgrade Irish Debt, Put on Negative Watch

Standard and Poor‘s have downgraded Irish sovereign debt from AA to AA- and their outlook for the rating (not the economy) is negative. S&P cite the rising cost of the banking bailout as in their statement and project a debt-GDP ratio of 113% in 2012.

On the banking costs, they state

We have increased our estimate of the cumulative total cost to the government of providing support to the banking sector from about €80 billion (50% of GDP; see “Ireland Rating Lowered To ‘AA’ On Potential Fiscal Cost Of Weakening Banking Sector Asset Quality; Outlook Negative,” published June 8, 2009, on RatingsDirect), to €90 billion (58% of GDP) …

We have increased our estimate of the cost to the Irish government of recapitalizing financial institutions to €45 billion-€50 billion (29%-32% of GDP) from €30 billion-€35 billion (19%-22% of GDP). 

Our estimate includes two main components: the upper end of our estimate of the capital we expect to be provided by the Irish government to improve the solvency of financial institutions, and the liabilities we expect the government to incur in exchange for impaired loans acquired from the banks.

Irish ten year bond yields have risen above 5.5 percent this morning and the spread against their German equivalent, at about 340 basis points, is the highest it has been in recent years. The NTMA have objected to the downgrade, arguing that S&P were using an “extreme estimate” of the cost of the banking bailout.

150 thoughts on “S&P Downgrade Irish Debt, Put on Negative Watch”

  1. “In our view, the loans that NAMA is acquiring have limited liquidity and cannot readily be sold in the near term. NAMA applied a haircut of 52% to the nominal value of the first €27 billion in assets it acquired from the banks. We view these loans as having value, and as recoveries occur in the medium term we expect them to be available to pay down general government debt. However, based on the information available to us, we would not expect recoveries to amount to much more than €16 billion (10% of GDP) over the time frame that our ratings address. As and when recoveries on NAMA’s assets materialize, we may revise our forward-looking estimates of Ireland’s gross and net general government debt.”

    What time frame do their ratings address?

  2. @zhou
    What’s our longest bond in issue?

    S&P also, apparently, entirely discount the value of the shares the NPRF owns.

  3. The key asset underpinning the Irish banks is loans backed by property. As long as property values continue to decline, the cost of rescuing the Irish banking system will continue to climb.

    The prospects of Irish property values bottoming in the near future are extremely low given:

    a. rising prospects of a US double-dip;

    b. the danger that the slow-motion bank run now underway in Greece speeds up and triggers another Eurozone crisis; and

    c. accelerated deleveraging in Ireland as foreign banks exit.

    The debt-deflation process underway here will only end – in my opinion – when property values have fallen as far below their true worth in the bust as they arose above their true worth in in the bubble.

    But that bottom appears to be a long way off. And thus we may not yet have seen the last downgrade of Irish government debt.

  4. @ Zhou

    Where did you get that quote? I went looking for their report “Explaining the Adjustments to Ireland’s Forecasts” and they were looking for $500!! I hope NTMA didn’t pay that or else S&P’s doomsaying will be self fulfilling.

    50bn recap seems way over the top – 24 for Anglo, 3.5 each for AIB/BoI, say 4 for the rest. That’s 35 of which not all is lost.

    From that quote they seem to be valuing NAMA’s assets as 16bn against liabilities of say 50bn. Again this seems a very pessimistic way to assess the true exposure of the State.

  5. So we are paying 5.5%. What rate of interest would signal the markets being effectively closed?

  6. To hear the NTMA on Morning Ireland this morning, you,d swear its all the fault of the rating agency. Look, its all swings and roundabouts at this stage. Ireland is facing bankruptcy in the face. Lets just default and get the pain over with. I am an economics 101 subscriber here and even I can see its game up.The markets don,t lie and they are,nt telling porkies this morning.
    It looks like Morgan Kelly is on the money again, regarding his article in the Irish Times last May.

  7. @Brian Woods II
    “50bn recap seems way over the top – 24 for Anglo, 3.5 each for AIB/BoI, say 4 for the rest. That’s 35 of which not all is lost.”

    Those are old estimates at this stage Brian.

    The poor quality of assets being transferred to NAMA indicate that the banks are in far worse shape than the CB and & FR estimated only a few months ago. The larger developers, who have already being transferred, would in general have far better quality assets and were more likely to be diversified out of the Irish market than the new smaller developers. This has implications for the future discounts plus the value of the sub €5m loans left on the banks balance sheets.

    They estimate Anglo will need €35bn which is in line with many others commentators estimates and I don’t think it is overly pessimistic, more realistic IMO.

  8. S&P project a debt-GDP ratio of 113% in 2012.

    Morgan Kelly projected a debt-GDP ratio of 115% by late 2012 in his IT article in May.

  9. I don’t blame S&P at all for reclassifying NAMA debt. Whilst no-one is saying that NAMA will lose €40bn, the NAMA business plan gives its audiences a giant F-you. If audiences cannot form a view on the assumptions and mechanics of NAMA then why blame S&P for saying the max expsoure is the value of the debt issued (though if Zhou’s note is correct they are not actually saying that). Indeed if derivatives are as toxic as some believe then forget about vanilla loan defaults and a failure of property markets to recover, derivative losses alone could wipe out €40bn – unlikely but NAMA has no-one but itself to blame for the consequences of their North Korean approach to transparency.

    Also it would not surprise me if Eurostat were to revisit their “preliminary” decision from Sept 2009 which allowed the NAMA debt to stay off the national balance sheet. Below is the letter and to remind you, the decision was predicated on NAMA being profitable, independent and able to recoup losses via a levy – all three bases are now suspect at the very least.

    http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/documents/Irish_letter_19_10_2009.pdf

    US latest estimate of bank crisis –

  10. @BWII

    Ask me no questions and I’ll tell you no lies. I didn’t realise it was expensive to get a copy of that report. There is more interesting stuff but I am reluctant to post it if there are copyright issues. The NTMA seem to have fairly summed it up though.

  11. When the minister for finance gave the fateful decision to give the banks an unlimited guarantee, and in particular extending it to Anglo and the INBS he just bankrupt the country. He spent 50 bn he didn’t have and got nothing but piles of worthless liens and shares in return. You can’t get anything more systemically important than that.

    Everything since then has just been a dance with the enevitable. NAMA transfers more bad or doubtful debts to the government in the hope that the rating agencies won’t spot the obvious.

    The productivity of the Irish nation is not enough to cover the additional tax required to cover these debts particulary since this will need to accompagned by a simulatenous severe cutback in goverment expenditure of the order of 10 bn per year in order to balance the books.

    What we have seen is a huge transfer of wealth from the Irish people to the bondholders and deposit holders of Anglo.

  12. Still….we can’t get around the fact our country has been “criminally” run into the ground by overpaid and over-ratted politicians, bankers, accountants, politicians
    … sometimes you gotta listen to how the world sees us
    ….. sometimes I think we waste more time and money diverting attention from the truth. For example, the new solpadeine regulations. The government through its appointed lap dogs in the PSI has effectively smeared the Irish Population as drug addicts… a government that acts like a gang out of a mafia movie.Cheek!
    Lets wake up folks, focus on the truth and rebuild knowing the worse rather than this sick-man strategy

  13. They also think that the stability program deficit target can’t be achieved. Which is probably not news to the European Commission.

  14. Given that the banking and economic strategy has not only been disastrous, but the government was actually told so before it implemented the policy, how come Brian Lenihan is actually FF’s most popular minister?

    This is just all to bizarre for me.

  15. Interesting to note that this move by S&P comes against a background of more glum perspectives for sovereigns. See http://v3.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_127080 , a Moody’s report on European sovereigns. The key warning is: “Those countries that are facing persistently strong deleveraging could experience renewed negative pressure on their ratings in the future, depending on how long the process lasts” (p5). The glum views are based in part on pages 6/7: “Fiscal consolidation – the impact on growth is likely to be negative. Of greater importance from a rating agency perspective is whether the fiscal stance will continue to be a drag on economic growth for years to come”. And Moody’s argues that it will, especially as professional advice is being ignored. Quick and full adjustments to lower levels of income and wealth are needed (page 8). But governments are dragging their feet.
    At the same time, an ECB working paper set out to prove that elevated budget deficits are deleterious for long-term growth prospects. http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1237.pdf A much studied topic, and a hard one to crack. This research will provide more ammunition to central bank governors to try to persuade recalcitrant sovereigns cut their huge budget deficits, for the good of their citizens, and for that of the European taxpayer
    In relation to Ireland, I’d be concerned that there is too much focus on banks (much of the S&P appraisal is bank-related). The long term perspectives for the public budget however is the key concern. Substantial, permanent and long term measures to bring public revenues and spending into line with the prospects for national income would be very welcome news indeed. Welcome for buyers of public debt, and for tomorrow’s taxpayers.
    So much for those on this chat that reckon SOE governments can spend their way out of the hole – that hole is ever deeper!

  16. @Jagdip… Good point.

    Based on Zhou’s note, S&P have effectively said that NAMA’s implicit strategy of holding on to properties until the market picks up is completely flawed and that it will not be able to monetise its assets for more that 10 years. This gives a big “F-you” back to NAMA.

    I hope this will wake the government up when it comes to letting the bank guarantee expire.

  17. It is hard to know how many warning signals are required before the government, a plethora of commentators and academic consultants realise that their ‘stabilse the banking system’ (most respected bankers would not even consider Anglo Irish a bank – it had little or no deposit accounts) through an unaffordable bailout, ‘stabilise the public finances’ through deep deflationary cutbacks, and hope in an act of faith that ‘cutting wages’ will somehow improve our illusive ‘competitiveness’ and in turn support employment creation. History will judge that the wrong options have been pursued in terms of the banking, public finance and jobs crisis.

  18. The Dail comes back pretty much the day the bank guarantee expires. Whatever FF decides to do will be rammed through without debate. We don’t live in a democracy. The fact that Frank Fahy is allowed to pontificate on nama etc without a health warning about his substantial property interests is more evidence of a pseudo-democracy.

    : Zombie Banker Blues

  19. The most important thing about the truth is that it’s useful.
    There’s some money to be made on shorting these things at the moment.
    Most worrying thing is that Ireland is small enough to fail – and is being set up as the stinkiest PIG of them all with it’s unregulated banks.
    We are being pushed to bailout! let’s do default instead. The games afoot!!

  20. @Ciaran O’Hagan
    “In relation to Ireland, I’d be concerned that there is too much focus on banks (much of the S&P appraisal is bank-related). The long term perspectives for the public budget however is the key concern.”

    Based on old estimates of the banking costs I think you may have been correct Ciaran. But with the expected costs increasing very rapidly and still very little sign of stability in the bank’s main property market I’m not sure it is true any longer.

    Over the next 4 years we will probably need to borrow in excess of €50bn if we stick to our plan.

    S&P’s estimates that the banking recapitalizations could cost up to €50bn, some of this has already been committed but there is still lots of state cash to handover in the next few years.

    So at the moment the twin threats to the Irish sovereign, banking and overspending, are looking equally menacing IMO.

  21. @Ciaran O’Hagan,

    Many thanks for providing the broader EU perspective. Do you have any snese that the markets, via the ratings agencies, are putting pressure on the institutional EU – in the guise of the Van Rumpuy Task Force – to get its act together and make some decisions on fiscal governance, debt restruturing and financial governance and regulation? The stability fund has been established and registered in Luxembourg under the direction of the redoubtable Dr. Regling, but is it really operational? Are voters in the core EZ countries, particularly those in Germany, prepared to take the hit to their pension funds and banks that will be required to bail out the fiscally incontinent PIGS?

    It seems we are in a ‘phoney war’ at the moment. Obviously not expecting answers, but I expect there would be interest in your views.

  22. @ Dreaded_Estate
    I take your point. The banking risks, I think, are largely known and appreciated at this stage. They are also something of a fixed cost (if still a moving target and a massive cost). As for the current budget, I’m not sure the difficulties in raising public revenues or cutting spending over the coming years is fully appreciated. And while the damage has been largely done in the area of banks, there is still the opportunity to retain credibility on the fiscal management front. There is a tremendous well of sympathy abroad – witness all the articles on how successful Ireland’s “austerity” programmes have been. That sympathy needs to be fostered with more long term measures, lifting any doubts that budget deficit targets will be met

  23. I stated unequivocally in my article entitled “Time to rethink bank rescue plan” (Irish Examiner 20th August 2010), that a correct analysis shows that Anglo’s loan losses will rise to not less than €36bn (i.e. 50% of its total loan book of €72bn) and that INBS’s loan losses will rise to not less than €6bn (75%-80% of its property development and investment loan book).

    In fact, I would go further! Based on extensive professsional experience in the area of property loans work-outs and recoveries, I would add a further 15% loss margin respectively (i.e. €5.4bn for Anglo and €0.9bn for INBS) to those above-mentioned levels of predicted losses. This additional 15% loss margin is based on the unassailable reality that there is increasing negative paralysis in the property market arising directly because of bottleneck / clogging-up of the loans recoveries process as a result of that process being funnelled into one large stagnating proerty loans reservoir, namely NAMA.

    Also, bank credit has contracted viciously as a result of huge under-capitalisation at the banks and huge nervousness amongst depositors. In fact the entire Irish Banking Sector is totally dependent on continuation of the all embracing State blanket guarantee for the liabilities of the Irish owned banks.

    In the cases of Anglo and INBS, both should be closed. All bondholders would bear the consequences of the shortfall of assets to liabilities and depositors would be protected ahead of Bondholders even if this meant passing special legislation to address this supe-extraordinary situation.

    What is alarming and indeed depressing at this point in time, is that the loans recoveries process hasn’t even got under way yet, 24 months after the crisis! In addition, the banks remain woefully under-capitalised ! And the boards at the banks haven’t yet been fully cleaned out and the senior bank managements haven’t yet been replaced and infused with energised new leadership!

    It’s Time indeed to rethink the bank rescue plan!

    What we need to do is:–Re-capitalise the 3 viable banks, AIB, BoI and EBS, at adequately at the right levels …€10bn, €6.5bn and €1bn respectively. That makes a total €17.5bn re-capitalisation requirement. Then present €6.5bn of that total re-cap bill to AIB and BoI bondholders (we might allow the bondholders a token very small debt for equity swap). We, the State would provide the balancing €11bn re-cap amount by way of a zero rate State Banks re-Cap Bond Issue thereby nationalising the banks for a temporary period of say 5years…. and we would reverse the NAMA loans transfers, while at the same time tasking the nationalised banks to get on with loan recoveries at the steeply written down values, within dedicated loans recoveries divisions at the banks!

    This correct Banking Sector Recovery Action Plan could be commissioned and implemented in weeks rather than months!

    As a Nation…have we got the collective Will to do what’s right?

    Peter Mathews

  24. Isnt JtO usually here about now to say that every little thing, gonna bee allrite…
    Spreads over 350 now, fwiw. Clearly we have turned a corner

  25. @ Peter matthews

    what bond holders

    Losses say 40bn

    GG bondholders maturing 30 Sept E14bn
    Other seniors including self held 4bn
    subbies 2bn

    no majic bullet there unless you want to default on the Govt guaranteed stuff or the CBs 11bn.

  26. In the unlikely event that the government decided not to extend the bank guarantee, it would be too late. The nationalization of Anglo and effective takeover of several other institutions leaves the state on the hook for their debts. When one realizes that the early estimates of ‘saving’ Anglo have risen by orders of magnitude it shows how little trustworthy data was available in the midst of a sea of poor judgments. Commercial property is still tumbling especially outside some choice spots in the main three cities. Banks won’t/can’t lend for development unless a cast iron rent roll is in place the developer can cough up a third of the cost. With so much property available, any private sector development is riddled with risk. The barely suppressed spectre of domestic mortgage defaults/impairments whatever at some stage will leap out of its temporary entombment to savage bank balance sheets. Political strokes to keep this problem out of larger public view will come to nothing as eventually a hell of a lot of loans will simply remain unpaid. The effect of this on the banks must be weighing on the rating agencies’ collective mind.

    @George Orwell
    So we are paying 5.5%. What rate of interest would signal the markets being effectively closed?
    I have posed the very same question several times on this board and am no wiser. At some point, default and restructuring must be considered seriously rather than pauperizing the entire population and crippling growth prospects.

  27. JTO has made very good contributions on the domestic economy and is right to be optimistic about exports, production, GDP growth, etc.

    “What will sink us”, as Morgan Kelly said, will be the bank bailout and Nama. JTO has stayed away from commenting on these issues.

  28. @tull mcadoo

    Least Cost Anglo Solution – Prepared by P. Mathews on 21st April 2010

    Close down Anglo with immediate effect. This solution could take 4-5 years to complete.

    Summary Cost of Close-down:-
    €bn
    Loan Assets (which includes €35bn NAMA listed Loans):- 65

    Other Assets – Loans to banks 7

    Total Assets for Recovery 72bn

    Maximum realistic achievable recoveries from €72bn assets:-

    Loans to banks at Dec 2009 (100%) 7bn

    40% Recoveries from Loan Assets at Dec 2009
    = 40% X €65bn 26bn

    Total Cash Recoveries for Distribution 33bn

    Order of Distribution:-

    Customer Deposits (Women & Children ! / State G’tee) 27bn

    Surplus 6bn

    Apply Surplus to next Creditor Liabilities in Priority Order:-

    Bank Deposits (ECB Emergency + Others) 33bn

    Which leaves Bank Deposits relying on the Sept ‘08 2 year
    State Guarantee to Sept 2010, in the sum of:- 27bn

    As things stand, the State would be legally and morally bound to stand over in full this amount of €27bn (assuming, of course, that none of the Bank deposits were made prior to Sept 2008). To keep Anglo open along the lines suggested by KPMG would cost hugely more, at least €17.4bn more, than this €27bn. Why? Because Senior Bondholders at €15.1bn and subbies at €2.3bn, following super-extraordinary legislation for winding up Anglos (and INBS) would receive no distribution.

    Note:- The State would have no legal or moral obligation to the Bond Investors in Anglo.

    Bond Investors for many years promoted and argued the Doctrine of de-Regulated Capital markets as being the most efficient etc. The Financial Institutions, Banks, Stockbrokers etc argued strenuously for minimum direct supervision and regulation. That was their Creed and they insisted that counter-party regulation and counter-party appraisal operated superbly well. That’s why the Bond holders must accept the consequences of their Creed and Doctrine, their own poor appraisal and judgement in subscribing for and investing in the Senior (€15.1bn Dec 2009; was €17bn in 2008) and Subordinated Bonds (€2.3bn Dec 2009; was €5bn 2008) issued by Anglo. There is no valid argument whatsoever for the Irish Citizen /Taxpayer to pick up the tab, legally, morally or commercially for this €17.3bn Bond holder loss.

  29. @tull mcadoo

    Least Cost Anglo Solution – Prepared by P. Mathews on 21st April 2010

    Close down Anglo with immediate effect. This solution could take 4-5 years to complete.

    Summary Cost of Close-down:-
    €bn
    Loan Assets (which includes €35bn NAMA listed Loans):- 65

    Other Assets – Loans to banks 7

    Total Assets for Recovery 72bn

    Maximum realistic achievable recoveries from €72bn assets:-

    Loans to banks at Dec 2009 (100%) 7bn

    40% Recoveries from Loan Assets at Dec 2009
    = 40% X €65bn 26bn

    Total Cash Recoveries for Distribution 33bn

    Order of Distribution:-

    Customer Deposits (Women & Children ! / State G’tee) 27bn

    Surplus 6bn

    Apply Surplus to next Creditor Liabilities in Priority Order:-

    Bank Deposits (ECB Emergency + Others) 33bn

    Which leaves Bank Deposits relying on the Sept ‘08 2 year
    State Guarantee to Sept 2010, in the sum of:- 27bn

    As things stand, the State would be legally and morally bound to stand over in full this amount of €27bn (assuming, of course, that none of the Bank deposits were made prior to Sept 2008). To keep Anglo open along the lines suggested by KPMG would cost hugely more, at least €17.4bn more, than this €27bn. Why? Because Senior Bondholders at €15.1bn and subbies at €2.3bn, following super-extraordinary legislation for winding up Anglos (and INBS) would receive no distribution.

    Note:- The State would have no legal or moral obligation to the Bond Investors in Anglo.

    Bond Investors for many years promoted and argued the Doctrine of de-Regulated Capital markets as being the most efficient etc. The Financial Institutions, Banks, Stockbrokers etc argued strenuously for minimum direct supervision and regulation. That was their Creed and they insisted that counter-party regulation and counter-party appraisal operated superbly well. That’s why the Bond holders must accept the consequences of their Creed and Doctrine, their own poor appraisal and judgement in subscribing for and investing in the Senior (€15.1bn Dec 2009; was €17bn in 2008) and Subordinated Bonds (€2.3bn Dec 2009; was €5bn 2008) issued by Anglo. There is no valid argument whatsoever for the Irish Citizen /Taxpayer to pick up the tab, legally, morally or commercially for this €17.3bn Bond holder loss.

  30. Peter,

    the problem with your conclusion is that somewhere between E12-14bn of the Seniors are explicitly govt guaranteed and mature in 35 days time. I suggest that we cannot default on this as
    *it counts as a sovereign default
    *we could not then rollover the GG bank debt in the other entities
    *our access to capital markets would be screwed
    *our masters in Brussles or Frankfurt will not allow it.

    Still fair dues to you for taking this broken down selling plater out for a gallop.

  31. George
    Being optimistic re exports of low employing high-tech mnc’s while ignoring Nama-anglo-bond markets makes as much sense as saying youve a lovely garden when the roof is ablaze

  32. @Peter Mathews

    “There is no valid argument whatsoever for the Irish Citizen /Taxpayer to pick up the tab, legally, morally or commercially for this €17.3bn Bond holder loss.”

    International bondholders and depositors are entitled to assume that the regulatory system is not run negligently or corruptly.

    Fear of the aggressive litigation that would follow default may be one reason why citizens are being made to pick up the tab for anglo.

  33. Still and all the biggest thing that sticks in your throat is that the government who presided over the various and by now well documented causes of this disaster are still insitu, freely dishing out their illconceived solutions to problems they created. It’s akin to a husband beating his wife half to death, then telling the doctors and paramedics how to treat her.
    oh and given our unusual situation regarding the number of multi national companies we house i believe we should just be honest with ourselves and use GNP. the fact that intel and google are sending massive profits back to the US does not help our situation here. pretending it does is just more heads in the sand folly.

  34. Measures taken to alleviate the burden on the taxpayer will ultimately prove a positive for the taxpayer. To my knowledge, only one bank in Europe has been allowed enter bankruptcy in the past year. The hard-nosed fiscal management of the sovereign in question has won it lower risk premia, not higher ones. Admittedly the context is a bit different. And it is even different still for the USA, where the authorities have maintained quite a distance between the taxpayer and the investor.
    The interests of the taxpayer and the holders of government bonds are almost identical. I have often heard the contrary affirmed, as Tull does above. But I don’t believe it one iota. Instead I wonder what are the motives for claiming the contrary. It may just be respect for the rule of law, maybe more.
    It is true, as pointed out above, that it is getting late in the day. Buybacks of debt, along with past and present guarantees, etc. unfortunately muddle the choices ahead. But choices must be made, choices by default or better choices.

  35. @BL “Credit-default swaps on the senior debt of state-owned Anglo Irish Bank Corp. increased 13 basis points to 581, according to data provider CMA, meaning it costs 581,000 euros ($733,400) annually to insure 10 million euros of the lender’s bonds for five years. Contracts on the bank’s subordinated notes rose 100,000 euros to 1.8 million euros upfront and 500,000 euros annually.”

  36. @Peter
    It is great to see a solution. Thank you!!!!

    @Tull
    “it counts as sovereign debt” – sovereign is bankrupt so cannot pay.
    Don’t understand rolling over comment.
    Access to capital markets is already screwed – they would be happier with restructuring.
    I have no masters in Brussels or Frankfurt.

    @BG
    International bond holders have no more a right to assume regulation than every mortgage holder in the country. Caveat emptor and vive la republique!!

  37. @ Ciaran O’Hagan – “To my knowledge, only one bank in Europe has been allowed enter bankruptcy in the past year.” How many banks gone bankrupt in the Eurozone since the crisis began. I know of one small one are there any more? In most cases there were mergers/bailouts/nationalisations but not outright bankruptcies.

    Is is possible that Brussels/ECB told our government (and all others) not to let the banks fail under any circumstances, prompting the blanket guarantee and the subsequent excuse about how systemic Anglo and Nationwide were, when most people don’t buy that. If that were the case is it not time for Brussels/ECB to share in the pain, as the banking black hole threatens to pull the whole country down?

  38. Can we all relax. AIB need to complete the sale of it’s crown jewels first.

    Then we can proceed to panic stations with the remnants. Shouldn’t be too long now, tick tock.

    Wish Colm and the boys over at AIB would hurry the fu(ck up!!

    Not funny I know but given that shortly humour may be all we will have what is one to do?

  39. The mmcs are more or less decoupled from the “government” economy and must remain so in order to safeguard the couple of 100 thousand jobs that depend on that sector. With the crash in living standards and costs it may be that we will see small growth in this sector provided they are not taxed to pay for anglo. Without doubt we are going to see a massive contraction in social welfare and government employment as funds are transfered to the anglo bond holders and depositors (who have being getting 5% plus because of the “risk”).

  40. @tull mcadoo

    Your suggestion leads to the startling conclusion that, as a direct result of the government’s mis-handling of the Anglo case and its appallingly flawed NAMA / bank rescue (bail-out) approach, the government has effectively STOLEN €17.4bn (i.e. €15.1bn Sen Bonds + €2.3bn Sub Bonds) from the citizens of the State!

    To put it in Lady Bird simple terms… A NAMA fraud and a €17.4bn (Anglo) theft have been delivered to the citizens of Ireland by an appalling self-serving FF led government dependendent on its collaborator Green Party partners in the destruction of the Irish economy.

    What a record!

  41. Eureka,

    you may be right on sovereign default but if we are running a primary deficit after debt service of say 10-15bn it has to go to zero post a default ergo 15bn or so in public expenditure cuts on Day 1.

    The loan to deposit ratio of the banking system post NAMA is 120%. AIB & BOI loan book Irish loan book is probably over 200bn post NAMA. That is about 30bn of finance that disappears in the case of a default on senior bank debt. Result a credit crunch like you have never seen.

    You may not know it but you country is in administration. Painless “restructuring ” of debt is not going to happen.

    Scorpio,
    spot on about Brussels instructing us to put our banks in order. But why should they share our pain? Our wounds are largely self inflicted and due to our exercise of our democratic franchise. We destroyed the house and ruined the neighbourhood.

  42. @Peter Matthews,

    Bank bond investors bought in on the basis of continued and emphatic assurances by successive governments (freely elected by Irish citizens) – and by the relevant statutory bodies – that domestic banks were properly regulated and adequately capitalised. Any dissenting voices were pilloried.

    I’m surprised you seem surprised at the outcome.

  43. I thought Rating Agencies like S & P were considered low life based on their performance of rating Banks up to the start of the recession/depression. Appears now they are the darlings of the naysayers because they decided to give us a kick up the backside.

  44. @ Peter Matthews

    The ECB and Ecofin would force Ireland into the EU/IMF support mechanism, currently used by Greece.

    They would not accept a default at this stage.

    What could Ireland do? Tell them PFO!

    Default would have been opportune in the months following the guarantee, if bondholders hadn’t been included. It was a time of ferment in internatioanl banking.

    Anglo is now a State bank; if we did snub the ECB, what would be do if the markets shut us out of the debt markets?

    The idea of getting these people into a room, to issue an ultimatum, is now fantasy stuff.

    The EU/ECB and IMF have a sovereign debt mechanism.

  45. @Paul Hunt

    Paul, Bank Bond Investors analyse Bank Balance sheets and read and study bank reports on bank trading activities and lending operations. At least they should.

    Bank Bond Investors are the experts and employ qualified professionals (Accountants, Lawyers, Actuaries, Stock brokers, Valuers, etc) to assess and appraise the soundness or otherwise of banks’ operations, trading, lending, markets exposures etc. Thus it actually is incumbant on the Bond Investors to asses if Banks’ Capital positions are adequate and if their revenues and profits are properly reported and sustainable. It’s very much their judgement call. The Regulatory Authorities are not Nannies or nursemaids for Bond Investors. Besides, proper due diligence professional assessment of Anglo’s balance sheets over more than a few years and also the startling rate of growth of its balance sheets should have raised loud alarm bells….even ignoring the fact that the Regulator seems to have been very deaf.

    For Bond Investors to rely on catch phrases such as “XYZ Bank is regulated by the Financial Regulator and licensed by the Central Bank etc” would be ridiculous.

    However, I think you’d agree that the ordinary citizen could reasonably argue that he/she is entitled to rely on such catch phrases / invitations to treat. That’s the sort of reasonable distinction that arises when considering the duties of care and custody a Bank owes to people who deposit funds compared with those professional Bond Investors who invest monies for higher returns.

    In reality, there shouldn’t be any need to spell this out.

  46. @ Peter Matthews

    One other relevant point is that Ireland like Greece, is ovrwhelmingly dependent on foreign lenders to buy its debt. Some 80% of the debt is held overseas.

    So there is no big domestic base to squeeze in teh evnt of a bond strike.

    30% of UK gilts were held overseas in 2009; just over half of Spanish general government debt in Q4 2009 was held outside the country.

  47. @finfacts

    What proposed course of action are you criticising? A general sovereign default? Default on Anglo debt before the expiry of the guarantee? Default by Anglo after the expiry of the guarantee? I presume it’s the last of the three, but I’d like to make sure I have you right before going on.

  48. @Michael Hennigan

    Michael,
    Ireland is not Anglo Irish Bank….it never was.

    The sins of the son are not for the account of the father….even if the father temporarily gave a Blanket time limited (2 years) guarantee.

    Clearing up a mess is always going to require hard work and telling the truth. It should not be avoided. Bond Investors will then be clearly reminded and therefore clearly understand the true situation. Remember Anglo will be closing down because it FAILED a SIMPLE REALITY.

  49. @ Peter
    “Your suggestion leads to the startling conclusion that, as a direct result of the government’s mis-handling of the Anglo case and its appallingly flawed NAMA / bank rescue (bail-out) approach, the government has effectively STOLEN €17.4bn (i.e. €15.1bn Sen Bonds + €2.3bn Sub Bonds) from the citizens of the State”

    Your can put it in those terms if you want to. However, what do you propose we do about it. If I follow your logic, you are suggesting defaulting on the Govt Guaranteed debt in Anglo in the next 35 days. Are you?

    This constitutes a sovereign default. This shuts us out of the Bond markets for years. It leads to an immediate requirement to cut public spending by 10-15bn euros. It would also lead to a massive financing gap at the other banks-probably of the order of 20billion or so. You can emote all you want but it will not change reality.

  50. @ anonym

    Default post Sept.

    @ Peter Mathews

    Peter,

    There are plenty simple realties in the economic crash tragedy.

    1) The Government would be perceived as defaulting if Anglo defaults.

    2) Trichet et al would hardly agree to have their sovereign crisis bluprint unravel.

    3) We have to return with the tin ponny in the springtime for more funds from the same type of lenders.

  51. @ Scorpion
    “Is is possible that…” My understanding is that rather the opposite occurred. Indeed the EC at the time, and still today, continues to surprise me in its permissiveness of national initiatives, at the expense of greater competition and the founding ideals of the EU. In 2008, a historic decision was taken that Irish banks would not have to compete and would not see any interests sold off. A large part of the troubles today stems from that decision not to allow the losses be taken (so reminiscent of Japan, and in contrast to the US). That decision was taken across the capitals of Europe, with the connivance of a weak EC. .
    Ireland, like other EU states, was, and remains, largely sovereign in these areas. I’d still hope that the EC can play a greater role in putting a brake on the ambitions of governments across Europe to push their national interests. Idem for the ECB -its policies proved largely accommodating, with ever more unfortunate consequences (see here if you have a Bloomberg NSN L7GDFR0D9L36).
    As for the foreigners “to share in the pain”, as you put it, that is beside the point. We can see similar lines of reasoning today in some of the populist Greek press, peddling the line, it is “all the fault of the perfidious Troika”. So it is time for the xenoi to pay the cost.
    .
    @ Michael Hennigan You can read here the statutes of the EFSF http://www.efsf.europa.eu/attachment/efsf_framework_agreement_en.pdf Ireland’s cash position is very strong. That can allow it avoid the EFSF for quite a while, even in a worst case scenario, should it so wish to. I see no circumstance in which a sovereign can be obligated to make a request for support. Policy options will always be numerous. I don’t see much of a link to support for the banks.
    “Some x% of the debt is held overseas”, you say. Categories of debt differ. That matters for this discussion. Resident or non-resident – the interest is essentially the same. And like I wrote above, the interests of the taxpayer and the holders of government bonds are almost identical – both want to see a modest burden of public debt and future liability.

  52. @ tull

    I’m with you 100%. There seems to be a view that we can somehow selectivley default on Anglo guarantees or even on Sovereign Bonds. In such a scenario we have to also default on public service pay and social welfare. We are not Argentina, we do not have a local currency printing press to fall back on to pay the daily bills. We’re in the Euro and there is no way ooot.

  53. Bond markets would have little choice but to forgive a default. With stock markets doing so badly sovereign bonds will be the only potential to make money.

  54. I think we need more analysts like Peter Matthews to keep plugging away at this, making the rational case to limit the taxpayer exposure and place the losses where they belong (as much as possible) with those who owe them.

  55. Brian Lenihan should be ashamed of himself and resign. This is not some game of saying black is white, which seems to be his main (useless) tactic

  56. @ Michael Hennigan:

    Sovereign default / EU bailout are now surely inevitable. Irish bonds are being bought by the ECB, what more proof do you need?

  57. @ciaran Daly

    You are correct. Professionally, Brian Lenihan has failed miserably as Minister for Fnance. Theeconomy continues in a taispin. The Banking Sector is now out of control. His Departement of Finance has been appalling. Its silence and ineptitude quite astonishing!

  58. @Ciaran Daly

    You are correct. Professionally, Brian Lenihan has failed miserably as Minister for Finance. The economy continues in a tailspin. The Banking Sector is now out of control. Mr Lenihan’s Department of Finance has been appalling. Its silence and ineptitude quite astonishing!

  59. Here’s a more general question intended for everyone who supports (however reluctantly etc.) extension of the bank guarantee and an overall steady-as-she-goes policy. Is your expectation:

    Contrary to S&P (and Morgan Kelly), the public debt will not reach c. 115% of GDP (c. 140% of GNP)
    Contrary to Morgan Kelly, the Irish state can sustain those debt levels without a sovereign default or major new external intervention. (Presumably S&P agrees with this, or their new rating would be lower still.)
    or
    Both of the above
    ?

    As far as I understand, one of these propositions has to be a tolerably safe bet for steady-as-she-goes to be the best option. (If you disagree, why?)

  60. Ciaran Daly
    There is no inevitability about any policy choice whatsoever. There are many shades of grey between taxes, levies, possession, acquisition, appropriation, conversion, usurpation, seizure, etc. And the term you prefer to use will depend on which end of the stick you are on. Sovereigns have immense power, despite attempts to claim otherwise. And potentially many, many choices, for better or for worse – sometimes much worse, as we have seen over the past two years. There is still some flexibility however. And the issues at stake ought to be requiring quite some thought and preparation.

  61. Brian
    Actually some countries do “default” selectively. Suppose you are a commercial supplier to a government e.g. California or Greece. And you get an IOU instead of payment on the usual commercial terms. Losses in California would have been small, bigger in Greece. There have been suggestions even that such IOUs is one way to form a nascent surrogate currency.

  62. Following on . . . California is the richest large country in the world. So you don’t need to be poor to irk creditors. Even Greece is fairly rich compared to many troubled debtors.
    At the other end of the scale, one large sovereign in Europe -in pre euro days- levied all bank accounts overnight to make sure it would make a bond redemption. It got kudos from investors, but probably even won some votes (most voters were probably under the levy limit). We even saw Fannie and Freddie CDS triggered, without US sovereign credit falling apart.

  63. @Ciaran O’Hagan.
    I would take issue with your contention that sovereign states have immense power.
    Recent history suggests that once speculators make a concerted move against a State’s position, the State comes off worse.
    (think Goldman Sachs and Greece, Soros and Britain in 1990’s).

    Look at the vulture hedgefunds and the destruction they’re wrecking against impoverished thrid world countries.
    Unfortunately this country because of reckless, inept and possible criminal behaviour on the part of our banks,has all been compounded by our politicians signing this country’s future over to bondholders and speculators.

  64. The first thing that must be done is to quantify how much interest payments are leaving the country to pay external bank paper.

    The patient is bleeding all over the shop but the nasty cut from the sovergin gash does not fully explain the huge pool of blood on the floor.

    I ask again – it should be possible to publish these figures and we could at least diagnose the problem holistically instead of banging all the time about the sovergin brain – it needs the body and heart to pump the around wealth around before it can tax the system.

  65. sorry for the mistype at the end but you get the picture , hopefully it will not be a corpse on a slab.

  66. @ Ciaran

    Peter Matthews -spare me. His numbers do not stack up so he resorts to the usual snake oil salesman trick of accusing his opponents of theft. He is little more than a candidate for Liveline.

  67. Have there been any concessions by the nama/bank sub debt buyback supporters club as to the deletrious impact of their preferred course of action on the national finances?

    Does anyone recall the halcyon days of early 2009 where it was argued by many on this site that to even hint at a haircut for any bank bond issue would bring ruination to the country?

  68. The question really comes down to – Do you want to pay or do you want your grandkids (and possibly their grandkid)to pay?

  69. Eureka,

    On reflecion, the comment is intemperate & I take it back.

    I don’t believe default on senior bank debt in the context where we require access to capital markets is a feasible option. Obviously, if there is a general EU wide resolution model with debt restructuring then the equation changes.

    The lack of bank regulation in the first place put us on this course. The decision to award a blanket guarantee to Anglo compounded the error. It leaves us saddled with an intergenerational debt burden.

  70. @Colm
    I would guess that a number of chaps on this site require the blood of others to sustain their existence.
    It is simply not in their nature to be altruistic – and to expect some sort of ephiny from these creatures of the financial night is to invite scorn and debt.

    allaboutfrogs.org/stories/scorpion.html

  71. @bg

    “International bondholders and depositors are entitled to assume that the regulatory system is not run negligently or corruptly.”

    People with billions to lend surely have the price of a paperback book that might inform them of the tyoe of party that has run this state for most of the last 25 years? Would they not have the price of a few international phone calls that would get them through to a few business or political journalists? Are these guys to get a fool’s pardon as well as our own politicians, bankers and economists? Gimme a break.

  72. @Ciaran O’Hagan
    “The interests of the taxpayer and the holders of government bonds are almost identical. I have often heard the contrary affirmed, as Tull does above. But I don’t believe it one iota. Instead I wonder what are the motives for claiming the contrary. It may just be respect for the rule of law, maybe more.”

    And yet so many continue to state the opposite as if is fact.

  73. @ Ciaran O’Hagan

    Ciarán,

    I didn’t wish to imply that Ireland currently needs a bail-out.

    To cut to the chase, if Ireland was to default on Anglo debt – – in effect a Eurozone member defaulting on the debt of a sovereign-owned entity- – what in your opinion would the the reaction of:

    1) The ECB and the EU

    2) The implications for future debt raising

    As regards: “Substantial, permanent and long term measures to bring public revenues and spending into line with the prospects for national income would be very welcome news indeed.”

    In the absence of a strong international recovery, this is not likely to happen.

    There is no constituency for significant reform and this is why the involvemnet of the IMF would be a positive move in my opinion.

    The messenger is not infallible but we could benefit from taking a serious look in the mirror!

    http://www.finfacts.ie/irishfinancenews/article_1020427.shtml

  74. @tull mcadoo

    Actually, Tull, the numbers I have used are the correct abstracts, summaries and analyses from the published information from our 6 Institutions covered by the blanket 2 year guarantee.

    The analyses and my forecast loan losses have been consistently correct for over a year now. By contrast, the figures presented by the Banks, the Minister for Finance, his Department, the government and their professional advisers have been increasingly erroneous and unrelaible. Please check your facts.

    I use the words Fraud and Theft advisedly, based on facts.

  75. @Peter

    I will give you full marks for your call on the credit cycle and on the disaster facing Irish banks but I fundamentally disagree with your views on resolving it. Specifically
    *haircutting senior debt is not a policy option that our EU masters are comfortable with due to contagion effects across the system. That may change some day but not in the short term
    *in any event the Rating Agencies would downgrade every bank & no one would lend senior debt to Irish banks for a number of years until re-rating. result deleverage.
    *putting the bad assets back to the banks is not on at this stage. I would respectfully suggest they would then all be downgraded due to worries over credit quality. Lumpy corporate deposits would flee and senior debt would not be rolled over. It would require some form of Asset protection scheme for this to work.
    *nationalisation is not good for the sovereign. We see that with Anglo.
    *default on state guaranteed bank debt is not smart.

    Your accusation of fraud re the Govt does not stand up. Once anglo was guaranteed that was it. The state would also bear the losses. Stupidity, ignorance and hubris, I would accept but not theft.

  76. Isn’t it amazing that when the roles are reversed and Anglo is a bondholder (creditor) to Iceland’s failed Kaupthing bank that Anglo writes down the value of its bonds by 96% from €15m to €0.6m?

    And yet Anglo has been redeeming €2.4bn of its bonds at €0.6bn and claiming a profit. That INBS have redeemed €900m of bonds for €611m.

    In the Independent article below, they claim

    “Kaupthing is currently run by a resolution committee. The role of the committee is to safeguard the value of the bank’s assets and to maximise the recovery of claims on behalf of creditors. The resolution committee holds the powers of the board of directors”

    A “resolution committee”? What planet are these people on?

    http://www.independent.ie/business/irish/anglo-fails-to-register-euro15m-claim-against-bankrupt-icelandic-bank-2311937.html

  77. @Peter Matthews,

    I realise the debate has moved on, but I take your points about bond investors being ‘big boys’ and both being well able and having a fiduciary responsibility to conduct due diligence. As Dan O’Brien points out in today’s IT, they took the gamble/formed the view that buying sov/bank bonds in the EZ periphery was the same as buying corresponding German bonds.

    As Michael Hennigan pointed out on another thread here some time back, they are ‘aching for a bail-out’, but also probably realise that some sort of haircut will be applied.

    I see the current activity as a quest for certainty/clarity on resolution. Greece was in the line of fire in May which compelled it to be taken under EC/ECB/IMF protection/administration. The continuously changing DoF estimates about the fiscal burden Anglo/INBS and NAMA will impose have moved Ireland into the line of fire. I don’t think it’s panic stations as the NTMA has prudently secured most of this year’s funding requirement, but it is serious as Ireland is being used to compel the institutional EU to spell out the nature of the end-game in more detail.

    I remain convinced that there is nothing Ireland can do unilaterally. It is simply a holding operation until the institutional EU sets the parameters for the end-game.

  78. @Ciaran O’Hagan
    “The interests of the taxpayer and the holders of government bonds are almost identical’

    Is that simply a statement of support of so-called free market economics ? It seems to me you are claiming that the best position for citizens to take is to allow the state to be dismantled and its assets to be sold off, to the point where the banks debt is paid fully.

    There are at least two sorts of problem with your ‘shrink the state’ approach, if I understand it correctly.

    First is the debt deflation which is liable to follow from the reduction in state employment and SMEs dependent on state contracts, especially outside Dublin where there is often little else. This little state needs root and branch reform, but it is also the fundamental pillar of decency in our society. Especially for those who cannot afford to buy decency for themselves. We ignore them at our peril.

    Secondly, this crisis was not all generated by the public sector. Our property mess was generated by a nexus of foreign and domestic private interests, and the public sector played only a secondary role. Matt Cooper has a good feel for the ‘connections’ game played in Dublin.

    More generally, financialisation of the international economy is extremely problematic. Crises are generated by international finance in the full knowledge that they will have to be bailed out by governments when talil risks kick in. Keep the bonuses flowing, and the devil take the hindmost, seems to be the ethos.

    It seems unreasonable and wrong that financiers (of whatever stripe) should be entitled to all of their pound of flesh in such circumstances. The hubris of the Irish state was no greater than that of the people who funded the mess. Crooked bets don’t deserve to be paid.

    There are many ways of defaulting from an unreasonable obligation, and emigration will be one of them. I suspect that ‘We can’t pay we won’t pay’ will become the majority refrain, and that a politically tolerable resolution will eventually have to be negotiated by the EC. But not before there is a great deal of trouble, and assuming that much worse does not occur.

  79. Not getting involved in the debate as it just goes around in circles but here is a question.

    Where are our esteemed leaders? Why was it up to the NTMA and junior politicians like Conor Lenihan and Frank Fahy to come out and make statements. None of them are involved in NAMA decision making or budget decisions.

  80. @Zhou

    “we would not expect recoveries to amount to much more than €16 billion (10% of GDP) over the time frame that our ratings address. As and when recoveries on NAMA’s assets materialize, we may revise our forward-looking estimates of Ireland’s gross and net general government debt.”

    “What time frame do their ratings address?”

    The Independent claim (see article below) that the timeframe is 5 years. And although this penny hasn’t dropped at the Independent, if you consult the June 2010 NAMA Business Plan page 10, you’ll see that NAMA plan to have 40% of the loan book paid down by 2015 so is the great mystery resolved by taking the loan book (at NAMA paid prices) of €40bn and taking 40%?

    http://www.independent.ie/business/irish/nama-to-recover-just-euro16bn-out-of-euro40bn-spend-on-loans-2312019.html

  81. I see in the IT this morning that Ireland’s rating is still above that of six other eurozone country members. No need to panic just yet.

  82. @Jagdip

    My understanding is that you have summed it up perfectly. S&P are not claiming that NAMA will only make €16 billion in total as is been reported in places.

  83. To reiterate what anonym said above, the rating agencies are projecting Ireland’s debt to be 112% of GDP in 2012 which is roughly what Morgan Kelly projected in his IT article in May (115% of GDP). That translates to a national debt of 140% of GNP.

    Do the economists on this site believe that debt situation won’t materialise and if they do can Ireland sustain that level of debt with EU/IMF intervention?

  84. Even for the Independent that is an extremely misleading headline / article.

    They readily admit the timeframe S&P are talking about is five years:

    “S&P, which competes with agencies Fitch and Moody’s, said the €16bn would be recovered “over the timeframe that our ratings address”. The Irish Independent established yesterday that this was a reference to a five-year period.”

    Can no one hint at where I miay see S&Ps analysis without paying 500e?

  85. @ tull
    why is it assumed that defaulting or haircutting some debt, namely anglos, would immediately result in a cataclysm for all irish financial institutes? i wonder would the initial storm be worth riding out just so we could be free of the anglo noose around our necks. it would surely be better than the slow death we have had for 2 years and will continue to have for many more to come. i know i am not comparing like with like, but the US basically turned their back on lehmans 2 years ago and backed their other stronger banks to the hilt, obviously the fall out was massive, but their recovery began immediately after it. Maybe it is too late now to de-couple ourselves from anglo and the billions it owes but i do think that would have been the best option initially.

  86. just to clarify, i have always wondered what would the last 2 years have been like for ireland if we had only gauranteed our main banks and left anglo to bankruptcy, would the aftermath and subsequent 2 years have been worse than what we are going through now

  87. It looks like the bond auction was successful.
    Bad and all as the data is from SandP the fact remains that sovereign bonds like Ireland are the only place where investors can make a semi-decent return at the moment. As long as markets remain depressed this is definitely the window for debt restructuring.
    We’ve had a scare! This is going to happen again but at the moment international factors are good for us.

  88. @Eureka
    I would not take much comfort from the successful sale of short term Treasuries.
    According to IT at 11.30 am the 10 year bonds are now yielding 5.725% – dangerous territory?

  89. S&P have a 5 year horizon but they seem very inconsistent in applying this. NAMA asset flows are limited to the 5 years but Government Debt and NAMA Debt is included in full where they should only really be looking at debt maturing in the next 5 years. By definition, NAMA poses zero credit risk over 5 years. It will use any cashflow to repay debt and whatever debt it cannot repay it will automatically roll it over. They seem to have completely missed the plot on NAMA, it is almost completely irrelevant to Ireland’s 5 year capacity to service its debts.

  90. @podubhlain
    Must be just buying into the RTE spin on it!!! (Direct Quote – (triumphant tone) sell, sell sell…..Ireland Inc raises more money – seriously – Kim Il would be proud!)
    Does this mean that the market believes that we will repay debt in the short term but much less certain about longerterm?
    Is it analogous to an Overdraft vs a loan only the shorter term debt is at a lower rate?
    If our growth exceeded the rate on short-term debt it could be sustainable but is it right to say that as long as growth rate is lower than the interest rate that we are merely adding to our overall debt burden and reducing further our capacity to grow and pay back the 10 year loans?
    So we are still up the creek – and S and P were right. Hope I’m getting the picutre.

  91. podubhlain
    the relentless slow creep upwards of the ten and the widening gap is not good news.

  92. [leaving aside NAMA and S&P]

    A few musings on Ireland’s sovereign credit-worthiness:
    1. The policies which may help us avoid default are also probably the policies that wil best help us recover from default if it happens. Ireland will have to implement severe austerity measures whether or not we ultimately default. One of the ways Argentine went wrong was that it did not reform when it defaulted.
    2. Default after implementing austerity measures and stuctural reform may leave us in better standing in the markets.
    3. We may be able to default de facto but not de jure.
    4. We also may be able to defualt in certain ways that may be more acceptable to the market. For instance, if we renege on the guarantee insofar as it affects Anglo then actual sovereign bonds may improve.
    5. If default happens, it should not be a surprise to the market and so should be more manageable and cause less contagion. This is as a result of the actions of the Government to date.
    6. THE ECB has stepped in to the shoes of a large number of the creditors of Anglo making its debt more manageable restructure.
    7. Other countries support higher debts. It is a matter of reassuring the markets with real lasting reform which is most important.

  93. How come irl was able to issue €600m govt bonds today at around 2% (if yields are now above 5%). Is this because the ECB bought them?

  94. @Eureka
    I think your analysis is correct. Bloomberg are showing 10yr Bunds at 2.14% which would leave the spread over our bonds at 358 basis – another record. It looks like the markets believe S&P rather than the NTMA or the Minister.

  95. @Zhou
    Not unrelated to S and P and NAMA – they seem to be saying that this is waht’s expected.
    The details seem very sensible.
    Important to leave some austerity for after the default though – there’s not much more the country can take. Also good to do it when bonds are attractive relative to other.
    So should be doing this carefully crafted default sooner rather than later.

  96. The IFSC.

    No one knows what liability has been taken on there and the love affair with fictional Reserve banking remains.

    The country has been dancing with some interesting people in the IFSC. Hank Greenburg ex-AIG among them.

    Their leverage is usually secured upon the person. Without compliant bankers there is no drugs trade, arms trade or human trafficking on any organized scale. No government of Ireland based on current politicians, will do anything except rely upon promises and keep banks going. Like it or not, neglect of morality and freedom of information means that Ireland is in this mess neck deep.

    Who are the bondholders? Can we negotiate? Do we have to ….liquidate? Banking is all about trust, isn’t it? Peasants with ideas, way above their station.

    That won’t happen with the present crew. So get used to what has been happening becoming more and more apparent! Decades on, the mighty samurai of Japan have gotten nowhere. Economic warfare?

  97. @ JoeJoe

    The 5%+ is in respect of bonds that mature in 10y years – – compared with a six months period, there is an anticipation of future inflation and interest rates.

    To give a comparative rate for 6 months, the EURIBOR rate, which banks charge each other for borrowing in the inter-bank wholesale market, is 1.139% today compared with NTMA’s rate of 1.978% and the equivalent German bund rate of 0.38%.

  98. That is a great yield on a 10 yr bond imho. Considering we have various options for restructuring, I consider it unlikely that we will default on simple Govt bonds.

  99. I just dont understand what all these comparisions with Germany are about. It seems that a lot of the posters here have never been to Germany. I have been going there for 20 years on business and frankly it is like comparing chalk and cheese even during the “Mirage” of the Celtic Tiger. We export a tonne of butter to them valued at €2,000 and they export to us a Mercedes weighing a tonne for €50,000 and there is no contest. They are the best in the world in just about everything except agriculture. They are a large mature industrialised economy and we are a small backward outpost in Western Europe. So would you look at a benchmark economy more like ours to do your interest margin comparisions and you might stop flapping.

  100. @TRP

    Good point about the Master Race. We are really just returning to “normal” conditions. Punt bond yields were always way higher than D-Mark bund yields. The 20bp differential of early Euro days was an illusion based on the belief that Euro default was much less likely than Punt devaluation. That is still partially true and is why we get away with a relatively benign yield differential of 3.5%.

  101. I agree. The constant comparison to Germany in the media is getting tiresome. Especially when german yields are falling to all time lows in a flight to quality. It’s important for the Market but means nothing to the man on the street. What is much more important is how much it is starting to cost us to service the debt. I never see stories about that and it’s much scarier than saying the Irish CDS spreads are 300 bps over german spreads.

  102. Germany is the benchmark and we are paying 500% of the German rate for our short term Treasuries. So much for the spin on RTE

  103. @ Michael Hennigan –
    “There is no constituency for significant reform”, you say.
    Unfortunately there is no other way out. I don’t think the presence of the IMF helps much, and may seriously complicate a resolution. The involvement of the IMF (and the EU) was one reason behind a substantial rise in Greece’s financing costs and the multiple downgrades (even if the agencies attributed it to local conditions). Bondholders had the perception that paper they held was not as senior as it used to be, that their bonds could be used as political football at some later stage. And of course, the aid entailed a long coma for the local bond market. Easier to put markets into coma than take them out sound and safe. There has been very little flow since, and yields are ever higher. All this despite good news on reform.

    The implications for future debt raising – most policies that limit the future public debt burden will prove beneficial. The difficulty in this case arises from simultaneously assuring that the contingent liability from the banks remains contained. No use robbing Peter to pay Paul. However there are many different ways of skinning a cat. Professional execution is important, but that is what a government and the public service is there for (you would be looking for some strategic vision as to what is to be saved and what is dross). In this sense, the interests of the taxpayer and the holders of government bonds are almost identical.

    What reaction of the ECB and the EU, you ask?
    These are not amorphous, but comprise many entities, and a very large number of economists. On the whole, those that have a good knowledge of the challenges would be quite understanding. Ireland got a good deal of stick from some fellow governments when it introduced the blanket guarantee in 2008. They were of course not so much worried about Ireland but by contagion. We need however to understand that going down the Japanese route – trying to save everything and anything – is no panacea.
    .
    @ paul Quigley. “ It seems to me you are claiming that the best position for citizens to take is to allow the state to be dismantled”.
    No, not part o my credo at all” Ireland will exit this crisis well only with a strong state and a stronger government, not weak ones. I’m always careful to accompany calls for cuts in public spending with hikes in public revenues. How that is done is mostly politics (and I’m in favour of a strong dose of income redistribution, but that is neither here nor there).

  104. @ TRP

    + 1.

    But we have a leading class (or elite groups) who are still determined to have all the trappings of status, power and wealth. They have led us merrily up the creek. I guess we were deafened by all that chat about enterprise, and blinded by the reflection off the (imported) limos.

  105. @ Ciaran

    Fair enough mon ami. No Irish state, however, is going to be in a position to address the egregious shenanigans in haute finance. We can, and should, join a Coalition of the Willing.

  106. Points well made below, our relative position re Greece & Iceland,

    http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100007444/it-pays-to-riot-in-europe/

    “Yet as of today it [Dublin] is paying 5.48pc to borrow for ten years, or near 8pc in real terms once deflation is factored in. This is crippling and puts the country on an unsustainable debt trajectory if it lasts for long.

    Yet Greece is able to borrow from the EU at 5pc and from the IMF at a staggered rate far below that (still too high for the policy to work, but that is another matter). These were the terms of the €110bn joint bail-out.
    To add insult to injury Ireland is having SUBSIDIZE Greece to meet its share of the rescue fund.”

  107. Sean Whelan on the 9 o clock news could hardly contain himself with excitment about the ‘recovery’. Am I naive to be shocked that the national broadcaster has become an agent of government spin?

  108. Re: Sean Whelan

    RTE continues to fail abysmally in it’s obligations to public information regarding this mess.

    This whole thing comes down to any restructuring been seen by FF as political suicide and so as out of the question. Despite most evidence pointing to the fact that some debt restructuring would considerably improve our credit worthiness in the medium term.

    RTE should explain that even with an unlikely (given British cuts and American houehold deleveraging) recovery here we are currently choosing a unique brand of japanification.

  109. @George Orwell

    JTO has made very good contributions on the domestic economy and is right to be optimistic about exports, production, GDP growth, etc.

    “What will sink us”, as Morgan Kelly said, will be the bank bailout and Nama. JTO has stayed away from commenting on these issues.

    JTO again:

    Thank you for the compliment, George. What you say about my staying away from commenting on these issues is correct. Very observant of you. As I have said a few times on other threads, I don’t post on banking matters or on NAMA, as I freely admit I know nothing about them. I limit myself to topics I know something about, such as macro-economics, demographics and infrastructure development. I’ve been posting for the last 3 hours on another thread on this site, relating to the construction of a motorway from Dublin to Derry (or, as Brian Lucey no doubt calls it, Londonderry). It would be good if everybody posting on this site stuck to topics that they know something about and contented themselves with simply reading the threads concerned with topics that they know nothing about (in my case, banking matters and NAMA). Incidentally, if you think 4.30am is a bit late to be posting here, it is actually 11.30pm as I’m in Tallahassee, capital of Florida, tonight.

    While I’m certainly not going to comment directly on banking matters and NAMA for the reasons I just gave, macroeconomic matters do have some bearing on them. So, briefly (as it is getting late even here):

    (a) All the figures regarding debt are meaningful only as a percentage of GDP (or, if you wish, GNP). Therefore, it matters what the GDP/GNP growth rate is in the next few years. If GDP/GNP grows at 0pc over the next few years, then debt as a percentage of GDP/GNP will be a particular level. But, even if the debt remains the same, if GDP/GNP grows at 3pc/4pc/5pc over the next few years, then debt as a percentage of GDP/GNP will be much lower.

    This time last year, almost all economic forecasters predicted that GDP (repeat: GDP, not GNP) in Ireland would fall by around 3pc or 4pc in 2010. The Dept of Finance, Central Bank, and ESRI all predicted a fall of 3pc. The IMF predicted a fall of 4.0pc in GDP. Standard and Poor predicted a fall of 4.5pc. As is now clear, all of these forecasts have turned out to be of a very poor standard, especially Standard and Poor’s, which is how presumably they got their name. In contrast, I predicted this time last year that GDP in Ireland would rise by 2.8pc in 2010 (my prediction can be found on the site for some time around August/September last). Nearly all economic forecasters have since moved in my direction, with continuous upward revision of forecasts for GDP growth in 2010, although none of them have come as far as me yet (give them time). Ulster Bank were the latest to so only today (or, at least, today if typing this in Tallahassee, but yesterday if reading this in Ireland), They revised their GDP growth forecast for 2010 from -0.5pc to +1.0pc. That’s a massive revision to be done in one go, especially following similar revisions since they forecast a fall or 3pc back this time last year. I’m still sticking to my forecast of GDP growth of 2.8pc in 2010, and even one more quarterly revision of this magnitude, on top of the three of four quarterly revisions most economic forecasters have allready made since this time last year for GDP growth in 2010, will bring them into line with mine.

    One can get too nitty-picky about figures, of course, and its possible I’m guilty of this in the above paragraph. But, more broadly, it can be seen that the various factors that are causing the debt problems in the banking sector are also causing a massive improvement in competitiveness, which is in turn leading to exports increasing far more rapidly than was predicted, which is in turn leading to GDP increasing far more rapidly than was predicted. So, take the fall in house/office/industrial premises prices. We can debate how large its been, but let’s say 50pc for argument’s sake. Clearly not good news for the banking sector. But, the converse is that such a fall results in a massive improvement in competitivness, especially as there has been hardly any fall at all in many countries, including the UK.

    (b) My second point macro-economic point relates to balance-of-payments. Unfortunately, only two economists in Ireland appear to understand what this is, Ronnie O’Toole and John Fitzgerald. I certainly don’t find much evidence that posters on this site have much of a clue as to what it is. Quite simply, when we talk of ‘surplus’ and ‘deficit’ countries, we are talking about balance-of-payments surpluses/deficits, not government budget surpluses/deficits. Nearly all countries have a government budget deficit. But, in relation to balance-of-payments, some have a surplus and some have a deficit. It is almost impossible for a country with a balance-of-payments surplus to go bust. By definition, such a country has enough savings to fund any budget deficit. Of course, savings and government deficit-funding is a 2-way flow. So, savings in other countries help fund Ireland’s government budget deficit, as is well documented in above posts. But, savings in Ireland help fund other countries’ government budget deficits. I myself am funding Obama’s budget deficit this year, or at least part of it. A country’s balance-of-payments surplus/deficit is a measure of the relative size of these 2-way flows. A country with a balance-of-payments surplus either has enough savings to fund its government budget deficit in its entirety, without recourse to borrowing from abroad, OR the amount of savings from that country going to fund the government budget deficit in other countries will be greater than the amount of savings from other countries that it needs to fund its own government budget deficit. The significance of all this is that nearly all forecasters agree that Ireland is rapidly heading towards a balnce-of-payments SURPLUS. Most predict it by next year at the latest. The improving balance-of-payments situation is the main reason why Ireland continually dumbfounds the doommongers and continually has no trouble selling its bonds, even when useless organisations like Standard and Poor are hurling bricks at her. Its also one of the major differences between Ireland and Greece. As I say, on most economic forecasts, by next year Ireland will be classed as a ‘surplus’ country, in the meaning of that term that is normally applied (ie in relation to balance of payments). Hence, predictions that Ireland is likely to go bust are a nonsense.

    I apologise if the above is a bit rambling and incoherent. Typed very quickly after a 10-hour coach trip from Savanna to Tallahassee. I suggest that John Fitzgerald be invited to post on this site on the significance of having a balance-of-payments surplus. He would certainly explain it a lot more clearly than me, but, from what I’ve read of his commentaries, the gist would be the same.

  110. Statistics…..

    On average the growth might be sufficient but I’m not so sure that the growth will affect the ones that need it most. The ones without jobs will not benefit and as a result anyone who lent them money will not benefit. Irish banks are heading into more difficulty and the state is picking up the tab. The state will either have to reduce spending or increase tax take to pay the tab & neither will do much good for the domestic economy.

    The balance of payment surplus: Money might be coming in but where will it go & how will it be used? Are the ones receiving the money from abroad somehow obliged to provide it to the state or will they invest/spend it as they like?

    & the bank bailout is covering losses. Losses are covered with surplus. This surplus could have been used for investing and increased surplus generation. The surplus in Ireland will for a long time go to paying for the gigantic misallocation of capital to the construction sector.

  111. @Jto, Brian Lucey and Innocent Bystanders

    It seems to me that at the core of the pessimistic-optimistic debate is the simple question as to whether or not our economy can continue to grow while carrying the NAMA burden. JTO you have been very consistent in your analysis of the macroeconomic stats and accurate in your forecasts to date (not that you need to be told that!) and your contributions have been very welcome (your BOP analysis being a prime example). They have also been quite courageous given the uncharitable abuse that you often receive despite your readiness to admit your blindspots. That said, the NAMA problem undoubtedly has serious consequences for our growth potential as Brian Lucey has been at pains to point out. For me the nub of the debate is will NAMA have such a negative effect on the economy so as to make the accuracy of the optimistic short-term predictions irrelevant in the medium to long term or as in the words of the Guv’nor are they ‘manageable’? An unemotional reply to this question by either side which took account of both positive developments in the economy (most notably our export performance) and the Debt funding problem
    would be welcome.

  112. @Jagdip

    S&P note NAMA debt as accounting for 23.6% of 2010 GDP at the peak of Govt Debt, whenever that might occur.

    Assuming GDP of circa €180bn, S&P are countung the full €40bn of anticipated NAMA debt with no credit for assets.

    It is interesting that S&P say bank bailout costs will continue to increase while at the same time saying they anticipate the NAMA haircut will be less for later tranches (i.e., NAMA will pay more).

  113. FT editorial (as linked by BL):

    “It is time to staunch the bleeding. As Irish state guarantees near their expiry date, some banks will not be able to refinance their balances. The government should prepare insolvent banks for forced debt-for-equity swaps, which would instantly recapitalise the banks in question and cap the government’s exposure. This cannot be done frivolously; European institutions are exposed and EU partners must be consulted. But someone must put an end to the practice of handing banks blank cheques. Some Irish pluckiness would benefit us all.”

  114. What am I missing? NAMA seems the one bright spot in this whole sorry mess. It is 1.5% funding on a perpetual basis without any market validation. By definition it can never bankrupt us, we can even issue more NAMA paper to pay the interest if necessary. It is the Perpetual Roll Over Loan – the dream of any developer. This assumes of course that ECB will continue to accept NAMA paper, which Karl Whelan argues they are legally bound to do.

  115. in august : our 10y bond yield has +68bp while german has -57….so the fall in the bund is NOT all thats driving spreads.

  116. To follow from Zhou
    “Where the government has not done all it can is its rotten banking system. Nama, the Irish “bad bank”, has bought toxic assets from banks. But it has not shielded taxpayers from the damage caused by banks’ foolishness. This is why both investors and raters of Irish sovereign debt are rattled.

    They fear that Nama assets will be worth even less than originally thought, leaving the government, which guarantees Nama’s borrowing, with the short end of the stick. And if Nama forces steeper haircuts on peddlers of financial junk, their need for recapitalisation will rise correspondingly. This too will be at taxpayers’ expense – as the recent plan to inject more capital into Anglo Irish Bank proved.
    Bailing out failed banks means bailing out the wholesale lenders that funded them. But when losses are doled out, unsecured creditors belong right behind shareholders. Until they are returned there, markets will expect taxpayers to continue paying an ever-rising bill.”

    The bond spreads are rising slowly and nastily. Whats most worrying here now is the absolute total and deafening silence from Govt (apart from Dara Calleary, who seems to have been left minding the shop while the adults go to the beach for the day).
    Without also rising hares, theres the small wee matter of the MLRA lurking also. In essence, we were told by Alan Dukes that so long as the anglo losses were of the 22b magnitude then we would see no problems with the MLRA. So far we have heard zippo to demur from the 35b cost now floating in the ether.
    So, a simple question : is the MLRA, 11.5b loan from the CBFSAI, now in any danger? Are there sufficient assets of quality left in Anglo to back this repo? Other questions follow on from a “no, not really” answer.

    @the revenant of Listowel
    Alas, Anglo and NAMA now seem more Jeremiah 25:29…

  117. @B L

    Revenant…like that. Although if you really knew your JBK you might know that Tull is an amalgam of two individuals, Tommy Mc I & II. III is currently a TD.

    In the last two months the peripherals have fracuted into two divsions, Greek yields have risen by 114bps, Ireland by 39bps and Portugal by 18bps. Yields in Spain have fallen by 15bps while Italy is down by 22bps.

    The outperformers have a deeper domestic bond market than Ireland. Although, Anglo and AIB issues are undermining the situation.

    it would be helpful if policy makers were to tke note of the FT Ed but I fear they won’t. Seniors are sacrosanct. The ECB does not want to pull that thread.

  118. @Michael Hennigan

    I really don’t understand the point you are making. Obviously, I have failed to convince you. Fair enough, there is no reason on earth why you should listen to anything I say. But, here is what John Fitgerald of ESRI said a few months ago in the Sunday Tribune:

    “In the current crisis, what makes Ireland very different from Spain, Greece and Portugal is our forecast balance of payment surplus – the people of Ireland are collectively net repaying foreign debt. With further tough fiscal action on the way and depressed consumers, the surplus will inevitably increase, as will the related repayment of debt. There are few examples in recent history of countries with balance of payments surpluses going bust; debt repayment and insolvency don’t normally go together.”

    That is more or less what I said in part (b) of my post. But, he has put it much more succinctly and much more clearly. I repeat my call that John Fitgerald be invited to post on here to explain the significance of Ireland becoming a ‘surplus’ country (his forecast, not mine) in relation to such items as creditworthiness, likelihood of going bust, etc. At least he understands these things, which is more than can be said for 95pc of the posters on here.

  119. @JTO

    I have been struggling for some time with the ESRI forecast of a BoP surplus. MH may have a point. If the BoP surplus is merely MNCs temporarily parking funds here then it is an illusion. But let’s take it at face value. First obvious conclusion is that we do not have a problem with the Euro exchange rate and any talk of exit and devaluation (I know it is a total nonsense in practical terms) it is addressing a problem we actually don’t have.

    But does it mean we can’t go bust? It seems to mean that Ireland Inc can’t go bust as a collective. But Paddy the Plasterer can go bust. And so to can the government. The government needs to borrow. It is some comfort that if it so suited them Ireland’s private sector would seem to be able to fund that on its own. But Ireland’s private sector is free to lend to whom ever likes and it is unlikely that mere patriotism would prevail if it became clear that the government would be unable to pay back its loans. In summary there is a difference between the finances of the government and that of the people of Ireland as an aggregate.

  120. Further thoughts

    If ESRI BoP forecasts are credible and if the MNC aspect is not a serious distortion then JTO has a very important point. We are not living beyond our means unlike the other PIGS. If we are not living beyond our means how can default be on the cards?

  121. @Brian Words II

    But let’s take it (BOP surplus) at face value. First obvious conclusion is that we do not have a problem with the Euro exchange rate and any talk of exit and devaluation is addressing a problem we actually don’t have.

    If ESRI BoP forecasts are credible, we are not living beyond our means unlike the other PIGS. If we are not living beyond our means how can default be on the cards?

    JTO again:

    My sentiments exactly.

    However, my status on this site (and in the world generally) is justifiably zero. That’s why I would like some reputable economist, like John Fitzgerald, who has written on this matter elsewhere (as I quoted above), to post here on the issue of a BOP surplus and what that would mean in relation to creditworthiness, likelihood of going bust, etc. It would also be useful if some of those economists, who are forever screeching that Ireland is about to go bust, made the occasional comment about the implications of moving into balance-of-payments surplus situation and told us whether or not they agree with John Fitzgerald’s comment above. And, if not, why not? However, I doubt if that will happen. The normal pattern on this site is that, once a reasonably credible (even if not 100 per cent convincing to everyone) argument is posted, which in any way challenges the view that economic armageddon is at hand, then the thread quickly dries up, and those actively trying to spread the apocalyptic view simply move on to another thread, making almost identical points to those they have made a short time before in the thread just abandoned. And, indeed, exactly that has happened with this S & P thread, from which all the leading prophets of economic armageddon appear to have now fled, only to re-emerge to make almost identical posts in the adjoining FT thread.

    At the risk of repetition, the core of the argument is as follows:

    (a) ESRI and the Central Bank have both forecast that Ireland will have a balance-of-payments surplus from 2011 on. The most recent balance-of-payments figures indicate that this forecast is quite likely to prove accurate.

    (b) A prominent and reputable economist, John Fitgerald of ESRI, has pointed out (see quote above) that countries with a balance-of-payments surplus are unlikely to go bust, and has been supported in this view by an unprominent and disreputable poster, JohnTheOptimist (see post above).

    I’d have thought that, in the prevailing climate, these were rather important points, whether one agrees or disagrees with them. So, Brian Lucey, Karl Whelan, Peter Mathews, Cormac Lucey, do you have any comment to make on the matter, even if it is only to disagree with John Fitgerald’s point? Why the silence?

    Regarding Michael Hennigan’s point that the balance-of-payments deficit may contain an element of statistical illusion, as a statistician, I am happy to look at any argument that is backed up with statistical evidence, but Michael gives none. Again, if an acknowleged expert on balance-of-payments issues, like John Fitzgerald of ESRI, looks at Michael Hennigan’s claims, I will be happy to defer to whatever he says. But, as far as I know, both ESRI and the Central Bank have published numerous commentaries on balance-of-payments issues over the years, and I don’t recall them ever making the point that he is making.

  122. @ Brian Woods II

    What is the nature of the collective called ‘Ireland Inc’ ? No such body corporate exists. It seems to me that the title refers very broadly to ‘business’, particularly the more powerful or well placed elements within it. The business sector is just that. A sector.

    Private wealth will always seek to protect itself from the consequences of political crisis, but states, and societies, also have legitimate objectives.

  123. @Brian Lucey

    I’d certainly be delighted to see Professor Fitzgerald elaborate, for the benefit of posters here, on the views that he expressed in the Sunday Tribune article which I quoted, and which paint a radically different picture to the one given by most posters, including most academic economists, on this site. The fact that his views on this issue, as expressed in the Sunday Tribune article, seem pretty similar to mine (and rather different to your’s) is of no importance.

    Given that it is in such short supply, we really need to make use of whatever expertise exists among Irish economists. It is abysmally obvious that the vast majority of posters on this site, including most academic economists, do not appear to know the difference between the balance-of-payments surplus/deficit and the government budget surplus/deficit, a matter of vital importance when discussing a country’s creditworthiness or likelihood of going bust. Hence their increasingly absurd pronouncements to the effect that Ireland is likely to go bust at the very moment when it is becoming a ‘surplus country’ in the usual meaning of the term ‘surplus country’ in economics (ie referring to the balance-of-payments).

    But, if Professor Fitzgerald has little interest in posting on this site (and, given the level of ignorance displayed on this site, who could blame him?), you can grasp the essential points from part (b) of my first post above, although I’m sure that Professor Fitzgerald would explain them much more clearly than I do, and probably sufficiently clearly for even you to understand them, a task that is way beyond my capabilities.

    I would direct you to the comments posted by the other Brian, Brian Woods II. I’m not quite clear if he agrees with my views on this issue (possibly not, and no harm in that), but he does at least say ‘JTO has a very important point’. It is precisely because of its importance that I thought it would be a good idea to have someone of status, who actually understood the issue, to post on it.

    Oh well, much as I’d like to continue debating this with you, I’m off now to spend the evening in the New Orleans French Quarter, where I hope to make a modest (very modest) addition to Ireland’s balance-of-payments surplus at the casino.

  124. @PQ Ireland inc. is shorthand for the Ireland of the GDP, the GNP, the BoP etc. It would seem on the basis of BoP that Ireland inc. is not sponging off foreigners unlike other PIGS. The fiscal deficit could therefore be seen as an internal imbalance. Whether that means the government is less likely to have to default is worth a debate.

    @JTO Points well made. Every piece of bad news from S&P, Moodys, Morgan Kelly etc. is seized upon as the opener of a new thread. Fitzies comments in the Sunday Tribune certainly warrant a debate on an economic blog. The fact it didn’t get one is telling indeed.

    As to your speculations on the little round ball I would defer to Fitzie as to whether that enters our BoP.

  125. I see Jody Corcoran in the sindo reads here…indeed, quotes from here without attribution and in a manner that makes it look like he interviewed the quoted. That’d be Ciaran o’hagan and myself. Hi jody!

  126. @ Brian Woods II

    Balance of Payments is not a simple issue. It is particularly complex in a jurisdiction which is economically peripheral, and which is playing host to US MNCs whose activities are of a scale comparable to its GDP.

    A merchandise trade surplus sounds good until you ask what is going elsewhere in the current account and capital accounts. The tax-avoiding chicanery in the MNC sector is becoming every bit as problematic for us as the stuff the banks have got up to.

    http://www.progressive-economy.ie/2010/08/who-benefits-from-irelands-imbalance-of.html

  127. @PQ A very interesting link though one must be wary of anyone boasting an “alternative take”. Of couse we are actually heading for surplus despite the transfer pricing, nonetheless I take your point that the complexity of our BoP would caution against taking too much comfort on this score. It also casts some doubts on the credibility of Holohan and Fitziee in hailing this as a big plus. But JTO is right in asserting that this is a much more important debate than S&Ps silly and naive calculations.

    @BL If you didn’t actually talk to Corcoran, he should be ashemed of himself for implying that he did so, which I agree is how I read the article. I am even more annoyed that he didn’t quote me!!

  128. @ Brian Lucey/Brian Woods II

    re that Sindo article:

    “Ciaran O’Hagan, an Irish economist who is head of rates research at Societe Generale in Paris, said measures to limit public debt and contingent liabilities were now needed.

    On whether these urgent measures were required before the end of September, he said: “Bang on.”

    That was in direct response to me! Why amn’t i quoted too?? This is a sham. For once me and Prof Lucey agree!

  129. More to come, the depression is merely a slowly ebbing tide. Who will be revealed as naked?

    Ireland for one, as Japan levels of government debt become obvious to more.

    The Irish debt will inevitably become correctly rated as junk. But in return for debt forgiveness, what will be offered by a desperate Provisional government of Ireland?

  130. @ JTO

    You refer to John FitzGerald, who is possibly a clever economist who like most people speaks with wsidom and sometimes doesn’t.

    You then suggest “95pc of the posters on here” are ignorant.

    So do you believe that the bulk of the surpluses from the activities of Pfizer et al are kept in the domestic banking system?

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