A Bailout Worth Considering

Even though it’s hard to separate fact from fiction in the fast-moving bailout story, reports that the Commission and ECB are pushing for Ireland to avail of the EFSF for broader European stability reasons could change the calculation in an important way.   I still believe that Ireland’s best bet is to regain creditworthiness through a demonstration of political capacity with the budget and the four-year plan.   The alternative of being forced to seek a bailout would involve at least as much austerity as our own adjustment and would do long-term reputational damage.   

But acceding to a request to avail of the facility is potentially a different proposition.   I don’t think our European partners could simply expect us to pursue a less nationally advantageous path in the interest of broader euro zone stability.   The terms would have to be mutually advantageous relative to the next best options for both sides.   One reasonable agreement that could meet this requirement is for our European partners to support our four-year plan with a credit line from the EFSF at a reasonable rate of interest (say the 5 percent rate provided to Greece).  Access to the funds would be conditional on meeting the targets under the plan, which after all is being developed with input from the Commission and the ECB.   The intention would still be to return to markets for funding rather than the use the facility, but the backstop of a dependable credit line on reasonable terms would give us a substantially greater chance of actually being able to access market funding both for the state and the banks. 

Of course, it would be a mistake to exaggerate our bargaining power.   The increasing reliance of our banks on the ECB means we are heavily dependent on their willingness to provide extraordinary support.   But if the right deal is on offer, I worry that the government would be too inclined to resist for fear of a political backlash.  All bailouts are not created equal.   An invited bailout – on the right terms, and in line with our own chosen strategy – might well be worth accepting.

275 replies on “A Bailout Worth Considering”

@JMcH

You write:

I still believe that Ireland’s best bet is to regain creditworthiness through a demonstration of political capacity with the budget and the four-year plan.

As usual, the devil here is in the details. What politician or expert or member of the general public wouldn’t in principle agree with the above at this level of generality?

So let me ask two very specific questions:

First, do you think it will be necessary for the government to repudiate or renegotiate the Croke Park Agreement? [BTW note that Article 28 thereof actually states that “the implementation of this Agreement is subject to no currently unforeseen budgetary deterioration”, so presumably there are no insuperable formal-juridical hindrances.]

Second, if so, what kind of cuts do you think public servants (including university staff) will have to accept? [e.g. 5%, 10%, 20% etc.]. It’s not that I have any resentment against civil servants (I’m one myself) but I’d like to know what you, as an economic expert, think about this.

”Of course, it would be a mistake to exaggerate our bargaining power. The increasing reliance of our banks on the ECB means we are heavily dependent on their willingness to provide extraordinary support.

According to the international reports our bargaining power is time limited. Dr. Merkel needs to get her plan approved by mid December and this seems unlikely if the volatility continues. We need the Germans onside to get a reasonable deal now and not when we run out of money. As a backstop a well negotiated deal could do wonders for our bonds without any loss of sovereignty.

I’m inclined to agree with ceteris paribus.

If the Exchequer is funded until well into next year, our EU partners presumably want us to apply for aid simply in order to defuse the present “agitation” in the bond market and avoid potential infection of other larger questions. It’s the “political” rather than the “economic” bit of “political economy” that’s operative.

What else can it be? If cash isn’t the problem, we don’t need to borrow either from the open market or the special EU facility.

A New York cop once put me into the drunk tank because, even though I was stone cold sober, I “might” cause trouble if they kept me with the others. Yes, you can do things to small guys that you can’t do to bigger fellas.

Does what the Germans have in mind for us with this immediate “application” to the facility really matter?

Looks like we’re going to cut €5-6 billion ourselves anyway in 2011.

If we hang around until the new year, I doubt that the story will get any better. The chances are that the only new addition would be the introduction of the IMF and the purchase of a flat [in a ghost estate!] for the “tall Hungarian” whoever he is.

On the other hand, once we use the EU facility it may be difficult to get out again. At the very least, there may be a long period of “purdah” before we are allowed back.

“An invited bailout – on the right terms, and in line with our own chosen strategy – might well be worth accepting.”
Absolutely right. However the EU and particularly the ECB will have their bottom line.

From the ECB perspective there is now no point in bailing out the State only to have a continuing problem with the bank funding in addition to the pile (€100 billion?) of ECB funds on the banks balance sheets.

If I were in the ECB shoes, I think I would want an agreement to sell the Irish banks to a large European bank as part of the deal. A sale of the banks, if anybody can be got to take them, in addition to a State bailout would kill the problem from an EU/ECB perspective. Otherwise the bonds sharks will move on to Bank bonds and the ECB/EU still have a contagion problem.
The EU in addition will require ‘Structural issues’ to be resolved. That should mean severe and long overdue pay cuts at the higher levels in the Public service.
You are right that an EU request will help the government to save face. I don’t think there will be a political backlash to a bailout. Most people, even Fianna Fail people know that they have bankrupt the country. They also know that Ireland is now dependent on the goodwill of the EU/ECB for survival.

@jmh

agreed. i’m still surprised we are still focused on the binary outcomes of either issuing bonds into the market or drawing down the esrf. why not a loan or credit line independent of the esfr?

clearly there is an incentive in europe to prevent ”ireland” playing out over a number of months when the end result (a bail out) is the same. note the involvement of the UK in the G20 ”no private sector burden sharing comment” on friday (they are not part of the esrf) .nobody in europe or the UK wants heightened bank funding pressures over the next 6 months (uk banks have 435bn of debt to roll over during thw next 2 years.

greece borrowed 3yr money at 3.5% from the IMF and swaps+300 from europe (5% ish at the time). why not get a 2yr swaps +300 bps credit line/backstop from eurozone now (4.625%). we dont need to draw it down yet but it stops the highly destructive vortex of heightened irish soverign risk now sweeping thru the real econony. developed economies are not wired to be sustainable on persistent high soverign risk.

we would also need to get a clear understanding that the banking system would not be put under any pressure to reduce reliance on ecb funding any time soon (its the only bank funding currently on offer that actually makes the income statement of the banks profitable). the ecb was part of the problem, getting a commitment that we will remain joined at the hip for the near future would be a fair outcome.

John McHale

“The alternative of being forced to seek a bailout would involve at least as much austerity as our own adjustment and would do long-term reputational damage.”

There is no “bailout”. Greece did not get a “bailout”. They will owe every red cent plus interest when, if ever, they exit the EFSF.

‘…it’s hard to separate fact from fiction…’

We’re at an absolute watershed in our history and we can only guess at what’s really going on.

While the BBC were featuring the ‘fictional’ bailout yesterday on their main evening news, RTE gave us Brendan Whatisface interviewing Lorraine Keane and Frank Lampard’s girlfriend’s sister.

And the issue isn’t smply about our right to know.

An absence of informed public discourse before the fact is hardly conducive to smart decision-making. A room full of poorly briefed politicians pulling ideas out their @ss of an evening is how we ended up with the Mother of all Bank Guarantees.

@ greg.

its 95% a liquidity bailout (we need to pay it back) / 5% an economic bailout (they will lend us money at ”below market rates”).

@John McHale – “But acceding to a request to avail of the facility is potentially a different proposition. ”

You are surely not falling for this PR spin. How else did you think they would dress it up? This line has already started to be pushed today – even just now on RTE’s evening news.

It is such an obvious PR strategy (we were forced to do it for the greater good of the Euro zone gov’ even though we didn’t technically have to accept a bailout coz we’re funded up to July next year and then some with the National pension fund etc etc) and the end game is to put all the blame on ‘the markets’ and how that was causing potential contagion and the only thing we all agreed could be done was………..

Absolutely nothing to do with chronic mismanagement whatsoever.

This is the most transparent ‘get everyone on message’ handling I’ve seen since this crisis began.

@Joseph
Don’t worry, there’ll have been a Dutch man or woman at the meetings. Some journo will ask them a direct question and they’ll get a direct answer…

@ hogan

a bailout of say a bank, were senior creditors get par back when in the absence of a bailout they would get asset recovery of say 50 is a 50% bailout or a bertie ”dig out”.

borrowing money from a preferential lender like the IMF is not a bail out in the same sense. under every circumsatance u will need to pay it all back. its a liquidity bail out.

the nature of any bailout will center on how much conditionality is attached. we’ve effectively being availing of different levels of bail out since summer 2007 thru the use of unlimited ecb repo by the banks but with close to zero conditionality.

so forget the spin. who cares. all that matters is the rate and the conditionality attached. thats the nub of mr mchale’s peice above

A Bailout Worth Considering

Reality is that we all know the bailout is there – ever since May. When you buy an Irish gilt you are assuming that your risk profile incorporates a bailout if the market closes to allow time for the economy to allow eventual payment of most / all of the obligation.

If there was no Eu/IMF bailout on standby your risk profile would be skewed by the fact that high yields closed funding and immediately forced a rescheduling.

There is no, ‘not considering the bailout’, unless you want to default.

tomc

“its 95% a liquidity bailout (we need to pay it back) / 5% an economic bailout (they will lend us money at ”below market rates”).”

For the moment I think I will have to disagree there.

There is no “market”. But that’s probably a whole other conversation.

Were it simply the running sore that is the deficit in public finances, and where it that Ireland had its own currency, the “market” would charge say 15%.

Result. Instant, and I mean instant, correction of the deficit.

@Grumpy – “There is no, ‘not considering the bailout’, unless you want to default.”

Further to my post earlier – I suppose there’s always a chance that the idiots are thinking of doing something off the wall? A solo run to the IMF? Leaving the Euro and immediately devalue?

What else totally bonkers could they come up with (not that the above are necessarily bonkers – depends on your pov).

hoganmahew

“If you can’t borrow at the rates you need, it is 100% an economic bailout…”

I disagree. We would still have €30bn and have to live on it.

And if entirely locked out of the bond market? Well then, no more interest or capital payments.

I say that tongue in cheek of course.

@Greg – “There is no “bailout”. Greece did not get a “bailout”. They will owe every red cent plus interest when, if ever, they exit the EFSF.”

Perfectly right – and therein lies the rub. Ireland needs a bailout.

Do I recall you once using a phrase (months ago) like “the derivatives death star is warming up” ?? It’s Sunday night, the markets open soon and there’s no announcement. Can you hear the hum?

Unlike the decisions made in the early hours of the fateful morning of 30the September 2008 when the banks guarantees were given on our behalf, let this engagement with EFSF take place with

a) due and detailed consideration,
b) full disclosure to the public of exactly what is involved,
c) full information on our current situation,
d) opportunity for full public debate on the steps that the government will take on our behalf.

Let us be told the true “we are where we are”, which has shifted so dramatically about once a fortnight for the past eighteen months or so, like a boat tossed relentlessly on the stormy ocean where we now seem to live. Lets do this as adults with full information and let the government for a change invoke the co-operation of the citizenry.

The contribution of a number of economists, many of them contributors to this website, to the clarity of our predicament have at times been excellent and further clarity is needed at this time. Could a clear and accurate statement of our current financial situation be compiled by some of the great heads who contribute here?

The following issues seem of particular relevance.
Stated National Debt is of the order of €90bn.
ECB has purchased substantial Irish Govt bonds in the past year and half or so. The extent to which national debt is already owed to ECB should be disclosed.
€80bn of state guaranteed bank bonds were taken by ECB in October, though this will not appear as part of the national debt. It’s still part of what we owe.
Private loan risk, particularly household mortgages, will be visited on the state on an increasing scale from here on, and losses will accrue in most part to state owned and guaranteed banks.
Further potential risk from additional bank capitalisation funds and from NAMA.
GNP currently stands somewhere between €120bn and €130bn.

We may be in a situation where even with ESFS support, the damage to the economy may be so severe that the terms of the repayments may be too arduous, we need not delude ourselves. If we do need to renegotiate sovereign debt lets not waste time with another measure that may possibly be interim and have to replaced again in a year. Let’s address the problems fully now.

As citizens of Ireland we have never in our lifetimes faced such a collective national crisis. We can come though it best as we deal with it together, cohesively as a people. But lets have good clear information and proper national debate on exactly what we are going to do next.

And I presume the big players in Europe won’t give us the opportunity to restructure as then their banks would be taking a hit and that wouldn’t do at all.

John McHale

“One reasonable agreement that could meet this requirement is for our European partners to support our four-year plan with a credit line from the ESFS at a reasonable rate of interest (say the 5 percent rate provided to Greece).”

That’s about the height of it.

A credit line.

Negotiate that at 5% for five years.

Then liquidate Anglo and INBS.

Done deal.

Joseph

“Perfectly right – and therein lies the rub. Ireland needs a bailout.”

I disagree. We don’t need a bailout, and anyway we’re not going to get one.

We do need to tackle the budget deficit as if we were grown-ups.

And that does not have to “impact” on the most vulnerable.

When that argument is used I always ask is it the vulnerable or those who are paid to “help” the vulnerable that are making the argument.

A surgeon can perform a heart transplant whether he/she is paid €100,000 or €1,000,000.

Patriotic duty and all that.

A Tao-Is_Each can lead government for €100,000 or €300,000.

Patriotic duty and all that.

A General Practitioner can see exactly the same number of patients for €300 a head as €700 a head.

A teacher does not have to get paid €37 an hour to supervise children while they play.

A Professor can Profess for €75,000 or €125,000.

Yeah. You’re right. I could rant on that all night.

Patriotic duty my backside.

A “credit line” would do the trick.

Then let’s see the colour of the patriotic money.

Joseph

“Concern grows as Dublin spurns help ”

Bloody hell.

Haven’t read the article yet.

Monday should be interesting.

“Do I recall you once using a phrase (months ago) like “the derivatives death star is warming up” ?? It’s Sunday night, the markets open soon and there’s no announcement. Can you hear the hum?”

I can hear that big boy hummin from the dark side of the Moon.

Someone needs to make a decision and I mean NOW.

The arrogance of Fianna Fail is astounding.

I hope they don’t add that to the bill.

john mchale s take is totally correct, and i just wish the irish powers that be listen up carefully

the fact that poland – the only country in europe to grow in 2009 – asked for and got a special credit line from the IMF is the case in point

we should go now while we can get a reasonable deal etc

[but the EU erred in the design of this EFSF facility, that is what i always maintained from teh outset….they should have intervened earlier or make it less stigmatised to avail of…..]

irish times this pm says that Irish Gov is holding out – this would be disastrous if it happens; sentiment unlikely to improve

i reckon the Germans will force our hand and make us take the cash, i believe this is in our best interests to do so

fingers well and truly crossed……

@Joseph

Don’t like that word ‘spurns’ in FT headline – does not reflect the pragmatic inter-relationships involved, and at different levels.

Timing, it is said, is everything; we could get a few heavyweight props from the ECB and separate out shawnee/fingers and co. into some SPV (lovely construction – gets around corners) from a realistic sovereign: we need help to bury, as not presently burnable, the former – and then we can just get on with it – and the EZ can relax for a while.

I am afraid most of you are in denial – you strike me as abuse victims unable to come to terms with the fact that your father is a predator.

The wealth globally and in Europe has not disappeared – once we continue to burn BTUs we create wealth and express that in a symbolic currency.

What has changed in the ability of the world and particulary the west to grow consumption on the back of slave labour and increasing energy to transport the goods that express this wealth physically
In such a situation seeking interest payments from a overvalued currency is merely extraction not capitalism as capital is being destroyed to sustain consumption elsewhere i.e. our austerity sacrifice keeps consumption stronger in the core.
I have written before that the ECB is not functioning as a CB with the treasury interest at heart – every move from their criminal inflation of the shadow banking sector to the subsequent bailout of the same darkness has proved beyond reasonable doubt that the ECBs only goal is to solidify commercial banks superiority over sovergin goverments ability to remain even semi independent from the monetory authorties.
I for one do not have classical euro sceptic views but the fact that the ECB has not reacted as a proper central bank by writing off debts in Iberia ,Ireland and Greece and subsequently revaluing gold to offset those losses is proof of their demonic intentions regarding debt slavery.

These guys intentions wether it is the ECB or their IMF brothers are not benign and to freely offer ourselves to these malcontents will only invite scorn.
We need to slap these priests in the face by creating credit not seeking their false pity and onerous debt.

As it appears that banks in Europe are mounting war against both capital and labour we need to immediately start financing our state utilities with zero or low interest debt – this will dramatically reduce our fiscal debt over time.
Again the banks are mounting a full scale financial war against us so we have to act to defend ourselfs.

@John McHale
“I still believe that Ireland’s best bet is to regain creditworthiness through a demonstration of political capacity with the budget and the four-year plan. ”

I don’t think you will find a single person who disagrees with this position.

The problem is the probability of those events occurring a extremely low. Given the markets know we intend to cut €15bn over 4 years, €6bn this year with a rough 3-1 split between cuts and taxes. What additional information do you think we can give than will bring the rates down from still plus 8% to less than 6% which would be sustainable.

Hello all,

A couple of observations, if any of our policymakers are reading this.

0. Welcome to geopolitics- the French, Germans, Brits et al have been playing this since Louis XIV or Bismarck. (e.g. there’s probably a strong chance that intelligence services are monitoring your discussions, moves, etc).

1. I think there is no coincidence that all of this happens the same week that the US prints $600 Billion in new money to drive down their x-rate. We’re a way that the big guys can talk down the Euro – a part collateral victim of the currency wars. FR/DE/UK “support” for us came after that G-20 BS “agreement” on a currency war “ceasefire”. Observe that the Euro actually ended the week down on the dollar!!!

2. The rumour mill on EFSF entry by Ireland has been absolutely amazing since Friday afternoon – from the FT, the Irish Domestics down to “word on the street” circulated to bottom feeders at small Irish institutions – think of the equivalent of the street-level snitches and bail bondsmen seen on Starsky & Hutch (“useful” idiots). To be honest, the speed of this speaks of an orchestrated campaign. I am not a conspiracy theorist but……

3. Ultimate endgame here for the big European players is to gain control of our fiscal policy (bye bye that corporation tax rate that’s so annoying for Mr. Sarkozy) and bridle up the Irish taxpayer to repay everything that FR and DE banks and pension funds lent to Anglo/AIB/BOI. In the short term, we (and Greece) are a pretty cheap way to talk down the Euro vs the Dollar and Yuan.

4. Don’t we still have the “nuclear” option of walking away_ or at least threatening to do so from our Banks while protecting depositors? What would this do? Monetize our debt at the hands of an unwilling ECB? Is now the time to use this? To play a bit of hardball if we can. Make no mistake – I feel its too late and that there are no easy answers here and a lot of hazard.

5. Leaving the euro….hmmmm……would we be better to do this now or wait until Spain or Portugal or even Italy blow the system up? In either case, I hope we have contingency plans ready.

I can’t feeling the irony that the stated reasons for the bailout of Anglo’s bondholders were to protect “Ireland Inc’s” fundamental credit rating. Now our bonds are trading at >8% and the reason for persisting is???

The new bit of the Bloomberg article

Ireland said it’s in talks with European officials about “market conditions” as Germany pushes it to accept a bailout before a meeting Nov. 16 of finance ministers that aims to reverse a bond sell-off across the euro- region’s periphery.

“Ongoing contacts continue at official level with international colleagues in light of current market conditions,” a Finance Ministry spokesman said in an email tonight. “Ireland has made no application for external support” and the government is “fully funded till well into 2011,” the spokesman said.

Remnant

Point 4 is very interesting and when taken together with “Ireland has made no application for external support” and the government is “fully funded till well into 2011,” suggests a bit of hard ball by the govt.

You are correct, any defaullt anywhere in Europe on senior bank debt calls into question the whole funding model of the European financial system and its over reliance on wholseale funding, particularly from outside the EZ. Not only would the Irish banks be toast but the market would obsess about who was exposed to what.

Joseph

“Interesting that neither of the Brians appear to have been around this weekend……”

Yup. Now that they have reached the tender aged of thirteen Daddy has to have a little talk about the facts of life.

Brian One says: “Yuck. That’s disgusting”.

Brian Two says: “Really. Is that the way it works? So there is no stork?”

Daddy says: “That’s the way. Now go and take the rubbish out”.

@John Mc Hale

An invited bailout – on the right terms, and in line with our own chosen strategy – might well be worth accepting.

I am sorry, but what strategy? As of to date, I fail to see a credible strategy worth mentioning. It all reminds me more to the scenario of headless chicken running around and yes – I worry that the government would be too inclined to resist for fear of a political backlash – this would not come as a surprise either.

What we need is an exit from the bank guarantee and the imposition of bank resolution.

Europe is engineering an exit from eurozone country guarantee and seeking to implement country resolution.

There must have been some miscommunication!

@Joseph

Thanks for the link. It is strange that Batt is the one out front.The Brians must be getting ready for an all nighter.

For what its worth (probably very little) Government buildings, DOF and the Taoiseach’s office looked completely deserted today when I strolled past late afternoon.

Unless there’s some special command bunker hidden in the Phoenix Park or wherever.

Remnant

They could be hiding in there with the lights off, in the back snug in D&Ns or all out in Brussels.

@Dreaded Estates

‘What additional information do you think we can give than will bring the rates down from still plus 8% to less than 6% which would be sustainable.’

A standby facility at a reasonable rate.

@ Tull

One way or another, Brian C may be having an “all nighter” 🙂

I do like the idea of just not answering the door- and pretending to be out when ECB’s bailiffs show up 🙂

ceteris paribus

“The Brians must be getting ready for an all nighter.”

Oh God no.

Please pary to whatever God you believe in.

The last one didn’t work out. Did it?

Oh no not another one.

@ Tull

‘any defaullt anywhere in Europe on senior bank debt calls into question the whole funding model of the European financial system and its over reliance on wholseale funding, particularly from outside the EZ. Not only would the Irish banks be toast but the market would obsess about who was exposed to what.’

Meltdown Mark 2?

Looks like a serious poker game – I see a 23 year old won 5.5m in Vegas. Maybe we could get him to negotiate.

Yoshiaki Nohara reports-‘The euro traded near a six-week low against the dollar as Ireland denied speculation it was seeking a rescue before tomorrow’s meeting of European finance chiefs.

Europe’s currency fell versus the Australian and New Zealand dollars after Enterprise Minister Batt O’Keeffe said yesterday Ireland has no immediate need for cash. Germany is pressing Ireland to seek aid.

We are causing havoc.

@ Kevin Newman

john mchale s take is totally correct, and i just wish the irish powers that be listen up carefully

the fact that poland – the only country in europe to grow in 2009 – asked for and got a special credit line from the IMF is the case in point

Poland has an independent monetary policy while Ireland is a member of the EMU, subject to its rules and with its banks owing a big debt to the ECB.

It’s foolish to think that the IMF would ignore a mechanism that it’s already a part of for EMU members.

.. and Portugal could also opt to bypass the EMU go to Washington and so on?

As a member of the EMU we are entitled to avail of the EFSF.

To hope that a mere request would avoid headlines such as “Is Ireland on the brink of collapse?” in the Toronto Sun at the w/e is wishful thinking.

So we’re looking for a bailout that would avoid that taboo subject of ‘structural reform’?

Jürgen Stark, a German ECB executive board member, said last week there could be “no financing of public budgets through the central bank.”

While any bailout by governments will come with conditions.

From the Bloomberg article:
“Ireland is not going to give up its “hard-won” sovereignty, O’Keeffe said on RTE. ”

@John McHale

“I still believe that Ireland’s best bet is to regain creditworthiness through a demonstration of political capacity with the budget and the four-year plan. ”

I think we might be looking in the wrong place for demonstrations of ‘political capacity’, if we’re reduced to invoking the ‘800 years’ to justify our current fiscal policy.

Reuters are reporting='”Things are happening day by day,” Justice Minister Dermot Ahern told national broadcaster RTE’s “The Week in Politics” when asked if he would put his reputation on the line and say that Dublin would not apply for aid.’

The article has a photo of a begger on O’Connell Bridge.

ceteris paribus

I’m being serious.

15th November 2010.

Are these the same two Brians that made the last deal?

Oh no not another one.

Greg
Double act.
fromReuters story
‘Erik Nielsen, chief European economist at Goldman Sachs, wrote in a note on Sunday that the European Commission may be discussing a possible aid deal this weekend with Portugal, which has a smaller deficit but more acute funding needs than Ireland.

“In spite of their differences, if (when) Ireland or Portugal officially seeks help, it can only be in everyone’s interest to start the process for the other country at the same time,” he said in the note..

BTW the begger on the bridge is famous now. Worldwide distribution by Reuters-maybe he can get on one of those tv shows and make a fortune.

Just looked at Twitter. Brian Lucey seems to be bleak.
The thing about a “nuclear option” is that we are in a crowded room so to speak.
Remember too if they designed the Euro and the ECB right in the first place we wouldn’t be in this situation in the first place.
The ECB’s terms of reference are too limited and the Euro should not have been launched into an environment of light touch/no regulation
Tough times ahead!

How about this headline

Fading luck of the Irish

By Pedro Nicolaci da Costa

WASHINGTON (Reuters) – It is difficult to believe that financial turmoil in a country as small as Ireland, whose economic output roughly matches the state of Maryland’s, could have worldwide repercussions.

NO NO NO……and NO again

this is clearly a game to safe the european banks system. ireland’s great mistake was that it assumed liabilities from corrupt criminals (politicians and developers) without considering the consequences of doing that.

Now we are being asked to go to the stabilization fund, not because the sovereign government needs the cash but because the remnants of our banking system may still be bust, well if that is true, then they have to fail…..

The game now seems to be that they need a fall guy…..Greece, Spain and Portugal are in messes as big as ireland’s but if we accept this funding, then history will say that these other countries were fine, if only the irish had acted responsibly. NO…..we have done out bit for European stabjility…..no more….if the banks are still bust, then let them fail!!!!!!!!

David O’Donnell

“New York Times with a more appropriate caption –“

But no less the same message.

“BRUSSELS — European ministers worked over the weekend on a financial rescue plan for Ireland, as pressure mounted on Dublin to seek a bailout as the best means of preventing the markets from spreading turbulence to other European countries, officials said on Sunday.”

So let’s see what’s happening here.

Fianna Fail and the Green Party have lied for the last three years.

Now they have been found out. Just like the Greeks.

irisheconomny.ie can censor this comment if they wish.

FIANNA FAIL AND THE GREEN PARTY LIED FOR THREE WHOLE YEARS.

Problem is. We get to pay the bill.

Police and Thieves.

I did try to tell.

“All the crimes committed day by day
No one try to stop it in any way
All the peacemakers turn war officers
Hear what I say”

One final thing.

Remind me why that stuttering piece of self interest still thinks it has the right to my private property.

It is just like the Keystone Cops, except a bit more chaotic. Since Merkel’s “New Rules for the 2013 Season” moment two weeks ago the genie was let out of the bottle. The ECB know that Ireland will eventually need non-market funding and figure they might as well kill two birds with one stone and get it over and done with, thinking it might help put the genie back in the bottle. However FF have linked any EFSF move with national sovereignty for weeks, and won’t back down now. The EU will try and sell them the line that we should put the green jersey aside, pull on the blue and gold one, and take one for the team. Not a bad try, but it just wouldn’t fit well with FF’s monopoly role as The Keeper of the National Sovereignty™. Meanwhile the Portugese are crying into their beer, and the Greeks try and persuade everyone that Greece is not Ireland. Not a bad set up for Act I.

@remnant

4. Don’t we still have the “nuclear” option of walking away_ or at least threatening to do so from our Banks while protecting depositors?

It is vexing that the arguments here tend to go around in circles because, it often seems, nothing is ever explicitly conceded, and nothing ever stays conceded – any argument which is countered at one time will just be dropped and then advanced again later in basically the same form as before, often by the same person. This, I think, is one of the classic examples.

Every so often someone here asserts that 1) senior debt haircuts on Irish banks would trigger an acute EU-wide financial crisis and therefore 2) we have no alternative but to go along with the current bailout plan, where the Irish taxpayer covers nigh-100% of the cost of propping up the Irish banks, supported by ECB credit.

Then sometimes someone will reply that deducing 2) from 1) requires quite a few other assumptions, one of which is that 2a) if we were to refuse the current arrangement, demanding a new EU bank-bailout plan which puts a smaller proportion of the cost on us, the ECB and the other member states would both respond with a kamikaze strategy, bringing down the EU banking system on their own heads in order to teach the impudent Irish a lesson.

Then, usually, there is silence in response.

Then someone asserts that senior debt haircuts on Irish banks would trigger an EU crisis, so we have no alternative but to go along with the current bailout plan.

As part of our all-hands civility drive, I will assume that this has nothing to do with bad faith on anyone’s part – it’s just the nature of the medium and so on. But regardless, it seems to me to be deeply unproductive as well as frustrating.

Anyhow: a while ago I tried to think through what we’re facing if we demand to renegotiate the terms of the banking bailout. Unfortunately, it seems that parts of my comment were unclear; I’ll try to explain any bits that anyone still wants explained. (Where I said “increased interest and reduced rates” I meant ‘interest’ in the sense of demand.)

It looks like game over.
The headline from telegraph-
Ireland fights to stave off £77 billion bail-out
Ireland was fighting for its political and economic independence last night as secret negotiations began in Brussels over an international bailout of up to £77billion.

‘Talks went on into the night as Irish ministers insisted that they could manage their stricken finances but other Governments expressed concerns that an emergency bail-out may be required as early as today.’

Ludwig Kessler Says:
November 14th, 2010 at 9:15 pm

Agree particularly! That is in fact the whole point. They want to drive down the fiat Euro. Any excuse will do. Others do not agree with that approach and some probably disagree on timing, but the media are merely printing what they are told, not what they “find out”. This is all being managed in Europe.

Pity they were not so interested when a clear bubble was forming and when interest rates fell!!!!!! But they stood to make so much money!

I note the size of the bailout is reaching the magic 100,000,000,000 Euro! As predicted!

When new bad news is considered, what then? Another bailout?

anonym
True, but this is merely a blog! Misusing a term like “interest” will not help you make your case, either. “Interest” has only one meaning and “demand” also has a technical meaning. Amazingly, people on this blog believe what they are told that governments are trying to “help”! Why? They have voters to whom they are responsible.

CAPITAL is being destroyed!!!!! This is a depression!

Please, all remember this. New capital as created by QE, merely increases commodity costs as no one will invest in anything that has more risk than return.

Borrowing anything in this climate is sheer stupidity. That this makes our discomfort worse is a short term thing. Get it over now! Taxes to raise 20,000,000,000? Not too perverse if a commitment is made to reduce as soon as possible! Just remember, collect from individuals, not businesses, else it will disappear abroad!

Here is a little thought for our European firends to consider: suppose Ireland realizes what has been going on; decides that the Euro is holding back Ireland; so decides to disrupt all bailout plans and contacts the PIGS to organize?

David McWilliams would be in ecstasy at that!

The possibility of leaving the Euro then becomes more likely. Immediate devaluation of the joint? currency area solves many problems and makes renegotiation necessary!

@ceteris.

Ireland fights to stave off £77 billion bail-out.

Looks like that €77 billion is the ECB estimate of the final bank cost, unless of course they just like the number 7.

I still think that State and Bank debt is now so linked that the ECB will have to insist on the bailout finally resolving the banks. How will they do this. I think it has to be an agreement to sell the banks.

The Irish Independent says Brian Lenihan may ask fellow European finance ministers in Brussels tomorrow if it would be possible for the banking sector alone to access money from the rescue fund.

It would be a surprise if countries agreed to be in hock to Irish banks.

It would also be a surprise if the ECB agreed to provide additional funds directly to the banks (one already nationalised and another likely to be) in return for an Irish State guarantee.

There is a bailout fund available and to fund banks directly outside of the emergency liquidity system looks like a bridge too far.

There seems to be a certain sad inevitability about it all. The Government sweated it out for 2 years before it was finally forced to put a number on the bank losses. It then sweated it out for a few more weeks until officials from the Commission pitched up and told them the extent of the fiscal adjustment required. It’s now fighting tooth and nail to retain the tattered remnants of national sovereignty. The only cards it has left are that Ireland can’t be put in cold storage for 3 years until the EFSF is put on a permanent footing with a debt restructuring regime is put in place without some EU biting of the haircut issue and that it can threaten a referendum on any TFEU changes.

@tomc
“borrowing money from a preferential lender like the IMF is not a bail out in the same sense. under every circumsatance u will need to pay it all back. its a liquidity bail out.”
If you will go bust without it, it is a solvency bailout.

Blimey, AIB wants its argument from 2008 back…

I agree that it would be possible to move the country to a situation where it is not bust. Theoretically. Nobody seems willing to do it, though. It would involve letting the banks go if they needed further money, abandoning the promissory notes, and cutting the deficit down to CharlieMcCreevy levels of “if I don’t have it, I don’t spend it”.

@MH
“The Irish Independent says Brian Lenihan may ask fellow European finance ministers in Brussels tomorrow if it would be possible for the banking sector alone to access money from the rescue fund.”
Great. So once again the economy is being beaten in a sack for the goodness of the banks. This is going to hurt us a lot more than it is going to hurt them.

The choice the last time was the economy or the banks. The choice this time appears to be the economy or FF’s reputation. Perhaps it was ever so.

Hi All
In the general context of things, I think (as a non-economist) that it’s important to draw some lines around this whole mess and let people know what the worst case scenarios are. This ongoing negative drip is bringing everyone down and preventing the rebuilding and return to a positive outlook. We need the bottom. So what is it – out of the Euro and devaluation 30%?
Ciaran

@ Tull

Is fada liom oíche fhírfhliuch gan suan, gan srann,
gan ceathra, gan maoin caoire nd buaibh na mbeann;
anfa ar toinn taoibh liom do bhuair mo cheann,
‘s nár chleachtas im naíon fíogaigh ná ruacain abhann

The drenching night drags on: no sleep or snore,
no stock, no wealth of sheep, no horned cows.
This storm on the waves nearby has harrowed my head
— I who ate no winkles or dogfish in my youth!

http://unix.cc.wmich.edu/~cooneys/poems/Rahilly.Kinsella.html

@The Alchemist
“According to the BBC, Batt O’Keefe (of Smart Economy fame) is certain the Ireland must ’stand alone’. What does that mean exactly?”
If you’ve been infected by Ledermans and Lederhosen in the past, the best thing you can do is close the borders. Autarky here we come. The 1950s weren’t that bad, were they?

@ Joseph

You guessed right. Irish 10-year at 8.11% – little changed on the day. The other peripherals are behaving in a similar fashion.

Given the uncertainty ahead of the Ecofin meeting, it’s not surprising that yields would remain elevated.

Donal O’Mahony, global strategist at Davy Capital Markets said in a note issued this morning that Irish domestic pension fund and insurance companies own a scant €6bn in Irish government bonds from a fixed income pool of €65bn.

He says the discount curve references German bunds and not only would an immediate switch to a “sovereign annuity” concept based on government bonds unleash a potent domestic demand for Irish bonds, but it would also slash the funding deficits of Irish pension funds that are being exacerbated by record low German yields.

http://www.finfacts.ie/irishfinancenews/article_1021019.shtml

Interesting take on the Irish situation from the UK’s Daily Telegraph this morning:

“Ireland’s unemployment rate is almost twice as high as Britain at 13.2 per cent. There are fears that if unemployment continues to grow then inevitably people will come to Britain to seek work, where there is already increased competition for jobs. ”

What was that sign they used to stick on doors over there just a few decades ago? “No dogs, No Irish”?

I wonder to what extent the government are refusing the (so-called) bailout because they don’t want anyone having that close a look at the books?

There might be too much of this (see BBC, just released) – “BREAKING NEWS: New EU audit puts Greek deficit for 2009 at 15.4% of GDP – well up on figures announced earlier this year. “

@ Joseph

I get my quotes from a Bloomberg terminal.

It is eerily quiet today. I would have thought that the many seemingly contradictory press stories coupled with the repeated denials by the Irish DoF would have rattled the markets more. Perhaps the markets think they already know the answer.

It is interesting that Germany and France were all for defaulting on private investors a couple of weeks ago, but now they want to force us not to default by binding us into the EFSF. One wonders was this their goal all along. Exacerbate the crisis, put Ireland in a box and be done with them. (Perhaps gain an advantage for the larger in the new riskier Eurozone and reap the rewards (financial services, pharmaceutical, technology)?

However, two can play that game. Ireland can refuse any bailout, abide by the alleged “no bail-out” clause and default, negotiate with bondholders/impose, impose Collective Action Clauses, exacerbate the problems in the bond barket and repurchase bonds, revoke the guarantee in part (leaving ELGS alone) and so forth. Of course, one wonders what the immediate consequences for our banks would be in the meantime.

@John Mul – “Perhaps the markets think they already know the answer.”

That could be so – perhaps there will be more action tomorrow morning when the EU finance ministers meet. I may not be a fan of Brian Lenihan but it can’t be much fun being embroiled in this sort of thing when you are ill. I would not want to be in his boots tomorrow.

@Seafoid – “On average, four people are chasing every job in the UK”

I was talking to someone in the contract recruitment business in the UK the other day and he was telling me that he gets hundreds of CV’s for every thing they post on a jobsite called Jobserve over there. He just reads from the first one in for 20 minutes or so and once he’s got 3-4 good looking CV’s to send on to the client, he then just ditches the rest. Sounds like you have to be quick off the mark in that game. I suspect that the number of people applying for each job in Ireland is slightly higher than 4. Whenever there is anything advertised in retail in Dublin, there’s usually a queue going round the corner.

MH.
Re irish pension funds invesing in Irish bonds. Well nice idea but…

I am one of the many who depended on the Irish pension funds to manage their fund in a reasonably prudent fashion. They-sorry -We lost heavily because they invested in Irish banks. In fact one well known fund manager promoted two ‘winners’ as part of their investment strategy. Guess which two winners they invested in.
Northern Rock and Anglo Irish.
Personally I am willing to put on the green jersey in respect of more taxes etc,
I am not willing-if I have a choice in the matter-to bail out overpaid and clearly incompetent fund managers or an incompetent and corrupt government by allowing them to squander what is left of my own measly pension contributions by investing them in Irish bonds or Irish bank bonds, in a futile attempt to protect their own interests.
Sorry for long sentence at the end. It all came out at once.

@MH.

PS on Above.
The last time I looked the director in charge of that that fund was a still a board member of one of the main banks!

ECB’s Constancio Says Ireland Could Use Fund for Bank System

By Boris Groendahl and Simone Meier
Nov. 15 (Bloomberg) — European Central Bank Vice President
Vitor Constancio said Ireland could use the European Financial
Stability Facility to help prop up its banking system to restore
investor confidence.
“The problems of the Irish banking sector are not only
problems of liquidity but also in some cases problems of
capital, so losses,” Constancio said at an event in Vienna
today. “For that purpose of course the EFSF would be adequate.
According to the regulations of that facility, it
cannot lend directly to banks. The facility lends to
governments, but then the government of course may use the money
for that purpose.”

Allowing the NRPF to invest in Irish debt is not some sort of bailout for fund managers. (I am ignoring private pension funds using Irish debt for annuities). Was talking to an investor in London recently about this and he couldn’t believe that we had a multi billion euro soverign wealth fund at our disposal that was not allowed to buy Irish debt at a time when demand from foreign investors has vanished and the bonds were returning equity like returns. As he said, why should he invest in Ireland when Ireland won’t invest in itself? Couldn’t argue with him.

@eoin

Seems FF want to link the efsf directly to the banks. everyone suspects the banks will not be able to repay fully. Efsf has to go to the country.

How can they square that?

@Bond. Eoin Bond – “The facility lends to
governments, but then the government of course may use the money
for that purpose.”

I can’t quite put my finger on it but that smacks of smoke and mirrors to me. We would borrow money we were going to borrow anyway to pump into zombie banks we were going to pump into anyway? Is it just that we would be borrowing the money at a lower rate?

Surely what we want to do is stop the government putting money into banks?

I presume bank bondholders must be delighted to be hearing news like this.

@Brian O’Doherty

Thanks for the update. What’s particularly interesting is the comparison between the deficit reductions of the Eurozone’s two bad boys, Greece and Ireland.
Assuming the revised 15.4% figure to be correct, Greece will presumably have secured the greatest yoy deficit reduction ever achieved in the Eurozone. Down from 15.4% in 2009 (following the revision) to an estimated 9.4% in 2010.
Compare and contrast with the Irish yoy figures.

Anyone who deposits cash in Irish banks at 3%, buys the Government’s solidarity bond at sub 5% and refuses to lend to the government at 6-8% (2 years to 10 years) needs to reflect on the simple fact that it is the same risk.
The NPRF needs to reflect on whether it is going to get 8%pa on any other investment it is likely to make over the next 10 years. Ditto any other irish investor.

@Bond.Eoin Bond

Thanks. I didn’t know it was well flagged
I guess I don’t follow these things as actively as yourself.
(I am aware that previous Greek estimates were found to be improperly stated, and influenced by Goldman schemes, etc…but I thought that referred to 2008 and previously)

Bailout or no bailout there is a serious problem beyond the hungama of the Irish banking system/budget deficit nexus.

“In mature financial markets with ample liquid assets, financial assets can be larger than underlying GDP because they reflect future expected returns and growth. In 1980, the world’s financial stock was roughly equal to world GDP. By 1993, it was double the size, and by the end of 2005, it had risen to 316% — more than three times world GDP.”

http://www.theglobalguru.com/article.php?id=89&offer=GURU

Where is the growth supposed to come from ? The current valuations of most financial assets are essentially bogus.

@Eoin and Paul

I don’t read what Constancio says as providing any sort of direct support for banks.

I think what is going on is that the ECB is signalling it is unwilling to continue to provide liquidity/funding support to Irish banks at current levels. The problem is that the banks can’t raise funding at anything like affordable rates on their own. The only way that banks will be able to raise guaranteed funding is to raise the value of the guarantee. So it does come back to improving the creditwothiness of the State through some sort of funding support.

Simpleton,

The problem is sloth. At the moment the NPRF is not allowed invest in Irish Govt Bonds. Emergency legislation could be passed in the Dail & Seanad tomorrow to sort that or even last week. Buying truck loads of 2, 5 and 10 year at a blended yield of 6% is fine if you think you are going to remain in the Euro and in good standing with our creditiors. If we think we might just default, then obviously we should not.

Simpleton, cash would be a lot lot shorter than 2yrs so you don’t have to find a buyer who isn’t freaked out.

NPRF ban on Irish gilts does not make sense, nor does forcing it to buy them -0 unless everyone is clear about the risks.

@ Zhou “It is interesting that Germany and France were all for defaulting on private investors a couple of weeks ago, but now they want to force us not to default by binding us into the EFSF.”

That’s an interesting point and one that I’m surprised hasn’t gotten more attention. Given the mess that our Govt has made about pretty much everything, they’re not likely to get much sympathy for their current predicament but I am perplexed by what the Germans are doing.

Irrespective of the merits of Merkel’s proposal – which I’d generally support – they must have known that it would come at a very sensitive time for Ireland which was essentially trying to construct a budget that would ensure that all bondholders (incl. German ones) were kept whole.

Did the Germans make a mistake – or is this all part of a larger gameplan? It’s interesting to note to that in the Spring that the Germans public prevarications on the Greek crisis seriously escalated that crisis for that country.

I’d agree that we have slightly more cards to play now – I hope we use them well.

@Paul Hunt.

Do you think this idea of separating the banks from the sovereign could work?

The sovereign took the hand of the banks and both the banks and the sovereign are embraced in macabre death dance at present.
Untangling the sovereign must involve a stake through the heart of the banks.

@John McHale.

I agree, but I don’t think you can be partially supported by one of these packages. If you’re in, you’re in. My sense is that the Government wants to craft some half-way house that will allow it to claim that sovereignty has been protected and that, at least some, EU players are prepared to contemplate this as they would like to park any question of bank debt restructuring until the legal and constitutional girders are in place. Chancellor Merkel, in particular, wants to have something that will prevent actions before the Constitutional Court in Karlsruhe.

Both sides want to keep the IMF out as much as possible. The Government because they would rip into the protected, inefficient sectors; the EU because they would want to force the pace on debt restructuring.

@ Fergal

“Did the Germans make a mistake – or is this all part of a larger gameplan? It’s interesting to note to that in the Spring that the Germans public prevarications on the Greek crisis seriously escalated that crisis for that country.”

Precisely. Now the Germans (and French) are now in control of Greek fiscal policy (e.g. they’re not cancelling their €1Billion order for German-Built submarines, even though they’re cutting children’s surgery centres’s etc). Greece also can’t get out of EFSF and the core EZ countries can drag it into the daylight to threaten “default” every time the euro gets to 1.40 against the dollar.

There people (DE and especially FR) are not stupid and not altrusitic. The only small countries I’ve seen who’ve been able to consistently “outdiplomat” the large players are Switzerland and Israel.

As as aside, the EC is a bit player in all of this and will be ignored by FR/DE (&UK) where their vital national interests were at stake. Poor Rehn- although hailed as a new tribune by the Irish medua – was completely undercut by national governments last week. Interesting that the G20 statement was only FR/DE/UK – aren’t IT a member of the EU and EZtoo? etc.

We (IE) need people trying to think through what their game is. Perhaps a “trade union” of the PIGS is required? Or even a PO/IE little arrangement?

What do they say – “politics is war by other means”……

@ Paul Hunt

“Both sides want to keep the IMF out as much as possible. The Government because they would rip into the protected, inefficient sectors; the EU because they would want to force the pace on debt restructuring.”

If push comes to shove, wouldn’t national interest say we’d be better with the IMF alone? Less likely to want permanent control of fiscal policy/more likely to be time-limited? More likely to enforce haircuts on bank bondholders? No nation-specific pork barrel stuff (e.g. Greece’s German submarines,) and not motivated to dispense with our corporate tax rate?

Looking at Greek experience, I’d rather have the IMF-alone than making us into a long-term protectorate of our EZ “partners”.

What do FG know?

12:55 15Nov10 RTRS-IRISH OPPOSITION SPOKESMAN NOONAN SAYS BELIEVES EUROPEAN INTERVENTION FOR IRELAND IS “UNDER WAY”
12:56 15Nov10 RTRS-NOONAN TELLS BBC BELIEVES “THINGS WILL COME TO A HEAD IN THE NEXT 24 HOURS”
12:57 15Nov10 RTRS-NOONAN SAYS IRISH GOVERNMENT FIGHTING “REARGUARD ACTION” FOR SAKE OF APPEARANCES

@ Remnant

Countries like the US have already committed to the Eurozone bailout fund via the IMF which has a minority interest.

Why would teh IMF executive board approve a s eparate application from Ireland?

It simply wouldn’t.

@ Bond. Eoin Bond

Constancio’s comments are not new news.

Ireland would have to sign up to targets and reforms; having a viable banking system would of course be important.

@Remnant,

I agree completely. Any other government outside the EZ, confronted with the mess the Irish Government faced at end Sep 2008, would have called in the IMF immediately. The EU had neither the institutions nor the tools to do the job – and it is belatedly and very slowly beginning to grasp what is required. The IMF is trying to lever itself back into the game, but the extent to which it will be successful may depend on the extent to which DSK is prepared to damage his chances of becoming French President in 2012.

The extent to which the ECB is on the hook for Irish bank losses is key and Ireland faces a choice between two different mixes of limbo and purgatory until Chancellor Merkel gets her all singing and dancing EFSF that is bullet-proof from the legal eagles. But the IMF may be able to force the pace a bit and the irish protected sectors could do with a bit of its tough love.

What’s this ‘bank bailout via EFSF’ thingy? At present the Irish banks are taking advantage of (emergency) ECB facilities of c. 1%. Are we planning a longer term facility from EFSF @ 5%? Because I think I might have spotted a slight flaw. 😉

@ Remnant

“Interesting that the G20 statement was only FR/DE/UK – aren’t IT a member of the EU and EZtoo? etc.”

I thought that initially but subsequent reports seemed to suggest that Italy and Spain also made the statement see http://online.wsj.com/article/BT-CO-20101112-712040.html for example.

Incidentally, on the RTE News at One, it was stated that it is the Spanish (possibly among others) that are putting pressure on the Govt to accept funding as they fear the spread of the contagion to their own bond yields. Separate pressure was reported to be coming from the ECB in relation to bank funding. In relation to the Spanish, I suspect that they will come under pressure eventually no matter what happens to Ireland and, frankly, I’m a little surprised that they have dodged the limelight so far.

@ Enda F

Michael Noonan was on the News at One as well and his comments were a lot more measured than what Reuters is reporting he said to the BBC.

@ Eoin
something is not adding up here. The Govt don’t want the bailout. The Commission don’t want the bailout. If this was all being driven by the ECB why are the UK involved? A conspiracy theory I have is that a gun is being put to the heads of all by a third player – the big bond traders.
They would win from recouping their bonds, lending to the EFSF and from the bets they have made on currencies.
Impossible or possible?

How in the name of Jebus are Ireland’s banks ever going to get back to a position of independence, never mind former greatness ? Borrowing at 1% instead of north of 9%, many mortgage holders paying rates based on ECB instead of market and with all profits going against write downs. For how long can the charade continue ?

How much do the clowns in charge get paid?

I sympathise with the government’s keenness to avoid the EFSF. On one side, it would be unfortunate not to at least find what a successful budget might do for our interest rates. On the other side, the planned end of the EFSF’s term in 2013 isn’t the only point at which we might be left high and dry. If Portugal and Spain follow us into the EFSF, then there will be €750 billion in the Fund between about 60 million people: a mere €12,500 or so per head. It could be pretty awkward if the EFSF dries up before 2013. Whenever and however the music stops, it would be bad if we’re caught carrying more public debt than when we went in.

@Ahura Mazda

You just aren’t looking at it from the ECB’s perspective.

@Fergal

If I recall correctly, the general consensus used to be that if Spain also came to need a bailout (over and above the ECB new normal) then the game would be up.

Irish bond spreads are creeping lower again today, is that solely because markets think we are going to receive outside help?

@ Eureka

dont think its quite that conspiratorial!! Reckon the UK has seen the risks of contagion increasing big time, and doesn’t want a messy drawn out solution for its closest neighbour, one of its biggest trading partners, and a large counterparty to its own banking sector (both in terms of interbank as well as customer-related). So i think a lot of the last week has been lead by them, and they’ve finally convinced Germany. However, i think they’ve overplayed their hand and keep forgetting that we have 6 months of cash on hand, and aren’t in any rush to throw in the towel – as Olli Rehn said, we’re a very stubborn people. So now you have horse trading going on (anyone notice the two Brian’s haven’t been on the airwaves this morning? Just saying…) to limit the conditionality and the cost of the bailout, and maybe even structure it in such a way as to make it bank-focused rather than sovereign-focused. Maybe we’re even suggesting the nuclear option of hitting senior bank debt, even thouigh this goes against the implied ECB policy of safeguarding them. The longer we wait before accepting the bailout the greater the risk of contagion, which nobody wants, but which is now our biggest trading chip in these negotiations. The EU needs this bailout far more than we do at this juncture.

@ MH/John McH

nothing “new” in those ECB comments, but its the first time i can remember a senior ECB member basically greenlighting us to use the funds to recap the banking sector. Before i think they didn’t like to mention that the funds could be used for the financial system as well.

@finfacts

Poland has an independent monetary policy while Ireland is a member of the EMU, subject to its rules and with its banks owing a big debt to the ECB.

This is a bit backwards, given that the EFSF is flagrantly against the rules of EMU, specified in TFEU.

Jürgen Stark, a German ECB executive board member, said last week there could be “no financing of public budgets through the central bank.”

He has to say that, because the ECB is prohibited by law from financing public budgets. Just like the situation when people started asking Trichet if he would directly buy Greek bonds, a comment which sounds like “I’m being extra-hawkish” actually means “Please don’t prosecute me” if you read it in the proper legal context. We all know that the ECB is financing public budgets already.

Interesting post at Creditwritedowns, building of Evans Pritchard in the Telegraph:

http://www.creditwritedowns.com/2010/11/with-ireland-on-the-brink-the-1931-credit-anstalt-talk-is-resurfacing.html

“The Irish are dead men walking. Portugal is coming next and Spain is too big to bail. So you have to have haircuts for existing peripheral bondholders despite what the European politicians are saying. See Europe’s Monetary Cordon Sanitaire by Simon Johnson and Peter Boone. They argue we are definitely getting to the point where haircuts for existing debt holders is going to make sense for the peripheral governments. The numbers they use suggesting haircuts are very compelling. And everyone knows this; that’s why the debt is selling off. However, If the bondholders get haircuts, or if we see sovereign defaults, do you really think the German and French banks have enough capital to withstand this loss? I have my doubts. Eventually, people may come around to Evans-Pritchard’s view: the only way out of this is via the ECB printing money and monetizing the periphery’s debt. And implicitly that means a competitive currency devaluation for the euro zone.”

@ DE

love the idea of CoCo’s personally. Problem is that the ratings agencies have said they are not sure how to value/rate them as of yet, so they are apprehensive of giving them a rating, which means lot of folk can’t buy them. Also, ECB talks big on senior debt losses, but they seem to only be willing to do it “next time”, not this time.

Yeah, everything is “next time”. Lets see if Germany put their money where their mouth is if we have another banking crisis in the next couple of months.

@Mr. Bond

Constancio’s remarks seem very much in line with the existing EFSF FAQ.

A16 – Will the EFSF bail out banks?

The EFSF provides loans to countries in financial difficulties. But it could be agreed with a Member State that receives funds to use them partially for financial support to banks in accordance with the agreed country programme.

The EFSF isn’t the ECB’s treat anyway.

Maybe we’re even suggesting the nuclear option of hitting senior bank debt, even thouigh this goes against the implied ECB policy of safeguarding them.

It may be thoroughly academic, but we do all accept that the ECB has no actual authority to impose such a policy on member states, yes? And that the body which does have the authority – the European Commission – has been talking about ‘bail-ins’ affecting senior debt?

@Bond. Eoin Bond

‘The longer we wait before accepting the bailout the greater the risk of contagion, which nobody wants, but which is now our biggest trading chip in these negotiations. The EU needs this bailout far more than we do at this juncture.’

Timing is essence of the game! Opportunity for ECB to ‘sort’ the Irish Banks – imaginatively! Future economy demands a functioning banking system – only criterion is that it functions.

Catching up on the runaway train, the seriousness of the situation was demonstrated by the following quote in an article by our friend Ambrose:-

‘“Does the ECB understand the concept of contagion?” asked Jacques Cailloux, chief Europe economist at RBS. Three EMU countries have already been shut out of the capital markets, and footloose foreign creditors hold €2 trillion of debt securities issued by Spain, Portugal, Ireland and Greece.’

@ Anonym

agree that the EFSF has always been open to use for a banking bailout, but i haven’t heard any senior ECB member say it so explicitly. This sounds more like he’s asking us directly to tap the fund to that end.

And as i said above, any talk about ‘bail in’ and senior losses etc is aimed at next time, not the current crisis. At any point along the way the EU or ECB could’ve suggested (né dictated) that we haircut them, but the silence on TODAY’S problems has been deafening. Everything is “in principle, next time”.

@ ceteris paribus
‘“Does the ECB understand the concept of contagion?”

That’s the joke that ends with the line “It’s taking the contagious”.

@Mr. Bond

Oh, indeed. “Next time we see the bear, we absolutely won’t run away!” But AFAICS the Commission hasn’t had the gumption to actually publicly mandate or call for no haircuts for senior debtholders ‘this time’ either. And if nothing else the fine words about “loss sharing” could be thrown back at the EU by any Irish government inclined to rattle our cage.

Have we now a reached a position where the German & French taxpayers can either fund a bailout for Ireland now or wait for some time until Ireland defaults on its debts, much of which are held by German & French banks which will then need to be bailed out by the German & French taxpayers?

@ Anonym

i agree. I think that back in 2008 we were told “you gotta save the banks and we aren’t in favour of senior debt losses, but we’ll give you cheap and easy funding for the next 5yrs as the quid pro quo”. And up until a few months ago that seemed to be doing the trick. But now some populist rhetoric from Merkel, some 1930’s style central banking from the Bundesbank, and a sudden post-summer investor realisation about the extent of our banking losses has screwed that whole situation up. So now we’re in bailout territory and we should be making sure that if we are going to be bounced into the EFSF then we should be doing it on the loosest terms possible.

. . . . a quick thought . . . . and correct me if I am wrong.

Is ‘it’ not the time for the Irish government to renege on all bank guarantees.

It seems to me that the weekend has indicated that the EU now knows that it has ’skin’ in the game and would respond quickly to shore up the Irish banks …and that sovereign Ireland could get off this very sharp and self inflicted hook.

Views?

@Eoin,

Agree, but the “loosest terms possible” may not coincide with FF’s desire to save as much political face as possible (no impact on our sovereignty, blah, blah). FF’s success in securing and retaining political power for almost 60 of its 85 odd years around beats the record of the original ‘stupid party’ – the British Tories. Everything is focused on avoiding two terms in the wilderness. The national interest comes a poor second.

Bond. Eoin Bond
Re 1930’s style central banking, Ambrose is comparing Ireland to Credit Anstalt.

@Paul Hunt
Could/would they be that mercenary.

BTW looks like the markets are anticipating a deal with10y now 7.95%

@Ahura
“t present the Irish banks are taking advantage of (emergency) ECB facilities of c. 1%. Are we planning a longer term facility from EFSF @ 5%? Because I think I might have spotted a slight flaw. ”
I believe the banks are tapping the Irish Central Bank’s emergency rate of 1.75% in addition to the ECB’s 1% repo.

Nonetheless, your point stands. I fail to see how the state can continue to borrow money for the banks even at 5% for the banks to lend out at somewhere below that.

This discussion is as moot as the Spanish Republican government (in Madrid, c March 25th 1939) falling out with each other over who their next foreign minister was going to be.

All they had to do was look out the window.

@Eoin
“So now we’re in bailout territory and we should be making sure that if we are going to be bounced into the EFSF then we should be doing it on the loosest terms possible.”

I agree we need to get the best terms possible but I think you are in danger of overplaying our hand.

While the state is in a good position until the middle of next year. How well funded do you think the Irish banks are? And how will can they survive with the current market conditions?

@ Paul Hunt.

I know-stupid. I was hoping.

@Ahura&Hogan
This is obviously not the solution. Could only make things worse economically and in terms of solvency.

@Dreaded Estates
‘How well funded do you think the Irish banks are? And how will can they survive with the current market conditions?’
The figure of 100b from the ECB seems right. So if they current thinking is followed and the banks get the bailout at 5% then an additional interest cost of 4b will be paid. Simply not doable or are my maths right.

Few comments from Mr. Junker

*JUNCKER: BONDHOLDERS WON’T BE INVOLVED IN NEAR-TERM BAILOUTS *JUNCKER SAYS IRELAND THINKS IT CAN DEAL WITH PROBLEMS ALONE
*JUNCKER: MINISTERS WILL DISCUSS GENERAL EURO STABILITY ISSUES
*JUNCKER: PORTUGAL’S BANKS DON’T HAVE SAME PROBLEMS AS IRISH *JUNCKER SEES `MAJOR DIFFERNCES’ BETWEEN IRELAND AND PORTUGAL *JUNCKER SAYS IRELAND KNOWS ITS ACTIONS CAN HURT OTHERS *EU’S JUNCKER SAYS SHOULDN’T PUT PRESSURE ON IRELAND OVER AID *JUNCKER SAYS AID DECISION IS IRELAND’S TO TAKE *JUNCKER SAYS EU READY TO HELP IRELAND IF IT REQUESTS AID *JUNCKER SAYS IRELAND `NOT NEAR THE POINT’ OF ASKING FOR AID *EU’S JUNCKER SAYS IRELAND HASN’T REQUESTED EU AID *EU’S JUNCKER DOESN’T SEE IMMINENT AGREEMENT ON IRELAND BAILOUT

Problem:

It seems to be the bank liquidity problem, as would be expected with a scheme which the ECB never agreed to, although it was landed by the Irish with the chief responsibility to fund the Irish banks. (NAMA). The ECB wants to be bailed out of this obligation, and the markets don’t see any other way for us to help our banks.

Solution:

So, we call in Goldman, who fix up a 50 bn. mortgage for NAMA, government guaranteed (= ESFS guaranteed in extremis ), who repay the banks, and let ECB off the hook. Most of the problem is resolved. BPete rules over an FG-FF government. City of London is enraged, foiled in its attempt to bring down the IFSC. We retain our multinational-friendly tax regime (as a necessary condition agreed to by the EU).

While this is being set up we can if necessary have a bank strike, to stop a run, etc.. We know how to prosper in these.

Then we can turn our creative attention to fixing the problems in Portugal, Greece, Italy and Spain. (Provided they give us the right double tax treaties and use the custodial and offshore and insurance services of the IFSC). Belgium needs us too, have no doubt.

Next problem, please…

@ Enda

*JUNCKER SAYS IRELAND KNOWS ITS ACTIONS CAN HURT OTHERS
*EU’S JUNCKER DOESN’T SEE IMMINENT AGREEMENT ON IRELAND BAILOUT
*JUNCKER SAYS IRELAND `NOT NEAR THE POINT’ OF ASKING FOR AID
*EU’S JUNCKER SAYS SHOULDN’T PUT PRESSURE ON IRELAND OVER AID

Strange comments no? Suggestive of some serious hardball negotiations?

@Eoin
Aren’t they, though? Looks like the EU isn’t prepared to roll over and get the blame for this one:
“*JUNCKER SAYS AID DECISION IS IRELAND’S TO TAKE
*JUNCKER SAYS EU READY TO HELP IRELAND IF IT REQUESTS AID ”

You call us, you take the rap…

@ Hoggie

possibly Junker is just trying to calm everyone down, get everyone to take a step back and get some perspective – ie Germany should stop trying to bounce us in, but we should at the same time try to see the bigger picture.

Signs of the End Times (No. 194)

By Tom Brady Security Editor
Monday November 15 2010

DISSIDENT republican terror gangs are planning to exploit street protests against tough economic cutbacks to boost their ranks with disaffected youngsters, gardai fear.

Officers will step up their surveillance on demonstrations, to determine whether the protesters are being infiltrated by dissident activists.

Anti-terrorist officers see the new wave of protests, particularly any that happen after the Budget, as a potential breeding ground for dissident recruitment.

Lovely stuff from the Gardai here — it appears Ireland is to imitate the UK in conducting surveillance on protestors. It lead to severe abuses there and likely will here also.

In many of the comments on this thread – and in other similarly-themed threads – there seems to be an unsettling, but occasionally charming, disconnect between the desire to preserve the tattered remnants of Ireland’s sovereignty and international reputation and a lack of trust in the ability of those charged (or of those who desire to be charged) with exercising this sovereignty and making policy and regulatory decisions to do the right thing.

Markets view re Constancio comments: EFSF to be used to overcapitalise the banks just like they did in the US in 2008?

It’d be a relatively cheap way for the EU to bail out Ireland: 10-15bn to recap the banks to very high levels, and let the fiscal adjustment process run its course to a hopefully positive conclusion. Wouldn’t involve the type of nominal figures needed for a total sovereign bailout.

‘Expectations of a rescue as soon as tomorrow’s meeting of euro-area finance ministers made Irish bonds Europe’s best performers today. The premium that investors demand to hold Irish 10-year bonds over benchmark German bunds fell to 538 basis points compared with a record 652 basis points on Nov. 11.

Portugal, with the euro region’s third-highest borrowing costs, now sees a “high” risk that it will need a rescue, Finance Minister Fernando Teixeira dos Santos told the Financial Times. ‘

Funny old world.
No we (Ireland) don’t want a bailout.
and Portugal saying openly they will likely need one.
This time round the markets are ignoring it. all are up as of now.

@Eoin
Are you sure it isn’t a liquidity rather than a capital problem at the banks?

Even after that the chances of the sovereign making a re entry to the markets in Q1 or Q2 are still fairly slim

@Mr. Bond

But in the statement above it seems that Constancio is just saying that the Irish government will be free to borrow from the EFSF if it wants to fund more Irish-taxpayer bailouts of the Irish banks. That sounds like basically the status quo ante to me (at least up to our bond-market exit). It would be much bigger news if the Irish government wasn’t going to be allowed to recapitalise the banks using EFSF borrowings, surely?

Regardless, you’d expect the ECB to support any arrangement that sees the responsibility for propping up the Irish sovereign/banking hydra being pushed onto someone else. It’s a bailout for the ECB.

@Dreaded Estates
Isn’t it a dual liquidity/capital problem. AIB in particular needs large doses of cash and still has the liquidity trap of ECB money.

I would think a reentry to the bond market will depend on the terms of the bailout and the markets reaction to the 4 year plan. Both have to credible or we will remain locked out.

I see Minister Ahern wants the media to avoid frightening the horses.

For the first time since I can remember the Irish Goverment may be acting in the national interest.
They may be engaged in a game of chicken with the ECB and their clients as they hold a hell of alot of Irish IOUs.
Bravo if that is the intention of FF – they may just redeem themselves just a little bit if they go toe to toe with these Shylocks.

@paul Hunt
” disconnect between the desire to preserve the tattered remnants of Ireland’s sovereignty and international reputation and a lack of trust in the ability of those charged (or of those who desire to be charged) with exercising this sovereignty and making policy and regulatory decisions to do the right thing.”

I think it is still unclear to people the extent of the waste that exists in the public service and all businesses connected to it. The lack of interest by RTE in putting the shocking fecklessness of government spending into any digestible format is a large blindspot IMO. we do hear the ROddy Molloy HSE/SIPTU type stories, but that kind of larceny is almost expected at the top.

What I dont think its appreciated is just how far down the org charts high wages /generous expenses go.

Eoin Harris in the SINDO (and obviously Dr. Ed Walsh) have been consistent on this recently. They do make an effort to put the figures out there, but its still frustrating (to me anyway) how there isnt more support for their views.

@Paul Hunt

I don’t see a disconnect there; they are (or can be) two sides of the same coin. The opposite position – the idea that the fine gintlemin of Europe know what’s best for us, and Paddy should find his place and not be putting them to any more trouble – is another manifestation of the same political immaturity that makes our self-government rocky. As Machiavelli would say, if we’re not competent to govern ourselves, then we’re probably not competent to judge who we should be surrendering our sovereignty to and on what terms. And it’s not as though the EU looks as if it would be a particularly wise and benevolent despot for us just now.

Still no great sign of the two Brians then with Minister Ahern being left to tell us all that the 4 year plan will be rolled out next week.

I wonder what tomorrow will bring?

The Irish banks are, unfortunately trapped at the zero bound. They are utterly reliant on cheap money from the ECB. With a bank, a liquidity crisis is always a solvency crisis. That the Irish banks have in addition capital losses compounds the issue. Nobody quite believes that they will survive in their current form. Whether they drag the sovereign down with them is now entirely up to the kindness of strangers.

@ Joseph

i suspect that the two Brian’s may be holed up in deep conversations in a room in Brussels…

@Joseph and all

I saw Brian Cowen on the 6 one news.

Body language: calm, cool….to the point of smug.

Text: the STATE has no requirement for funds. We have not made AN APPLICATION. Lenihan meeting the Fin Ministers tomorrow – discussions at that meeting.

It looks to me like they’re cooking up something alright. He was far too comfortable looking for a PM being forced into a bailout.

Suggest all watch the 9pm news and draw their own conclusions.

(and glad to see people copping onto point about level of UK debt – this is not just an ECB/EZ issue – a LOT of horsetrading clearly going on between international institutions)

oh in another development: BBC World Service broadcasting from the Oireachtas Studios on Thursday. They must be expecting something anyway…..

Also watch 9 o’clock news to see the performances of smirking Dermot Ahern and nodding Noel Dempsey. words fail me.

If it was any other banana republic, I’d say that they’d converted to Islam and found a favourable dictatorship to keep them in comfort for the rest of their lives.

@Adrian Kelleher

There is nothing new about the police here keeping protesters under surveillance. Look at any report of any significant protest on http://www.indymedia.ie and you’re likely to see photos taken by protesters of multiple gardai and plainclothes officers conducting surveillance. During the bout of anti-war protests earlier in the decade – detailed videoing of protesters was an everyday matter and I don’t mean just inside Shannon airport. The Gardai are not quite as invasive as the Uk based ‘Forward Intelligence Team’ but they’re heading in that direction.

Thoughts on the following please:

19:06 15Nov10 RTRS-RPT-IRELAND’S PM BRIAN COWEN REPEATS IRELAND IS MAKING NO APPLICATION FOR THE FUNDING OF THE STATE

I think Cowan is telling the truth when he says the State isn’t looking for a bailout. The banking system is a different story. Typical political rubbish.

I’m sure this is old hat to most of the mavens here but just in case it isn’t, here is a list of the bond holders of AIB:

http://golemxiv-credo.blogspot.com/2010/10/who-are-bond-holders-we-are-bailing-out.html

Extract:

Who are the bond holders we are bailing out?

The citizens of Ireland have been forced over the last two years to give the bond holders of Anglo Irish bank 20 billion euros. WHY? The Irish government recently told its people the 20 billion was not enough and they MUST give the same bond holders another 10 to 20 billion euros. WHO are these special people called Bond Holders that they must be so carefully protected even at the cost of despoiling a nation?

I tried to find out. I failed. 15th October the British Blogger Guido Fawkes published a list of the bond holders …

http://www.ft.com/cms/s/0/8cc6b564-f0f7-11df-bf4b-00144feab49a.html#axzz15O3EgQ1f

“EFSF support will do no good, however, unless Dublin tackles the source of doubt about its solvency: the government’s vow to back the senior debt of banks, cost what it may for the taxpayer. If urgently needed resolution authority is put in place to make creditors share losses if a bank proves insolvent, EFSF support could meet short-term outlays involved in a bank restructuring without investors panicking about sovereign debt.”

Don’t forget the ECB is on the hook for a lot more than just Irish bank debt. Over 400 bio is being pumped into the EU banking system, domestic Irish banks account for approximate 85, the rest is mainly spanish Greek Portuguese and UK (thru eu subsidiaries). The ECB is trying to force the latter to go away to the BOE by no longer accepting stg collateral from Jan 1st but this is now all about preventing the problem hitting Spanish debt which is a problem that could genuinely threaten the euro.
ultimately I’m convinced that the EU will just have to accept that they will have to the same as the US and UK and buy (print) the debt and move on…..
Just get on with it Monsieur Trichet. Every banking system in Europe has the same problem, we’ve just acknowledged it up front via NAMA.

@ Seafoid

yes – very specific and deliberate language. As i said above, i think the government is clearly trying to differentiate between the problems we are facing from our banking sector, as opposed to our general fiscal situation.

EC vs ECB issues…..

ECB willing to fund banks? EC hates state aid?

But bailout can’t be for banks alone…..

I give up..what will be will be..

@Bond. Eoin for how much longer?

“yes – very specific and deliberate language. As i said above, i think the government is clearly trying to differentiate between the problems we are facing from our banking sector, as opposed to our general fiscal situation.”

Yes, 2 years after clearly trying to merge……..etc.

It feels like it’s down to the wire now, down to the endgame, Europe is finally in the picture, as Eoin has said:

I think that back in 2008 we were told “you gotta save the banks and we aren’t in favour of senior debt losses, but we’ll give you cheap and easy funding for the next 5yrs as the quid pro quo”.

now European solidarity is being put to the test. Whatever decision we make we should also think of the wider European context and not just our own interest not if we expect taxpayers in other countries to bail us out. If we are truly committed to Europe and the euro we’ve got to start seeing that we are all in this together, time to reform Ireland and let the EU develop in a more stable way. Likewise I expect our European partners to think of what is best for Ireland and not just for them. That’s just my two cents.

@Sarah Carey
I suspect it is “ECB no longer willing to fund banks and Irish sovereign and risk its own solvency” and “EC no longer cares about competition issues, wanting the problem to just disparu”.

@Holbrook Fields

Now European solidarity is being put to the test. Whatever decision we make we should also think of the wider European context and not just our own interest not if we expect taxpayers in other countries to bail us out.

‘European solidarity’ is about to become a thing of the past. We are all ‘summer soldiers and sunshine patriots’ when things are going well. When things go badly, it is every man for himself.

We?

There is no ‘we’ when the cake begins to shrink.

@Carolus Galviensis

do you not think that just like the crisis in ireland gives us an opportunity to reform and reshape the public sector and the political system that it also gives Europe an opportunity to decide are we all together or not, will european taxpayers take the hit for delinquent states just like irish taxpayers are taking the hit for delinquent banks? Do you expect the euro to survive this crisis?

Magnificent interactive graphic from the FT on http://www.ft.com/cms/s/0/c4b5f456-ee7e-11df-9db0-00144feab49a.html#axzz15OLxCqhi, which enables a quick and easy look-up of inter-country sovereign loan dependency across the EU, right down to individual bank level, based on the CEBS survey in July.

The €77bn referred to in earlier reports/posts happens to tie in nicely with German banks collective exposures to Spain, Greece, Portugal and Ireland. (Not suggesting that that’s anything other than coincidence).

Do you not think that just like the crisis in ireland gives us an opportunity to reform and reshape the public sector?

Yes — and thanks for pressing one of my 23 hot buttons. In my dream world: declare force majeure, sack all civil servants who use the term ‘legitimate expectations’ in self defence, eliminate all child benefits for unmarried mothers, decriminalise all drugs, close 50% of the country’s institutes of ‘higher’ education, etc. etc. …

Will european taxpayers take the hit for delinquent states?
Why should they? That the Irish government decided to bail out the banks is not their fault.

Do you expect the euro to survive this crisis?
I am convinced that it won’t survive another 12 months. But I had the same conviction a year ago.

@Sarah Carey – have we gone from “it is what it is” to “what will be will be”?
And is that going forward?

@Aiman 🙂 🙂

I’m listening back to an In Our Time programme about the Delphic Oracle. Trying to come up with something about our obsession with knowing the future. Trying to interpret the careful statement of Cowen this evening reminded me of the effort to divine the ravings of the Pythia. In her case, as I think in ours, people heard what they wanted to…..

@Holbrook

“Whatever decision we make we should also think of the wider European context and not just our own interest not if we expect taxpayers in other countries to bail us out. If we are truly committed to Europe and the euro we’ve got to start seeing that we are all in this together, time to reform Ireland and let the EU develop in a more stable way. Likewise I expect our European partners to think of what is best for Ireland and not just for them. That’s just my two cents.”

No offence….that is not how our “partners” in other EU countries act and view their EU and foreign policy. As Palmerston said “Great Britain (or FR, DE) only has interests not friends”. IMHO our foreign policy for too long has been dominated by idealism aka our pseudo-neutrality, love for Europe, friend of the 3rd world, blah, blah.

The question of who is bailing out is not black and white either. If we had let Anglo bondholders burn in 2008 – I think the biggest absolute losers would have been DE and FR pension funds. As someone who is now theoretically on the hook for the money that the German Postal Workers Pension Fund (sic) lent Seanie – I don’t exactly feel bailed out.

I also wouldn’t read too much into body language in all of this. Very very often the “loser” in any negotiation think they have scored a cracker of a deal and feels great -until the day after.

@Michael Hennigan

An IMF-only bailout – EU & US geopolitics might stymie this indeed. Although, I’m sure at least some of the “Anglo-Saxon” crowd would love to bust the euro wide open. Obama probably less so than Bush – especially is a LEH type contagion could be started again.

I do think however there is an inherent conflict of interest in EZ, EFSF “bailouts”. The IMF is, in general, a disinterested body with no regional or tax competition/harmonisation agenda. It’d be like in the US, giving New York or Philadelphia’s suburbs a role in determining their core city’s fiscal policy – fraught with conflicts. (Now some radical leftists might disagree with me and say IMF is tool of American Capitalism, MNCs, etc but its a bit further away that Paris).

Some comments above referencing UK, from BOE today, might be of interest:

First, the Bank is today providing 12 months’ notice of its intention to withdraw the Commercial Paper Facility, consistent with the Market Notice issued following the announcement of the Facility in February 2009 …

Second, the Bank is announcing the withdrawal of the Credit Guarantee Scheme (CGS) Bond Secondary Market Scheme. This scheme gave the Bank the option to purchase bonds issued by banks under HMG’s Credit Guarantee Scheme. No purchases have been made under this facility since inception …

Third, the Bank notes that conditions in the sterling corporate bond market have also improved substantially since the Corporate Bond Secondary Market Scheme was introduced in March 2009. The Scheme will continue to offer to both buy and sell corporate bonds to serve a useful role as a backstop, particularly during periods of increased market uncertainty. Recognising the improvement in market conditions, the Bank will adapt its reserve prices to permit relatively more sales of corporate bonds in future.

@Carolus Galviensis

thanks for taking the time to answer my questions. i would add:

– definitely – let’s reform the public sector and political system – structural reform at last – we can’t let this crisis pass without it… shared services, open competition for senior positions when they arise in future, demotions for non-performance, stopping increments, reduced pay at senior levels, full transparency, publication of minutes and finances, get the public sector on the net visible to the public, a populous interested in knowing where there euro dollars are spent, accountability – that means giving people responsibility first, partial list system, better bankruptcy law, financial oversight committee, lower min wage, water charges, property tax (introduced fairly) and on and on and on… the current and new government have to introduce these changes..

Will european taxpayers take the hit for delinquent states?
european nations ignored the stability pact and their banks lent recklessly to us, if they do not support us and other peripheral countries (while at the same time justifiably calling for reform) then they are jeopardizing the european project and the euro – is that really in their long term interests? the eurocrats who for so long were faceless are becoming household name’s to us, that is the inevitability of the eu and the lisbon treaty, ever closer union.

Do i think the euro will survive another 12 months? i don’t know, but i find it hard to imagine how it will be let fail…

It is not in the interest of the US or GB to weaken the Euro. Therefore they will do everything in their power to prop up the Euro. As Clausewitz wrote so many years ago “nations do not have friends, they have interests”. The ECB is moving heaven and earth to stabilise the bond markets of the PIIGS. You are looking at a rigged market, rigged in our favour. The European Commission and the ECB will not continue to weaken the Euro by simply propping up bond markets for incompetent governments in a worsening situation with no end in sight. The gov’t seems to think they have until next summer before they can be crunched. The markets anticipate what is going to happen and will further weaken all Irish institutions by abandoning the Irish market. I will refrain from commenting on the inaction of our gov’t since the language required would be ungentlemanly.

@ Bond
Hmm. Still sense the hand of GS in all this. Bank debt becomes Irish debt and Irish debt becomes German debt. Germany on the hook – great isn’t it. Bet Suds thinks we should go for the bailout too – though he could never admit it

@Holbrook Fields

Before I head off to dream on about ‘what I as philosopher king would do if I were running the show’, one point I’d like to raise.

Why are none of the economists here discussing the need to repudiate the Croke Park Agreement in all its works and pomps? [under Article 28 — opt-out option]

The CPA is like the overweight elephant in the room — I’ve raised the question twice and all I got was a one-line reply from Brian Lucey.

Is it too close to the bone even to contemplate what lies ahead?

Mickey Hickey Says:
November 15th, 2010 at 11:35 pm

Now you are anlyzin’! Exactly, the dimensions to this have nothing to do with Ireland, per se. We are simply a touchstone to drive down the euro.

More Taxes NOW!

@ Carolus Galviensis
Did you see frontline last night?
Notice how when Pearse Doherty started to talk about cutting ministerial salaries and cutting higher paid civil servants, Pat Kenny interrupted him and changed the subject.
Pat also did the same earlier in the show when the guy from chambers Ireland started to talk about the wages being paid by the state.

It shows you the power of govt and its beneficiaries (such as Pat).
I think the problem with any criticism of the croke park deal is the sheer number of citizens who are benefiting from inflated state sponsored wages and fees.– civil servants, semi states, big 4 accountants etc..

To be honest, I don’t think this situation will change and I think the wage levels will stay. Everything else will be sacrificed first – IMO.

When you are offered a deal, it is always the case that the drawbacks may outweigh the benefits.

What draw backs might outweigh the benefits in our case?

Firstly, if the deal only leads to a greater debt problem down the line which is even more insurmountable, then that is a major problem.

Secondly, if the deal hamstrings our industrial policy into the future and destroys our ability to compete with countries on the European mainland, then that is another major problem.

Thirdly, if the deal leads to the Sovereign default mechanism proposed by Germany, and if such a mechanism is destructive rather than constructive to our (or EU) recovery and financial stability then that is another major problem.

Fourthly, if the EFSF creates a wall of cash down the line which could destroy the entire Eurozone, then that is another major problem.

Fifthly, if the EFSF leads to arbitrage by individual member states (as appears inevitable) so as to destroy political support for the EU project here and abroad, then that is another major problem.

I think we should insist on dealing with the IMF alone to deal with these imponderables. The IMF is an existing and tested mechanism which at least has some predictability. The EFSF is an experiment which could have appalling consequences for long term sovereignty and economic wealth.

There may be a heavy political price in the consensus loving smoke filled rooms of Europe. However, it may be no worse than the backlash if and when we eventually default on EFSF repayments.

@Ron

Thanks for the info, substantiates my suspicions. Unfortunately I live abroad and don’t have access to RTE. I mean ‘unfortunately’ in a very restricted sense, of course. Perhaps I should have written ‘luckily I live abroad and don’t have access to RTE’. But anyhow.

From now I’ll add a Croke Park ‘reminder’ to my comments

Hark hark Croke Park
Anybody listening out there?

A Chathail na Gaillimhe

You can watch RTE on the RTE player section on the main website
http://www.rte.ie/player/

It has the news programmes and the main analysis like “Prime Time”. There is even nuacht to hear about the géarchéim as Gaeilge.

@zhou_enlai

I think you are right. IMF (and restructuring) is the best way for Ireland to go.

Cowen won’t though. He just won’t.

He figures that if he can spin some smaller bailout from the EFSF to ‘fund the banking problem’ as not ‘giving away our sovereignty’ then he will. There is no doubt that any party being seen to have failed so badly economically as having to go and ask for a bailout (not that the EFSF is any such thing) is going to be toast at the next general election and this is all about damage limitation for FF. Party before country and citizens.

I hope that the other EU finance ministers give our guys a really rude sharp shock today and make the government think again about what the best route forward from here is.

@Ron.
Me again.
You wrote:

I think the problem with any criticism of the croke park deal is the sheer number of citizens who are benefiting from inflated state sponsored wages and fees.

If my own family and in-laws are representative, that’s almost an understatement: me public sector, mother ex-public sector, deceased father ex-public sector, sister public sector, brother in law public sector.

One brother private sector. Keeping us all afloat, I suppose.

@Seafoid
Go raibh maith agat. Tá mé an-oibleagáid.
Ní gá a rá go bhfuil mé ag baint úsáide as Aistriu Google.
Cathal

@Ron

Pat Kenny is always like that. He’s not fit to appear on national television, let alone as a journalist. He’s a self-conscious influence hawker, and his favourite tactic is to position himself between opposing pundits and then exploit his position of privilege as the man in the middle for all it’s worth.

@Zhou

A further drawback seems to me that the pressure is coming from Spain and Portgual who fear further contagion if Ireland does not accept the bailout package. Personally, I think it’s all but inevitable that Spain and Portugal will come under more pressure no matter what happens to Ireland and I don’t think that us accepting any deal (good or bad) will change that.

I think that the markets will move onto Portugal far quicker than they did with Ireland post Greece and the EU needs to be thinking in those terms rather than trying to get Ireland off the pitch with an enforced bailout.

@ Sarah Carey

“I saw Brian Cowen on the 6 one news.

Body language: calm, cool….to the point of smug.

It looks to me like they’re cooking up something alright. He was far too comfortable looking for a PM being forced into a bailout.”

I noticed that too – but I thought he had the air of a man who knows it’s al nearly over (for him) and isn’t that unhappy with the prospect. I could be wrong but I wouldn’t be surprised if he isn’t looking forward to a post-political life that is all but guaranteed if a bailout happens.

@Zhou,

You are sounding more sombre than usual, but I agree: the IMF always was, is and will be the answer. But we will see some political fudge that will minimise the damage to FF’s hide and ease the ECB’s requirement to support Irish bank liquidity and to moderate spikes on irish sov yields in the secondary market.

@ fergal

For sure – it could be relief that the end game approacheth.

But none of this helps me. Deadline tomorrow afternoon – but action will unfold all day. I think I’ll write about the virtues of Buddhism and a nice cuppa.

@Aidan Kelleher..

“Pat Kenny is always like that.”
I agree with you there.
Id even push it a bit further. Miriam, Richard Crowley , Aine Lawlor etc etc…they all obviously have an interest in keeping the wage excess of the state under the radar.

I guess thats what makes them great newsroom staff for the govt.

For teh govt and their staff, scandals and crises will come and go, but as long as that paycheck keeps arriving (electronically of course) then who’s gonna complain.

You could even say that some of our higher level academics also have an interest in this status quo.

Personally, this is why the idea of a bailout depresses me. If we get an €Xbn “bailout” from somewhere, then FF/GP get to distribute the money. IMO – too much of it will go on inflated state salaries and related waste.

I think the notion that those bailing us out will slash the salaries of state employees is a myth.

@Joseph:
“There is no doubt that any party being seen to have failed so badly economically as having to go and ask for a bailout (not that the EFSF is any such thing) is going to be toast at the next general election ….”

I suggest there is more to it than that. Think Tammany Hall: FF is a machine for dispensing patronage in return for votes (something that many voters like). If its hands are prised from the levers of power, it has no further justification for its existence. I mean, what else is it good at?

bjg

I think it is going to be very hard for FF to recover from this. They haven’t just let down their voters. They have let down their own party members. It’s no different to a large financial company in difficulty telling its marketing people that everything is fine and having them pass on that message to its customers but collapsing anyway. What sort of credibility are FF people going to have on the doorsteps in 5 years time ? And remember that the full horror of the cuts hasn’t registered yet.

zhou_enlai

“I think we should insist on dealing with the IMF alone to deal with these imponderables.”

Won’t happen.

The EU will block it.

@ Seafoid

it took the Tories the guts of 20 years to get over the collapse of the Pound in the ERM and the subsequent recession in the early 90’s (they didn’t implode straight away, but that was the catalyst). My guess is that FF could spend 20 years at well-below-average popularity levels as a result of this crisis, and maybe even split the party in two much more fully than the PD offshoot did.

@ Eoin

None of the senior FFers are going to have shred of credibility left. They bet everything on the Tiger and they lost. Economics capability on the floor
.

I know from talking to my mother that Brian Lenihan is doing a great job but that fiction is shortly going to fall apart. Who is going to replace the senior people following the long overdue wipeout ?

I remember reading Biffo’s talk from the back of a lorry to the people of Clara immediately after he became the first Offaly Taoiseach. It is a very sobering read in the light of what subsequently transpired.

I posted this on another thread but might be on interest here. I think it is time to tell the German’s to keep their mouths shut and stop briefing journalists.

BERLIN, Nov 16 (Reuters) – Ireland should raise its ultra-low corporate tax rate — currently at 12.5 percent — to consolidate its budget, a finance expert from German Chancellor Angela Merkel’s governing conservatives said on Tuesday.
“The Irish rates are below the European Union average,” Michael Meister from Merkel’s Christian Democrats (CDU) told Reuters on the sidelines of the annual party congress.
“I therefore see here at least a possibility, given the high budget deficit, to improve revenues without causing a negative impact on growth,” he said.

@Eoin,

Agreed. And it took Labour 18 years to recover from Dennis Healy’s recourse to the IMF in 1976. Conveying an assurance of competent economic governance is crucial. Once it’s lost it proves difficult to recover.

In Ireland’s case, it appears the deal has been done. We’re just waiting for the presentational optics. But we can be assured that the EU partners will seek to do as little political damage as possible to the Government. It is still the sitting government and has the immediate responsibility to drive through the 4-year fiscal adjustment programme and next budget.

It is unfortunate that an opportunity will be missed to allow the IMF to shine a light on the dysfunction and inefficiency that is gumming up so much of the domestic economy – and which, if left unattended, will make the upcoming fiscal adjustment even more economically damaging.

why must they tease us so…

*ROCHE: MAY NOT BE FINALITY ON BANKS TODAY OR TOMORROW
*ROCHE: `NOT LOGICAL’ TO TALK ABOUT SPECIAL BANK APPLICATION
*ROCHE: `HOPEFULLY’ ECOFIN WILL REASSURE MARKETS

Suggest market-reassuring statement rather than some sort of explicit bailout decision today/tomorrow?

@enda f

“I think it is time to tell the German’s to keep their mouths shut and stop briefing journalists. ”

Why do you think that? isnt it good that people are able to speak openly about their views ?

@ Ron

if we have an enforced corporation tax increase, and i think the chances of Morgan Kelly’s “anti Eu” political party will increase significantly. The Germans think they have us over a barrell, but if they’re not careful they’ll end up with an Irish electorate that won’t vote Yes to an EU Treaty again for 20+ years. Scoring cheap domestic political points could cost them a lot more at an EU level. For their own good, they probably need to be a bit more tactful.

Bond. Eoin Bond

*ROCHE: MAY NOT BE FINALITY ON BANKS TODAY OR TOMORROW
*ROCHE: `NOT LOGICAL’ TO TALK ABOUT SPECIAL BANK APPLICATION
*ROCHE: `HOPEFULLY’ ECOFIN WILL REASSURE MARKETS

Why is he even commenting.

Surely better to shut up.

@Eoin,

A ‘market-reassuring’ statement won’t cut it. Minister Roche is waving his flag forlornly. The ECB board is split, but they know they can’t keep shoring up irish bank liquidity and irish sov secondary market prices indefinitely. The market seems to be biding its time in the expectation of a ‘result’, but I doubt that forbearance will be long-lasting.

@Eoin Bond:
“ROCHE: `HOPEFULLY’ ECOFIN WILL REASSURE MARKETS”

Is it true that, when a lecturer in UCD, Dick Roche was nicknamed Paddington Bear?

bjg

@Bond. Eoin Bond – “Suggest market-reassuring statement rather than some sort of explicit bailout decision today/tomorrow?”

I suspect so. I’m pretty sure there’s a feeling that tptb in Europe want to see the 4 year plan and the budget passed first before Ireland is taken into ‘protective custody’ for its own good – maybe not until the New Year now?

There will be people out on the streets if there was a straight bailout and opposition parties don’t want to do anything to upset the people as they can almost feel the levers of power in their hands. Try a reassuring statement or some sort of fudge to do with the banks only first and see what the reaction is? Like all politicians do, bluster and keep blustering until the evidence against you cannot be argued against/spun.

One suspects that ‘the markets’ will see through any BS and the 10 year goes over 10% and the bailout really will be forced through with FF telling us about how bravely they fought against it and that it wasn’t necessary but the big bullies in….. etc. etc. Sounds about schoolboy enough for our lot.

WTF is Dick Roche doing manning the deck? Are the rest of them hunkered down in the bunker waiting for the arrival of the Red Army ?

This is an interesting bit from the FT about companies that survive but I couldn’t help thinking about the fall of the House of FF .

http://www.ft.com/cms/s/0/efe04400-f104-11df-bb17-00144feab49a.html#axzz15RQFNj5S

“What makes for an enduring and sustainable corporate life? Mr de Geus pointed to four factors. First, he thought financial conservatism was important. Companies needed a store of their own cash. (Mr Smith says he too will avoid banks and other companies that rely excessively on borrowed money.)

Second, Mr de Geus wrote, long-lived companies had a strong sense of identity. This did not mean they stuck to their line of business no matter what. Most of the enduring businesses had altered their activities. Shell, as its name suggests, traded in oriental shells before moving into oil. DuPont began by manufacturing gunpowder and today makes everything from semiconductor manufacturing materials to insecticides.

Third, the corporate survivors tolerated experimenters, eccentrics and people who tried to do things a little differently. Fourth, and most important, the survivors were sensitive to every change in their environment. They sensed when the political, technological or competitive climate was shifting and they knew how to respond to it.”

The situation has rapidly moved from Ireland being a banking and fiscal pariah to being a political pariah as well. Is there no limit to the destruction being caused by this government?

What good reason can Ireland have for refusing help from the organizations that are currently propping up the country? Propping it up with hard cash-euros.
It must now be very tempting for the ECB to tell the Irish banks that they are getting no more funds. Period. That should soon bring the country to its senses.
After over 50 years of Irish diplomacy in getting into the EU, getting benefits, we are now threatening to endanger the entire euro banking system.
Its akin to the cry of “Tear down the house, cried the monkeys” from the old 1960’s school text.

@Seamus

Anyone any thoughts on this –

http://ftalphaville.ft.com/blog/2010/11/16/406111/standing-up-for-ireland-%E2%99%A3/?updatedcontent=1

JTO:

Well, well, well. It reads rather like a summary of my posts here over the past 18 months. Be careful you aren’t accused of trolling. Everyone else who posts similar stuff is.

But, regarding your actual question, my prediction:

No, no one will have any thoughts on this (apart from Eoin).

The rest will try to shut it out of their minds.

Pure FF proganada it is. Shouldn’t really be allowed on a site like this.

Why do you we over complicate the matter. We need a bailout because we are bankrupt. Directly Lehnihan took on the toxic bank debt as legally equivalent as our own Irish sovereign debt became junk. The markets and every economist in the world recognised that at the time.

You can take the bank debt and dress in little NAMA bows, get the central bank manager to tell people how “managble” it is and do a jig in a green jersey with a little poster looking for solaradity bonds. Do whatever you want, like the alabahama no job mortgages these bits of paper make the holder of these gilts bankrupt (unless of course they have a handy 120 bn euro). You can talk about fiscal changes and send your grandmother out to work, turn off the heating and work through the night for no pay all to no avail.

You may ask why it has taken till now for the bond markets to react the way they have when they new they were junk for the last two years. There were a number of reason for this but the primary reason was that the kind Mrs Merkel seemed to like the Euro. The ECB hovered up Irish bank bonds, NAMA bonds etc. for the last two years. They even “intervened” in the sovereign bond market, despite being barred from doing so if things got messy. The Irish banks were told, look anything with a harp on it was Tier 1 so do your patriotic duty and buy harpic bonds and you run over to the ECB cash machine and turn them into cash. The ECB started printing money for Ireland backed the Economic power house of Germany.

What changed. Mrs Merkel said the bondholders should pay something and all the dealers realised that the floor on the irish junk they held had moved closer to its real value which is about 10c on the Euro. The argument is all about what floor does Frankfurt put on the junk.

@seafoid – there’s an advert under BL’s piece asking if Bank of Ireland is a good buy.

You couldn’t make it up.

I know where Brian Lenihan is – at the airport. But where is Cowen?

Help. Our Taoiseach is missing. You don’t suppose he’s gone for a beer with all this pressure do you? He went missing once before – was it this time last year? – when there was a bit of pressure on.

@ Seamus

the first line of that article is…
“The irony of Ireland moving swiftly to trim its budget deficit”

i still don’t see how we’ve actually done that, we’ve talked about it for 2 years alright, but 2 years ago our budget deficit was around 20 billion….its still around 20 billion now. so whatever we’ve done it hasnt worked. i think our role as the poster child of early austerity was a mirage and we are being found out now…

JTO

That Alphaville article is about the spring that will eventually follow the FF-driven winter. It doesn’t imply that winter is avoidable as you seem to be doing.

Are you still having a good laugh with your FF jokes?

*GERMAN BONDS ERASE ADVANCE; IRELAND SAID TO BE IN AID TALKS

*IRISH ESTIMATES NOT BELIEVED BY MARKETS, PERSON SAYS
*IRISH BANK LOSS ESTIMATES HELD UP UNDER EU SCRUTINY: PERSON
*IRELAND COULD ACCESS CONTINGENT FUNDING FOR BANKS, PERSON SAYS
*IRELAND SAID TO BE IN TALKS WITH EU, ECB, IMF OFFICIALS
*IRISH DEAL WOULD AVOID BOND SALES FOR EXTENDED PERIOD: PERSON
*IRELAND SAID TO BE IN TALKS TO GET FUNDS FOR GOVERNMENT, BANKS

Key ‘reasssuring’ line there could be the “held up under scrutiny” one…

They have to fix both the deficit and the banks, at the same time. That almost certainly means over-capitalising BoI and, for instance, selling/giving away, with a UK-style asset insurance scheme to cap the future losses, AIB. Pass the budget and fix the banks, definitively. That’s the only hope.

@ Seamus/JtO

was just chatting about it here! It’s dead right. Long term we are in a much better situation than Ze Germans. We just have a truly awful short term debt issue. We aint Japan for a lot of reasons, so talk of a “lost decade” needs to be a bit more nuanced. And Ze German banks ar probably in just as bad a situation as ours, only they’ve decided to not fess up to it yet.

@Eoin
“Key ‘reasssuring’ line there could be the “held up under scrutiny” one…”

Except very in the market believe it is sufficient and the guarantee by the Irish state is becoming increasingly worthless.

We may be able to get a fudge where it doesn’t look like an IMF/EU bailout although that is looking increasingly unlikely.

@Eoin
“We aint Japan for a lot of reasons, so talk of a “lost decade” needs to be a bit more nuanced”

We may not have a lost decade but as our rescession started in 2006/07 and looks like it will continue until atleast 2011/12 we might not be too far away from it either.

*AUSTRIA SAYS GREECE HASN’T MET EU FINANCE COMMITMENTS: AFP

isn’t one bailout per day supposed to be the limit?

@Eoin

Wish we were Japan a lost decade would look a whole lot better than 50% crash in GDP followed by a decade of Micheal Noonan under the bed

Greece is probably going to have to have a dose of debt restructuring given that the austerity medicine isn’t working.

What about Ireland? Is debt restructuring avoidable? Roubini doesn’t seem to think so.

@Joseph
re: Having Finland on our side is a bit like having Winnie the Pooh playing for Ireland in the upcoming game against the All Blacks.

Having read the article the Finns are not on our side. They just don’t want bailouts.
It seems to me that the money may not be on the table all that long.

Apparently some Finnish public sector workers resent putting capital at risk to bail out the Croke Park deal – and they have an election too.

Austrians have apparently got the Greeks sussed.

Could be a long meeting.

Who will be the best paid guys in the room?

*JUNCKER: IRISH BUDGET CONSOLIDATION IS ON TRACK
*JUNCKER: IRISH SITUATION IS `A VERY SERIOUS ONE’
*Rehn Says EU, IMF, ECB Working on Finding Irish-Bank Solution
*REHN: IRELAND IS NOT A SURVIVAL PROBLEM FOR EUROPE
*REHN: IRELAND IS SERIOUS PROBLEM FOR BANKING SECTOR

@Jules
This is simply nonsense. This crisis is not an Irish one, it’s an EU (and global) insolvent banking system and we are at the forefront because we are the ONLY country to recognize the problem up front
Specifically, the UK has ‘insured’ the assets of RBS / LloydsHBOS / N Rock etc deferring the capital hole into the future, Spain has set up FROB which is a leveraged recap vehicle that stays off the national ball sheet. No Spanish banks have yet written down their assets, and they stay liquid simply by accessing the ECB same as us. There has been no Spanish bank debt issuance since April this year. Germany set up a NAMAesque fund for each individual bank that defers recap until losses are crystallised. There are credible estimates that the capital hole in German banks is over 50% of GDP which dwarfs our own. French banks are using questionable accounting which is boosting capital by revaluing issued debt, yet they are massively levered (paribas now worlds largest bank by assets)
Greece was different as it was a real sovereign problem caused by fraudulent reporting of national numbers so Ireland is now the start of europes banking crisis, being exacerbated by the ECBs refusal to monetize the excessive leverage a la bank of japan, federal reserve and bank of england.

The stronger countries banking systems are not reliant on ECB funding only because there has been a flight to perceived quality of cash in wholesale and corporate money markets. When they realise the problem is as bad it’ll be a run on Europe. The ECB and EU are desperate to ensure that Ireland is seen as a lone sinner and force us to take a bailout but in my view they don’t get the way markets work and the weakest links, Portugal and Spain will be hammered before Xmas.

Finally, all this stuff about NAMA being worthless etc, again I despair at the hyperbole and misinformation which abounds. NAMA has for starters c.40% of it’s assets secured by overseas land and property, primarily in the Uk and London region. It has massively underpaid and is currently being inundated with bids for their assets by vultures looking to make a killing. Some of the reasons it’s reluctant to sell are that they don’t have the manpower to process the sale, they are petrified that they sell something only for the same building to be sold 6 mths later at a significant profit making them look like fools and finally the legal complications in particular the mckillen case has stayed their hand
NAMA will make a fortune by the time it’s wound up!

@MPLT,

Well said – though I’d be inclined to suspend judgement on NAMA for a while.

The EZ is a trousers without visible means of support. It’ll be a couple of years before the belt and braces are crafted so the rush is on to apply some binder twine – and if a few small fry get snagged, so what.

@ MPLT

“There are credible estimates that the capital hole in German banks is over 50% of GDP which dwarfs our own”

I had heard a figure of 30%. Obviously i was wearing the red, black, yellow and white jersey…

@ All

Irish govt to issue statement on econ at 17.00 GMT apparently…fasten your seatbelts…

@Eoin – “Irish govt to issue statement on econ at 17.00 GMT apparently”

Might just be repetition of the ‘we don’t need any bailout’ message to lay down markers before the real talks begin.

@Eoin

Nobody knows, I was just saying there are some estimates that it’s over 50% but Frau Merkel et all are doing their damnest to make sure we don’t know. Witness the CEBS bank stress tests in the summer where German banks alone refused to give details of their bond exposures.

One other thing that gets my goat up is this idea that the ECB is through sheer kindness providing liquidity to Irish banks. In fact they are only supplying liquidity as per their own rules, far more is going to other PIGS banks and anyway, it is the job of a central bank to supply liquidity to banks when it is required. They are our central bank and they are just doing what they should do. They ran their own tests (CEBS) to ensure solvency so there is no act of generosity coming from Frankfurt despite the impression some on here are giving.

@ MPLT

I couldn’t agree more. Your analyses are usually excellent !

We have made an unholy mess of our bank “rescue” strategy. We have been the naive Irish patsies, wrecking our banking system, while other countries, some with more serious bank debt problems, save theirs, by cloaking the realities. . Soon, some should-be-bankrupt foreign bank will pick up AIB and perhaps BOI and c. 100 bn. of Irish citizens deposits. And the extraordinary thing is that this outcome has been promoted by the Governor of our own Central Bank since he took up office.

It seems that the NAMA scheme was not properly negotiated by our officials, or they simply didn’t understand the role, and its limits, of the ECB. But the people who will suffer, some greatly, from this incompetence are the 150,000 Irish elderly citizens, often vilified in the ignorant media, who own the majority of our bank shares.

NAMA has been a disaster. And it has failed to deliver its promises. For example, AIB shareholders voted a year ago to go into the NAMA scheme, on the basis that the bank would get funding using NAMA bonds and also that the scheme, together with the sale of certain overseas assets, would guarantee the survival of the bank as an independent entity. NAMA failed to deliver. it raised the haircut percentage and then issued bonds that nobody will take for cash.

So, the banks’ property should be returned to them. AIB shareholders should not have to wait until their bank is lost to the State before the State pays for their property. The State (NAMA) owes BOI-AIB c. €20 bn., representing c. €40 bn. of semi-toxic assets which the banks passed over. Now, Pay Up !, and then let the banks sort out their own problems, or return them their property, with apologies, and temporary guarantee.

@Mr. Bond

We aint Japan for a lot of reasons

Sadly, not all of them are good reasons for us. Most obviously, Japan was lucky enough to enter its crisis while the rest of the world was still inflating its credit bubble.

Speaking of which, I’ve always suspected that we’ll be able to stagger on through the next few quarters after Black September II – in fact we’re hitting the EFSF a while earlier than I expected. It’s at the next round of disappointing housing news or unforeseeable world turmoil that things will start getting a bit iffy for us. Carry on lads!

(Leaving aside, of course, the question of whether we should be donating so generously to the German banking bailout, even if we may manage to survive doing so.)

@MPTL

RE – European Problem
I agree it is a European problem. A lot of European countries had to move to guarantee the banks after Lennys move as they were worried about capital flows to countries who bended over backwards. Maybe they would have done it anyway without Irelands proding. In any event it was the wrong thing to do.

In terms of the European problem a lot of bank losses have been masked and Ireland unwisely showed off its dirty underware in public. To be the first revealer in this case is fatal. Being a good boy is not always the best approach.

Also in a lot of countries they have the internal capital to asorb the losses either by bond – interest transfers or plain bankruptcies of the banks. Most of our capital has flown.

RE Nama making money
Did anyone see a pig flying, or put it another way can the PIGS fly

It would appear that Irish Central Bank and DoF spokespeople are declining to comment this afternoon. Not surprising given that Brian Cowen appears to be coming out of hiding to give this statement to the Dail at 1700.

Goose cooked?

Paul Hunt says

“The EZ is a trousers without visible means of support.

David O’Donnell says

“How do you see ‘ECB Split’ on all of this”?

If the trousers are split there will be a hole in the trousers, no?

@Brian O’Dpherty:
“But the people who will suffer, some greatly, from this incompetence are the 150,000 Irish elderly citizens, often vilified in the ignorant media, who own the majority of our bank shares.”

If the said citizens do indeed own the majority of “our” bank shares, they have only themselves to blame. They approved the annual reports, appointed the directors or did whatever else shareholders do. And no doubt they banked their dividends in the good times. Now the businesses in which they have invested have lost money. It’s what happens. Capitalism, I think it’s called.

It makes no difference to me who owns AIB or BofI. Someone will provide banking services; neither of those banks, nor any other, was in any sense “mine”.

bjg

@seafoid,

Thank you. The split in the trousers could reveal the core EZ countries’ dodgy banks, but more seriously I don’t think all ECB board members subscribe to the more hardline stance being pursued, allegedly, by Germany and others.

@All,

Perhaps we could move to the Luceyesque strand opened by Richard Tol – if that doesn’t cause umbrage to some. It has a link to a good feed on unfolding events.

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