Ireland: A Punt Too Far Post author By Philip Lane Post date November 20, 2010 This analysis piece in the FT provides a useful timeline of the international dynamics behind the bailout. Categories In Bailout Tags Ireland and IMF 88 Comments on Ireland: A Punt Too Far ← BARCAP: An EU/IMF Programme Could End the Irish Crisis → Floods, repeated 88 replies on “Ireland: A Punt Too Far” So its all the fault of Angela and Sarko.The quote attributed to the NTMA guy is a classic As Ireland’s cost of borrowing spiked by a further two percentage points in comparison with that of Germany, it began to look as though the game was up. In late September, officials at the National Treasury Management Agency were basing their cash-flow calculations on future borrowing rates of 5.5-5.75 per cent – not way over 8 per cent. Asked then what would happen if they were out by, say, two percentage points, one said: “Then we’re fucked, so we are.” The GDP (Gross Domestic Product) of the 41 Heavily Indebted Poor Countries (567 million people) is less than the wealth of the world’s 7 richest people combined. -World Bank Key Development and Data Statistics – Nearly a billion people entered the 21st century unable to read a book or sign their names. Less than one per cent of what the world spent every year on weapons was needed to put every child into school by the year 2000 – UNICEF – In 2005, the wealthiest 20% of the world accounted for 76.6% of total private consumption. The poorest fifth just 1.5%: -World Bank Development Indicators 2008 – The total wealth of the top 8.3 million people around the world “rose 8.2 percent to $30.8 trillion in 2004, giving them control of nearly a quarter of the world’s financial assets.” In other words, about 0.13% of the world’s population controlled 25% of the world’s financial assets in 2004 – In Ireland today debt repayments are being extracted directly from people who neither contracted the loans nor received any of the money, extracted by a corrupt, inconsiderate and incompetent government that has caused this disaster in the first place, now collaborating with the IMF Mafia and EU Mandarins to front up the dirty work, and that is all I have to say about it! http://www.nakedcapitalism.com/2010/11/ring-a-ring-o-roses.html 1. Spain is not Greece – Elena Salgado, Spanish Finance Minister, ~February, 2010. 2. Portugal is not Greece – The Economist, 22nd April, 2010. 3. Greece is not Ireland – George Papaconstantinou, Greek Finance Minister, 8th November 2010. 4. Spain is neither Ireland nor Portugal – Elena Salgado, Spanish Finance Minister, 16th November, 2010. 5. Neither Spain nor Portugal is Ireland – Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development (OECD), 18th November, 2010. 6. Ireland is not Greece Vanessa Rossi, senior research fellow in international economics at Chatham House in London, 18th November, 2010. Glad that’s straightened out. Still to be determined: whether Belgium is Belgium. Read the article for the refs to the map guides! “With Mr Sarkozy’s backing, Ms Merkel won the day. Treaty change would come. But when the markets opened the following week, it was Mr Trichet who was proved right.” Political incompetence everywhere, it seems. Not just Merkel and Sarkozy, but the timorous other EU leaders who were willing to be railroaded by the Dodgy Deauville Duo. (An aside: maybe it’s something in the Channel breezes – has anyone tracked Dunphy’s exhalations against his visits to Normandy ? 🙂 ). And spare a thought for poor José-Manuel Barroso: hasn’t been able to buy a proverbial kind word for years, and even now, though he backed Trichet against the room, it is only Trichet “who was proved right”. The Irish Examiner has a story about the team of ECB, EU and IMF officials holding talks with the Irish government. The team are focusing on the banks. The report says: “They have ruled out bondholders losing money. “The ECB is worried they can lose the money they have given to the banks — that would be a nightmare,” said a source close to the negotiations. The ECB has lent €130bn to the banks, a quarter of its book, while AIB admitted it lost €13bn in deposits this year and Bank of Ireland €10bn. “ This is exactly what I feared would happen if the ECB was allowed to play a role in deciding Ireland’s future. The ECB was a co-c0nspirator with the current government in Ireland ion refusing to face the truth about the situation of the banks. By giving funding against bonds they knew were of questionable value at a time when the government had made pledges it might not be able to keep (and which it certainly should not have made) they allowed the Irish government to drive ever deeper into the mire. Now the ECB is using its power and position to ensure that the Irish people pay for its mistakes. What is happening now is not a bail-out of Ireland but a bail-out of the ECB. And the Irish people are going to be doing the bailing. @David Blake True indeed. A couple more elementary sums: “The ECB is worried they can lose the money they have given to the banks — that would be a nightmare,” said a source close to the negotiations. €130 billion ECB exposure to Irish banks ÷ c. 4.5 million pop. of Rep. Ireland ≈ €28,900 €130 billion ECB exposure to Irish banks ÷ c. 330 million pop. of Eurozone ≈ €395 A nightmare indeed! @ DB I find it a little lazy to be blaming the ECB, EU etc for any to all of this. We are a nation, but are a little ignorant of a nations duties for the last few decades. We have not zealously guarded our national interest at home or abroad. Comparing us to some fat kid been fed by his parents doesnt cut it. Georg R. Baumann Says: November 20th, 2010 at 4:30 am Well said. This is a storm in a tea cup and an illness of the wealthy. The whole sub-prime ramp up was a battle between rich factions. The poor can only pay so much and equality is always greater after a bubble than before. But this one has commodities and developing countries actually gaining, at the expense of those who can afford it. 3,000,000,000 people keeping their own capital and getting their hands on someone else’s for a change. There were many signals that this was in the works. 9/11 for one! Ireland suffered far more than it needed, due to greed and fear. Leadership was and is lacking. Confidence tricksters know that you cannot con an honest wo/man! Banksters are in the confidence game, but to have a government in league means people have to be aware of economic history. Ireland cannot get out of this mess, for a long while, but can be used to drive down the euro. New leaders? None on the horizon! Allotments in and near cities might be a good idea as it will give the unemployed a source of food and work. Things will get that bad. In the context of this analysis, Dr. Michael Somers provides a view from the inside: http://www.irishtimes.com/newspaper/opinion/2010/1120/1224283769631.html What angers me is the extent to which the risk, if not the inevitability, of disaster was known within the system; but no-one blew a whistle or rang the alarm bells. As some mitigation, I accept that anyone who did – irrespective of their position – would be cast into outer darkness and be destroyed professionally and personally. In addition, any attempt at tackling the problem would have triggered something like the debacle we now see and Ireland would have needed immediate IMF involvement to protect it from the wrath of the bonds markets. This, of course, was not on (until it has been forced finally) and the EU didn’t have, and still doesn’t have, an appropriate mechanism. So Irish citizens are being left to carry the can for the entire debacle. @ PH The Govt action since 08 is probably indicative of their actions pre 08… “In Ireland today debt repayments are being extracted directly from people who neither contracted the loans nor received any of the money, extracted by a corrupt, inconsiderate and incompetent government that has caused this disaster in the first place, now collaborating with the IMF Mafia and EU Mandarins to front up the dirty work, and that is all I have to say about it!” Our state is now effectively a debt collector for the core EZ countries? Is the euro worth 90 Billion or 130 Billion- or whatever is being extracted from the taxypayers of Ireland to cover investment decisions made by “core” Eurozone banks- AND the removal of our corporate tax rate AND control of our economy by machiavellian countries that do not have our interests at heart? Why don’t (didn’t) we just pull the plug and bring the whole thing down? Winston Churchill said that courage is the most important political virtue – because it guarantees all of the others. Looks like none of our leaders had this – nor the gumption to be able to play at the stratospheric geopolitical levels where Merkel, Sarkozy, et al operate. Back in 2008, the government gave a blanket guarantee on all their deposits and most of their debts – thereby turning the state and the banks into one entity from the viewpoint of financial markets While the responsibility for reducing Ireland to this state of prostration undoubtedly lies with the covens of politicians, bankers and builders who alchemically prolonged the Celtic Tiger boom of the 1990s well beyond the millennium, the heirs of Bismarck and Richelieu had a hand in tipping things over. There can be a multiplicity of factors in explaining any event like this but it is hardly surprising that putting a lick of varnish on the old victim’s cross, would be one comfortable rationalisation some would reach for. So it’s geopolitical hardball: Brian Lenihan from Castleknock versus the heirs of Bismarck and Cardinal Richelieu. Not Brian Lenihan from Ireland, nor even Dublin but the local boy from Castleknock, our Mr. Smith goes to Washington, a poor pawn in a geopolitical game. What a load of malarkey! The first quote above is the bull’s eye and the second would surely be the slow-motion response to the banking crisis which began to gain momentum last August when political Ireland was on holidays. The dénouement was inevitable irrespective of the Deauville summit. The big deposits were already flowing from the banks and the ECB had been concerned for months that some banks were “addicted” to its emergency liquidity facility which it wanted to wind down. The Germans should have been more indulgent! Mary Harney who had disdainfully dismissed association with Berlin, the EU’s main paymaster, a decade ago when she and here colleagues had thought the free lunch had been invented commented yesterday: “There may be areas we would have done differently in hindsight.” “Should we have had a benchmarking exercise, benchmarking public sector pay against private sector pay? “Perhaps we should have benchmarked public sector pay against public sector pay in other countries, for example.” However, she added: “There is no point in going forward in a blame game. The last thing we need now is to take our eye off the ball.” @ remnant Our state is now effectively a debt collector for the core EZ countries? Why don’t (didn’t) we just pull the plug and bring the whole thing down? More victimhood! …what then? I was among the minority who sailed against the winds of conventional wisdom, unlike the majority including Brian Lucey, who believed in an eternal tooth fairy. So the fools who bought into the property hysteria should have all their debts cleared and the EU/ECB told take a hike. So we return to an idyllic pastoral life that de Valera dreamed of or we still depend on a kinder, gentler IMF? @ Paul Hunt As some mitigation, I accept that anyone who did – irrespective of their position – would be cast into outer darkness and be destroyed professionally and personally. There should be no mitigation for a person at Somers’ level, earnings and lifetime safety net. If people like him working in a position of public service, cannot stand on principle, who would ever? His reference to analysis of CB reports is interesting; every month end I used to report on the CB’s month statistics on private credit, one month removed. More than 30% annual growth in credit did seem crazy as it did to Patrick Honohan who published research on the banks’ foreign borrowings. “They were like children let loose in a sweet shop.” So true and I’ve often referred to the beggars on horseback as if they had been left loose in Willie Wonka’s chocolate factory. http://www.finfacts.ie/irishfinancenews/article_1021061.shtml Paul Hunt Says: November 20th, 2010 at 9:49 am You favour open government and whistleblower protection? The best time to ascertain character in a subject is when pressure has been applied. The pressure was all the cheap credit, being converted as quickly as possible into profit. No caution whatsoever. Hell for leather get yoursnout in that trough. The pressure is off now, except for the decision makers who must decide what to cut and what to tax. They cannot err by taxing too much, so long as the CT rate remains low. They can cut too much. The economy has to deflate. It is going to deflate no matter what they do. No pressure. That is the release. No character visible at all. No attempt to explain how grim things are. When corporates sack an executive, the incoming ruler writes off lots of items, to show how bad his predecessor was and how clean s/he is. Brian Lenihan could have done that and the dear leader should have fallen on his pen to enable him to do it. Then when the dust settles, it turns out things are not too bad….. GFF might even have gotten re-elected?! Leadership is completely absent! @ Michael Hennigan I am a victim – as a taxpayer, I am now responsible for debts that I did not contract for and am effectively reimbursing core EZ investors for punts that they took with Seanie et al – with their governments and my government as enforcers. That will mean crappier schools for my kids, worse healthcare, lower disposable income after I pay my etc. If these losses must be socialised, I see no reason why they are being socialised at the level of the 26 counties taxpayer – that is apart from the weakness and incompetence of the rulers of my “sovereign”. BTW – I am also adamantly opposed to any Irish taxpayer “bailout” of mortgage holders who IMHO should be liable for the debts that they contracted for. What would you have I do? Tap the auld forelock, say aw shucks and just take this? There’s been too much of that. I am asking a quetsion all the same that has an empirical content and an action-oriented outcome: Would the deadweight loss from the Irish taxpayer reneging on the Irish banking systems debts really exceed the costs on the other side (90-140Bn fiscal transfer, loss of 12.5% tax rate and permanent control of our fiscal/economic policy by powers that mean us no good? If so, this budget and agreement should not be passed? Apologies off topic. Will there be a thread on this? http://www.irishtimes.com/newspaper/opinion/2010/1120/1224283769631.html “Why was Anglo not immediately nationalised when its unsustainable situation became apparent?” MICHAEL SOMERS Reading the article one gets a sense that the ECB changed to a hardball potentially catastrophic policey regarding the Irish banks when Angela decided to express a opinion on bond holders taking a loss. I am unsure of the timeline here but I am sure that the ECB had word of Merkel’s intentions before she spoke. The message from the ECB may be if you touch our bondholders then we will unleash monetory horseman of the apocalypse. This is potentially the most serious civil war in Europe since the reformation. @Micheal hennigan There is nothing more dangerous then a ideologue who does not understand the ideas she preaches. Mary God bless her is not very bright but capable of real damage none the less. I am sure we will have to listen to crocodile tears from the PDs, the PDs in FF and the PDs in FG before this train wreck has finished killing its passengers Dessie o Malley’s pious reflections on radio last week were beyond painful to trained ears. Brendan Keenan quoted a more useful English commentator to Pat Kenny yesterday: ‘if it were done it was best it be done quickly…’ concerning the IMF butchers. These words were spoken to spur an attack on a frail old man by macbeth and his wife. This haste drove her to madness and self destruction and him to the same. We think we have seen the worst? The worst may be before us as the Irish strong may now attempt to devour the Irish weak. David McWilliams proposes leaving the euro: let us put that to the people in a general election. That may at least soften the cough of Bismarck and Cardinal Richelieu. Is it just me or does anyone degree that Brian Cowan is living a similar delusion to Hitler in his Berlin Bunker, moving around all his imaginary forces to defeat the Russians and turn around the war ….while the Russians were within yards of his bunker. Oh yeah, IMF = Russian army Perhaps I should keep taking my lithium…? Michael Somers’ timeline is even more interesting. Michael Somers is clearly right in what he says and is right to say it. It is clear that Mr. Somers voiced his concerns over the administration of NAMA. I expected the banks to be able to manage NAMA loans on the basis that a large partion of the consideration to be paid for the loans would be in the form of genuine subordinated bonds, thereby incentivising the banks to recoup the value of the loans and negating the need for micro managing by NAMA. It is possible that subordinated bonds would not have avoided the problems we now face. Whatever the case, it is clear that Mr. Somers is right. At this stage, we need to unshackle ourselves from the valuation process imposed by the EU with the DoF. We also need to unshackle ourselves from the management of NAMA. Either NAMA must allow the banks full freedom to manage the loans for NAMA or the banks must be asked to retain the loans and deal with them themselves. At this stage, the latter seems preferable. The banks have recognised the bulk of their losses by now. The main goal of NAMA has process has been achieved at a certain cost. We should not persist in increasing the cost if it is not increasing the benefit. There are legions of lawyers in the banks working solely on complying with NAMA’s requirements while the more urgent work of sorting out security and enforcement on existing loans has to take second priority. This is not sustainable. Appoint Morgan Kelly and Michael Somers to oversee a staff restructuring in the DoF ?? delete my comment Goebbels The Somer’s article is THE most self serving article piece of trash yet written by an ex public servant (reputedly paid 1m). He sat there in his office and figured it all out, yet he did absolutely….NOTHING..other than pull a few short term depos from Anglo. It brings to mind a quote from Albert Speer “In all my activities as Armament Minister I never once visited a labor camp, and cannot, therefore, give any information about them.” Somers is part of the problem not a solution. Based on this apologia he appears to be a public servant who fiddled while Rome burned. @Zhou “The banks have recognized the bulk of their losses now” maybe at true 2008 mark to market valuations but there has been a significant depopulation , loss of income , loss of employment to service the fiscal debt since then and we have not finished yet. This argument reminds me of the pent up demand spin coming from developers and the like during the boom. I have a pent up demand for Catherine Zeta Jones but I am unlikely to be in a postion to afford the woman. Default either partial or full is the only option as cutting wages/jobs without cutting real debt has really never been tried before without a revolution soon following. @Iona excellent idea Iona – but sadly the Dail and civil service is full of Jesuit educated auto mans and christian brother educated retards They do what they are told to do and no more as there is not a pair of liathordi amongest the lot of them. No we cannot reley on the political establishment for anything unless you like to get some benefits from their treacherous clientelism. Our only action is to take independent monetory dissidence. @tull Mr. Somers clearly advised NAMA was unworkable, as was apparent from his appearances before Dail Committees. Mr. Somers has also told us that it was apparent there were problems long in advance of september 2008. You do not know who he did or did not point this out to. It is possible that he thought the Central Bank and/or the DoF were on top of these issues which came squarely wihtin their purview. Zhou, I must have missed his resignation and whistle blowing. Anyway enjoy your retirement Dr Somers @Keith Cuneen ‘Reading the article one gets a sense that the ECB changed to a hardball potentially catastrophic policey regarding the Irish banks when Angela decided to express a opinion on bond holders taking a loss.’ It appears that in addition to the above Weber gained support in recent weeks for his stance on No bond buying and removing liquidity facilities. It seems that Trichet and Weber are at loggerheads and it looks like Weber gained the upper hand- to our detriment. @Tull He blew his whistle in the Dail Committee. He resigned when they were in the process of setting up NAMA as far as I recall. I took it at the time that he was resigning because he opposed NAMA. @Ceteris I hope you are right as I find it hard emotionally and intellectually to reconcile to myself that these two organisations could be so demonic. However when I give up my wishful thinking phase I generally conclude that the Trichet / Weber dynamic is a good cop bad cop routine. But maybe Trichet really is a good guy as he may come from the French enlightenment way of thinking. Who really knows – I just follow to money to get a true understanding of power. ‘Not only that, the Irish bankers would not even support the NTMA bond auctions – one of them pulled out at a particularly awkward time some years ago.’ I wonder which one. It can probably be deduced from the figures published on government bond holdings. It is quite astonishing how little bonds the big 2 hold given the facility they have and the returns to be had for essentially doing nothing. Is it poor management or is there any underlying reason? @Ceteris I think I know where you are going with this but it is almost too fantastic a probability to countenance. Anybody have records of % of irish banks holdings of irish goverment bonds going back to the 70s right up to today ? @Zhou One of the many mysteries surrounding this whole catastrophe is why Lenihan allowed himself to be so badly advised. Intelligent men, which he undoubtedly is, always know whwn to call in proper help and assistance. The DoF has revealed itself unfit for purpose: I would advocate the dismissal of every person in that institution of Assistant Principal and above for gross incompetence. Without pension. Zhou, you defend Mr Somers a wee bit too much (and Tull’s attack is a tad over the top). His remarks were more obiter dicta rather than an obvious and unequivocal critique. I thought he retired rather than resigned. How many Irish banks will there be in 6 months time? @simpleton He seems to be one of the least compromised players in the whole affair. He also oversaw an organisation which has been of great asssitance to the state. @simpleton – “How many Irish banks will there be in 6 months time?” A good question. I said somewhere on this blog a few weeks back that it is no longer unthinkable that they wouldn’t merge the best (sounder) parts of Anglo with AIB’s best bits and wind down the rest. With a slimmed down BoI as well that would give us two banks. Who needs any more than that in a small peripheral country? The small fry might as well either all be merged into one or let them go/sold. I was just standing outside my local branch of AIB yesterday and said to my wife, “I wonder if this will still be here in the New Year?” @Keith Cuneen Trichet appears to be the good guy. Have a looks at bloomberg article headed Weber’s Bond Warning Haunts ECB as Ireland Baulks at Bailout ‘Support for Weber’s stance may nevertheless be growing within the ECB as policy makers are confronted with the “stability risks” he spoke of in May, said James Nixon, co- chief European economist at Societe Generale SA in London. “Weber’s point was always that the central bank shouldn’t get involved with financing sovereigns, and that you shouldn’t blur the line between monetary and fiscal policy — and that is what the ECB is now doing,” Nixon said. “I suspect there is quite a lot of support for Weber’s position beginning to gather.” ‘European Central Bank tightens screw on Ireland, Portugal and Spain The European Central Bank (ECB) has issued a clear warning that it will press ahead with plans to raise interest rates and withdraw lending support for banks despite the eurozone debt crisis, even if this risks pushing Ireland, Portugal and Spain into deeper trouble.’ What are they at-withdraw that last remark about Trichet @Zhou Which organisation would that be and which particular piece of assistance did you have in mind? Or am i just missing your irony? @Zhou Or did you really mean asssitance? (sic) @Keith Cunneen The French Enlightenment gave us the Terror and the Vendée massacre. Not that I think it’s really much of a window into Trichet’s character either way. @all I haven’t been able to read the FT article, but I take it that there’s no mention of any resignations in Frankfurt on foot of this debacle! Of course the current Irish government is the one group with no moral authority to demand any. @Ceteris A complete divorce from the state ? – I have been banging on for quite some time about the ECBs policey of superiority of bank paper over sovergin paper – although this is becoming quite expensive for the parent organisation. The ECB has always been the strangest CB of all – a look at the FOFOA blog confirms my own prejudices about that organisation. It is thee most anti-republican organisation of them all – are we shaping up for another round heads vs cavaliers clash once again. PS any treasury or CB with non debt assets on its balance sheet cannot become bankrupt – what the ECB is doing is putting interest above industry and commerce – plain and simple. Are u referring to Albert Speer or Michael. Somers. The latter retired on a massive pension. You could say he did the state some service. I wd agree with Simpleton about DoF but it wd fire everyone at PO or up. @Anonyn Many conspiracies seem to suggest that the whole enlightenment thing was bank financed event against the landed royalists – maybe so. I was always in favour of a balance of power between organisations which is essentially old style conservatism. However this strange world of banks having conversations with more banks without any input from the executives must stop either through its own inefficiency or through force of money. @Anonyn Many conspiracies seem to suggest that the whole enlightenment thing was bank financed event against the landed royalists – maybe so. I was always in favour of a balance of power between organisations which is essentially old style conservatism. However this strange world of banks having conversations with more banks without any input from the executives must stop either through its own inefficiency or through force of money. Ceteris Paribus We are attempting to put our fiscal house in order. To do this we need a prolonged period of loose monetary policy. However Weber seems determined to tighten the monetry screws. Schauble has said it is possible that some countries should/could leave the euro. We should be proactively negotiating this exit now, while we can still influence the terms. The obvious ones are that all debt be re-denominated into domestic currency and the bank guarantee be revoked. @ ťull Yes to.Lisbon, yes to jobs…. @Tull I agree , Charlie Fell writing in the Irish times compared Ireland to Joe Frazier – but he was wrong in his analogy. Frasier not only took punches but introduced Alli to real pain. We need to have some respect for ourselfs and lash out as we do not have the strength or intelligence to rope a dope. We can however fight with honour http://www.youtube.com/watch?v=LmcsXB-fOw0 Then again this may have been a cunning plan By FF “The Republican party” to lull the ECB into a false sense of security and subsequently bringing down this royalist experiment by magnifying the ECBs arrogance via displaying gross stupidity in public. Now that would be one for the books. Ha Ha Ha. @Tull only problem is they won’t swap those euros for puntnua. Ceteris, depends on what the offer is. Half a loaf etc. what wealth does Ireland have ?….NONE !!! it is all debt. its like me saying i have a million euro house but i have debts of 7 million euro….. and earn 300,000 euro a year!!!!. to service my debt cost (5% + service charges (3%)) 560,000 euro….. where are you going ,your up the creek without a paddle……. WELCOME TO ENSLAVEMENT…. OR Ireland can leave the Euro and print the PUNT. Just do what the Americans are doing.,Just print your way out of debt. Anyway you cut it ,the banks ECB, bond holders,…etc..,Are all going to have to take a 90% plus haircut….. The standard of living in the country is going to drop to zero !!??(or near that),go back living in the 50’s -60’s. It is hard to believe a country in 1990 GDP of just over 20 billion, to go to a country that is HUNDREDS of Billions in debt in 2010 (Irish banksters liabilities is more than 7 times Irelands GDP). WHAT A BASKET CASE….. When the IMF are finish doing the books, we will know the real truth of the matter………..and it is alot worse than what the politcians are saying……. The commentariat have been out in force playing the blame game. However, aside from the usual targets, why has there been such reticence when it comes to blaming the economists who in their wisdom advised to enter into the political project that is the eurozone? The silence on this topic from the ‘banking experts’ has been particulary deafening. We do have another weapon in our armoury. We are the good European that did what it was told. Nobody has antipathy for us – in fact foreign commentary has been generally sympathetic. So imagine in 6 months time – hospitals closed, schools closed, dole queues etc being transmitted to the other peripherals. See what happens then. @ anonym if you can’t use the link to the FT article supplied try: http://www.ft.com/cms/s/0/c1236fbc-f41e-11df-886b-00144feab49a.html#axzz15qnmcVO5 Would also urge readers to read anonym’s link from earlier: http://www.voxeu.org/index.php?q=node/1148 Zanu FF @paddy orwell Well said. I found arguing for proper recognition and debate of the VERY OBVIOUS dangers for Ireland of Euro entry was futile. Frankly I got the impression that there was a large element of subtle anti-British motiation to blame. @Paddy There were plenty of economists who pointed out, very simply, that the proposed eurozone was nowhere near an optimal currency area. At the time, my alter ego took a career risk by arguing that the only reason we were so europhile was that the brits were so europhobic. A nakedly political project, understably conceived in 1945 (yes, this was a core part of the vision back then) as a device to stop Germany invading France once every 50 years, begged lots of questions about why countries such as Ireland needed to take part. I dare say that if the Brits had been strongly pro Europe we would have had nothing to do with it. @ grumpy Yes, VERY OBVIOUS. We are talking textbook stuff that a second year undergraduate could understand the economic logic was barmy and yet the economic establishment, including august professors, all sang the euro chorus. Perhaps some of it was ant-British but i think some of it was careerism, knowing that eurosceptism wasn’t going to look good on the CV. It certainly wasn’t scientific. Those who blather on about ‘Economic Treason’ economists, politicians, historians, journalists etc, must ask themselves were they complicit in the biggest economic treason of them all. @ seafoid Yes you are right there were anti-euro economists but the influential ones one the day, most notably the ESRI report by Baker, Fitzgerald and Honohan, which argued on balance that the euro was good for us. My point really is that those who are hammering Fianna Fail at the moment (I have no affiliaton with FF by the way) have bar a few noticeable exceptions been silent on the main reason we are in this mess. @simpleton @seafoid Apologies for the Seafoidian slip! Below is an extract from an article in the English version of Spiegel Online. It’s an interview with Peter Bofinger a member of the government-appointed German Council of Economic Experts known colloquially as the “Five Wise Men” since 2004 – he says that applying punitive interest rates is against Germany’s interests – will he be heard? “The rescue of Irish banks would also mean the rescue of German financial institutions. The arrears that Irish debtors owe to foreign banks amount to around 320 percent of Ireland’s gross domestic product. One has to ask oneself if the Irish state would ever be in a position to meet such huge commitments.” “Euro-zone countries apply for help when they have extreme financial difficulties. It is certainly not helpful to then accentuate these difficulties by adding on further interest. It is also better for Germany when problem countries succeed in paying off their debts at relatively favorable interest rates, rather than pushing them into insolvency by adding a punitive surcharge of 3 percent.” http://www.spiegel.de/international/europe/0,1518,729819,00.html @Holbrook At last a voice of sanity! If the Germans want to get their bank monies back, the money that goes in the other side is going to have to be cheap and stay cheap (even when interest rates rise and tracker loans start to pay an economic rate of return). It is the expense of money in that is causing money out from the banks… @hoganmahew Yes. Being a naive optimist I hope that Germany and Europe’s core will come to their senses and see that if they want to save the Euro they cannot punish Ireland for borrowing easy money from their banks. The problem is how long will it take for this realization to come to EU politicians and as importantly to EU citizens. Mr Bofinger’s comments are encouraging – and he is a key adviser to Germany’s government. I don’t know enough about the state of the other peripheral’s circumstances to comment. @Holbrook Realistically, the EMF is dead in the water if it can only fund at 5% over three years. It isn’t long enough and it isn’t cheap enough. Only the ECB can muscle up that kind of response. It is not going to be just Ireland that needs it; hopefully that realisation is also beginning to bite… @hoganmahew Yes, as the debt mountain grows a more fundamental reassessment of how to deal with the crisis will be required and I hope rather than split the euro a solution can be found to strengthen our ties. the euro and EU is very much a political project and I don’t think it can be judged on economics alone. I was encouraged to read that interview with Mr Bofinger. It’s a pity I don’t speak German to see what else the German commentariat are saying.. also Angela Merkel’s comments on our corporation tax being a matter solely for the Irish govt are also encouraging. Was listening to a BBC podcast about Ireland’s debt crisis – they discussed what would happen if Ireland withdrew from the euro and stated that it would lead to an immediate 30% devaluation of our currency that would improve competitiveness – but that devaluation would most likely continue and we would no longer be one of the EUs rich nations and end up as a poorer country not just for a generation but for the next 100 years! any thoughts? @Holbrook Which part of the last part is yours and which is the BBC podcast? @Eureka It is all taken from the BBC podcast – I don’t have the knowledge to comment on what may happen if we leave the euro and/or the euro breaks up and given that comments along those lines are being thrown about so much I think it is worthwhile to consider what could happen if either of those eventualities came to pass. Here’s a link to the BBC podcast in question – the comments i referenced are towards the end of the podcast. http://www.learnoutloud.com/podcaststream/listen.php?url=http://downloads.bbc.co.uk/podcasts/worldservice/wbnews/rss.xml&all=1&title=15180 @Holbrook Fields Ta for Der Spiegel link: “SPIEGEL ONLINE: The German government would like to see punitive interest rates linked with any EU aid payments — a sort of disciplinary method to force indebted states to save. What do you make of that suggestion? Peter Bofinger: I think that is a dangerous fallacy. Euro-zone countries apply for help when they have extreme financial difficulties. It is certainly not helpful to then accentuate these difficulties by adding on further interest. It is also better for Germany when problem countries succeed in paying off their debts at relatively favorable interest rates, rather than pushing them into insolvency by adding a punitive surcharge of 3 percent. “ http://www.spiegel.de/international/europe/0,1518,729819,00.html It should be recalled that by 1997, the misery caused by the first period of Fianna Fáil’s massive period of economic mismanagement had faded; finance minister Ruairí Quinn had introduced a prudent budget but in the subsequent election, the tide was with Bertie Ahern. He had been packaged as ‘a young man for a young county’ but his protégé had been master machine politician Charles Haughey and to win the support of the bizarrely termed ‘independent’ TDs, they were given a new ‘allowance’ of €205,000 each over a Dáil term to personally spend or invest where they wished. In 1999, the year of the launch of the euro, the Bank of Spain introduced a new solvency provision, the so-called statistical or dynamic provision, forcing its main banks to provide additional ‘rainy day fund’ reserves and in contrast with the Irish banks, risk management at Spanish banks was already central to their operations. Spain has since had problems with its politically controlled ‘caja’ banks but not its principal banks. “There’s no monetary policy prescription for the problems of the Irish economy,” Maurice O’Connell, governor of the Central Bank of Ireland, told BusinessWeek in 2000. But even before the launch of the euro, O’Connell had declared the Central Bank’s impotence when he told the Oireachtas Committee on Finance and the Public Service in early 1997: “There seems to be a perception that the Central Bank can exercise some legal authority in restricting credit. It has no such authority. Any restriction would be inconsistent with European Union practice. Besides, it would be unworkable as demand would probably be met by overseas lenders.” Two years into membership of the euro, there was strong support from the establishment/social partners/business, and the people as reflected in an Irish Times poll, for rejection of criticism from the ECB and European Commission of the 2001 Budget and economist Dan McLaughlin argued for medium term income tax targets of 30% and 10% respectively. This ‘miracle’ was going to go on forever. Three years later, Damian Kiberd wrote in The Sunday Times: “We need strong leadership at the Department of Finance. The sort of leadership that will ignore calls from Oireachtas committees, NESC and academic economists for substantial interference in the whole property and construction sector.” The poet Robert Frost wrote: Two roads diverged in a wood, and I– I took the one less traveled by, And that has made all the difference …and the majority in Ireland also made a choice: The 2001 economic consensus that paved the road to economic ruin @ paddy orwell My point really is that those who are hammering Fianna Fail at the moment (I have no affiliaton with FF by the way) have bar a few noticeable exceptions been silent on the main reason we are in this mess. The argument that the euro is the main reason for Ireland’s economic woes is both foolish and self-serving. To have expected prudence at the Central Bank, controlled by former staff of the Dept of Finance while FF would have countenanced high interest rates to dampen business for its builder friends, is ridiculous. Besides these people on Dame Street were the ones singing the mantra about ‘resilient’ banks when they were in fact insolvent. Would they have been better overseers of monetary policy? The interest rate margin between sterling and the euro was not significant to counter a boom fed by low taxes, property incentives and credit. If interest rates were as high as Iceland’s, instead of euro borrowing by the banks, there would have been a huge inflow of funds in search of yield. Would the Irish Central Bank have sterilised these inflows? Like hell, they would have. @ Holbrook Fields Was listening to a BBC podcast about Ireland’s debt crisis – they discussed what would happen if Ireland withdrew from the euro and stated that it would lead to an immediate 30% devaluation of our currency that would improve competitiveness… Remember the long tailback to Newry last year for cheap beer on the public service protest day? That would look like Noddy’s playtime compared with an exit from the euro. The issue hasn’t moved from the pub as the proponents haven’t explained how an economic collapse could be avoided or how the same people who got us into the present mess could handle the launch of a new currency at a time of chaos. Devaluation can be a temporary palliative for commodity producers – – (Iceland- fish; Argentina – – beef and wheat) and the Finnish devaluation in the 1990s increased its national debt by 40%. Decisions regarding the destination of most Irish exports are not even made in Ireland; besides, why isn’t the UK enjoying an export boom after a 20%+ trade weighted devaluation since 2007? @ remnant I am a victim – as a taxpayer, I am now responsible for debts that I did not contract for and am effectively reimbursing core EZ investors for punts that they took with Seanie et al . . Would the deadweight loss from the Irish taxpayer reneging on the Irish banking systems debts really exceed the costs on the other side.. There are different levels of victims, including the ones who are not victims but look on bubble era payments as entitlements. It can suit some to use the béal bocht but not all the wealth disappeared down a sink hole. Farmers got more than €4bn from the roadbuilding programme; those who invested in property in London for example and are still able to service loans, have seen the drop in capital values reversed. A property tax and increased personal taxes aren’t going to put anyone with the prospect of keeping a job in the longer term in penury; as in the 1980s, the majority will survive as happened in the 1980s. Apart from the unemployed, it’s in the private tradeable sector, where the biggest pressure will remain, with the issue of the prospect of getting paid being as important as getting a sale. The FT says the State bank guarantee turned the State and the banks into one entity from the viewpoint of financial markets. The Government foreclosed on having a GM type restructuring at Anglo. I expect that Greek debt will be restructured at some point and that could happen also for Ireland if growth turns out to be low. @ zhou_enlai There are legions of lawyers in the banks working solely on complying with NAMA’s requirements while the more urgent work of sorting out security and enforcement on existing loans has to take second priority. This is ridiculous; how long should it take to check the loan documentation on 100 or 500 developers? 1 month? @finfacts You make a good case that Euro entry wasn’t a sufficient condition for disaster. I’ll add another reason why: the guarantee of private bank debts was also necessary for real disaster to ensue. But that’s not enough in itself to justify the decision to enter the euro. Oversimplifying, if the choice facing the country was “euro entry, status quo governance, national solvency: choose at most two” then euro entry was a gamble on improved national politics and administration. Any policy whose success relied on, among other things, FF voters no longer voting FF could convincingly be described as a bad bet. Especially since credit expansion would predictably send a false signal that our status quo economic management was on the right track. And I say this as someone who still thinks that Euro entry was likely the right idea, and who certainly hasn’t been sold on exit now. It seems evident (though I can’t really remember who said what at the time) that most of the experts who supported entry were (at the very least) not sufficiently loud and clear about what the risks of entry were and what would have to be done to manage them. Then again, the example of Icelandic bank deposits suggests that the Euro wasn’t an entirely necessary condition for disaster either, as (I presume) does the example of Hungarian mortgages denominated in Swiss francs. It seems that the common market in financial services and financial-sector globalisation in general is another source of risk. However Our Boys probably could have been relied on to strive mightily to stop non-punt mortgages from getting a foothold, if for entirely the wrong reasons. Of which more presently. @Michael Finfacts You are not thinking through the ‘quit the euro’ arguments. Just because it i near technically impossible to leave, that doesn’t stop an ECB eurocrat from trying to figure out a solution. Here’s what will happen once the hedge funds cause a blow-out of Spanish CDS and bond spreads. Our former friends and allies will declare the existence of a hard and soft euro; we get to keep our existing euros & euro-denominated contacts. They get the new deutschemark (just a rebranding exercise really). The new DM appreciates 30% against the old euro. Quite easy to do (relatively) from a legal point of view. The only tricky bit is what to do with actual cash. I suspect it will be done on a residence basis: for 24 hours, if you are resident in Germany/France/Holland, you get to swap your old euro cash for new DMs. Or something like that. we, the many flavoured, Irish only secured our independence because of world opinion in 1920, http://www.guardian.co.uk/commentisfree/2010/nov/21/ireland-bailout-economy-imf-euro Put not your trust in princes, bureaucrats or generals, they will plead expedience while spilling your blood from a safe distance. Niccolò Machiavelli, 1513, The Prince, (time to leave this doomed euro experiment) Joseph Mary Plunkett Thanks for the link, excellent article. Strikes just the right tone and raises the issue that is at the nub of the matter. Will the voters clean the stables or will we continue with corruption, cronyism, nepotism and plain common garden stupidity and ignorance as usual. The jury is still out. Maurice O’Connel hit the nail on the head when he said in 2000 “any restriction to credit would be met by European banks”. (thanks Michael Hennigan). I firmly believed that the whole shebang of domestically owned financial institutions could go into receivership with only a minor ripple in the wider economy. Anyone with a sound business plan or even better sound collateral would get a loan from foreign institutions who would flood into the market. As to “could Ireland do an Argentina” yes we could and I would not rule it out if the mobs hit the street. We are in the primal impulse stage now with religion in serious decline, loss of faith in material wealth, loss of faith in gov’t, loss of faith in ourselves. All we are left with is booze, fantasy, Celtic mythology, anger and disillusionment. I could add the hangover and the bills to the list but that would be too cruel. Dostoevsky covered the subject in Notes from the Underground. The emigration safety valve may save us by removing the late teens and twenties groups from the scene of the crime. @Mickey Hichey – “Will the voters clean the stables” What if they are Stygian stables? Know any good rivers we can divert? @Joseph: [pedant]The stables were Augean, not Stygian, and the rivers diverted were Alpheus and Peneus. The Styx had a different role; the Irish economy may have crossed it.[/pedant] bjg @MH More like 2 years. They have been at it for 10 months already and they aren’t half way through it. @ simpleton Many Irish were happy to take German money for years but when the well was running dry and the still enduring hubris of the bubble prevailing, it became a different story. More than €6bn in net cash received in 1991, offsetting all the interest paid on the national debt! Thank you but no thank you. The basic tenets of an “optimal currency area” (OCA) suggest that the EMU should not have taken flight. The same theory suggests that the euro is now bound to fail. As to quitting the euro, anyone with a euro denominated contract would have recourse to the European Court of Justice. http://www.finfacts.ie/irishfinancenews/article_1019972.shtml Danish economist Jacob Funk Kirkegaard has said despite all the dark forebodings, the Eurozone will hold together. It will do so not by a positive vision of the common future, but by the painful recognition of the staggering cost of leaving. He quotes Niccolo Machiavelli, the Italian master of realpolitik, who wrote concerning whether it is better for a ruler to be loved than feared: “It may be answered that it…is much safer to be feared than loved…because friendships that are obtained by payments…are not secured, and in time of need cannot be relied upon…but fear preserves you by a dread of punishment which never fails.” As with princes, so too with currency unions of democratic nations. Kirkegaard says Europe can be consoled by the understanding that it will prove safer for the euro to be held together by elected governments fearful of the cost of leaving than by the mirage of an excessively low cost of capital, a spurious convergence of government bond yields, and unsustainable bursts of growth in the periphery. He says let the financial markets and the doomsayers wail that the end is nigh for the euro. The performance of Germany and the weaker Eurozone states demonstrate that, on the contrary, the euro is safer today than ever. Instead of a breakup, look for expansion, starting with Estonia in 2011. @ zhou_enlai FDR revived confidence in the US banking system after a week of closure; Ireland needs 2 years to verify loan documentation. What a crazy country! @Finfacts My hard and soft euro proposal gets around the legalities: we keep our euros, unsullied but just 30% lower than the new euro. The new euro asset holders won’t mind a bit about the change – they will see their net worth rise. Us old euro types will be left looking at smoke, mirrors and euros that look the same, are still issued by the ECB but have been csomewhat clipped. Wait and see – it’s on its way! @Brian J Goggin The Styx had a different role; the Irish economy may have crossed it. [Old fashioned Punch newspaper cartoon, a proper full-page engraving. BRIAN LENIHAN in full legal robes and PADDY (recognisably BRIAN COWEN with thin knee-breeches, blackthorn stick and all the rest) stand with KATHLEEN NI HOULIHAN on the near bank of the RIVER STYX. The FERRYMAN has brought his boat up to the shore in front of them, but he is now standing facing them with arms folded in front of his chest, no doubt scowling inside his cowl.] BRIAN LENIHAN SC [gesturing towards KATHLEEN NI HOULIHAN, as he looks imploringly at the FERRYMAN]: I assure you that my client will repay the full amount of the penny with interest over a period of three years. [KATHLEEN NI HOULIHAN is covering her face.] @anonym: I like that. “The FERRYMAN has brought his boat up to the shore in front of them ….” For “boat” read “punt”? In the background, CHRIS DE BURGH sings …. bjg @MH You can buy a house in a day in parts of the USA. Our system is much different. Also, every aspect of the property is asked for its valuation. Is it let? How long is the lease? Whaen did it start?> Is there a personal guarantee for the lease? What are the rent arrears? Does it have planning permission? What is it being used for? Does it have a fire safety certificate? Is there a BER Cert? When was it bought? how much was it bought for? Are there any disputes? and so on and so forth…. As in the Civil Service, the incentive structure appears to be to make people more worried about making a mistake then about the desired outcome. Imagine the consequences for the NAMA officer who treats a developer softly or who lets somebody out of a bind or who over-values a loan? How can NAMA act commercially, as we need it to, with this set-up? Comments are closed.