It was all the fault of foreigners

In the past week or so there have been plenty of attempts by the Dublin elite who have sleep-walked this country into catastrophe to blame others. For an example, see the quotations in this article. If Chancellor Merkel had kept her big mouth shut, the implication is, everything would have been alright.

This line of argument seems to imply that Ireland was simply facing a liquidity crisis — in which random events and loose lips can indeed sink ships of state. And, to be fair, there certainly was a liquidity crisis.

However, an awful lot of influential external observers believe that Ireland is also facing a solvency crisis, brought about by the suicidal bank guarantee of September 2008, and compounded by our lousy growth performance (10 successive quarters of falling real GNP, with more potentially to come). The Government could have chosen to listen to Morgan Kelly that evening, but it didn’t — after all, who would take such an irresponsible young person seriously! — and the rest is history. If it is a solvency crisis, then it was always going to come to this, as long as the Government tried to stand by that guarantee. Mrs Merkel may have been the trigger, but if she had stayed quiet there would, inevitably, have been some other trigger.

The really important point to make about what Mrs Merkel said is that she was right. There is indeed a limit to how much taxpayers are going to be willing to bail out bank creditors, and so there should be. If she, or the IMF, or any other external body, forces the sort of restructuring of bank debt that our own leaders have been so reluctant to contemplate, then ordinary Irish people will be very grateful to them. If the restructuring doesn’t happen this weekend or soon thereafter, then presumably it will be a major issue in the forthcoming general election campaign, and we will get an early test of whether Mrs Merkel’s political instincts are right.

Update: today’s FT editorial makes some very similar points.

94 replies on “It was all the fault of foreigners”

Obviously its easy to target foreigners. What else are the Sunday Independent (and other papers in a less extreme manner) to do given all their support for Brian Lenihan.

That said, I do think there is a genuine conflict of interest between Ireland and other countries with regard to dealing with the banks. However, these same papers backed that too.


Agree entirely with you. Responsibility for the current crisis lies within Ireland. Foreigners lent too much money, were reckless, bad-mouthed Ireland to bondholders, etc. is teh propaganda of total denial.

The failure of supervisory authorities needs to be etched in stone and placed on a pedestal prominently in front of the Central Bank. Both the Financial Regulator and the Central Bank carry major responsibility for what happened. Many retail shareholders, homeowners, investors had a picture painted of the solidity of the banks by these institutions that was totally at variance with the paperwork passing through the institutions. And as for the political establishment where does one begin and end – from a Taoiseach allegedly undertaking informal foreign exchange transactions in car parks to bumper drinking sessions in the Galway tent with many political supporters who morphed into NAMA bound success stories.

I was listening to Marian Finucane today. And she seemed to be under the impression that the Irish government somehow does not have the power to stop Irish banks paying yet more cash to the bank bond holders. Till very recently, the incumbent government said it wouldn’t allow the domestic banks stop coupon and redemption payments on their bonds in order to protect Irish government bonds.
That line of argument doesn’t work anymore of course.
I don’t understand what the motivations might be now in preventing further socialisation of private losses. And more curiously still, I suspect the IMF probably doesn’t quite understand either.

Ciaran, I had the pleasure of meeting the CFO of a major French bank. He expressed surprise that the govt would ever touch seniors. There is the rub, the eurocracy has a problem with what might loosly be called the IMF solution. Tomorrow night will tell us who won this argument.

At a wedding yesterday beyond the pale. Unanimous relief, even from the offaly delegates, that someone was in charge. Awareness that the IMF are the lesser of two evils, that we need fiscal discipline, and so on. Deep sense of anger and bewilderment that the EU are seemingly driving tax to bondholders…
Most angry were the 45-60 age group. Solid middle class people talking about bank runs over the soup. We are a cold, damp, less footie talented argentina. Without the tango.

@Kevin O’Rourke
Absolutely spot on. The number of people who still believe that Ireland is not facing a solvency issue is shocking.
On current government projections interest in 2014 will be €8.65bn, add in the higher than expected interest for the EFSF/IMF funds plus the additional bank recaps and that could easily approach €10bn. Or close to 25% of tax revenue.

Philip has posted some models that show we can still stabilize the debt at this level. However, while it may be theoretically possible to do so in practice I think it will be almost impossible to do so.

@Ciaran O’Hagan
What do you think the best strategy for the state is right now?
Should the banks be forced to default on senior bonds?
How do you see this panning out in 3 years time?

I imagine there is going to be a lot of very interesting material in the Augean stables of the banks when they are finally opened to the light. No elite wants that kind of exposure. Morgan Kelly and others were sidelined but the numbers didn’t lie.

There might even be a change in the relationship between the Irish media and the ones pulling the strokes. These days are momentous. It’s more than just a bank/solvency crisis. It’s a total failure of the system.

I think it’s hard for the Irish Times and RTE to keep on top of the story since so many of their references are no longer valid.

Of course, whatever the arithmetic, neither the outbound nor inbound govt will actually touch pay or welfare rates or engage in any meaningful reform.

It looks like Ireland can do what most countries and polities try not to….we CAN actually waste a good crisis.

Mrs Merkel was correct in what she said, that bondhlders will have to accept some default, partial or otherwise. But simply stating that fact without willing the means to achieve it was unlkely to attract bondbuyers to markets which were already fragile. But the bigger impact was surely the role of the ECB in announcing the withdrawal of liquidity provision, which directly led to a run on Irish bank deposits.

However, all of this can only impact a market which is already fragile. That fragility was itself a function of banking and fiscal policy. Which was homegrown.

Michael, spot on. Merkel shouted fire in a burning theatre. Moreover she did it after her bondholders had been evacuated on 30th September. Lastly the disignated fire authority- the Ecb- disconnected the water.

Again, Ireland’s public hypocrisy is just astonishing.

At the same moment as we are standing with our hands out asking to borrow more money simply to keep the lights on, we unashamedly condemn people for lending us money previously. Those bastards gave us money and now they want it back! The cheek of them!

Of course, if it wasn’t for the guarantee then they’d be chasing Seanie to get their money back. Now they’re entitled to chase my kids and yours for the money.

Queue Mr. Lenihan to remind us that the guarantee was the only game in town and that Prof H thinks it was a good idea.

Give the banks a stability test and at the same time give the Cabinet a sobriety test. I know some of you will take umbrage at this and say they are not drunks they are clowns and fools. But let us be charitable drunks usually sober up around 11 a.m. whereas the other two conditions are permanent. The banks have to go into receivership as soon as they are declared insolvent. The Receiver will manage an orderly transition. Should cause disruptions for six months but not more than a year. Better than a ten year sentence to penury for the public at large. I am not suggesting the gov’t itself renege on its sovereign debt. There has to be distinction made between the public responsibility and the private sector responsibility. Our gov’t has been in power for so long that dipping into both troughs comes naturally to them. The major risk to the country is social breakdown leading to mob rule. When it happens, it happens fast when the social contract is blatantly torn to shreds.

@ Hs
One thing that annoys me is that honohan said that we needed a guarantee, not necessarily this, but politican gets away with saying that he said this guarantee was needed.
All media let them away with this.
Eammon Ryan on rte one…..

@Ciaran O’Hagan
“I don’t understand what the motivations might be in the preventing of further socialisation of losses”

There are many possible answers

1. We are hopeless negotiators.
2. We are technically incompetent
3. We believe everything Brussels/Frankfurt tells us (see 1, above)
4. We just don’t know what we are doing (see 1, 2, 3, above).

More than anything throughout this whole catastrophe has been the repeated demonstration of our managerial and technical incompetence. NAMA was a bad idea (technical incompetence); we failed to do NAMA efficiently or optimally (managerial incompetence).

We are feckless and lazy. Witness the repeated statements by many prominent economists on this blog about the headwinds we face from a ‘struggling world economy’. Such a statement does not survive a first encounter with the data: the world economy is growing very vigorously and will do 5% real this year – and it’s not just Asia.

We wing everything – with the result that amateurs, poseurs and chancers end up making all the decisions. With the results that you now see.

People have to understand that we have overlaid a systemic governance crisis on top of a financial one. International investors thought they were putting money to work in a normal Western democracy (with all the warts that go with that). What they found, this week when they really looked for the first time, was a parish pump.

Exponential Gombeenism as somebody else said this week.

@ Simpleton,

Or perhaps it is a cunning plan for Ireland to default on Soverign debt, to become totally insolvent.

For Mrs Merkel to get her way, drive Ireland to Bankruptcy, turn around to the senior bondholders and say “well nothing left here folks, you bondholders will just have to take a sharp haircut after all”.

@ Kevin O’Rourke,

Great post!! The end game is getting closer.

@ Tullmcadoo
Everyone I speak to the world over expresses surprise, if not downright bewilderment, that the incumbent government took the actions it did, and continues to do so. Of course these are people that tend to own government bonds.
Bank bond holders, in contrast, would all doubtless see it as quite normal that the present Irish government has been protective of their interests.
I suppose it is normal that everyone talks up their own interest. Governments usually, you would expect, would protect the long term interests of their taxpayer.
@ Dreaded_Estate Sorry I have to be careful what I say here. But you can probably guess!

IMF guidance on bank insolvency, April 2009, pp63-64

Credibility of a blanket guarantee is essential because creditor expectations must stabilize immediately, often before other policies have time to take effect. Common determinants of a blanket guarantee’s credibility include: (i) the political commitment (and sometimes, statutory backing) for the guarantee; (ii) the strength of the banking system and
the bank resolution framework; (iii) the perceived ability of the government to cover resulting costs; and (iv) the strength and comprehensiveness of the authorities’ communication strategy in describing the guarantee and how it will be financed.

Reliance upon a blanket guarantee raises at least three risks to financial stability over the medium term. First, blanket guarantees are prone to abuse, particularly in an environment where the banking authorities are subject to political interference and the system is
dominated by vested interests. Second, blanket guarantees remove pressure for the rapid resolution of banking problems and can increase the overall costs of the crisis by delaying restructuring efforts. Third, as described above, blanket guarantees can pose a contingent
liability for the government that is difficult to quantify ex ante. These risks point to the importance of taking advantage of the relative stability resulting from the guarantee to move aggressively to identify and resolve insolvent and nonviable institutions.

The furriners tried to tell us. Someone wasn’t listening.


That Merkel theory is pretty appealing in a way, but I don’t quite believe it. Presumably someone had to have let the CEO of Deutsche Bank into the room at a meeting of European finance ministers to do his now-familiar party piece about how “[w]e” (we?) “have to do everything to catch every country that runs into trouble.”

Should rating agencies factor in senior bank debt when rating sovereigns? Hard to see any AAA country if that is the case.

Ciaran, I was not aware that there was that much separation between govt and bank bond holders. I still find the notion that the guarantee was a unilateral decsion quaint. It was wholly consistent with the “request from the ECB”. That is a nasty little fact that lovers of the European project cannot duck. We were given the gun to shoot ourselves in the head.

“It was wholly consistent with the “request from the ECB”.

What request would that be “save your banks”?

It was always possible to save the banks without saving the senior bondholders.

This is such nonsense.

Any arrangement without giving haircuts to the bondholders does not work.

They are in the lending business and that has risk.

Irish politicians are TRAITORS to their country, for allowing the Irish people to be flayed on the scaffold of the bondholders.

Let all the Irish banks fail, the country would still survive, and new banks would emerge .

And frankly Irish economists, civil servants and central bankers and talking heads are a disappointing lot. This result of the bank guarantee should have been obvious in September 08.

D E. How many times have bondholders been burned. Seniors are sacrosanct in a European system that is over leveraged & depends on wholesale funding. The ECB cares more about the BNP or Deutsche than the taxable capacity of Ireland. That said, the IMF has a differant view.

It’s worth emphasising again that Merkel had her “orderly restructuring” idea in May, at the height of the Greek crisis. And the idea did not disappear at that point, only for Merkel to suddenly rediscover it a couple of weeks ago. It could readily be seen percolating in Germany and in Europeland in July, August, September, October, and early November. Anyone whose job it is to keep on top of these things can only consider themselves to blame if they were surprised by Merkel this month. Admittedly this does appear to have included a fair number of bond traders, but they were probably going to notice the Big Secret at some point anyhow.

The system that relies on wholesale funding is unstable and needs to be reformed. If the ECB needs time to come up with a more comprehensive proposal to reform EU banking generallly, then they need to give us cheap money to thread water for another while. We cannot borrow expensive money to keep banks alive and then have a general solution in a year or two that means that other countries seniors get a clipping.

There are two phases to consider.
1: The cause of the crisis were not all of Irelands making
2: The disastrous response to the crisis is of Irelands making

Lennihan said “we all partied”. I didn’t. But is it any wonder the Eurocrats want to punish us.
Indulge some pop-psychology but he seems to seek approval from father figures rather than represent his people.

But if I have learnt anything as an adult it is that, whatever your choice you run a risk. Today, there seems to be a sense fatalism on the basis that “well it’s all decided now and there’s nothing we can do”. In other words, let’s just leave the hard decisions to foreigners and hope that they will make decisions with our best interests in mind rather than their own. If that’s the case then we are running enormous risk because everyone, regardless of nationality, will act in their own best interests when given the chance, why should this situation be different.

We do have choices though, the Irish government extended a two year guarantee to the banks that expired in September of 2010 and was extended to December. That guarantee should be allowed to expire and anything left in the banks belongs to it’s private sector creditors. I understand that the consequences of this decision will be horrible, but they are less horrible than the alternative which is that the tax payer assumes these debts and puts our country back by 100 years. That is our choice and we have to have the courage to make decisions.

“How many times have bondholders been burned. Seniors are sacrosanct ..”

More to the point – how many blanket guarantess exist? From what I can gather the answer is 1 – maybe you can identify more.

Notjing, repeat nothing, can make socialisation of bondoholders losses OK. That statement is just incredible. Why would ratings agencies differentiate different banks and sovereiigns it this were true. A lot of folk in this blog say that there was anyway an implicit guarantee. If this were true it makes the blanket guarantee even more insane, since it was just a waste of time.

The whole handling of this crisis has been ridiculous.

We started off with the government saying “Ah lads, here, it’s alright, we’ll cover ye with a guarantee.” Then it went on to “Here’s a few billion quid to keep ye going, try to throw a few quid to businesses and borrowers will ye?” and rinse and repeat that last one. We’ve had two years where, although us taxpayers have been burdened with the cost of bailing out the banks, the government seemed to have asked little of them in return. In fact, they’ve practically gone on as if nothing happened at all. Same people (more or less) at the top of the banks. Same disproportionate salaries.

In fact, as far as restructuring goes, has anything happened? (Besides taking over debt-crippled Anglo). What concrete measures were introduced to protect against corruption and transparency? The main banks still seem to be hiding their losses and backroom shenanigans behind smoke and mirrors. It’s still not possible to, with 100% certainty, say what losses are expected in major banks. Why can they be allowed to do this? Why were they allowed to do it for the last 2 years plus since the guarantee? Is it because FF and their ilk are so closely tied to these fatcat bankers?

I can’t believe the country has to be pushed to the very limits to force the government to do something. And even then, how can we hope to negotiate a proper deal on an IMF/EU loan using the same people that gave a limitless, almost conditionless guarantee to our major banks in 2008?

@ Anonym,

Interesting link, curious why Mr Akermann would put together a rescue package which is not going to work as a rescue package.

Do you think there is method in the madness? Or are they just trying to give us a bit of a rough ride before they soften up and treat us gently?

At this stage all I can remember is Morgan Kelly’s last line in the last opinion piece. “Given up all hope”.

Just when one thinks it cannot get worse, it does.

You are only being “forced” because the collective “you” is abdicating responsibility and talking only on the script provided to you by the bankers and politicians that made this mess. We really are discussing who’s to blame as If the battle is already over, when we face an election, when we face a choice of renewing the guarantee or letting it go…. Vote these people out and only vote for a party that will refuse to honor the guarantee, it’s that simple…sadly I don’t know who that is, and until we fund them we have to play delaying tactics….where are the lawyers, the politicians that disagree with this, and the press that understands it? I don’t understand the passivity?

It looks like they are backing off on the 6.7% figure but I am curious as to the change from 3 year borrowing to 9 years and the consequences of that.

‘At this stage all I can remember is Morgan Kelly’s last line in the last opinion piece. “Given up all hope”.

Just when one thinks it cannot get worse, it does.’

The most apt part for me was
we are dependent on the kindness of strangers. How true.

Alright To borrow some online vernacular STFU with this defeatist crap!! Dependent on the kindness of stranger, please just STOP!!

Whatever happens we HAVE choices…..we can accept these liabilities and look forward to a future that looks very like our early 20th century past where we pay our excess production to foreigners and, to pay for it, we export half educated victims to work their backs off for the benefit of others, or we can grow a pair of gonads and stand up for ourselves.

Reading this defeatist shit on here from educated people makes me puke…grow up!!!

@ Bklyn_rntr,

Absolutely charming introduction.

I’ll put you in my diary of contacts when I need some smooth talking and counselling.

I’m not sure if you live in Ireland, but you don’t seem to be too concerned about the austerity measures which are facing the country.

Perhaps though you are right, we require to get a bit tougher in our negotiating style.

What do you suggest which would stop your puking?

Thank you, thank you….you are right I don’t live in Ireland but I grew up there and I have immediate family and many friends there, so I do claim at least an emotional interest.

To stop my puke filled reaction? Well let’s start with a conversation that actually looks to a full range of choices and maybe another one which looks at the consequences of the choices we are making. What “normal” adult worthy of respect goes home and says, oh we are not doing anything, we are now dependent on the kindness of strangers?

Also, we have choices, none of them are easy and all of our choices carry a series of negative consequences, but guess what…that’s life and that what it is to be a grown up sovereign democracy. If we sit back and allow others to chose our actions in the immediate future, we will have one set of consequences, if we stand up and take a stand, we will have another.

Specifically, I believe that we should allow the guarantee to expire, arm twist the German, Germand and French banks to buy the irish ones, because they own them anyway, let them deal with the consequences of their past decisions. We don’t default on sovereign debt, but we do assign responsibility where it belongs and take whatever consequences flow from that. That, in my opinion anyway, is being an adult.

And by the way, I emigrated from Ireland with an education that has been the best asset I have ever owned. My parents didn’t ge the chance of one, just like almost everyone else of their generation and my nieces and nephews have the chance of an education today…if we take on other peoples liabilities how can we do justice for future generations?

And another thing….the country has an election ahead in the very near future! This is a time to have those discussions. The cliche that we get the government we deserve is a true one, so to sit around talking about depending on others when you face a series of choice NOW is not only self indulgent it’s irresponsible.

Apologies for not having the reqouisite manners, but I promie you it comes from a well of sadness and anger at what is happening to what I believe is a country that has given a lot to the world and can give a lot more.

What else are the Sunday Independent (and other papers in a less extreme manner) to do given all their support for Brian Lenihan.

I don’t read the Sindo, but I’m reliably informed by people who do that the Fanning/Harris family consensus is that your unionised clean lady is responsible. (The recent Ross/Webb homework assignments apparently pursue the same line, if last weeks’ cringe-enducing Panel appearance by Webb is any guide)

While trying to figure out what got us into this mess, I came across Political Economy and Colonial Ireland by Thomas A Boylan and Timothy P Foley, Routledge 1992. Covers conditions in the 19th century and tries to explain why Ireland has not produced an economist of international repute as stated by J. K. Glbraith. Statements like “Celticness and Catholicism combined proved to be totally inadequate”. To appreciate this book one would have to be Irish and have attended an Irish Primary National School.

nothing was more cringe inducing than Fanning’s appearance on the late late show. He actually bemoaned the fact that the celtic tiger had passed him by and he couldnt see how he had benefitted from it…..the editor of irelands largest newspaper….complaining about his lot in life, at a time like this. it was probably more vomit inducing than cringe

The media in this country are atrocious.

RTÉ love having their FF-empathetic chats with Cowen and Lenihan on the Six One news. I was almost bowled over when Fintan O’Toole used his Frontline appearance to plug his book during their studio debate earlier in the week! Not forgetting his ‘appoint a super-team of David McWilliams and Mary Robinson et al to solve the country’s problems’ solution to our sovereign crisis. Where are the journalists with substance?

Actually, the only real debate I’ve heard is on Vincent Browne’s programme on TV3. With proper panellists and proper questions and proper debate. Even if their points aren’t always valid, at least they don’t treat the general public like idiots. I daresay everyone in the country has learned Economics 101 at this stage.

Just came across this comment
‘”The public are led to believe that sharp belt tightening is going on, when we’ve barely begun,” said Societe Generale analyst Ciaran O’Hagan in a research note.

You mean more pain?

I was listening to an interview by Bill Black of the University of Kansas in Missouri. He was a consultant to the Irish Gov’t and participated in the Icelandic bank fiasco. He describes the Irish bureaucrats and politicians as being a bunch of gutless helpless whiners who tug their forelocks to the elites. He makes a parallel to the sexual molestations conducted by the religous orders and the lack of criminal charges and convictions. Hundreds of criminal charges are warranted in his opinion but he sees no prospect of anything being done because of the backward and infantile nature of the Irish. I am Irish and at this stage I see little to be proud about.

@ CP

Whether the Govt can induce more pain is also in question. How much of the economy will be going into black in the next few years?
Time to change my name to Pat Cash again….

giving up…and ask yourself Mickey hickey, who did you vote for? You elected that lot and you get another chance to elect them again soon. The government is you


I am one of the few remaining hard bitten cynical bastards. At the early age of 12 I knew beyond a shadow of a doubt where the brown envelopes came from and who received them. They went to members of the party in power from supporters of both parties. The Irish are the originators of equeal opportunity scams, all perfectly legitimate “campaign contributions”. If you wanted to vote for honesty Sinn Fein is the only option you have. I can guarantee you that I have never and will never vote for FF or FG. I suffer from the same problem as you and that is a few decades in different countries removes the green tint from the lenses and one begins to see clearly. Being able to see clearly is a terrible affliction.

Foreigners held 65% of Allied Irish Bank shares during boomtime days and there are about 75,000 foreign nationals on the Live Register.

Foreign-owned companies are responsible for 91% of Ireland’s tradeable goods and services exports.

The IMF says 75% of Ireland’s sovereign debt is held by foreigners.

The European Central Bank has loans outstanding to domestic Irish banks of about €100bn.

How dare they?

Do they not realise we’d like to still be in the early ‘eighties?

PS Can you get a lock for a mobile phone dial?

Atlas of Irish history page 92

The Great Famine/Moderation

the blight/bank losses spread rapidly because of the wet harvest season/lehman bros and 40% of the crop/bank capital was destroyed. This was enough the plunge the country into crisis, though imports of Indian meal/ECB funding at first kept mortality/solvency within bounds. If the blight/bank losses had not recurred the setback of 1845/2008 would not have been much more consequential than any of the other regional crises. Unfortunately in three of the following 4 years the blight/bank losses again took a heavy toll with the result that when relief from private and official sources/bond markets and ECB proved inadequate tens of thousands died annually from malnutrition and epidemic disease/became unemployed,bankrupt ,emigrated, committed suicide

WHICH Foreigners?

Not surely, the ones who were taking the other side of the trade in Quinn and Anglo’s share support wheeze. Remember that anyone who put up actual money to bet against the betting that was eminating from within Ireland – backed up by official spin and mainstream media self-sensorship – had a very good idea what was going on. If you get it wrong it is a lot more expensive than talking about it.

The determined selling was a clear warning about Anglo. The reaction in Ireland though was too often that the foreigners just didn’t get it.

Morgan Kelly’s contribution made such an impression within the country because probably 95% of the population were by then genuinely in thrall to and in awe of, the banksters and the poverty developers.

Viewed from outside, to many it just appeared that here was, along with David McWilliams and a few others with a public platform, a guy who hadn’t got sucked into the craziness. Outside the country, the view that Ireland had shafted itself was commonplace. In Dublin it was a novelty.

Take a look at the first reaction to the original bank guarantee from the FT, no Ireland experts involved, just the sort of instant reactiong that was typical in the City. Some were taken in, but most just thought it was nuts.

“Ireland’s gamble: FT Alphaville wishes them well playing bank protection Poker.”

The reference to poker iwas not one of admiration.

There are two other groups though. Banks that came into the market and joined in the lendng splurge – but they were just bankers. Bankers don’t think, they just lendtor, as Shaunie said “give customers what they want”. They are almost as culpable as those who took the decision to borrrow to “invest”.

The other foreiigners are many of the bond holders. Lots of them either believed what the banks told them and didn’t bother doing research, or were incapable – like bucketloads of Irish economists – of recognising the fat tail risk. They were either lazy or demonstrated poor judgement wrt the risk part of risk/reward. They are as much to blame as the Irish borrowers, but, being professionals, they also knew about diversification so only the genuinely incompetent would have put a significant portion of their portfolios into bonds dependant on the solidity of Europe’s flashiest property market

@ Ahura Mazda
Yes rating agencies give consideration to the resilience of the banking system, and the possible contingent liability, among many other factors. And even for a country like Spain, with a fair number of challenged banks, more general considerations like income, wealth and fiscal resilience play a greater role in the determination of ratings. There is just one other small European country where the resilience of the banking system impinges, or should impinge, considerably on the rating.
The hard-nosed approach of the US authorities in respect of US banks I’d see as a factor supporting the Federal AAA, even if some institutions are systemic (but globally so) and even if there are serious financial risks in the USA outside of banks.
@ Tullmcadoo
No I can’t agree at all that the 2008 blanket guarantee was a “request from the ECB”. I think that is part of the folklore that Kevin O’Rourke is trying to dispel. I remember quite well those days, and the surprise – shock – outside Ireland at the time. Look through newswire reports if you have any doubts. Of course, the European authorities wanted some form of stabilisation e.g. the protection of small depositors. But blanket protection for years? And if we were to follow your idea, other countries would presumably have had to have done the same at the behest of Europe (as AMcGrath points out). No, no way.
As for the European Commission, you would think it would have had a mandate to encourage competition – including competition in financial services – within the single market. How was protection given by Ireland to its banks ever going to be consistent with that mandate? And who did the persuading that Irish banks merited special and unique support in Europe?

And Tullmcadoo, no I don’t agree that the ECB and the European authorities generally do not have the public interest at heart. There might be still some clumsiness in identifying what it is and taking the measures to get there. The risk rather is that the authorities, like much the rest of us, see the world through rose-tinted glasses (@ceteris paribus – yes). And take the tough action too late as a result.
@ Eureka
“The cause of the crisis were not all of Irelands making” “is it any wonder the Eurocrats want to punish us.” I think that is part of the folklore that Kevin O’Rourke is trying to dispel. As Michael Somers argues in his recent IT article, luckily the subprimes crisis came along when it did. Otherwise the fall from grace for the Irish banks and for the Irish budget deficit might have been even harder.

@Ciarán O’Hagan

I cannot believe that bankrupt irish banks are continuing to “buy back” sub bonds and post these as a gain on their balance sheet.

stop, Stop STOP we can’t afford the money. They are giving these people cash that we need to keep vital public services going.

In a bankrupt situation these sub-bonders wouln’t get anything.

One point though, could someone buy one of these sub-bonds from the bondholders from the holders. Under Irish company law they could bankrupt Anglo and INBS, might cost them a lot in legal fees and they would make nothing (in fact lose their high court legal fees), however the country would gain hugely because other bondholders would be burned.

Could someone legal confirm to me are sub-bonds equivalent to normal creditors under irish company law.

@Ciaran O’Hagan
Do you have any idea who the bondholders of the Irish banks are? If it is widows and orphans funds, surely they aren’t systemic. If it is other European banks, there might be some problems (?). If it is other Irish banks, well, how many times do you have to shoot a duck to kill it?

“look after your banks” means something and it does not mean keep the branches neat and tidy and the ATMs well stocked. It meant inject sufficient capital to underpin the seniors. It also meant the ECB was fine with that capital coming from the taxpayers. DO you want proof. The guarantee was shopped around Brussels prior to implementation, without much objection. The incredulity you refer to was coming from the market not the officials.

You are correct in saying that the guarantee was our own idea and its extension to insolvent Anglo was even more a solo run by our Dear Leader. But, it was in line with the implicit policy goals of the ECB. If they really had a problem with the socialisation of losses they would have said so would they not? Where is the massive row with ECOFIN about the damage to the fiscal position of Ireland as a result of the guarantee.

There is a lot of revisionism going on here. Cowen and Lenihan are righty being blamed for the guarantee. Honohan said he would have favoured a differant form even though he sung dumb at the time. The Eurocracy is washing its hands of the whole debacle even though it was in line with their goals. The Irish europhiles are also absolving the EU/ECB of blame as it suits the narrative of an imcompetant govt that did not listen to their betters.

The truth is even more basic. Irish policy making at official level was terrible but the Europena input was equally incompetant. Moreover, it has not improved since that night.

So Tull, let’s say your right (which I don’t believe By the way, because most other governments were pissed off with the Irish blanket guarantee at the time. It surprised them and forced them to offer higher deposit guarantees etc that they didn’t want)

…in the end it doesn’t matter….what matters is that the guarantee was wrong because it didn’t work and now we have to make another set of hard decisions…do we allow the EU and IMF and our dear, feckless leaders to leave us a present before the upcoming election/eviction in the form of a budget that solidifies the transfer of private sector liability (banks debt due after Dec 2010) onto the sovereign balance sheet? or do we say, no…. enough is enough, we can’t afford that guarantee, it was a mistake and we have to let the banks go?

That’s what matters and I know I am being a rude guest to say this here, but we can’t look to economists for guidance on this. That profession is almost as contaminated by this crash as the politicians are. They are, for the most part, bought and paid for by the banks, and their research seems to be aimed at serving their interests. We, people, voters, parents, grandparents, Citizens have to decide what is best for our country. We have to do this in a very bad situation but for our future depends on it…that’s it…this is a power game to try to maximizes our chances for a better future and we have to concentrate on this fact alone. It is not a blame game to re-interpret the past as if its all over already.

I did not say forced. Influenced would be a more accurate term. They were definitely behind the curtain. Moreover behaviour since then suggests comfort with the guarantee. Any pessure from Brussels/Frankfurt to burn bond holders?

“The Irish europhiles are also absolving the EU/ECB of blame as it suits the narrative of an imcompetant govt that did not listen to their betters.”
I ain’t : plenty of blame all round.

Now, I’m of mixed views – especially after my second glass of cheap NZ sauvignon blan as I await macroeconomic doom….

1. This was our own fault
2. The guarantee really bugged the furriners.


3. The consistent line from Dof to ALL queries about ALL aspects of their crazy policies was ” but we have to pay back the German credit unions”.


4. The negotiations going on right now don’t appear to be between US and THEM but the IMF and the EU. The IMF want their money back so want to charge us a lower interest rate and make bondholders share the burden. The EU wants to contain contagion, protect the euro and pay back the german credit unions.

So all furriners are not the same, but some furriners are worse than others.

And furthermore

If they’re so clever, and warned us so often about our crazy credit explosion and property bubble, then why did they buy the bonds? and why should they get their money? And don’t they have it insured anyway?

I’m just saying – either they were virtuous and right and good conservative wise Germans who didn’t make the same mistakes as the Irish or just as greedy as the Irish sinners and bought the bloody bonds thinking they were onto a good thing? Do they get to have it both ways?


Anyway, the only evidence we have for that is Lennie’s amusing anecdote of how he was at a FF fund-raiser at the races as the Irish financial system collapsed, while M. Trichet tried to contact him over the weekend eventually resorting to a phone message of “you must save your banks”.

No doubt M. Trichet has a private number, so that’s why neither Lemmy nor the rest of the jaffas in the DoF rang him back to ask “howdja mean?” and to add “shure we can’t save Anglo or INBS boss, they’re wrucked”

To be credible, that as a basis for the guarantee would have to assume that the minister and the DoF were knavish fools.

On the “save your banks” I am convinced that was the policy but they had thought they’d work out a co-ordinated policy and never expected the guarantee stroke.

There seems to now be a sort of consensus – even tull seems to be rowing back. The blanket guarantee was a huge misguided and irrational solo run – which has already been used to pick our pockets – and instead of being some kind of solution, is in fact now the major problem facing us.
The question now is can it be legally overturned. As hogan pointed out on another thread it has not been tested in the courts.
An icelandic type referendum on the matter would be an interesting start – the party proposing that and/or a legal challenge gets my vote.

I’ll move back to vote for the same party if they it ever shows up!! and where are the highly paid barristers, solicitors etc, to challenge this stuff in court so we can delay all of this crap until the cavalry arrives!!

@Aidan R
Agree- Bill Black has a nice clarity of thinking which obviously doesn’t suit governments and their financial collaborators. Obviously they didn’t like to see their buddies behind bars so instead of bringing in bill Black again they bailed out AIG because if AIG went down so also did GS – and GS and the Fed and treasury behave as if they are just job rotating within the same organisation.
Bill is a victim of his own success in the savings and loan but we could do with him.

This issue of Trichet and the State bank guarantee is reminiscent of arguments about London-Dublin cable traffic during the Treaty negotiations in 1921. The main story of course was why the head of the revolutionary government had decided to stay in Dublin not communication problems.

There was no official ECB policy in Sept 2008 on issuing blanket guarantees and neither had EU finance ministers promoted it.

Ireland was the ONLY Eurozone country to issue a blanket guarantee and a week later Denmark made a similar move.

According to the IMF, the median across 12 advanced countries of government-guaranteed debt issued by banks during the crisis or in the case of Denmark/Ireland including existing debt, was about 6% of GDP.
In ascending order, US (2.5% of GDP), Germany (3%), Portugal, Spain, France, Austria, Sweden, Netherlands, UK, Australia, Denmark and Ireland.
Denmark’s exposure was 20% of GDP and Ireland was the outlier with an exposure of 55% of GDP — all the others had an exposure below 10%.

See chart here:

The news on the Irish guarantee was presented as a fait accompli to the ECB, Ecofin and Eurogroup heads on the morning of Sept 30, coinciding with the issue of the news to the markets.

Once the announcement was made, it would have been very difficult to reverse it.

As regards the Lenihan-Trichet phone conversation, as I said before, I doubt if Trichet gave the go-ahead on a blanket bailout. Unlike his gaffe-prone predecessor, he is always measured when speaking on policy issues.

This story is akin to a unit of a multinational making a major decision without any consultation with headquarters but assuming that everything would be grand because of a conversation a week before with the CEO.!

Decisions made in a panic situation seldom turn out right.

The banks had access to the ECB’s emergency liquidity program which was in place since Aug 2007.

The unlimited deposit guarantee could have been issued and the issue of guaranteeing debt could have been discussed with the ECB in a calmer atmosphere.

If the blanket guarantee was issued to save Anglo, it was an absolutely reckless move to make in the absence of detailed information on the state of the bank.

Remember the context – – yes the crisis had intensified in the previous 2 weeks after the collapse of Lehman – – but it had been 13 months since the onset of the credit crunch; the world’s biggest insurer had to be rescued by the US government and the prospects of an Irish soft landing had evaporated and what did the Department of Finance have?

A Sept 18th PowerPoint presentaion prepared by Anglo and the financial regulator chanting his mantra on ‘resilient’ banks.

The very title of this thread “it was the fault of the foreigners” mockingly suggests that honest debate on this matter is not desired.

Michael, Ciaran, DE et al,

essentially, you are seeking to exonerate the ECB/Ecofin etc of culpability in the Irish crisis by blaming it on the dumb Paddy who granted an incredible guarantee to his own banks and bankrupted his own country. The second pary of that sentence is certainly true. The granting of a blanket guarantee to a “known to be” insolvent bank was little short of treason.

But there is a big flaw in your logic. If the Eurocrats thought that the guarantee was going to bring down the Irish state and render it insolvent, they have had two years in which to intervene and demand a resolution regime and a scheme of arrangement with creditors. They have also had an oopportunity to let the guarantee mature and not replace it. Instead the Commission approved new ELGs which still protect seniors. Moreover, we are led to believe that the IMF are at loggerheads with the ECB over the issue of burden sharing. I presume it is a yes/no argument rather than a 20/30% argument.

Your logic proposes that if the guarantee did not exist we would have put Anglo and possibly AIB into resolution and reached a scheme of burden sharing with bond holders. But this logic fails because this is precisely what the ECB has never wanted. Every time the issue of seniors is mentioned, the bond vigilantes play “who’s next” and this scares the living daylights out of the powers that be.
Three years into the crisis one of the good Spanish banks BBVA has a loan deposit ratio of 200% in Spain while the two well managed French giants are at 150%. All are hugely dependant on volatile wholesale funding (lots in USD). So any action which raises issues on quantum and price of this funding is very damaging for the EZ financial system.
That is why the Eurocracy was happy that the Irish taxpayer took one for the team to preserve the system.

I don’t exonerate them from all blame. As I’ve said, a european wide resolution mechanism can only credibly come from the ECB. Likewise on deposit insurance and tobin taxes to fund them. I suspect they don’t like the idea of the FDIC and it is an ideological constraint…

But the guarantee? Well, that’s a different story.

essentially, you are seeking to exonerate the ECB/Ecofin etc of culpability in the Irish crisis by blaming it on the dumb Paddy who granted an incredible guarantee to his own banks and bankrupted his own country.

I try to deal in facts; I spend quite a lot of time at it; not a lot of people bother including I would think the majority of journalists.

For example when the Innovation Taskforce produces a report based on aspiration and opinion, I try and counter it with facts.

It’s the same here – – I am an outsider as I was during the bubble as the facts suggested I should be: some were even crazy at the time– an overstretched developer buying part of the hq of the then biggest bank in the country.

The ECB had no power to force the state to absorb losses of the private Anglo Irish Bank.; if the Eurogroup had insisted on it, then it would have put itself on the line.

By issuing the guarantee without any consultation, Ireland left itself exposed.

We nationalised Anglo without raising the issue of burden sharing; why would others volunteer to help?

BBVA’s loan to deposit ratio in Q3 was 141% but it and Santander remain strong banks.

So tonight’s policy announcement from the troika should correct the record. There will be massive burning of the senior bonds in the Irish covered banks to recoup some of the losses in the last two years. We shall see. Even then this mornings press coverage seems to suggest the ECB is fighting a rearguard action. Would this be due to the fact that it is massively long of bank bonds itself?

If you read my post properly you will see that my ref was to BBVA Spanish book having an L-D of 200%.

“Even then this mornings press coverage seems to suggest the ECB is fighting a rearguard action. Would this be due to the fact that it is massively long of bank bonds itself?”
I suspect that’s the case, but presumably it is repo collateral? In which case, the borrowing bank should be buying back its worthless assets.

The ECB is going to have to get off the fence. Either it is going to do something about the problem or it is just another creditor.

I suspect liquidation for Anglo and INBS…


wind up Anglo, INBS & burn the subbies in AIB.

I doubt it matters though. I suspect the markets will doubt the inability to pay and force Irish yields over 10%. Portugal then heaves into view & Spain starts heading for 6%. The Spanish banks have huge Q1 funding requirements.

I think we are looking at a potential banking crisis unfolding in Europe.

The Economist website has a conversation between John Peet (European Editor) and John O’Sullivan (economics correspondent). About 4:10 minutes in O’Sullivan discusses the Sept 2008 bank guarantee. He argues that even if a decision had been made to make bondholders take losses, unless depositors were also forced to take losses the cost would still have been huge and (he implies) Ireland would still be in a similar position to where it finds itself today. I don’t know enough to understand whether his argument makes sense. If he’s correct then aren’t the arguments about whether the proximate causes of the crisis are domestic (bank guarantee) or external (Germany/ECB/IMF) are beside the point? Can anyone enlighten me?

( – look for “Ireland’s economic troubles” in the second row.)

I agree. I also suspect the european banking system is systemic to other banking systems… not much point in going to the trouble of moving money from one bust bank to another 😀

@ tull

How are the banks in the core EZ states regarding Q1 funding? Eoin mentioned 2 trillion for the whole of the EZ over the next 2 years I think.
Everything is linked through the glory of diversification. Why would it stop at Spain ?

The banks in the US are in no better shape either, judging by their addiction to QE.


It won’t stop at Spain. The usual suspects for contagion would be the German landesbanken which are carrying stuff at par from previous crises. I would also worry about one or two of the French banks & insurance companies given their cultural prediliction for derivatives, the carry trade and exposure to exotic places. The Austrian banking sector is also in the firing line. The safest banks in euro are the Scandis and the Swiss. At least policy makers are rational in these countries.

Paradoxically, the US lage cap banks are safe. The loan books are now deposit funded due to the Fed buying up most of the mortgage books in QE1. They also raised a ton of capital and the economy seems to on the up due to loose policy & a competitive currency.

@ Tull

I think UBS is still on a bit of a shaky scraw with its US exposure and most of the Swiss banks seem to be exposed to the property bubble that is ongoing (according to the NZZ 67000 new apartments build this year, fed by incredibly low interest rates) so maybe we could leave it to the Scandinavians.

It seems increasingly likely that we won’t find out why they went with the blanket guarantee until someone is on their death bed.

I reject Sarah’s “1. This was our own fault”. The notion that “ah sure we all partied and everyone’s to blame not just the guys making the decisions” makes me uncomfortable. Many OAPs were living in desolate conditions during the boom and cystic fibrosis kids suffered. They didn’t party.

Dave McWilliams took certain credit for the guarantee idea and said it was basically a bluff&the bluff’s been called. The political spin has not helped one iota as the guarantee has had the opposite effect to what they claimed “stable banking system” etc.

Alan Dukes hinted on VinB a few months ago that if the guarantee wasn’t given or if Anglo was let go to the wall then this would somehow be seen as sovereign default and borrowing rates would shoot up somehow by proxy. I can’t being to even contemplate the thinking of some of the guys in the system. The shitstem.


“this was our own fault” means (as i am sure you well know) this was the fault of the Irish state for not properly regulating its banks.

@ Alan Rouge,

Ms Sarah Careys comment does have weight. The term “we all partied” does not necessarily literally mean what it says. I suspect that in this general sense “we all benefitted as a collective entity”. Banks could give away cheap credit, property boom ment that more lower paid workers could be removed from the tax net, social welfare benefits increased etc etc.

Obviously as you mention there were certain areas such as Cystic Fibrosis sufferers who were ignored, so there were some areas which could not party.

Moving forward to the present and looking back now (hindsight being a great thing and all that) I am not too sure if we really benefitted at all. A lot of people are locked into huge mortgages for small substandard pokey apartments / houses etc. Money is now tight and getting tighter. Some people are not only losing their jobs, but their house. Unfortunately the strain of which is also putting some marriages at risk. Dare I say it but some people adopted the final solution and have taken things into their own hands.

@ Ciarán O’Hagan,

I don’t think the rating agencies give adequate consideration to bank liabilities. More lip service than modelling. ‘Risk committee reviews’ type fudge. I agree that the US have a system that mitigates much of this risk. Certainly the prevalence of bond issuance helps as much of the risk has been removed from bank balance sheets.

I wouldn’t agree that Ireland was the exception. UK? and others.

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