EU-IMF Programme Details

There’s a fair bit of cut and paste in the review phases, just time periods changed on the same budgetary and regulatory conditions.

OK, don’t default on the bondholders, but make the ECB pay for it.

As for “would be possible if it were intended by us to dishonour senior debt”, he seems to think they are ladies of virtue.

Deutschland ein weihnachts märchen ad in zürich tram. Germany a christmas fairytale. Read by b l t d

Tip of the hat to Jim

From what is coming out at the moment, it is screaming the question of why we didnt deal with just the IMF and look on the ECB as just another Creditor.

Fear of aprehension!!!

What is strikingly obvious is that we have the wrong people in the room, and this political cuckoldery should stop.

One case of active IMF program involvement with a state-guaranteed distressed bank is Parex in Latvia, and it’s messy because depositors got frozen and the focus is on burden-sharing with the shareholders, not bond holders.

Jim,

I am told but cannot verify that in previous crises it has occasionally imposed burden sharing. Korea is quoted as an example in 1998. Maybe someone with longer memories could verify. One of the national authorities on the subject is the Guvvnor.

I never thought that imposing haircuts was possible as long as one strove to maintain market access. However, having gone under the wing of the EFSF/IMF that maitenance of credit record is unneccessary. You can’t lose what you don’t have.

I think the decision to recap the banks to 12% requires some scrutiny. What is the point of having high capital levels where their deposit franchise is eroded and where there is no loan demand. This definitely applies to AIB and possibly applies to BOI. If we are going to increase core capital levels to 12% to facilitate write downs or hits to dispose of assets well then it is not a commercial investment.

Moreover, if say BOI has 9-10billion of equity but only generates 600m of profits due to a smaller balance sheet, its ROE will be below its COE and it will not trade at book value. How does the taxpayer/NPRF win in either example.

The least we should be able to do is impose severe losses on subs in AIB and some haircuts on non ELG seniors in AIB and Anglo.

@Al

The IMF solo run wasn’t on because the banks owe E130bn to the ECB and it wants its money back.

@ Tull. I agree. It strikes me that credit will be as scarce in Ireland over the next couple of years as Fianna Fail politicians in the Dail. What will it take to change the EU attitude towards burden sharing? Ireland is being used as an experimental guinea pig, but I fear that the experiment is going to get much bigger and more international over the coming months. It is becoming increasingly obvious that the investment in AIB and BOI is not a commercial transaction, but rather a sticking plaster on a leaking steel hulled ship. This particular story still has a long way to run.
@Frank Shareholders have already experienced burden sharing and will do so fully over the coming weeks. However, it is not sufficient and greater burden sharing has to happen.

German lesson for economists No 1:

DE: Geld ist scheu wie ein Reh
EN: Money is as shy as a deer

Perhaps that’s why there’s such a reluctance to take bondholders zum Friseur.

@all

In solidarity with Portugal

Markets Rise After Success of Bond Sale in Portugal

http://www.nytimes.com/2010/12/02/business/02market.html?_r=1&ref=global-home

& M Trichet on ECB and buying bonds …

Simon,
think credit ratings, default on seniors and your rating goes down. If your rating goes below A, a lot of couterparties will not deal with you. So you lose biz.

However, now that Irish banks have been downgraded to the very bottom of BBB, most of the rating sensitive custom is gone. No point defending your rep now.

@ Tull

If the increase in capital ratios prove to be too excessive, would that not be good news?

The capital being injected is not just there to support loan growth. It will ensure that the banks will able to withstand future deterioration in the quality of its loanbook. Wholesale markets may also become more willing to engage with Irish banks. In the words of P.Neary “The banks will be will so well capitalised that they can withstand any shock!”

Moreover, if the initial injection proves to be excessive, would that not imply that the contingency fund is also too large

@Al

From the statements released about the Irish side of the negotiations, one can conclude that these were definitely not negotiations in any sense of the word, or, we had the wrong team in the room…

Perhaps you are right, but this tale has all the properties required for a fresh Dolchstosslegende, i.e. Ireland stabbled in the back by its own craven and incompetent pols who couldn’t kick over a bucket of water without an instruction manual etc..

A kind of turning point in history, a fork in the road, if only …supposin, supposin.. three cats were frozen. And so forth.

Ironically the German volkes stimme views it the other way round — craven and incompetent Eurowhores who sold Germany down the river by falling for the ridulously low 6% interest rate proposal offered by the wily Irish snake merchants, should have given the besterds the marching order years ago, shake an Irishman’s hand and he’ll leave you without an arm …

In the section “Safeguarding Public Finances” p31 I read “Having stabilised the deficit, albeit at a high level, the steps announced in the Plan will place the budget deficit-to-GDP ratio on a firm downward path. While the debt-to-GDP ratio will remain at high levels for the next few years, it is projected to decline thereafter, underpinning debt sustainability”.
And that’s all they have to say it seems.
I see some people think this represents austerity (although that term cannot be found in the EU/IMF Programme of Financial Support for Ireland). Hysterity is maybe the better term. [from Greek husterēsis coming late, or coming after cf. hysteresis the lag in a variable property of a system with respect to the effect producing it ]

Whatever Mr. Cowan thinks, it’s time for an end to “STFU, and stop scaring the horses”. Many of the people posting here, and speaking in Irish public life, have spent far too long choking back or diluting things that desperately needed to be said for fear of scaring the horses.

Well, the horses have run off now, and there’s no longer anything to be gained from being delicate about these things. If we think it’s necessary to stand up to the ECB, come what may, we should say so clearly. If we think unguaranteed senior debt, or debt that lasts beyond the current guarantee, should get it in the neck, we should say so. If we think we should, or must inevitably, default on some or all the state’s liabilities, now or in the future, we should say so. We have got to the point where there is much more to be gained from brutal honesty than from going with the flow.

And if any of us think we are at economic war, and our supposed partners are the enemy, we should not be shy about saying this either.

@simpleton
They may be thin skinned, but they also live on a different planet. Lenihan states that ‘we can emerge from it a stronger and fitter economy….over the last two years, we have won back much of the competitiveness’. I cannot possibly see how Ireland will emerge a stronger and fitter economy if current policies are pursued through to the end. Investment in education will decline over the coming period of austerity, the Croke Park Deal remains in place, many Irish businesses are being squeezed to death by lack of credit and an unsustainable cost environment. I am not convinced.. we may come out fitter, but the stronger bit baffles me. In relation to competitiveness, he is also wrong in my view. Between January 2000 and January 2008 Ireland’s Real Harmonised Competitiveness Indicator appreciated by 28.8%. Between Jan 2008 and October 2010 it has depreciated by 7.7%. This may not be the best indicator of competitiveness, but it suggests to me that Ireland is still a long way from winning back much of the competitiveness we lost during the boom.

‘There is simply no way that this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the ECB. Those who think we could do so are living in fantasy land.’

Is Angela Merkel living in fantasy land? Aside from arrogance this statement is gratuitously insulting to Dr. Merkel and Pres. Sarkozy.

BLTD on the six o clock news says that Ireland’s ability to pay nurses their salaries would not be possible without flushing their pension reserve fund down the toilet.

http://www.rte.ie/player/#v=1086067 @ 14.10

It is the droit de seigneur of the bank bondholders

@seafóid:
“It is the droit de seigneur of the bank bondholders” …

… and of the nurses. They won’t not get their pensions: they’ll be paid for out of annual taxation. But the taxpayers have lost the small amount saved towards the bill.

bjg

@ ceteris paribus

He also got away with piloting NAMA through the Dail as a non “money bill” they do what they like with the Constitution. Sinn Fein need to go to the High Court again!

The deal doesn’t need to go to the Dáil, “because the Dáil doesn’t vote on bond issues.” Sweet mother of divinity.

http://www.rte.ie/player/#v=1086040 @ 19.00

Could FG not bring it to the Karlsruhe court?

@Karl Whelan
“The strongly held belief among our European partners is that any move to impose burden sharing on this group of investors would have the potential to create a huge wave of further negative market sentiment towards the eurozone and its banks system. That apprehension was confirmed by Professor Honohan in an interview last Monday when he said there was no enthusiasm in Europe for this course of action.”

Of course, there’s no enthusaism -that’s the typical naieve europhilic “group think” within Irish politics/overnment/academia who have never played in the real geopolitical sphere-they would rather that the four million of us foot the bill for what is, essentially and by your admission, a “public” good for the 320,000 million residents of the Eurozone. And remember – that “public good” is costing us 20,000 per head but spread accross the EZ would total a mere 200 euro per citizen.

What we have here is the concept of Mutually Assured Destruction – where Ireland and the “EU” have options to threaten each other but where a zone of mutual benefit exists and should form the grounds for agreement.

In return for us using 50% our GDP to keep the holders of “Total Debt Certificates (including bonds)” in Eurozone Banks in faraway countrues- currently totaling 6,462.8 Billion euro- comfy and happy- we get what? An interest rate “subsidy” worth 3 Billion per year (which we wouldn’t have needed if it wasn’t for the guarantee in the first place).

The last time I checked, the Irish bank bailout was going to cost Irish taxpayers 2/3 of the cost of the AIG bailout and that was not foisted on just 4 million taxpayers of, say, South Carolina.

“There is simply no way that this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the ECB. Those who think we could do so are living in fantasy land.”

Or how about this – there’s no credibile way that the ECB can shut off liquidity to our banking system because to do so would create a significant risk of a eurozone bank run – beginning in the peripheral countries and destroying the EZ banking system.

All for a measly 250 euro per EZ citizen? Or printing a bit of money? Or a few weeks of criticism in Bilt. Sarko and Merkel are politicians – NOT insane.

The answer – renegotiate a way to either socialise the senior bondholders at the EZ level or else haircut. Better still, do it in concert with a few other players with similiar interests.

The “Europeans” won’t be “enthuastic” about re-opening what was a superb deal for them but neither did the Soviets/Americans like dealing with each other!!!

Churchill said “courage was the most important political virtue because it guaranteed all of the others.”

This’ll take guts but it needs to be done – particularly while some non-ECB people have major exposure to BOI/AIB.

I have made this argument several times on this forum and have yet to hear a supporter of this “rescue” refute a single point in this logic.

@Jim Power – “Incidentally, i have no interest whatsoever in horses!”

You’re sure you don’t have a brother called Paddy?

A fair point though and well made.

# seafóid Says:
December 1st, 2010 at 6:42 pm

“@Al

The IMF solo run wasn’t on because the banks owe E130bn to the ECB and it wants its money back.”

The ECB couldn’t have pulled the plug if we had gone to IMF. That would have caused us to default straight away- the very thing they are trying to avoid.

@ ceteris paribus

I was for playing by the rules of capitalism. burning the bond holders, debt for equity call it what you will, from the start. Those that opposed this have turned private insolvency into state insolvency and intergenerational debt. Merkel spoke boldly about bank resolution and sovereign debt resolution frameworks for 2013 but at the end of the day she acted in the short term interests of German banks. This loan document will be what the next election will be fought on, if it is not rejected, by failure to pass the budget or court challenge then I can see Ireland spiraling out of control.

Right now, the law in Ireland is in the gutter, those involved in that august profession might do well to realise, before it is too late, that a lot of people see them as being a huge part of our problems. The tribunals, the revolving doors, the fact that white collar crime is beyond both the pale and appetite of their jurisprudence, not to mention the manner of judicial appointments. Judges are FF or FG etc. The same family dynasties crop up to remind us that it is not just Krugman’s crony capitalism, that is alive and well in Ireland. The legal and political hegemonies have thrived in concert, in what might best be described as carefully choreographed set pieces. In Ireland there is no moral hazard for white collar crime WCC.

When Mr. McKillen went to the High Court he had little prospects, NAMA being a piece of FF legislation. I wrote to the FF president asking her to refer the NAMA bill to the Supreme Court of course I knew I was wasting my time as this was FF legislation.

I don’t care who initiates the action as long as they do it! I thought “Animal Farm” was a great political allegory. However, the historian who writes factually about the loss of Irelands economic and political sovereignty will easily surpass that book without having to use a single metaphor.

Still making my way through the documents but what do folks think might be contained in what the Irish Times today call “a side letter agreed with the EU and IMF outlining confidential measures for the banks” which was “withheld from publication”. Despite talk of the “Garda and nurses salaries”, all of this is about the banks and yet we don’t seem to know the conditions under which the ECB will continue funding the banks or why the banks now need new capital – and in the short term the priority is not funding public expenditure which is “fully funded until the middle of next year”, it’s to ensure we have a functionning banking system so why can’t we get the details of what is being committed to in this area?

http://www.irishtimes.com/newspaper/frontpage/2010/1202/1224284574676.html

@Garry:
“this … criteria”? O tempora o mores.

bjg

@ Karl thanks for pointing this out
FROM Brian Lenihan
“The idea which is now commonplace, that some how there are no costs associated with default is entirely incorrect. Ireland is hugely dependent on Foreign Direct Investment. These companies have large funds and investments in Ireland and directly and indirectly employ a quarter of million people in this economy. Any default on senior debt and the uncertainty that would cause would undoubtedly impact on the future investment decisions of these companies.”

So here we have it.
Some very good evidence that senior bond holders in Irish banks are not primarily little old ladies pensions but are in fact also investment of the profits of some of the FDI’s. Also in fearing for the loss of these debts they have lobbied Government to ensure that they are not touched.

Given the proportion of our GDP they generate that would have been a fairly easy sell for the MNC’s. I guess it shows how little room to maneuver we actually had when it came to bailing out the Senior bond holders. Little did we know we would be hitting th profits of some of the countries biggest employers.
But here is the disgusting thing. Even though many of the profits have been all the greater due to our very generous Corpo Tax rate and even though it is fairly certain that their funds would have been very well spread, with Irish Banks only accounting for a small amount of their investments. They were still able to hold the government and the people over a barrel. It says it all really. Unless the Journalists in this country get the list of senior bank bond holders and publish the money trails of each one then the Irish people will have taken on this debt completely blindly.