Another Voice for Default

It’s a relative nitpick, but

cooperative arrangements

Seriously?

Is our present course confidence inspiring? It does not seem to be.

Just to note I don’t think the sovereign should default now. We need to get the deficit down and our house in order first.2013 sounds about right

I asked john yday the joint probability he would place on all the ifs coming up.

@ John McHale

I believe there is a reasonable chance that this strategy will work to restore creditworthiness. In the meantime, we avoid a crippling “sudden stop” of funding to the banks and the government through international support, and are better positioned to avail of a broader European debt restructuring solution if the crisis spreads to other countries so that more radical containment measures are required’

Thanks for that, but hasn’t the crisis already spread ? Maybe an eventual European debt restructuring ‘solution’ will not be extended to the periphery.

As @Colm McCarthy said on another thread, our system of governance ws tested by EZ membership and we didn’t do too good. If history is a guide, Ireland will keep following the prescribed path right to the cliff edge, because it requires less thought, and less political nous, in the short term.

I have mentioned this several times on this site: Please, please, state what your Economic Model-in-Use is. This is your ‘status quo’ reference point; your beliefs, opinions, views etc. are directly linked to your
Reference Point. Your preferences (real, not normative) follow.

If your status quo is Permagrowth, and that it will resume shortly then may I politely suggest that you are very much in error. Please pay close attention to energy availability – not the quantity thereof, but its quality. Quality energy and Permagrowth are siamese-twin complements! Quality of energy is low at present and probability that it will improve is not good.

Throw those decrepit financials to the bankrupcy courts. We can erect new ones quick enough. (Anyone rem the 10 week bank strike?).
Ireland will have to make some default (the maths prove this) on some of its loans.

The EU: The EU is NOT a state! Watch the political space very closely. This is where the cleavages will show up.

BpW

@dreaded_estate

Two other snags:

1) It would take real self-discipline and competence to plan and execute a three-year campaign leading up to default. Any number of things could put us off course, such as a change of government.
2) The IMF must have some experience in handling governments which look like they might be preparing to close the primary deficit and then cut bait.

@Gary O’Callaghan

The one thing Gerry Adams is hoping for now is a firm and united dedication from FF, FG and Labour to “working the bailout” over the next few years. He wants nothing more than to be able to run against that.

@Gary

We cannot be expelled – it is not legally possible.

@ John

Your contrarian views are most welcome, but I increasingly see your comments as being of a devil’s advocate nature. It is time for some realism:

“but it is likely that this would have been a deal breaker for the ECB and possibly the some European governments.”

I fear this was the attitude of the Irish team and that is not how you negotiate. As I understand it, the Irish team asked for haircuts and the Europeans went mad – that’s laughable.

“In the meantime, we avoid a crippling “sudden stop” of funding to the banks and the government through international support, and are better positioned to avail of a broader European debt restructuring solution if the crisis spreads to other countries so that more radical containment measures are required.”

We will not be able to renegotiate unless we default or threaten to default. If Spain gets a better deal than us, the deal will be for them only. There will be no broader European debt restructuring unless we force it.

In 3 years we will have no chance of returning to the markets especially if our debt is 120% of GDP and if the new “permanent crisis resolution mechanism” is in place. Worse, all our reserves will be gone so we will have no options left then. All the bank debt will be converted into sov debt. There is already talk of increasing the EFSF so that Ireland and Greece can roll over our debts.

Excessive caution has not served us well in this crisis so far – it is time to face the facts. We either revoke the guarantee and default on bank debt now (à la Brian Lucey), or else a much messier sovereign default is assured.

@All
Apologies in advance a slaying a scared cow, but Patrick Honohan’s “Quid Pro Quo” was an absolute disgrace.

He reneged on senior bondholder haircuts to protect liquidity funding for the banks. In effect, he put the well-being of our insolvent banks ahead of the tax-payer. I know his primary responsibility as governor is to the banks, but he was in negotiations on behalf of the the people of Ireland. Furthermore, as governor, his duty is to recognise when banks are insolvent and make grown-up decisions about them, not get some flimsy wink and nod about extending liquidity.

It is time that people recognised that the most impotant thing we could do to make Ireland credit worthy again in the eyes of lenders is to be in a clearly solvent position and able to service and repay our debt.

A half hearted restructure of the banks’ blaance sheets would make things worse in that regard – default, but with lingering question marks over our fiscal state.

A single comprehensive and decisive action would more likely clear the uncertainty.

@Geckko
Unfortunately, ‘a single comprehensive and decisive action’ is not possible. As Tull and others have long pointed out, nobody is going to give (as opposed to lending at penal rates) us or our banks money until lots of other things happen. ‘Giving’ is defined to include allowing us to default by the way.
As German tabloids compare and contrast life as an average earnings worker, life on the dole, life as a public sector worker between Germany and Ireland we begin to see how the next iterations of the price of the bailout will work out. And its important to think of this as a process: as we fail to meet the conditions for the 85bn, further iterations are inevitable.

Another factor, completely forgotten in all the noise, is the state of the Irish property market, the one at the heart of the banking mess. There, prices are still way too high. Questions of national and banking solvency have to work through the consequences of equilibrium being restored in that market, which in turn requires further significant falls in prices.

So, no silver bullet, just lots of stuff still to happen.

@simpleton

agree with your view of the property market, and I think that is what Morgan Kelly was getting at – debt deflation will lead to ever higher real property prices and higher real mortgage levels, leading to a wave of defaults.

I think Eichengreen is roughly correct with his estimate of a stabilizing debt/GDP ratio of %130 GDP – which is more than €230bn (assuming modest growth in GDP to €180bn or so). The 10% GDP debt servicing figure seems high, but that includes some principal repayment, but just on interest alone the cost is likely to be 7% or a bit more – in the range of €13bn to €14bn. This is more than the entire income tax take – i.e. every Euro of income tax for every worker for every month of the year will disappear in this manner for years and years.

This is what Eichengreen is looking at and then working backwards. Stabilizing at a such a high debt level will have huge costs and will be a tremendous burden on the economy for a very long time. Is this sustainable? With the power and resources and law enforcement capabilities of the state – probably. Should it be regarded as a desirable policy goal, which seems to be the thinking here? Only if you think EU core bondholders should be favoured over Irish taxpayers.

By rolling over and talking about ‘dishonouring our senior debt holders’ Lenihan is saying he would rather fight for the rights of bondholders than doing his job, which is fighting for the rights of taxpayers. A solo run on default in the immediate future would not achieve much. However the first thing to do is to reclaim the agenda from the “Peripherals as SInners” agenda which has been so successfully pushed by Germany. It should be made clear by the government-in-waiting that there is an expectation that final resolution will involve burden-sharing/restructuring/default (fully in line with Angela Merkel’s views on the relative importance of taxpayers and bondholders). There is a very high probability that Greece will restructure or default and this should be the trigger for a much larger EU-wide restructuring. It is in our interests that this happens, and we should be ready for it with national legislation ready-to-go and a full plan for what to do. Since I believe market funding post-2013 will not be cheaper than the ESM, Ireland is effectively off the market for 5-6 years, so the main constraint on default or talking about default is gone. While Ireland cannot directly influence events that much at this point, it can make it clear what its own interests are and what it believes should be done, and that this involves restructuring and/or default, even if this cannot be achieved in the short term. If expressing this viewpoint brings its final realization a little closer then this is in our interest.

Our leaders are paid to act in the national interest. They should start doing their job, and start reclaiming some self-respect.

@Micheal Hennigan

It is clear to me that at least in Ireland it is the Euro that is the problem – the hollow nature of the Irish domestic productive economy is a direct manifestation of previous Monetory inflows, FDI , Brussels transfer payments etc.
These inflowing bits of paper serve to push out domestic Industry – therefore the civil service , pharmaceutical workers , farmers etc earn wages and gifts and the rest of the population serves this distorted economy via the service industries – when these decline or these workers refuse to spend then you get mass unemployment amongest the proles.

To recycle this money back to the core the shadow banks have interest bearing vehicles that shear the sheep.
Now that foregin credit is tightened and workers refuse to spend and begin to pay down their debt or default the cycle is broken somewhere – yet these vehicles continue to extract interest from a declining money supply.
They are now butchering the sheep in plain sight of the other farm animals yet the livestock hope that their number is not up yet.

John

good to see some intelligent comments on the options as opposed to the stock-answer FF line line of “remember Lehmanns”.

Interesting to see the language that you use (perhaps subconsciously) is typical of that used in the some of the on-side commentariat.

“Avoid Default” – Provided bank debt is split from national debt – nobody is advocating default. The correct phrase is “Lets Bail out Creditors of Banks that are not fit for purpose with taxpayer IOUs”.

“significant burden sharing with unguaranteed senior debt holders” should read “Complete bailout of senior bond holders who purchased bonds from insolvent banks”.

Is it really credible that a country that fostered the biggest property bubble in Europe should see that burst and avoid a single major creditor of the banks from losing out….? Does the next government need to tell the ECB and EU to get real…

That should read: “likely the IMF…”

@KC: “No debt is always with us so therefore it is what you do with it that has relevance – will a large percentage of debt be recycled to the debt holders via interest or will it improve productivity or indeed sustain unsustainable short term consumption.?”

The math will dictate the nature of the answer. Debt has an exponent attached. Your income (aka: economic growth) better have a larger one!!!

Default is not the ‘end-of-the-world’. Neither is it irrational to believe that IRL and Port. and Gr. will be ‘asked’ to depart the Eurozone. It will be a political dictat, not a financial one. Spain might be sacrificed to keep Italy within the fold. That leaves Finland. ???

Q: If states DID NOT have to borrow to fund their flatline (aka. sustainable) economic activity. Would we need global bond markets? Given the highly anarchic nature of these self-proclaimed ‘markets’ I would expect some states to take strong action to protect themselves.

Couple of you have returned to our ‘little predicament’ – the res property mess. What can I say? Morganization of the Mortgage Market!

BpW

@Veronica

Is it better to perform actions which will cause greater social havoc at a later stage but which may be blamed on the politicians then in power, or is it better to cause take actions which cause less social havoc but cause it immediately so that it will be associated with the people taking the action?

@anonym

Indeed. What has been most disappointing is the lack of policy input from the IMF (political reform, Croke Pk, bank debt, interest rate, avoiding debt deflation etc.). It seems they have been steam-rolled into submission by the EU/ECB.

@Brian & D_E

I am not so deluded to think I can put a joint probability on the “ifs”. But my sense is that much of the concern out there is — with apologies for again appealing to the authority of Patrick Honohan — is about tail risk. There certainly is large tail risk relating to banking losses, as the dynamics of a balance sheet crisis like this one are highly unpredictable. There is also substantial tail risk on growth, largely for the same reasons. But there are factors pushing in the opposite direction: the sustained strong export performance and steadily improving competitiveness, and the usual forces of pent up demand as any recession progesses. My guess is that even the pessimists might not be quite so pessimistic as it seems when it comes to expected values.

This point about uncertainty enters into our strategic calcuation in another way. The “option value of waiting” literature shows why caution is required when taking irreversible decisions. Pre-emptive default once done is done. “Kicking the can down the road” has come in for often-deserved ridicule, but I think there is a case for seeing how the uncertainty resolves itself — not least the uncertainty at a European policy level — before letting the default genie out of the bottle.

@simpleton

I was careful to say “key necessary condition”. It is obvioulsy not sufficient and the level at which the debt ratio peaks is important. I don’t see the 80 percent identifed by Reinhardt and Rogoff as a hard rule, however. Their sample has a mix of decveloped and developing counties. With some shoring up of our fiscal institutions, and a demonstration of political capacity (admittedly a mixed bag in recent weeks), we should have a fair shot at regaining creditworthiness if we can manage to stabilise in the relatively low three figures.

@bazza..
i dont think you spoke too soon. As far as i can see, the headline is just another meaningless threat to sort out the public sector. When are we ever going to get a headline stating that something has actually been done. ?

The only interesting thing for me was the demand from teh IMF for a list of all public servants and their salaries.

The numbers and salaries of all those working in the public sector must be disclosed every three months.

As far as i know, no such “list” exists anywhere. even for top civil servants, the remuneration system is so opaque that its hard to arrive at a figure that can be agreed upon. This principle seems consistent when you get down the pay scales with perks like “cheque cashing time”, “lanzarote allowances” etc etc for different types of public servants.

@John

Concerning expected values and tail risk.

Expected values of the individual factors is not really relevant and the problem is not really in the tails.

If we consider G as the future growth rate (a random variable), the level of growth we need to achieve (ca. 3%) is not far in the left tail at all – it is smack bang in the middle of the distribution.

Similarily for the future losses on the banks, say L and future demand, D.

If g, l and d are the levels of growth, bank losses and demand that we need to achieve to avoid default, then the event

{G l} U {D < d}

is a bloody large set and is definately not in the tail of joint distribution – which, I think, is the point Brian Lucey was trying to make.

Incidentally, by looking the past deviation from forecast of growth, bank losses and demand, it should be able to do a rough back of the envelope estimation for the probability of the above set. Given how bad bank losses have been in the past and how government forecasts for growth are being laughed at by the EU’s own estimates, it doesn’t look too good.

Still a problem with the formatting of the set.

Anyway, I meant that the event

G is less than g union L is greater than l union D is less than d

is large and not in the tail of the joint distribution.

@John McHale

Are you really willing to say that the risk of an external economic shock over the next three or four years is a tail risk? My uneducated impression is that the risk of a recession originating in China over that period, never mind anywhere in the world, is over 50%. Do you think China’s going to pull off that rare miracle, a soft landing, from its post-Lehman bubble? And then of course there are the other risks.

The “option value of waiting” literature shows why caution is required when taking irreversible decisions.

The problem here is that we are facing an irreversible decision either way. As soon as we start to “work the bailout” we’ll have to make fairly serious commitments to the IMF, European Commission and so on. Then we will be disarmed of our funding pile, and we’ll start to be manacled into (basically) bilateral sovereign debt in exchange for ELG bank debt. Not as irreversible as unilateral default of course – but not really close to a simple wait-and-see option either.

@anonym

Good point concerning the option value of waiting.

There only exists time value in an option if you can follow the same course of action now as in the future i.e. there is choice between exercising now or exercising in the future.

However, if we do not act now, the course of action now available to us (as outlined by Münchau) will be gone forever. Therefore, there is no value at all in waiting.

This is all quite obvious and it is specious of you to refer to the very general option pricing literature.

@BJG

Yes, of course you are right – I was just trying to refute John’s clutching at the straws of Expected Values and Tail Risk.

Everyone know that what you said is not a tail risk.

@gekko
Perhaps it would have been better if the govt hadn’t guaranteed the bank liabilities but AFAIK they did – irrevocably.

For most of the bank’s creditors the situation is – as I understand it – that if the banks themselves cannot pay then the creditors are entitled to ask the state to pay. If the state refuses to pay what it previously guaranteed then that’s a sovereign default. As I say, perhaps better if the guarantee wasn’t there, but it is. It may be possible to finesse the question and to default on some of the debts incurred before the guarantee, but to default on creditors who came in with the guarantee in place would be dreadful.

Also, I confess to being worried about the consequences of what I think many countries would be entitled to see as a cavalier default. Apart from the fact that we still want to pay public salaries and social welfare rates way above the level that the country can pay for itself, we’d now be defaulting “merely” because we don’t like the economic outlook. It’s not grounds enough…..and even then there’d better be a funding plan as a back up.

Do we have such a back up plan? If we default tomorrow, do we really expect PS salaries down 50% the day after? Social welfare? We’d be spending the cash reserves and the NPRF on food and oil for a while, but is that the plan?

@BWII

I disagree: kicking the can down the road is a good option in a liquidity crisis. It is not a good idea in a solvency crisis when the options open to us are dwindling by the day.

@John/Simpleton
“This is where you part company with the commentariat and the market. The view taken by the majority is that you can’t take 15 bn out of a 150bn economy and generate ‘enough’ growth to get the right movement in the denominator of your definition of solvency. Only time will tell.”

I would think it is certain that John is right if the above statement is correct.The coomentariat thought MK was nuts and he was right. The usual suspects jumped on to a shiny new bandwagon now-“default is the only option”.

The following from Wolfgang should scare the bejaysus out of all of us
“A default would cause havoc, no doubt, and would cut Ireland off from the capital markets for a while. But I would suspect that the shock would only be temporary. ” In other words it is going to really hurt badly for a long time, how badly and how long, I cannot say.

@Zhou,

If FF supports falls to 10-15% nationally then there’s about 40% of a floating vote to go around. Predictions are unreliable until at least a week or so into the actual campaign. Individual constituency dynamics will also affect results. Right now, nobody knows just how many FFers will bow out, or how many other TDs from the main political parties may decide it’s not worth continuing for another term (reduced wages, pension entitlements, retirement lump sums, expenses all need to be factored in, especially among older TDs and those who have little chance of ministerial or other office).

Poll numbers and bellicose aspirations to become the largest party are another aspect of the contest to come. That FG/Labour ‘competition’ to emerge as the largest party makes for great sport in the media, but the calculations parties make on the ground belie that kind of rhetoric. You would think, for instance that in a constituency like Dublin West which increases its representation from three to four seats and with a high profile deputy leader in situ, and current opinion polls indicating the possibility of winning two seats, the Labour Party would run two candidates? After all, that’s what they said they were going to do. But no, it’s a one candidate strategy for the next election.

Obviously, the economy will dominate the campaign, which I think makes this site and clear-headed discussion of proposals and policy directions advocated by the political parties really important, i.e. provided it isn’t overrun by party ‘trolls’.

In the election itself, the indications are that there’s scope for a massive realignment in Irish politics along left/right lines. Will it happen? Nobody knows. All that can be said with reasonable probability is that there may be lots of Independents elected, the new left alliance may effectively replace the Greens in numerical terms, SF may surge at the expense of Labour in some areas and all sorts of combinations and permutations may be required to produce a viable adminstration at the end of it all. Within this, an FG minority government operating a ‘Tallaght strategy’ type arrangement with a rump FF party for a defined period becomes a possibility. I think whatever happens, FF will go into opposition and will not coalesce with FG under any circumstances. If an FG -FF coalition were to transpire I’d eat my hat. Maybe I should invest in a chocolate hat, just in case?

I agree with BWII and I would also like to say how much I appreciate John McHale’s contributions which are always calm and reasoned.

In a situation of uncertainty “kicking the can down the road” is a prudent policy. The country needs the maximum room for manoeuvre. Decisive policy decisions with uncertain outcomes can close off future options with damaging consequences.

I don’t think the IMF deal was a good deal for Ireland. But I doubt if any different set of negotiators could have obtained a better deal. In these negotiations the creditor always has an advantage over the debtor (unless you want to play Russian Roulette). The Germans for domestic political considerations wanted to act tough. Also, no deal would have been worse than the deal we obtained. We need access to international credit in order to work our way out of this crisis.

I have never been a member of FF, but I have some sympathy for the position it found itself in the last 2 years. Of course it must bear some responsibility for the crisis, but I would say most of the policy errors were made before 2007 (when it was also in govt). And it is not that easy for a democratically elected government to rein in an economic boom, especially with what appeared (falsely) to be sound public finances.

Also, to pretend that this is purely a domestic crisis with no international dimension as the government’s critics like to suggest is fantasy. The idea that a small country ever has complete control over its destiny is an illusion. It was not just Lehmans, Ireland is the victim of a specifically European crisis.

Every decision that FF has made has had a bad outcome. However, I believe that alternative decisions would have been catastrophic. Some people think that things could not be worse than they are. I disagree. Things could have been much, much worse.

@ Hugh Sheedy

You say “We have to try to pay back the money we borrowed and promised to pay. We can’t just say “ah feck it””

The point is we didnt borrow it. and we promised to pay it when we had no idea how much it was.
Fair enough, the people who promised, on our behalf, to pay it back are refusing to admit they made a mistake and so will carry on regardless…but i think from the perspective of the irish people, the “we” i presume you are referring to, it is reasonable enough to say feck it, we’re not paying that back.

Here’s a suggestion for a PHD dissertation that needs to written.

“A review of the Discourse in the rise, fall and death of the Celtic Tiger”

In a study of the discourse in Ireland post 2000 Andreas Antoniades
(Producing Globalisation) found significant neoliberal and pro-globalisation views within the three main politial parties; all the major papers; and even within the unions. The only place in Irish society where these ideas where challenged was in the Church!

FF deserve to be wipped out…but they were not alone.

@Jarlath
Thank you for pointing that out. It is surprising that it needs to be pointed out at all however.

ECB buying Ireland and Portugal again today, again very aggressively. This weeks buying numbers is going to be very chunky (though you’ll have to wait til Tuesday week’s release to see most of it cos its done on a settlement basis)

May be it is because I am an accountant but is not talking about Ireland’s national debt without referring to it’s quite substantial assets not missing half the story. Any business in this situation would look at both sides of the balance sheet. You cannot be insolvent, or at least not immediately, if you have liquid assets. OK so the ESB; Bord Gas et al are not liquid – well they are now that we have a an €85Billion line of credit. It is a very straight forward financial equation – reduction in interest paid versus dividends (to the State) foregone. The soft gains as in greater freedom of manoeuvre are an obvious added and possible critical benefit.

@bazza,

What ‘better deal’? I don’t see anyone offering a ‘better deal’, nor do I expect to, until such time as Ireland demonstrates it can operate the deal that’s been offered. With respect, all the rest is histrionics and nonsense.

@ Veronica

“I’m afraid testosterone fuelled calls for drastic action, the full implications of which aren’t fully thought through and laid out in black and white, don’t much impress the likes of me.”

Do you perfer head in the sand- cheapest bank rescue ever; Nama will turn a profit; i don’t know why they don’t go and commit suicide etc etc – type decision making?

Have the decisions not to default being fully thought through?

@ Hugh Sheedy
I agree with you that it was a sovereign promise made on our behalf and that carries a lot of weight, but no matter what way it is spun, the default setting of the irish people regarding paying back the bank debts our government guaranteed will always be…. feck it, we’re not paying that back.
I’m just an observer trying to inform myself, like most on here, but i can honestly say i have not seen it spelled out clearly what would be the ramifications if ireland found some legal method to extract itself from the guarantee, announced that it was committed to repaying its sovereign debt, but that its banks were now a separate matter…

What would happen.

And yes the 2 Brians have chimed off numerous times about the catastrophic consequences of doing this….but i stopped putting any stock by what they say years ago. Since the crisis started, they have either done the wrong thing or just done what they were told.

@Veronica

There is always a better deal if the parameters of the negotiation change. The govt that negotiated the deal for us are totally jaded and have no confidence in their own position.

A new govt with no baggage from the past 2 years of poor decision making would be much better placed to drive a hard bargin.

Throwing our hands in the air and saying noone is “offering” anything will get us nowhere. Almost every single independent analyst and commentator has said that not burning senior bondholders is ridiculous. The IMF clearly also thinks so. If the government had any backbone, it would have pointed the finger right back at the EU/ECB, instead of cowering when the declined our “request”.

This talk of gaming the ECB is the wrong analogy – you cannot game a institution that has a monopoly of credit while you have none , no they hold the aces so therefore you state you do not want to play.
Throwing down the gauntlet to these malevolent institutions is however dangerous since they did not strive to dominate the planet by being nice guys.

“Are any of the default advocates willing to take personal responsibility for the social fall-out that would follow from their preferred course of action?”

Of course not. All those most vociferous for Irish bank default all argued strenuously, in the case of their own countries, to bail out the banks (and the bondholders) at all cost.

a says
““Are any of the default advocates willing to take personal responsibility for the social fall-out that would follow from their preferred course of action?””
or
““Are any of the NOT EVER IT WOULD BE DISHONOURABLE OT default advocates willing to take personal responsibility for the social fall-out that would follow from their preferred course of action?””
Fixed that for ya…

In terms of getting new banks to come into the country, didn’t we just finish installing a whole bunch of actions that were designed to favour and protect the Irish banks and chase those nasty foreigners out?

If you were a foreign bank wouldn’t you be suspicious about Ireland? Anyone remember what Rabo said last year?

http://www.irisheconomy.ie/index.php/2009/12/30/the-irish-economy-in-2010/#comment-30031

@Carolus
“Which would you prefer:

To have two legs amputated today?

– or to have two legs and one arm amputated in two or three years time?

I think most people would go for the second option.”
Well, that tends to depend on how the question is phrased. If the first is presented as a certainty and the second as a chance, the chance will be taken and vice-versa.

Of course, both are chances with varying likelihoods and outcomes subject to talk risks. Being closer to the former in time gives a less uncertain view of the change, but the tail risk outcome is still subject to the same level of uncertainty.

We don’t really know how ‘involveds’ will react to a default (either now or later), because largely it is not an economic decision. It is driven by politics which are subject both to uncertainty and to what else is attracting attention. A good sex scandal between two major european leaders would be the perfect sideshow…

Additional measures to calm financial markets aren’t needed – Wolfgang Schaeuble.

??????????

@ Prof Lucey

“NOT EVER IT WOULD BE DISHONOURABLE ”

That explains a lot. Defaulters see themselves as macho men of the world and they see non defaulters as naive wimps burdened by a sense of honour.

Speaking for myself I believe that all our national decisions should be informed by the calculus of what gives the best expected economic outcome. Honour is a luxury that individuals are free to adopt for themselves but no one has the right to enforce it on a nation.

So there, I’m even more macho than you.

@Paul Hunt
Agree. I cannot see the line holding with those sort of comments.

On another note I see the Parliaments of Finland and Germany have voted on the Irish Bailout.

Strange that the Dail will not have a vote on the most important financial and economic agreement ever entered into by the State.

It seems that FF and for that matter the Greens don’t do democracy.

@hoganmahew

Thanks for the clarification. A pity we can’t place bets on the time of default at Paddy Power. But at least we can bet on whether the budget will be passed (currently: YES = 1/9; NO = 9/2):

Will the Budget be passed?

http://www.paddypower.com/bet/politics/other-politics/irish-budget-special?ev_oc_grp_ids=383948

I’d add that I don’t visit this site every day, just when the news is interesting. About 6 months ago – I think it was when NAMA was announced – my comment was “you (the Irish) are screwed.” I’d stick by that. Default or not, you’re screwed. Trying to find the optimal path for the Irish is sort of like choosing between whether it is better to die by fire or by getting quartered.

The deal is a total failure. Bond yields are at 9.25% 4 days after the EU forced Ireland into a deal to save a number of insolvent banks. 2 months ago the yield was 6%. 5 months ago it was 4.25% and it is ALL because of the banks.

Nurses are being forced to sell their future pension entitlements to receive their salaries. Sure they are overpaid (who in Ireland isn’t ? ) but without the weight of the dead banks the sovereign would not be bankrupt.

Ireland is in a debt deflation spiral and extracting 5.83% interest from a contracting economy to cover the losses of bank bondholders is shameless.

“It’s the only deal on the table” was what Chamberlain said in 1938 after shafting the people of Czechoslovakia.

In the latest children’s story the monster appears on TV and says :

“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. Worse still, those who know we cannot do so but who nonetheless persist with the line are damaging this country and its financial system: and all for the sake of a cheap headline. It is a case of politics as usual even at this most difficult time.”

http://www.bloomberg.com/news/2010-12-02/iceland-bankrupting-self-to-recovery-reveals-policy-ireland-dared-not-take.html

This article on bloomberg is very pertinent to the default debate.
A while back, ireland was trying to convince the world it wasnt iceland….now iceland is crowing about not being ireland.

Red C poll for Sun (still, Red C…) FF 13%, SF 16%, Lab 24% FG 32%

veronica Says:
December 2nd, 2010 at 2:36 pm
@bazza,

“What ‘better deal’? I don’t see anyone offering a ‘better deal’, nor do I expect to, until such time as Ireland demonstrates it can operate the deal that’s been offered. With respect, all the rest is histrionics and nonsense.”

The EU/ IMf is not some sort of financial Santa Claus who will give us presents if we’re good and withhold them if they are bad. This is not a morality play. No one is going to “offer” us anything regardless of how we behave. The impetus for any alternative deal is going to have to come from us and should be pursued after we have fully considered ALL the alternatives.

And with all respect, a little less of the “histrionics and nonsense” might be appropriate. Your own comment is a non-sequitur. If Ireland “demonstrates that it can operate the deal that it has been offered” why would the EU see the necessity for it to be replaced by anything else?

@Brian Lucey
so Gerry Adams for Taoiseach

@ Prof Lucey

Shows how uninformed the people are as to the real economik of our situation. For ordinary punters to be constantly reading in their Irish Times the latest High Professor saying we should burn the bondholders and live happily ever after, is it a wonder that they have bought into the fantasy.

BTW a poll in some paper or other the other day revealed that 85% of people wanted a wealth tax. Guess how many people think they are not wealthy.

should be cope

“I don’t think the IMF deal was a good deal for Ireland. But I doubt if any different set of negotiators could have obtained a better deal. In these negotiations the creditor always has an advantage over the debtor (unless you want to play Russian Roulette). The Germans for domestic political considerations wanted to act tough. Also, no deal would have been worse than the deal we obtained. We need access to international credit in order to work our way out of this crisis.”

Now let me see. We should have played “Russian Roulette” (e.g. threatened a unilateral withdrawal of the ELG, default on senior bank bonds, etc). This would create a non-zero probability of a run on other peripheral EZ banks spreading to DE eventually. They (ECB/EZ) need(ed) a deal as much as we do.

When the Americans/Soviets were negotiating on Cuba.

Cost to entire EZ/FR/DE of paying for all of Irish Senior Bonds on a per capita basis and a few weeks being knocked about in Bilt: ~200 euro

Cost to Irish taxpayer of paying for all of Irish Senior Bonds on a per capita basis: ~20,000 euro

Better still, make this threat in concert with PO/ES etc. Instead we were divided and ruled.

There are 6,700 billion euro in bonds in EZ banks. Commercial banks are critical strategic interests for FR and DE – their companies depend critically on bank lending. Even a slight probability of harming this scares them silly. They’d have paid far more than the 3 billion interest “subsidy” we’re getting in return for Ireland protecting senior bank debt holders.

What will happen is that a large player (ES? IT) will force a situation where there’s either QE or a bit of fiscal union – and we’ll be stuck with out crappy “deal”.

These EZ guys won’t allow our parliament a vote on this, they tried to get Lenihan/Cowen to sign it WITHOUT even a Cabinet meeting. Listen to Dermot Ahern’s interview. HAD to be approved by Monday morning, etc.

This is economic equivalent of war augmented by a type of coup. Very similiar tactics deployed on us as on Austria during the Anschluss if you read your history.

from Bloomberg

‘U.S. Representative Mike Pence, an Indiana Republican, said he planned to introduce a “European Bailout Protection Act” to restrict the flow of International Monetary Fund loans to European countries. He said he was responding to reports that U.S. officials might bolster a European fund designed to deal with this year’s debt crisis, which has spread from Greece to Ireland. ‘

Are they ganging up on us?

@ Ceteris Paribus

Don’t worry. The “adults” at US Treasury et al are in charge of IMF, etc.

There are lots of looney bills out there by randon congressman (reparations for slavery, taking US back on gold standard, banning the olympics, etc). Ah….the beauty of the US.

@anonym
We’re not a company. Besides, we’d be recklessly trading using EFSF money with not only permission, but encouragement.

In any case, I doubt that the outcomes will be quite so binary. It’s not as if we could elect to default now and walk away scot free, nor that if we eventually do an agreed default we’ll default on everything. (although an elective default could be horribly messy, and messy is bad.)

If we were to do an elective default now we’d end up in courts for ever, wouldn’t we? Isn’t it likely that we’d end up paying much of what we owe eventually, based on the fact that we guaranteed it? If we ultimately agree a supranational “restructuring” we’ll still end up owning most of what we owe too, won’t we, but the total might be aligned down to a level based on which ever is the worst of the EU’s basket cases?

If we go unilateral it’s messy and ultimately we’d owe about as much anyway, no? I can’t see us getting entirely off the hook either way. Can anyone?

“So who gets what job?”

Good question by Prof Lucey. Recent RTE Vox Populi suggests that we should hand over goivernent to those academics who know what they are talking about. The recent high powered think tank, Kilkenomics, also endorsed this theme. I suggest:

David McWilliams as Teashop with special responsibility for exiting the euro and confiscating 75bn from US MNCs.

Morgan Kelly as MoF with responsibility for ensuring that mortgagees stop paying their mortage.

Begrudgenov as Minister of Defence with responsibility for selling Rockall to the Russians and securing our entry to the 2018 World Cup

Oh, I almost forgot, Prof Lucey as junior Minister of Finance charged with selling our deposits.

@Veronica/Bazza

We need to hear and see more of this kind of debate among policymakers in Ireland.

IMHO there is no other “deal” on offer at this time but if contagion spreads to Iberia, Belgium and Italy we may find ourselves negotiating a series of “deals” over the next few years.

The involvement of Sweden, Denmark and GB in the recent “bail-out” talks signals to me that some examination of how Ireland can find a “graceful” transition out of the Euro (if it proves necessary or inevitable) is currently taking place behind closed doors.

In time we may be happy that this crisis came to Ireland when it did as we now have the opportunity to examine possible outcomes, strategies and options while we know the Euro is still functioning as a currency.

It is not comfortable to contemplate the demise of the Euro but if it does have a crash landing it will be messy and rapid so we need to be sure that whatever parachute we may have to use is in working order.

Well done to everyone involved. Fantastic resource.

Article in the WSJ today on the IMF seeking to double its lending capacity to $450b over the next few months. They say that that “whether this is enough depends on how deeply the problem spreads”.
The USA has agreed to $106b to the new kitty-10 times the previous.
But 7 European countries have yet to ratify.

HANG ON IT LOOKS LIKE IT IS GOING TO BE A BUMPY RIDE.

Who is going to make the economy grow? Assume 1 million people emigrate. How can we grow?

And you maybe you scoff at that emigration rate, but I’d be willing to bet that we’re on course for it over the next ten years.

And I think a 1% growth rate is optimistic, not pessimistic.

Btw, the retort to Munchau et al in the IT today…

http://www.irishtimes.com/newspaper/finance/2010/1203/1224284677053.html

Joseph Ryan,
Did MK not envisage the rise of a right wing extreme nationalist party. Maybe what we are seeing is the rise of a nationalist and socialist party on the other extreme of the spectrum. Certainly, that most astute of populists Mr Gilmore seems to be sensing a risk of being outflanked from the left. Witness his strident and nationalistic pose in DE y/day.

Politicians of the left all competing to be the one in charge of the dismal mess they’d create. What a spectacle.

Of course, we don’t have a “right” worth talking about either. We’ve had wrong and wronger, and they’ve already left us in quite a mess.

@Hugh Sheehy
re: Politicians of the left all competing to be the one in charge of the dismal mess they’d create. What a spectacle.

Correction-
Wrong tense
The dismal mess that has been created.