No Cards?

Writing in the Sunday Independent today, Colm McCarthy characterises the Irish government’s position in the EU-IMF negotiations as follows:

The analogy of a poker game has been invoked, with the Irish negotiators having held, according to economist Antoin Murphy, no more than a pair of twos. In reality they held no cards at all, and could not bluff either. An Irish rejection would have created unwelcome but manageable problems for the eurozone banking system but would have brought immediate financial meltdown in Ireland. The inevitability of the latter is the reason why the bailout providers were in Ireland in the first place.

I’m not sure that I agree with the asymmetry that Colm invokes here: That a meltdown of the Irish banking system would have been a disaster for us but merely an “unwelcome but manageable” problem for the rest of the Eurozone.

An Irish banking system meltdown, complete with senior debt defaults, could have had extremely serious consequences for the rest of the European banking system. If the cavalry had arrived in Ireland but failed to negotiate a deal because of their desire to make the terms too onerous, how could one feel secure about Spanish banks, for instance?

If, as it appears, the Europeans (rather than the IMF) were pushing for faster fiscal adjustment, more intense conditionality, no defaults on senior bonds and a high borrowing rate, rather than have no hand to play at all, the Irish side could still have adopted the Dirty Harry strategy: Go ahead punk, make my day.

74 replies on “No Cards?”

We could have played the “reality” card – and simply said our banks are zombies and they need to be taken behind the wood shed.

We’re revoking the guarantee. We’re going into survival mode. Good luck with the bond market thing.

The EU/ECB card sharks should explain their game plan and indicate how a debt crisis can be solved by increasing debt and a deep recession reversed by reducing economic activity? Maybe, they were playing with marked cards.

I agree – the TV footage of people camping outside of AIB and BOI to get their cash back or big multi-nationals not getting their cash back would not have been reassuring to depositors in GR/PO/ES banks.

Spark contagion – even 5% probability of this would be unacceptable to any _sane_ central EZ policymaker.

If the EC/Germans/French are willing to pound us to make sure a few Senior Bond holders get their money back to keep the EZ banking system “safe” – imagine what losses by depositors in eurozone (Irish) banks would do?

All for the sake of a few weeks bad press in Bildt? (I don’t think so)

The other asymetry that’s important in negotiations is that of the cost of the Irish bailout and one that would have/should have played to our advantage.

83 billion will kill us. Spread accross all of Euro, 83 billion is just 250 euro per capita or a bit of (super-concentrated) quantitative easing (e.g. about 1/6 of the amount of monet the Fed print last week). And that’s at the extreme end of the “help” we could/can have gotten – the form of opaque but favourable loan terms.

There would be severe political consequences from Irish banking depositors losing their cash too IF our policymakers or media would be clever enough to play the world public opinion card (“coerced because we won’t use our taxpayers money to pay back French/German bondholders”.)

The bond markets didn’t buy the deal last Monday. To me that is the most important thing. This WAS the only deal on the table but that was 8 days ago. When the facts change I change my mind.

Actually I think Antoin Murphy called it right. A pair of twos is not great but not at all bad. We got 5.83% instead of 9%, we got to hold our CT rate of 12.5%. Croke Park stayed intact. Okay, we have to aspire to increasing competition in the legal, medical and pharmacy professions – ouch! Kinda beats the losses suffered by Latvia when they played their poker game.

BTW I see Begrudgenov subbing for Gene (shoot the gobshites) Kerrigan in today’s Sindo. That says a lot. I also see that Begrudgenov has raised the stakes in the “how much we owe” game. His latest bid is €670bn, that puts it up to McWilliams, Lucey et al.

I’m sorry to keep banging on about this, but evidently not everyone has seen it yet:

The priority for European leaders is containing the Irish woes from spreading to other vulnerable countries in the eurozone, and many think a concrete response is the only solution.

Underlining the importance of a decision on Ireland for the banking sector in the wider eurozone, Josef Ackermann, the chief executive of Deutsche Bank AG, also attended Wednesday’s meeting of finance ministers.

“A breakout of any state on the markets right now would lead to contagion and we want to avoid this with all means,” Ackermann said. “We have to do everything to catch every country that runs into trouble.”

There’s even video. (Ackermann was previously seen rescuing Greece, and is already working on Spain.)

Even if one accepts that the damage from an Irish rejection would have been highly asymmetrical – equivalent to, say, a couple of Hypo rescues for Germany – that would still have been painful for the countries involved, and very difficult for the politicians involved. I don’t think Merkel wants another two Hypos on her plate. Likewise I am pretty damned sure that Trichet does not want to have to print away the ECB’s losses from an Irish bank default, let alone a sovereign default, nor would he much prefer to go the Eurogroup looking for a recapitalisation instead. Doing either just at present would bring his career in central banking to a sticky end, no? So because that the per-capita financial burden of paying for the Irish banks is also grossly asymmetrical, I think we would have a strong hand even under the given assumption.

If you are playing it as a hand of poker, then yes, the asymmetry existed. It was not credible that FF would impose losses on depositors. That would have been the reality of default on the banking system in the absence of a funding mechanism to cope with both the run and making depositors whole.

While I agree with you that it would have damaged the eurozone banking system, indeed have had large ripple effects outside the eurozone, they could have been contained in the way that the UK and the NL contained the effects of the Icesave failure. ECB and BoE support (probably with Fed, SNB and BoJ backup) would, I suspect have been unconditional. If there isn’t already a plan to deal with a disorderly collapse of the Irish (and other) banking systems, I’d be astonished.

The damage to FF in Ireland would, however, have been astonishing. Can you really imagine a political party in Ireland pushing the “your deposit is disappearing” button? As such, it brings us back to the Blazing Saddles threat. An attempt to embarrass others into stopping us from doing something suicidal; a vast “do you want my blood on my hands”.

We need to stop thinking about single events and start thinking about a process and the consequences of the process. So far, we have watched stone after stone splash into the pond with scant regard for the ripples and how the ripples interact with each other. This is nowhere more evident than in government and permanent government circles.

The bailout is the mechanism we have on the table for the state to continue functioning. Quibbling about the details are sort of irrelevant unless we can either come up with a different mechanism (as Cormac Lucey did on another thread) or accept that the can is being kicked down the road and that something else is in progress.

We need to figure out what that something else is likely to be and position ourselves either to take advantage of it or to say “it is not to our benefit so let’s do something else”. In the meantime, as always, we need to be the best of the bad boys… look over there only works if the over there is enough for you to tear your eyes off the current car crash.

Colm McCarthy’s article is troubling for several reasons. For me its most troublesome aspect is that it suggests that the “where we are” since last Sunday’s deal is ok. But in terms of looking at the future Colm says that when the national settles down (say by 2012 or to put it to the end of the adjustment period, 2105) the part that relates to the bank rescue will be only about a quarter. This outcome assumes a containment of the cost in the bank rescue at about €60bn. It takes current debt of c €95bn, add say €125bn to cover capital and interest on the EU/IMF Deal making a total of €220bn. Of this the bank rescue figure of €60 does come in close to a quarter. Rumours abound of liabilities in the banks which are not yet known. Leaving those aside, there is a capitalisation in the banks of the order of €85bn on bonds and additional short term funds. Other bank bondholders are covered by the government guarantee. It appears from other reports that certain non senior bonds falling outside the government guarantee will not be declined although there is no basis for paying these other than the requirements of the ECB and/or the Commission. In a repudiation of debt scenario the scenario changes massively. Bank liabilities then becomes more like three quarters of the entire national debt, which would in that instance be about four times GNP. The picture is also much worse if the Pension Fund money is set off against current National Debt to make the aggregated figure of current debt at c. €70bn.

You can say that the bank liabilities are contingent and may not be called in. Fiar enough but when the Sept08 guarantee was given the people were assured that it would never be needed, and look where we are on that now. I was brought up so as not to give a guarantee unless I was willing to pay on it. Now that is a lesson being learned the hard way.

There was no apparent urgency in advance of the EU/IMF discussions to conclude the Deal last weekend as we kept being told we are borrowed comfortably till next June. The real issue was the run on banks, not imminent lack of liquidity in the exchequer. Otherwise it appears that there is no reason that our government would not have told EU/IMF team to go home now and enjoy Christmas and we will consider your proposal and come back to you,

The ECB, supposedly “our” bank for currency liquidity declined to further lend to the Irish Banks, government guarantee notwithstanding. This can only be due to a negative stress test or at least “test inconclusive” on Ireland’s solvency prospects in the next few years. If they have no confidence in our solvency prior to the EU/IMF Deal I wonder what their view is by the time we double the national debt,

In all negotiations one has ‘power’ if a belief is held that ‘power’ is in one’s hands.
This bailout game of dominoes is but a prelude to the demise of the Euro in its present form and structure.

It’s well established, through decades of negoiations in the context of mutually assured destruction, that both sides in a negotiation such as we have seen have strong cards to play. So long as both sides make at least a convincing pretence of being prepared to press the button in extremis, neither side can push the other too hard.

If your record makes it implausible that you will push the button, you start acting a little unbalanced, or make it appear that someone less reliable will influence the decision.

It seems to me, given the deal that was done and the subsequent commentary, that the people on the Irish side of the negotiation must either have been simply ignorant of basic principles of statecraft or so thoroughly captured by European ideals as to be unprepared to put their country first.

Brian Woods is correct, if a pair of twos goes all-in pre-flop, the odds of winning against a random hand is about 53%.

Instead of going all-in, we surrendered our big blind (interest payments) to the EU’s raise. The EU has a pyrrhic victory because when they come to cash in their chips in a couple years’ time, we probably won’t be able to pay. The market of course realised this dynamic and hence why our bond yields went up.

Perhaps I’m alone, but I can easily imagine a situation where the EU is threatened and walks out of the negotiation and says something more or less like this;

“Ireland tried to blackmail us, threatening to cause a pan-European crisis. We have had side discussions with all the other Euro countries and in the European council and we have agreed not to give Ireland any more of our money. We will continue to support Portugal and Spain and all other countries that continue to work cooperatively to build a European future, and we will indemnify all the creditors of the Irish state and banks, but the Irish have showed that they cannot be trusted. Ireland will be out of cash on Tuesday. We will not answer the phone to the Irish govt until Thursday.”

Ireland’s negotiating position may not have been zero, but you’d want to be very brave to go in there and say “Go ahead. Don’t help us. Make sure that our banks close on Tuesday and that the lights go off across the country. We’ll be hungry and cold but you, you’ll have some administrative difficulties.”

Imagine Lenihan and Cowen in a press conference by himself in Dublin and all the heads of government of all the other Euro states in another press conference in Lisbon or Madrid accusing the Irish of dealing in bad faith. Don’t assume that we could play hardball and not have hardball played back. What would the IMF do in such a situation? You tell me.

This bogey man that if the state had not kissed the rings of the ECB and IMF all depositors would have been wiped out is a total lie. This is a straw man for those who deserve to be wiped out, the bond holders and others who loaned money to Irish banks. They took a risk, depositors did not.

@Hugh, an outcome like you have described under which the EU takes over the bank guarantee has its attractions. Slap a resolution process on the two big banks to keep them functioning without more money from the state, and you’re a long way towards a solution. As we keep hearing, the state itself is funded a good bit ahead.

@Hugh Sheehy
It would have been almost impossible for the EU to do that if they were facing a new government successfully negotiating with a huge mandate, huge moral capital and committed to austerity. With the current government it would have been still hugely unlikely. Even for the EU to make that threat would mean – in a country with any self-respect – our exit from the EU and the Euro. A member of the EU for the last fourty years leaving? Now that would cause uncontainable instability. So what happened? Did our negotiators fail? Does our current government – despite being poster boys for austerity – have no moral capital with its EU partners? Are our current government and the DOF etc broken men and women? What? We have the right to know.

Exactly. The only credible nuclear threat is one that you can credibly use. That means you have to have a delivery mechanism that takes it off your own shores. The blowback on use would be more severe than those who *could* construct a nuclear shield (however distasteful they may find it to their ideologies).

@Oliver Vandt

Additionally, what would they accuse Ireland of blackmailing them with? Bondholder haircuts? That would go quite a way to making us the heroes of all Germany.

No, even if the EU did decide to go nuclear they wouldn’t do it by making a big song and dance: the ECB would just quietly pull the liquidity lifeline.

I totally agree — they have made this soooo bad that Ireland would really be much better taking the Iceland route and getting it over with. It could hardly be worse for ordinary people. Iceland by some measures (e.g., unemployment) has been fairing better and now looks set for a recovery.

However, as pointed out above, the havoc for the Euro zone would be horrendous.

The truth is the government had all the cards if only they had used them. The ECB was bluffing.

And hasn’t i worked well.

For a while, anyway; until the people have their say.

Dear All

Slightly off topic but the conversation on the extent of the bail out and the terms for repayment are largely decided and in truth facilitate the landing of the spend back to 2000-1 spend.

Please can I ask for clarification as I am not economically trained. In the scenario of modest growth in government revenues and a return to a budget of approx 23Bn on current spending plus 1Bn on captial can we then finance the national debt?

To my mind this seems unprecedented but it is an option to dramatically reduce cost and extent of services including salaries by 50- 60% from current levels. Resultant reduced prices and salaries will reignite the growth of the 90’s and give us a second chance with a boom, this will accelerate the debt repayment process – a bit like restarting a game like civilisations when the scenario gets outta hand?

This is a good debate and something, I hope that the Irish policymakers played this through. Here’s a couple of thoughts:

a. If all of this is “manageable”, then why are the markets so spooked? Why are PO and ES banks essentially shut out of the long-term capital markets? Why are (serious) people talking about the end of the Euro? Why are yields in peripheral euro so tightly correlated with what happens here?

b. Iceland could be isolated because it was about 20-25% our size in terms of bank liabilities (circa 100 Billion euro? ) and also was outside the Eurozone and ECB.

c. Irreparable damage to the ECB’s credibility/reputation as a LOLR and due process out the window in a very public way: If they cut off liquidity to Irish banks that had passed EU stressed tests, etc – then they are signalling to the world that, if you have money in a Eurozone country’s bank and Germany doesn’t like that country’s fiscal policy then some day your money may get zapped.

Think Coca Cola or Microsoft would ever park deposits in a Greek, Spanish, Portuguese Bank for a very long time?

Even if it were “managed” ECB would end up printing absolutely huge amounts of money (how’s that for you Axel?) and becoming a massive and probability permanent depositor for all of peripheral Europe – exactly what they’re trying to avoid. The euro would be worth sq***t for a long period of time – although maybe they want that.

d. Think Greece (or Spain) would be at that EU press conference – without mega-concessions extracted in advance that dwarfed anything they did for Ireland? (permanent liquidity for all of my banks forever – the Spanish guys can really play hardball, they’re a big country by heritage).

e. Ireland – had we a credible and articulate spokesman and statesmen- would win the international PR on this. Merkel – you’re punishing Ireland because they want a resolution scheme that involves imposing a haircut on private bondholders. If things went belly up, I can imagine after the first few days, the SPD in Germany having a field day with her on her hypocrisy – believe it or not most German people are actually moral people. The French, I’d be more cycnical about 🙂 ).

f. I’m sure Lehman haunts minds too. The US Treasury thought they had isolated and contained that – the result was that the subprime market collapsed spreading all the way to the overnight interbank markets and we were suddenly staring the abyss in the face. Cue the same for all debt for ES/GR/PO – spreading to Deutsche Bank et al.

And you want to do a.-e., because of what? 200bps on an 85 Billion loan? Or 20-30 Billion pan-european contribution towards some EU BS senior bank debt “protection or insurance” fund? Or some sort of phony balony – not transparent to to Europublic- form of real assistance?

That deal will happen later, probably for the Spanish only and we’ll be stuck with what the two Brian’s bought us.

If that happens, I’m thinking I’ll move somewhere where the government can actually protect me from the depradations of foreign bandits. Right now, I’m feeling that I’m living in a place where money only comes out of my ATM because “my” government does exactly what Sarkozy and Merkel tells them to.

Also, has anyone run the maths on the cost of honoring the 100,000 euro limit guarantee on deposits in Irish banks vs their assets and cash that the government still has on hand? Are you sure we couldn’t do it?

I know we’d never have Irish “banks” again if we played this – but that’s fine with me. New Zealand seems to work pretty well.

In terms of the statecraft capabilities of our team at this event, I keep thinking we’re in a Neville meets Adolf moment. As Shane Ross write today

“The Irish negotiating team , led by the gentle trio of Brian Lenihan, Patrick Honohan and Matthew Elderfield, was stuffed with conventional apparatchiks deeply deferential to the European ethos. The nuts and bolts of the deal were agreed by lesser civil servants, intent on staying on the right side of the big nations.”

There were a number of very powerful cards in Irish hands.
1) We are putting our banks into receivership. Cents on the Euro for the creditors.
2) Under certain (too onerous) conditions we will withdraw from the EMU.

3) We will endeavour to honour sovereign debt provided we can borrow at rates no greater than 5% (Greece). Otherwise haircuts all round.

The ability to think the unthinkable and the guts to follow through sadly lacking.

Twenty five years of prosperity and we have Jello for brains.

@Brian Woods II ‘…A pair of twos is not great but not at all bad…Croke Park stayed intact.’


The EU probably said this is the only deal in town. Honohan probably said the markets won’t buy it. The EU probably said no, we are right. Honohan probably said we’ll be back again shortly.

Olli Rehn said afterwards this would put the crisis to bed. It did until around 11.15 on the Monday after.

I can’t even attempt to answer all your points, but a couple are worth addressing. [In any case, I still think this is all a bit of a silly discussion, like that series where they conjectured about how the Republic might have invaded Newry during the troubles.]

First, if this ultimately isn’t all “manageable”, then we’ll be part of a larger solution so it’s likely that we’re better off in the game than doing something unilateral and potentially silly.

Then, if Ireland tried to threaten the other countries and they pulled out then the damage to the ECB’s reputation might well be minimal. If Ireland actually threatened a “nuclear” option in the negotiations then you’d have a line up of heads of govt saying it. In many quarters it’d rank as a serious act of betrayal. Ireland wouldn’t look good. Well, we’d look fucking nuts, or at least could certainly be made to look like it.

As for Greece and Spain, their presence at my imaginary press conference would indeed depend on what back deals had been done. Again, I sure as hell hope there’s something going on behind the scenes! I hope someone’s govt is smarter than ours seems to be.

Finally, on your points, what Ireland has long needed is a credible spokesman. The German people are not stupid, nor are the Dutch or French or Spanish. Their politicians are not stupid either and a new government can perhaps achieve great things, but not by pushing a nuclear button. The articles in Bild, etc., are not making anyone happy but Ireland seemed to take pleasure in being superior for about a decade, didn’t it?

Meantime, please don’t forget, we have the Irish govt trying to borrow money to pay PS salaries and Social welfare rates that seem to be – to put it mildly – generous in comparison, and to keep funding banks where our govt made a sovereign guarantee to pay their bills and where no-one else believes that we can any more.

The Germans in particular are getting heat in our and other press for their exports and savings levels. Does anyone remember, or give them credit for, the decade of austerity and restraint they’ve been through to bring their costs down so that they could become competitive again? It didn’t happen overnight. Or how about all the structural funds they and the other net contributers paid, or the reunification bill?

Reading our press you’d think we were an ungrateful bunch, we Irish.

Again, the “Germans” didn’t do this to Ireland. It’s not their fault.

The last country to reject an IMF deal, AFAIK, was Russia in August 1998. The Duma voted it down, headed for the Black Sea beaches and refused to return! Boris then joined them. They then reneged on the rouble debt as well as the external bondholders. Way to go!

There were two buttons to press last weekend.

The Green Button row in the payoff matrix = where we are.
The Red Button row contains p times (Armageddon on Monday) and (1-p) times (a revised deal).

How low do you think p really was? How low would it need to be to make you reach for the Red Button?

These games are played with live ammunition.

@Colm McCarthy:
But is there not another consideration? Did the deal have to be done that quickly? From listening to Basil Chubb many years ago, I acquired a dislike for decisions made in crises. Here, some (short term) cunctation (“Sure, lads, we accept all that, but we need a week or two to make the arrangements/clear it with Jackie Healy-Rae/get our lawyers to fireproof it …) might have allowed more time for creative thinking.


I’m sure Colm and myself will debate what p may have been inside an icebound Newman Building this week.

I might point out that there were weeks of negotiations leading up to the Red Button-Green Button moment.

As anonym says if the crunch came and the EU declared PR war on us for defaulting on bank debt then it is a PR war we could have won. The level of support and sympathy for us is growing all the time. All we are asking for is that a realistic limit be placed on the level of bondholder losses that the Irish public suffer. When the ECB cut off liquidity to us we should have thrown down the gauntlet on bank debt. If they resisted we should have gone public and made our case. Instead we entered secret drawn out negotiations and got a deal that makes things worse and a secret bank letter that probably puts us in hock even further. I don’t believe the establishment has embraced putting losses on bondholders with any enthusiasm and perhaps this is the root cause. Cowen and Lenihan should not have kept their distance – if they did – from the negotiations. This wasn’t a matter of having your lawyers tie up technical details, it was about the fundamental welfare of the country. If Trichet did indeed strongly influence the bank guarantee then there is NO way a self-respecting government would have allowed the ECB to do this to us without a massive fight. I keep on hearing that we will be saved by a European wide resolution scheme. What actual evidence is there for this? The only “evidence” I’ve heard is a proposal from Merkel to make the PIIGS be ready for an orderly default on their debts issued after a future date. That sounds like anything but a German rescue. I fear that many people are putting off a painful resolution today purely on the basis of a totally imagined happy outcome in a few years. I hope for once that there is an understanding with Europe, that it is clearer than the one we had (?) with Trichet and that the politicians who run Europe in a few years don’t summarily rebuff us when we invoke it.

I’m getting a bit naffed off with academics suddenly developing a late nite poker fetish.

If you want to reduce this to poker analogies then here’s one for you – its called a “tell”.

Classically it is a personal trait that careful observers at the table notice correlates with occasions when a player is bluffing.

I’m going to tip you off here. You have a whopping great tell.

To play your hand as you put it, in negotiations with the EU/ECB, you would have to have them believe that you would be prepared to put up with the consequences of the credit line not being available and, quite possibly the unavailability of liquidity for most of the banking system.

Problem is that it is crystal clear that you (generically speaking) are not prepared to countenance even the first of those, never mind the second.

There is a structural deficit of around 20bn or so – its not just the banks. There are no leaders in the country that propose to reduce that by more than 6bn ish in the first year and the very popular Labour Party think that is way too much. No politician will even broach the subject of applying the voiding clause in the Croke Park Agreement that, er, applies in the event of the unforeseen economic circumstances which very obviously have now taken place.

The other side in the negotiations, or “game of poker” as is the fashion, need only a modicum of common sense to work out that there is no mandate for the Irish side to do anything other than go back to Ireland and wave the piece of paper declaring that there is credit in our time.

The people have leaders who have reassured them that those who are not in the internationally traded sectors will be able to continue to be very highly paid by European and world standards, much more so than for example in failed economies like Germany and the UK.

If the negotiators had been in a position to go into the room with everyone in there knowing that say, Irish university librarians for example, were all fully on-board with the idea that they might have to muddle by for a few years on the sort of looser pittances paid to their counterparts in prestigious universities in other countries, then those Europeans might have blinked. But, alas, without the librarians and for that matter, just about every other public sector employee pulling on the green jersey, they had been “called” before they could even utter the word “fold”.

Magical thinking (we’ll keep on growing forever!) got us into this mess and magical thinking (we’ll assume patently unmanageable debt) will keep us there.

The assumption seems to be – take one for the team, dig in and when the balloon goes up we’ll all go down together.

Sounds like a plan!

“I might point out that there were weeks of negotiations leading up to the Red Button-Green Button moment.”

Is here a timeline anywhere? I’m finding it remarkably difficult to check, but my impression is that the period admitted to was only about two weeks. Things happen so quickly nowadays that we old folk get confused easily.


They could have accepted the deal in principle but have stated that on legal advice it would have to be put to a Dail vote or a referendum.This would have given the Irish government some more time.
I thought the bank run was the immediate concern for the ECB and they wanted to plug that through the deal .By deferring the deal for a Dail vote or referendum would have knocked the ball back into the ECB’s court without having to play any cards at all.
If the markets had gone bananas on the Monday if the deal was deferred it would have backed the ECB into a corner where they had to provide massive liquidity to the banks or face a possible meltdown throughout Europe.
The Irish government could have sat back and watch the ECB scramle out of that one.
It really would nt have mattered what the legal advice was ,the government could have trawled for the necessary lawyers to go on the airwaves and state categorically the deal would nt be illegal if not put to a vote.
When the former US Secretary of State,Madeleine Albright, told the Brits the US was going to bomb Serbia in order to prevent the Serbs engage in ethnic cleansing ,the British objected vociferously saying their lawyers would never ok such an action. She told them to get new lawyers.

It’s the same old story throughout this crisis: We should have had an open debate on what to do about our debts and then negotiated. Instead the negotiations have happened and the deal is probably a fait accompli. Now we’re having the debate.

Poker, poker, bullshit bullshit…..all the Irish government had to do was to say “we tried to provide a guarantee but it’s not possible our economy is too small to absorb these losses” and then sit back and watch the show. If the numbers they put out in the month ahead of the deal were even remotely accurate, then the pension assets could tide them over for a year or so whole they dismantled croke park agreement.

instead we get our usual dogs dinner of justifications. The haircuts on bank bonds are IRRELEVANT…who cares what the haircut is if we as taxpayers are not going to fund them? We tried, we failed…so let’s move on!

Instead we have a lots of gonad-less economists and commentators that, even when all of their substantial contacts and brainpower are combined can’t seem to come up with a clear sense of their negotiating position…..the taxpayer does not own the banks……other European institutions do….let them deal with the backwash…….

in my opinion, the pirish government was signalling that the bank guarantee had to go if Ireland was to remain credible in the bond markets and that panicked the EU. They started the negotiations and THEY leaked them to the press….they desperately need us to take a bailout or THEY would be I. Major SHIT…….instead, we got railroaded into accepting bailout…..and we took it up the ask no questions because our politicians are corrupt, clueless ask holds!!!! VOTE THIS BUDGET DOWN NOW!!!!!!!

Ohhh…and anyone that think the croke park agreement will be honoured now is on dope….there’s a new sherrif in town and he doesn’t give a flying you know what about past agreements… the plan is to force ireland into a budget surplus so it can service debt it assumed to bail out larger EU banks and whatever it takes to do that is fine…..because that what our politicians agreed to

@Colm……what p…..they would be recapitalizing their own banks with their own, larger resource base….we would be looking after our current (without extra bank) liabilities and suffering for it.

Instead….we are bailout out their banks as well as our own mess…..they sit back and wait for the next round of poker…whether that be Portugal, Spain or Italy… the hope that they can get as good a deal there that they got here.

Instead, they are likely to meet a better poker player than us and when they lose a hand, we will see the shit hit the fan….and we will have already taken over our bank debt and will have no flexibility, no liquidity and no voice…..we have given away the house and we can only blame ourselves….

@Colm McCarthy

‘These games are played with live ammunition.’

The few bob from the neighbours was welcome, and appreciated, to tide us over on the groceries for the next few years while we figure out how to do Governance, spell fiscal, parse accountability, and teach politicians how to use language.

The ECB play was to ‘quieten quickly’ the Irish before their banks bring down the European Banking System on some monday or other – the BIG BIG black hole – Contagion etc. No surprise – ECB had to do something.
The poor play was to leave the table with the irish banking system still hung around the necks of the irish serfs – leaving us largely untouchable for either sovereign or bank funding. This has given Trichet another week -at European level. And maybe he is ready to hand on the baton; who succeeds?
Or maybe a gentle[men’s] agreement (unwritten) that the ECB will take a fair chunk of irish banking debt into some as yet to be figured out mechanism down the line – if we keep quiet, and get on with it: wishful thinking on my part …………….

Must be a couple of hundred years since we had an Irish invasion of Europe. Not much point invading Ireland at the mo ….


Going into a budget surplus is precisely what would have been required without the credit line. The fact the country was openly unwilling to consider doing so was its undoing in the “negotiations”.


True…but my point is we are required to run budget surplus in every circumstance….but in the one we have agreed to now we are required to run a surplus that is sufficient to repay our own public service debt AND to service the debt that the banks owe…and that second portion is obscenely large…..

We can hope that, when all of the bailouts are over and the time is right to renegotiate this debt, the EU will look favorably on Us and say…well they were good lads when we needed them and so we should give them a break now. That is only hope and it is not well founded in historical precedent. Instead, the countries with liquid resources and those with enough moxie to say stuff it will get something while those without liquidity and without options, will be thrown to the wolves. We put ourselves in the second grouping with this deal and we will pay very dearly for it.

anonym: “I am pretty damned sure that Trichet does not want to have to print away the ECB’s losses from an Irish bank default, let alone a sovereign default, nor would he much prefer to go the Eurogroup looking for a recapitalisation instead. Doing either just at present would bring his career in central banking to a sticky end, no?”

A massive banking crisis happened on his watch. Should he still have a job either way? What accountability should be required – or is it that unacceptable to the Elysee?

‘These games are played with live ammunition.’ … and let’s face it … the outcome is that we have been shot in the gut, execution-style. I don’t know what P is, but I’m pretty sure the expected outcome of fighting it out would have been much better than holding still for the slugs.

I know comment is free, but I don’t see the point of Karl’s initial post. Yes, this deal was negotiated by, with the exception of the CB Governor, the clowns who oversaw and facilitated this mess, who have made it worse since the initial dam burst, who barely retain the constitutional legitimacy to negotiate on behalf of the Irish people and who have an instinctive political urge to make life as difficult as possible for a new government so as to shorten its time in office and pave the way for their early return to power.

This post gives comfort, some ammunition and a vestige of credibility to those who, in Colm’s words, are throwing sand in the eyes of the electorate. But, perhaps, this was the intention?

@ Paul

By the same token, I don’t see the point of your comment. The deal is a bad one but we still shouldn’t complain about it — is that your point?

Not one I’d be sympathetic to if so.

“I might point out that there were weeks of negotiations leading up to the Red Button-Green Button moment.”

Surely the longer the run up to the deal was the greater the magnitude of p, because it allowed our counterparties to make plans to insulate the rest of the Eurozone from Ireland.

Also, how does one quantify (a) the possible effect of contagion, and (b) the negative political backlash from other EU states for years to come?

@D O’D
Very well put. I expect a new non FF/FG gov’t will shred our unworkable agreement with ECB/IMF. We will finish up with better terms within the EMU or we will exit into chaos in the short term. Better a bad year than a life sentence.


There are two fundamental problems: we do not have a government which is able to discharge the political authority conferred by the people (because it no longer retains the poeple’s comfidence) and which can speak on behalf of the people; and the EU lacks a clear idea of how to deal with the varying combinations of unsustainable sovereign and bank debt with which it is being confronted in the periphery and, perhaps, in Belgium and Italy.

It is for a properly mandated government to complain about this deal on behalf of the Irish people as a means to convey to the rest of our EU partners the urgency of resolving this combined sovereign/bank debt crisis. I view this deal as economically damaging, but politically unavoidable. In my view, a marginally less onerous deal might have been secured by an appropriately mandated government, but this is what we got. Complain all you want, but please don’t give credence to those who are seeking to convince the Irish people that a far less painless alternative exists.


I have written a lot about our fiscal problems. And I have never suggested that there is a painless solution. One way or another, bailout or no bailout, the deficit needs to be dramatically reduced in a short space of years.

Debate about the EU-IMF deal can’t be supersede just because there’s a few loony lefties out there.

We did nt need a deal at that point in time ,the ECB did.
Negotiating with a gun to your head (with ‘live ammunition’) automatically means a bad deal.

If the ECB pulled the trigger we should have immediately defaulted on all bank debt and all Irish sovereign debt held by the ECB.

I think that scenario would have been very unlikely unless their preferred option was to destroy the eurozone.

Colm McCarthy@
”The Green Button row in the payoff matrix = where we are.
The Red Button row contains p times (Armageddon on Monday) and (1-p) times (a revised deal).”

The green button is a time delayed version of the red button option.It buys time for the ECB at our expense.

The red button : If the ECB wants the euro and the eurozone to survive intact then p must have been very low.

Sean O’

Do you think our economy would have continued to function for the next 6 months without a deal?


No desire to suppress debate. Just taken aback a bit by the Dirty Harry reference. Part of me would love to see the EU Grand Panjandums being forced to perform or get off the pot, but I don’t think Ireland is in a position to force the pace. We need some fairly rapid and EU/IMF crafted reduction of the bank debt burden and, as Colm points out, a credible exit strategy. And yes we should all keep banging on about this until the message gets across. But, unfortunately, there are more than a few lefties – gaining political traction – who see salvation in an economic autarky more extreme than Ireland has ever experienced.

zhou_enlai @

Yes I think the economy would survive.We have enough money to survive through most of 2011 if you include the NTMA pension fund.

The Brits have offered a 7 Billion facility.They dont want a Tsunami of Irish people arriving in Britain.They would offer a longer term facility (with onerous conditions of course).
The point is there were other funding options.

As I said if the ECB wanted the euro to destruct it would have pulled the trigger and we could have defaulted all bank and sovereign debt held by ECB.
Our financial position would be improved .Its hard to make the case they would have done this.

I think the point is the gun was really pointed by the ECB at its own head but FF were fooled into thinking they had no option.
Its a bit like Blazing Saddles when the sheriff puts a gun to his own head and threatens that if the mob dont disperse the black guy gets it.

@Sean O’

What about our banks? Are you of the view that our banks would have traded away happily for that 6 months?

I don’t see why the new Government couldn’t start a massive PR effort post election targeted at European pension funds and insurance companies pointing out some salient facts relating to bond holdings and default risk if the banking bonds aren’t sorted out pronto.

I went to a presentation today in Switzerland about the global financial outlook and the opinion was expressed that only Greece is a real default risk. If that is to be the case certain changes are required. Ultimately it would be far cleaner to sort out the banking mess on the back of bank bondholders rather than set off a chain of sovereign defaults and/or inflation that will do far more widespread damage as well as cost far in excess of the estimated €500bn in losses involved in the EZ banking system.

@Paul Hunt

“… unfortunately, there are more than a few lefties – gaining political traction – who see salvation in an economic autarky more extreme than Ireland has ever experienced.”

Huh? Cormac Lucey, Gurdgiev, McWilliams, ……. surely you refer to the ‘looney’ autarkic nationalistic right …………… can you not observe the commonalities between the ‘pragmatic centre right’ and the ‘pragmatic left in emergence’ ……. notwithstanding the fact that one cannot bundle either into party political slots ………

@Mickey Hickey

A Fine Gael/(rump)fianna_fail is the obvious next government …

@ Paul

The Dirty Harry bit was just a rhetorical flourish! The point is just that I think that in tossing the grenade of exploding the Irish financial system, the collateral European damage would have been greater than Colm is claiming.

@D O’D,

The left, historically, has frequently adopted the effusions of ‘useful idiots’ to serve its purpose while generally excorciating the producers of the effusions – who, in turn, are shunned by the their natural political bedfellows. The workings of the EU do strange things to some people.

I agree with your FG-rump FF options, but what are the odds?


The option of pulling the pin in this grenade hasn’t gone away. The Gvernment has ruled it out, but the budget (a key element of the deal with the Troika) hasn’t been passed yet. Labour, Palinesquely, seems intent on ‘refudiating’ the deal. SF and other lefties are of the same view. What is to say that FF, freed from office and seeking to minimise electoral damage wouldn’t go down the ‘refudiation’ route. They have form.

We know where you stand on the past subjunctive “the Irish side could still have ..etc”; what about the next few days…weeks..months? Should Ireland pull the pin?

@Paul Hunt

Odds on FG/rFF are slim enough …. say 5 to 1 ….. must check PaddyPower ….. but it is the ‘natural combination’ if sufficient ‘useful idiot’ serfs vote for the rump ……… and they will!

Tough time for Social Democrats in Europe – but if a significant increase in left of centre does not emerge at this time around here in Dail seats – well, when will it? And we do need some restructuring of the political party system ….. there is yet again a case to be made for Labour to wait ….. if it does not become the largest political party in this election – I also think that Sinn Fein staking a space in Government would be good for ‘these islands’ …. and for this Island.

@Karl Whelan

Why would it matter if Colm McCarthy underestimates to some extent the damage that might have been caused? Every Irish politician told them in advance the button could not be pushed and the pin had to stay put.

The other side knew this because no leaders with any non-trivial constituency in Ireland had prepared that constituency for the sort of instant, substantial austerity measures that would have followed from pulling the pin (you also have to let go of the handle btw 😉 ).

This would have been very different to the 4 or 5 year targets with intact Croke Park, so there is no point pretending it would have been little different. You would need to convince the other side your electorate (Ireland is not Russia) would allow you to go straight to surplus. It did not require the talents of Mossad to find out the political “elite” (ho ho) had promised that such a thing would not be allowed to occur.

Have to say that on this score, leadership from Ireland’s economics depts has been somewhat lacking, with the odd notable exception. Hardball without consequences, c’mon. Consequences without popular support, c’mon.

@Paul Hunt

What is to say that FF, freed from office and seeking to minimise electoral damage wouldn’t go down the ‘refudiation’ route.

Nothing is assured, of course, but my money is on this. I bet that FF will do an about-turn of astonishing speed on the EFSF/EFSM/IMF package after the election, certainly if their election result is as bad as the latest polls suggest. The more uncertain thing is how firm and unequivocal their commitment to renegotiation-or-default will be.

@Mark Dowling

And people accuse me of being moralistic! 😉 Trichet won’t be forced to resign for his failure before the crisis because nearly everyone else in charge was complicit too. So since the blame game would have so many losers, they’ve all decided that no-one was to blame (“collective cabinet responsibility”). Second, for his deeds after the crisis – his trash-at-(near-)par antics with ECB liquidity funding for dodgy banks and PIIGS sovereigns – it’s not clear that all that many people even understand what’s going on. After all, if people think that Germany lending Ireland money (at 6%!) to bail out German banks is Germany supporting Ireland, then it’s not likely that they’ll have figured out the repo scam yet. It’s only when it crystallises into a big loss for the ECB that some will ever notice. And third, of course, when a crisis arises most people will forgive or ignore anything so long as the great wizard painlessly rescues us from it somehow.

“complete with senior debt defaults” What does that mean? Reducing coupon payments 10% 20% 30% …, or replacing the bonds stock? Default is to vague a term.

Quick question – to inform our new likley leaders, anyone have any ideas on our leverage to renegotiate this deal? And when does it stop?

From my reading, they have been slowly defanging us – and that’ll be completed when all of the banks are recapped/restructured and foreign bondholders (e.g. other EZ banks/pensions funds are paid off) and our ability to

Or would we actually be better to wait and do a sovereign default and Irish people’s bank deposits are “safe”? The only consequences of that would be that (90% foreign) bondholders the IMF/EFSF would lose their money right? Our governments would never be able to run deficits for a long period – but, hey, that mightn’t be a bad thing. Balanced budgets forever.

I remember Barro’s (or was it Tulloch’s) idea of constitutionally- mandated government bond defaults every 40 years or so as a way of enforcing balanced budgets.

BTW – anyone guess how much money Trichet had to print the Mon-Wed after our “rescue” was announced? Methinks it may have vastly exceed the 69 Billion in AIB’s senior bonds?


Timing – and developments in Europe – and seize the moment – or we are surely done.

Yet no Irish Gov representative, afaik, at yesterday/today EU meetings of senior finance people ….. …. not good. Surely worth a ‘pair’ ….

@Paul Hunt

On second thoughts (mature reflection?) I’m not sure about FF, especially if it’s on the way to becoming “Fianna Fáil, the Pensioners’ Party”.

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