I have written a column for Business and Finance on the EU-IMF bailout.  It’s behind a paywall on their site but you can read it here.

89 replies on “Rescued?”

“We may have been rescued from the wolves. However, it is open for debate whether our rescuers are planning to feed us to the lions.”

Thats good sh1t Karl. For the record, i’m robbing that line…. 😀

We guaranteed the banks for long enough to let the private creditors escape – replaced that debt with ECB and government funding – and then the ECB pulled the plug on us.

What a total fiasco

Thanks for providing the doc.

Its a good summary, but I wonder where do you stand on what options are available to the next government.

By stating (and repeating here today) that senior bondholders are not explicitedly protected in the memo, are you hinting that there is scope for unilateral action by the incoming government? Or that the lack of explicit protection could give the new govt some opportunity for renegotiation.

The more articles like this the better. The spin coming from the government regarding this entire banking catastrophe is enough to make one’s ear’s bleed “….we always acted in the best interests of the country….we’ve gotten the best deal for the taxpayer….we saved the economy…..any other plan is nonsense….”

The sad truth is, in spite of all the evidence to the contrary, a lot of people will believe this rubbish simply because it is their taoiseach barking it at them or their minister for finance earnestly stressing it to them.

So I will be hoping for even more articles like Karl’s, stating plainly that the governments policy on banking and for the crisis as a whole has failed abysmally. End of. Every other topic is up for debate, bar that one.

“Rescued from the wolves” is good enough endorsement for me. As to whether it is part of a wicked plan to ultimately “feed us to the lions” is pure speculation.


The ECB announcement that it would reduce liquidity provision is the key trigger, as it was with the decision to announce that it would not accept Greek governent debt as collateral in the event of a downgrade. The latter decision was reversed only after new loan terms and new austerity measures had been imposed (and despite downgrades of several notches). Likewise, it seems as if the ECB will now provide increased liquidity to all of Europe’s banks – but only after the imposition of a new loan at onerous terms and the austerity measures that are allegedly supposed to pay for them.

The new comfort allowing the ECB to reverse those decisions is clearly provided by the additional loans plus austerity, despite the provision of ‘excess’ liquidity (which is in any event, sterilised) or concerns about the quality of its assets.

Absent a default, the ultimate beneficiaries of these arrangements will be Europe’s banks, paid out in full on investments that can otherwise be purchased in the market at huge discount. The ECB’s role is therefore to act as the enforcer for the banks.

In an episode of The Sopranos, mob boss Tony S reveals to a bankrupt gambler that he always knew he didn’t have enough money to play in the high-stakes game- but his ownership of a sports’ goods store was the prize asset. Tony doesn’t take over the store- he strips it of assets and loads it with debt by purchasing goods that go straight out the backdoor before it is finally bankrupt.

Only when the NPRF and central bank reserves assets are all gone, ESB, Bord Gas, etc. sold and the debt interest compounded beyond any likely growth of the economy will the ECB be done with Ireland.

It’s a nice turn of phrase at the end of piece, but I think these are the wolves. Default is inevitable, and the discussion should be about achieving the most favourable terms.

What part of ‘loss of sovereignty’ do people not understand? I admit it took me some time for the penny to drop, but, with the help of the knowledgeable commenters on this board (many thanks to them – you know who you are) it finally did. The Government played a good game for more than 2 years trying to convince all and sundry that they were in charge – and this encouraged acres of commentary outlining varying options (but all predicated on the implicit assumption that the Government had some scope to act unilaterally). The EU was prepared to play along with this because it lacked the mechanisms to deal effectively with the mess Ireland was presenting – and still doesn’t (even if it is slowly getting there).

The EU has just about enough in place to protect Ireland from the bond markets, but it is far short of what is required. The idea that the EU/IMF is prepared to ‘feed Ireland to the lions’ is ludicrous. It is not in the EU’s interest to have Ireland, Greece, Portugal or any other member drowning in a sea of debt. But there are millions of voters in the core EZ countries who have been excluded from giving their direct consent to major institutional developments in the EU over the last decade who have to brought on board.

This will take some time, but it is in the EU’s interests to do so and it will happen. In the meantime Ireland will have to demonstrate a willingness to employ the sovereignty it retains to remove the deadweight costs that are hindering economic recovery.

Ireland’s property bubble was both a cause and a consequence of a credit bubble. Similarly in the US and Spain, property bubbles were both a cause of and encouraged by credit bubbles.

Germany did not have a property bubble. However, it lent large sums to private institutions in bubble countries. These debts are now the eurozone’s equivalent of sub prime mortgage securities.

I understand it to be the case that European banks do not mark to market sovereign debt. Should peripheral countries, that have already been bailed out, now insist or lobby that this changes immediately?

The pretense that this is an Irish or Greek or Periphery problem alone ought to end. By failing to acknowledge the expected losses on the balance sheets of their banks they are letting the show proceed as if prudent Germany is bailing out the reckless periphery. However, reckless German creditors have been a principal beneficiary of the Irish State’s guarantee.

German banks are undercapitilised. I think Germany was a voice restraining larger increases in Capital Ratios under Basel 3 despite cogent arguments put forward by the BIS that this was a mistake.

German pension funds lent to Irish developers through the medium of Irish banks. Those loans have gone belly up. German private investors have and are free riding on our state guarantee. We have had to mortgage our future by guaranteeing and repaying private creditors of our banks in order to maintain financial stability.

Germany has financially benefited from this guarantee just as Deutsche Bank and Barclays benefited form the US guarantee of AIG.

As a surplus country Germany is an exporter of savings. We ought not allow Germany benefit form state guarantees that they don’t contribute to the cost of.

Lenihan repeatedly says that no EZ bank has to date dishonoured senior debt.
But other EZ country has a banking catastrophe even remotely as bad as our.
No other EZ country has an Anglo Irish Bank.

There was a time during the boom when papers ran silly stories about the Olympics coming to Ireland. We could have paid for them 2 or 3 times over with the money we have burnt in Anglo.


Statement by IMF on Ireland
Press Release No. 10/482
December 10, 2010

An International Monetary Fund (IMF) spokesperson issued the following statement today on Ireland:

“The Government of Ireland decided yesterday to table a motion on the EU-IMF Financial Assistance Program for Ireland in the Irish Parliament (Dáil). The vote on this motion is scheduled for Wednesday, December 15, 2010.

“The authorities have informed us that while parliamentary approval of the EU-IMF support package is not legally required, the Irish Government has put the motion before parliament to strengthen political support for the agreement. In deference to Ireland’s parliamentary process, the IMF has decided to postpone consideration by its Board of the proposed loan under the Extended Fund Facility until after the debate. Assuming parliamentary support for the package, the Managing Director could recommend approval by the IMF Executive Board of the proposed €22.5 billion IMF loan as early as December 16.

“We welcome the first implementation measures of the 2011 budget – stipulating the fiscal consolidation path and important reform measures involved in the program – have recently been passed by the Irish Parliament, confirming Ireland’s strong commitment to the program and the policies involved.”

“What about fiscal policy? Here, we have even less reason to feel rescued. The average interest rate of 5.8% offered by our external rescuers is about the same as seen in the bond market in September and, at that time, there were serious concerns about the sustainability of borrowing at such an interest rate. That the rate is lower than what would be on offer now from the bond market is cold comfort.”

Karl surely you’re not suggesting that the Germans and Brits can’t make an honest profit on the differential between the rate they borrow at and what they lend to us at, as they indirectly bail out their own banks. Sure the Irish taxpayer won’t mind.
Be careful Karl – you could end up being labelled a “useful idiot”

and here was me thinking that constitutionally we didn’t actually require a vote… If we now require a vote in order to actually get this money one can only hope that there will actually be full information given to the Parliament. Meanwhile, the debate about pre-funding continues… See here

This 5.8% doesn’t seem to me to be such a terrible rate. The average German 5yr yield in the noughties (up until the ’08 crisis) was about 3.8%. In the early part of the decade, it was often over 5%, and even in 2007 and 2008 it popped over 4.5% on occasions. As Trichet was keen to point out, EU inflation has been around 2% since the advent of the Euro (he spun it as under 2% – which it was, just).

At 2% inflation, and with a EU recovery underway, German 5yr paper could easily get back to trade in a 4% – 5% range. Under such circumstances, a country with a BBB+ credit rating able to get fixed rate funding at 5.8% would normally attract considerable envy.

Is it time that we moved on and figured out how we might realistically restructure our sovereign debt (which includes the bank stuff). The figure Karl uses for debt/GDP of 110% by 2014 looks low. I have seen much higher projected figures.

Could we learn a valuable lesson from Iceland and seek to push out the debt really long term as they did with the Icesave repayment out to 2046. The interest rates charged of 3.3% and 3% showwhat a really hard nosed negotiator can achieve. Do we have any in the MoF?

@Brian Lucey

If we now require a vote in order to actually get this money one can only hope that there will actually be full information given to the Parliament.

Oh indeed. Is FG preparing to allow through a deal which contains a secret side-letter they haven’t seen? Or if the FG leadership has seen it, what are they going to do to reassure the rest of us about it? And are the lobby-fodder going to loyally vote for it either way? Time for someone to start asking them those questions.

@ Bill

its pure politics. FF simply trying to get rid of this as an election issue and force FG/Labour to take a position on it. Labour’s situation is relatively easy (No), but FG want to be seen as the mature, stable, fiscally responsible party, and a lot of them probably want to vote Yes. Jumping into bed with Labour/SF will tarnish them in the eyes of FF.

The ‘wolves and lions analogy’ will probably be passed off as a rhetorical flourish, but it appears symptomatic of a desire to huddle together around the ‘nuclear button’ that we could press to twart the designs of all those evil people out there seeking to do us in. What nonsense! Rate investors in the bond market want assurance that the coupon will be paid and that the face value will be repaid on redemption. The EU has its own dysfuntion, but it is getting to grips with it. For example, the ECB is unable to use its firepower to convince bond shorters that will get hosed if they persist. The EU Grand Panjandrums know that dodgy banks in the core EZ are benefitting costlessly from the currently enforced protection of senior bondholders in Irish banks. These and other issues will be resolved. If the EU fails to relieve the burden Ireland is carrying in the near future, the EU fails. It’s as simple as that.

But we have to realise that any relief, restructuring, call it what you will will only occur when millions of voters in core EZ economies and their political representatives are convinced that Ireland is deserving of such relief and that it is in their interest to step up to the plate to finance it. In the context of the EU Constitution and the EMU they have been lied to, manipulated and ignored by their politicians and they will take some persuading. And they must be persuaded that we are doing everything we can to do our share of resolving the problems plus ensuring that reforms have been implemented to ensure there is no repetition before they will be minded to assist.

This is the audience we must seek to convince and we seem to be doing a brilliant job. I expect the political acceptance of the first stage of fiscal adjustment has been noted, but can they see any evidence of reform of the bankrupt and dysfunctional system of political governance that was a major cause of this mess? This proposed Dail vote is a perfect example that it is alive and well. (The objective here is to highlight the differences between FG and Labour and has nothing to do with establishing political support for the Troika deal.) Or can they see any serious effort to remove the deadweight costs being imposed by the public, semi-state and private sheltered sectors? Can they hell. I wonder how ‘cheque-cashing half hour’ translates into German?

Did the Brians tell the Fund they were putting the thing to a vote before they agreed it with the EffenFers?

As Karl points out there is a dearth of information on what is intended with the banks. The Irish Examiner has an article on Maarten Van Eden (Anglo’s CFO) and an articlehe wrote for the Dutch financial newspaper in which he is reported as saying

“The banks operating in Ireland have a long-term capital need of €75 billion and require €70bn in the medium term to cover bad assets,” he wrote in the newspaper.”

€70bn in the medium term?

@anonym, Brian Lucey

wrt side deals and full disclosure, Kevin OR had a post earlier which referenced the Indo report about the private briefing of certain investors / bond market participants.

If the Indo is accurane, then as this was private and contained clearly price sensitive information which was specific in nature, it may have been unlawful – not just morally / democratically objectionable.

@Bills Hobbs

RE ” Just who has told Dublin it must have a vote on the package and why?”

We are being told to bind ourselves with our own constitutional chains.

@Bond.Eoin Bond

Oh I have heard of Depfa all right and the German authorities probably aren’t too impressed with the IFSC.

The thing is that Germany which is roughly 20 times the size of our economy can afford Depfa which is more in the INBS league.

They haven’t got anything near the size of Anglo.

@Joseph Ryan
FF has nothing to lose by having a Dail vote.
They hope this will tie all other parties up in knots.

@ Jagdip Singh

““The banks operating in Ireland have a long-term capital need of €75 billion and require €70bn in the medium term to cover bad assets,” he wrote in the newspaper.”

Plan is to downsize Irish banking to be domestic. 75Bn long term capital implies around 750bn risk weighted assets. So that’s about 6 times GNP. Is it reasonable to assume that domestic agents would owe the banks 6 times their annual income? Maybe it is.

igsy01 said “Under such circumstances, a country with a BBB+ credit rating able to get fixed rate funding at 5.8% would normally attract considerable envy.”

But has our rating not been cut BECAUSE of the 5.8% rate ? To me this is a classic example of sub-prime lending where a party with credit access problems (Ireland) gets a high penalty rate to access loans.

Does anyone really believe that we can afford 5.8% ??? And whatever happened to that sub-prime market in the US. Nice to know we havent learnt anything from the last few years.

@ Maurice

i’ve read credible reports that suggest total banking losses in Germany are around €1trn. Thats equal to Ireland in terms of % of GDP. The difference is that the likes of Depfa, Sachsen, IKB etc etc will be warehoused in long term State guaranteed bad bank structures for the next decade, at which point there is some sort of assumed recovery in their asset prices. It basically gives the Germans (and the Spanish and British who are doing the same thing) a decade to fix their busted banking sectors and financial systems. Ireland was given around 2 years to do the same, and was unable to figure it out. We were by far the most honest of the EZ nations in trying to fix our banking sector, and paid the price for that.

“Plan is to downsize Irish banking to be domestic. 75Bn long term capital implies around 750bn risk weighted assets. So that’s about 6 times GNP. Is it reasonable to assume that domestic agents would owe the banks 6 times their annual income? Maybe it is.”
Eh, no.

Don’t forget the losses…

We’re already at 45 bn in capital (in many and varied forms). The plan is to inject a further 10 bn/use it as guarantees and have 20 bn on standby. This latter amount is to allow the deleveraging. My poor arithmetic says that is 75 bn. What does yours say?

“We were by far the most honest of the EZ nations in trying to fix our banking sector, and paid the price for that.”
Without having our own currency, it was incredibly stupid. The Swedish allowed the krona to depreciate by about 40%. The losses were hidden in Securum and Retriva (for the two nationalised banks) and the private banks created their own bad bank structures to hide the losses (much as the UK banks did in the early ’90s).

Iceland has done the same this time (depreciating the krona by 46%).

Mind you, I believe our case is more similar to the Finnish or Japanese case. There isn’t a value that these assets can recover to that doesn’t involve massive losses, even over long periods of time. With the ECB committed to a mandate of 2% inflation as a ceiling, there is going to be no depreciation of these assets.

I don’t believe that the German bad bank is going to work, in part because of this and in part because of the nature of some of the bets Depfa were selling – their customers don’t have the ability to pay back some of these debts, so a good proportion of the losses will be real (see here for example the latest headline suggest the schools are reneging on their Depfa obligations). Depfa basically loaned money to people to buy CDOs, those CDOs turned out to be worthless and now the borrowers are giving the finger to Depfa.

The refusal of angela merkel to back euro zone bonds to backstop the ESFS is ,I believe significant.
Its a point blank refusal by Germany to pool its sovereign credit rating with the rest of the eurozone .This would neccessarily increase the yield on German bonds which would also have to compete for funds with the euro bonds.
As someone else has stated here its possible the EU will now asset strip the ESB etc as payment .At 2013 the liabilities that remain on the ECB balance sheet can be warehoused and the outstanding balance financed by revenue streams flowing from ESB etc.

If Germany is serious about the euro zone then the only long term option left is a Federal Fiscal authority.
The political actions of Merkel suggest there is either no long term vision for the euro or that a strategy is already in motion to exit by Germany which consists of extracting as much as they can from Ireland before they go.


In Finland the markka also depreciated by close to 40% in the early 1990s.

Some of the mechanisms adopted by the Irish government were similar to those adopted in Finland. In both cases there was a blanket guarantee (but the Finnish one had a ceiling) and there was an asset management company to handle bad loans/assets. No bank creditors took loses in Finland, only some shareholders.

However the scale of the problem was quite different. In Finland gross costs to the government were estimated at 10% GDP, with net costs (after loan recoveries, re-privatization etc) estimated at 5% of GDP. Also most of the problems occurred in the savings bank sector, with many of these banks sold off to the bigger more financially sound banks in Finland. I believe there was also a much bigger and faster clear out of all top management in the failing banks, and they were much quicker to put in place a tougher supervisory/regulatory regime. Olli Rehn was in government at the time so no doubt the slow motion response to Anglo (two years for losses to be estimated???) is something for which he has no tolerance. One other point – unemployment in Finland has never recovered to pre-crisis levels, even after 20 years.

According to the ECB’s stability review, Ireland will have a debt/GDP ratio of 114% in 2012; Greece will be at 156%, Germany at 75%, Italy at 119% and Finland at 53%.

In addition to high public debt, Ireland has high private sector debt.
Germany’s public debt ratio will have increased by 10% since 2007 and apart from the net earnings disparity in Irish sheltered sectors and Germany’s, there isn’t much leeway for Germany to return to its old role as the EU’s Santa Claus.

Paul Hunt makes a pertinent point on the electorates in the core countries and it’s not only Germany that objected to the proposal on E-bonds.

Merkel and Sarkozy spoke yesterday of a deeper union and be prepared for closer tax harmonisation if that develops; we will likely continue to keep the 12.5% corp. rate but we would suffer if US companies in Germany had to post legitimate profits from their activities there.

Restructuring of Greece’s debt would likely only happen after getting a clearance from the IMF on implementing significant reforms. Ireland’s case would be strengthened if it also took that course.

In countries such as Portugal and Spain, there are for example dual labour markets; unionised establishments provide permanent jobs and benefits while large sectors of the workforces comprise temps with few rights and benefits.

According to Prof. Hans Werner Sinn of the Ifo institute, Germany’s net investment rate in the period 1995-2008 was the lowest of the OECD countries.

In 2008, only 40% of German savings were invested domestically. In 1995-2008, German GDP growth was 22%; Portugal 33%; Spain 56%; Ireland 124% and Greece 61%.

Germany had an average net investment rate of only 5.3% of net domestic product. That was the lowest rate of all OECD countries. In 2008 Germany had saved €277bn in all sectors (private households, businesses and government); that much money was available for net investments, but in fact only €111bn was invested.

The result of the capital exports, i.e. the transfer of the rights to utilise economic goods, was that from 1995 to 2008 Germany, after Italy, had the lowest growth rate of all EU countries. To the extent that other countries were artificially bloated by the flow of credit, Germany flagged because of the outflows. If capital leaves a country, its growth slackens as a result, its inflation rate stays low and a trade surplus arises.

@ christy

We ought not allow Germany benefit form state guarantees that they don’t contribute to the cost of.

Chancellor Merkel speaking in the Bundestag, Oct 07, 2008: “Fourthly, we know that we operate in an EU internal market. Of course this raises the question of how to dovetail national and European actions. Here I want to identify the approaches which, in my view, are not appropriate. The Irish approach of backing its own banks without prior consultation and not backing other international institutions which have long paid taxes in Ireland, thereby of course distorting competition in a way that is, in my view, unacceptable in the internal market – this approach is not appropriate.

@ Hog

The guy said 75Bn long term capital need. That in my book means a long term domestic asset book of 750bn i.e. 6 times our economy. I was asking in good faith was that reasonable. He set aside another 70bn for losses.


You have consistently highlighted the huge net exposures that core EZ governments have facilitated their stupid banks in salting away, or as you put it ‘warehousing’. It would be interesting to get a handle on the proportion of these net exposures that comprise exposures to Irish banks and dodgy sovereigns and banks in Greece, Portugal and Spain. I suspect this proportion isn’t that large and that the bulk of the net exposures comprises some of the most toxic devices ever conceived by the quants in the bulge backet and global banks.

Of equal relevance is the hypocrisy of these governments, while facilitating this ‘warehousing’, in seeking to force Ireland, Greece, Portugal and Spain to accept the burden of keeping these stupid banks whole in relation to their net exposures to the banks and the sovereign in these countries. And this hypocrisy is driven by pure dread; dread of having to address the implications to the EZ financial system of confronting these net exposures and dread of having to ask their voters to stump up to finance the inevitable shoring up.

Michael Noonan was very good in the Dail last Tuesday (and Garret FitzGerald had another go in the IT today) on the extent to which Ireland is isolated within the EU. Since the lid blew on this debacle at end-Sep. 2008, the Government has been locked in a clammy and damaging embrace by the EC, the ECB and, more recently, the IMF. In the same way as the markets picked off the peripherals one by one, the core EZ governments have been able to isolate them politically.

That is why a general election and a new government are urgent requirements. We need a new government that can honestly admit to the mistakes of the past, express sufficient contrition to our EU partners, speak for and to the people of Ireland and demonstrate a commitment to pursue the reforms required to manage the required fiscal adjustment, to boost economic recovery and to prevent a repetition. And more importantly, to speak on behalf of the Irish people to our EU partners and their voters. And this includes steps to form common cause with the other peripherals to confront the hypocrisy of the core EZ governments. It is in the interests of the EU to forge a political and economic solution that preserves and develops its institutions in the common interests of all. There is a common problem and there has to be a common solution.

Threatening to put on the headband and to go on a lone kamikaze mission is entirely self-defeating and will isolate Ireland even more. The sooner this government is gone the better. The judgement of the people has been delayed for far too long. By all means let them push though the full legislation required to enact the budget. But that’s it. JHR, Lowry, Behan and others could do a great public service by pulling the plug at that stage and calling time on the Green fantasies.

The Dáil gets to vote on the deal after all. Would it not be better to vote it down and precipitate the endgame that everyone knows is going to happen anyway ?

I think ‘capital’ is being used loosely here. The banks need either to sell assets or to replace lost deposits to the tune of 125 bn (75+50 bn according to Mr. van Eden, but they have a regulatory capital requirement of 70 bn to cover losses and raise their capital ratios.

“The guy said 75Bn long term capital need. That in my book means a long term domestic asset book of 750bn i.e. 6 times our economy. I was asking in good faith was that reasonable. He set aside another 70bn for losses.”

Isn’t a chunk of the capital needed so that the banks have positive equity rather than equity. They might only end up with €40bn capital after they have restructured.

@ Paul Hunt

BIS figures are always difficult to flesh out properly, as they tabulate via country of residence rather than country of ultimate ownership.

However, i was actually looking at this during the week and Credit Suisse had a very helpful piece where they fleshed out the real “Irish” exposure from the “Banks in Ireland” exposure.

(all following amounts in USD$)

Essentially “total banks in Ireland” exposure to the other PIGS is as follows: PT 5bn, SP 28bn, GR 8bn, IT 41bn. So 72bn in total. Around 62bn of this is thought to be at “non domestic” Irish banks, and of that its almost all German i reckon (ie the Landes, Depfa etc). What is not included in this figure would be a situation where a non-domestic Irish bank (ie Depfa) bought Irish govt bonds or Irish bank debt. Not sure how much that would add up to.

The “total banks in Germany” figure is as follows: PT 44bn, SP 213bn, GR 44bn, IT 176bn. So 477bn. German banks also have exposure of 175bn to Ireland, but much of this is probably intercompany loans (ie Hypo Real Estate Munich lending to Depfa Dublin etc), so difficult to know how much of this is ‘true’ exposure. But lets say its even a third, so 60bn, bringing total PIIGS exposure to 533bn.

So “German banks in Ireland” exposure to PIGS of 60bn (minimum as it excludes exposure to Ireland itself), plus the actual “German banks in Germany” exposure to PIIGS of 477bn, and they probably have minimum direct exposure to other PIIGS of 533bn, and probably closer to 550bn+ after you include the Irish exposure as well, mentioned above.

And, outside of all of this, both German banks here and back in Germany have exposure to the US, a lot of which is undoubtedly subprime or CDO in nature, of around 550bn.

AND all of these figures exclude any Luxembourg or UK subsidiary exposures to US/PIIGS.

So at a minimum, German banks have 550bn in dodgy exposures (PIIGS), 550bn in exposure to the US which will be at least somewhat subprime in nature, and X?bn in additional exposure to these regions via Lux/UK exposures (German banks have exposure to Lux of 150bn – assumption is that most of this is intercompany lending).

So in total, you probably have 900bn-1trn in questionable loans, and another 300-400bn that we simply do not know about (incl Lux/UK). This analysis also hasn’t even begun to look at German bank lending to Eastern Europe and the Middle East….

@ Hog & D_E

It is hard to precisely know what he meas. Fopr example, the following quote:

“Van Eden said that a further €50bn is needed to restore the term structure of the banks’ obligations.”

I was interpreting the 75bn requirement as a “positive equity” thing, in which case it is much less worrying as in a stable economy that should be an investment. What I would like to know is how much has to go down the tubes?

You are right, it is unclear. I see the 70 bn figure as being losses and raises to regulatory capital under the current scenarios.

I’m not sure if it is correct to add together the 50 and the 75 bn figures, but I think so as it accords with the exposures of the Irish Central Bank and the ECB (repo). This is funding rather than capital (though it is always someone’s capital!).

So what he is saying, I think, is that losses/capital raises will be about 70 bn, with 125 bn in funding required – i.e. the amount in new deposits/bonds required to replace that which has left the banks. As I say, there are two ways to do this, one is to get new funding, the other is to reduce the size of the asset side. It appears that selling assets is now the chosen method, where the guarantee tried to keep funding.

I don’t think any comment on the future size of banking assets is made or intended…

Excellent article and the first one I have seen that actually goes through the timeline of the “bailout”. Our being thrown to the wolves or lions is interesting too, because that timeline make it clear to me that we are not being bailed out. Instead we are in the process of legitimizing the transfer of private sector bank losses onto sovereign balance sheets and I have yet to see a good article about this. The “big lie” spin is to refer to this as burning bondholders as if the act of non transference is one that maliciously targets bondholders and once that phrase appears, the conversation turns emotional. The other element of the “big lie” is to point to the consequences of “burning the bondholders” and by doing that, to suggest that failed banks, lost deposits etc will only happen if the state fails to assume these liabilities. In reality, that can all happen even if we try to assume these liabilities and, by assuming the losses onto the state, we make ourselves more vulnerable. We do this because today, the state has cash (the pension fund). Tomorrow, when that cash is gone and the bank losses are now officially the responsibility of the state, we may have no choice but to default in a chaotic manner along the lines of Argentina, without any buffers to protect our citizenry against the fall out.

We can’t blame a wolf for behaving like a wolf, we have to blame ourselves for creating a situation in which, by refusing to consider alternative paths, we put ourselves under the mercy of the wolf.

The reality is simpler, but I may be wrong.

This article deserves a wider readership than B&F. Would it not be possible to get a load of Irish economists together to sign an article along these lines and have it published in ALL the newspapers before the Dáil votes on the Troika reparations?

Getting a lot of economists to agree on anything is a nontrivial task. I have some experience of it. Perhaps we can get a load of bw2 and eoin^2 instead?

From the article in the NYT

“Regulators must be “more convincing than we have been” that the worst will soon be behind Ireland’s banks, said Patrick Honohan, the governor of the country’s central bank.

That could prove a stiff challenge. Time and again, as Ireland’s banking crisis deepened, estimates rose for the cleanup. The bill to taxpayers for the bailout has swelled to 84 billion euros, 56 percent of gross domestic product, the result of a government decision to backstop the banks’ losses. ”

Now it looks like the Bailout proposed may not be sufficient to cover the banks (Never mind the liquidity issue for the moment). Alan Dukes raises this in the article and he must know where most of the bodies are buried.

“I reckon 35 billion euros is not going to be enough,” said Alan Dukes, a former finance minister whom the government tapped to unwind Anglo Irish before it was nationalized in January.

“The number that’s there at the moment is based on what we can expect of the commercial property market,” Mr. Dukes said. “I don’t think any assessment has been made of the possible impact of mortgage defaults.”

So Morgan Kelly was right?

This article deserves a wider readership than B&F. Would it not be possible to get a load of Irish economists together to sign an article along these lines and have it published in ALL the newspapers before the Dáil votes on the Troika reparations?

Why not a group of small businesspersons struggling to keep the economy afloat rather than economists in protected positions, whether they are right or not?

After all, one of the few economists who had publicly sailed against the winds of conventional wisdom, was part of what you apparently see as a capitulation.

As for the allusion to Versailles, we can of course ask Russia or China for a loan or decide to return to self-sufficiency but try and keep in mind that this dénouement was not caused by outsiders.

If the bank bondholders don’t pay for the bank losses all over Europe, sovereign debt holders will. Gerry Adams is right on this count.


I think a letter from some senior business people would be even better.
As would jail for many of the architects of the Irish crisis.

The problem is much bigger than Ireland’s banks now though. Sovereign default is virtually guaranteed in more countries than Ireland if the bank boldholders don’t take a hit.

The denouement had many home grown elements but it was funded by much foreign money and has now spread way beyond Ireland. There is an urgent need for a pan European solution.

Italy needs to fund E300bn next year and Spain E150bn and the way things are going they’ll only be able to get that at penal rates. There’s a Euro political ineptitude premium build into yields now.

@Michael Hennigan

On German cumulative GDP growth rates one simply has to factor in the unification process – and the .. er .. shock to the system. Notwithstanding such growth rates, one has to conclude that they have handled it admirably – if still a ways to go.

Europe and Dr. Merkel, are of course, another matter at the moment – and Sarkozy’s put down of Juencker would start a brawl in any civilized company. Willie ‘Big Bang’ Cases supports Juencker – the realist and pragmatic Luxemburger. e-Bonds will arrive …..


‘… There’s a Euro political ineptitude premium build into yields now.’


The EU is an awful state. Sarko and Angela agree that the answer is closer union but they couldn’t get the Dutch or the French to vote for a much milder version in 2005 and the only reason the Lisbon leftover treaty got passed was because Ireland was convinced to give it a second go.

And now what? They won’t stand up to capital and the Euro could be history by the end of 2011.

@Bond Eoin Bond

Neat work. Round it all up – that’s a Trillion … From an ECB perspective, of course, this is ‘manageable’ (-;

@Bond Eoin Bond

… and I suppose one should now be able to roughly estimate a write-down of at least 50 billion of our ‘explosive particulars’, a minimum at the table, versus a trillion+ – and the few bob back on the banking system through some sort of ‘general derivative (-;)’ might allow a particular economy/society to prosper.

It sounds from Garret Fitzgerald’s article in the IT that our relationship with the EU is at an all time low. Short of a massive crisis or an EU change of heart I wonder how likely a rescue is. Unless of course this current government has a rock solid commitment from them. If they claim to their backbenchers that they do, the backbenchers would be utterly gullible to believe them without written evidence. After the next election I can see lots of government TDs claiming they were completely deceived by the two Brians. By then our next government may be lobbying for it’s life.

@Oliver Vandt Says:

”After the next election I can see lots of government TDs claiming they were completely deceived by the two Brians. ”

The next election is irrelevant.Neither Olli Rehn ,the ECB or Angela Merkel will be on any Irish ballot paper.These are the only ones that count now.

Don’t get caught up in this “lost sovereignty” side track. A sovereign government can renege on any deal or treaty it likes. It has to face the consequences – but that is what diplomacy is all about.
We have choices. We just don’t have as good a range of choices as we might of had if we had had a less craven spineless governement as we have now. And that is why our choices at the next election are so very important.
We can still negotiate, because sooner or later default or “restructuring ” are coming our way. We need to be using our guile and cunning and some badass hard neck, to build an alternative consensus to that of Sarko and Merkel. Don’t you think there might be some others in Europe who are a bit uncomfortable with a Franco-german diktat?

Rafa Hijo,
Unfortunately the Euro’s heads are politicians too and they, with the full help if our own current lot, are busy binding the hands of our next government. They do this by making the consequences of reneging on the agreement too horrible to contemplate. that’s why the IMF is insisting on a dial vote before any money is disbursed and that’s why I believe that the Irish will have to give over the pension fund money first before even one cent is transferred from other EU governments.

This government will likely be in power for two more months and, by the time they go, we’ll likely see that there is no cash in the kitty and, if the next government will likely be scrambling to pay teachers, nurses etc. That is how you remove choices and that is why this government should be removed as quickly as possible.

Echoing Bismarck’s reputed comparison between law-making and sausage-making, EU decision-making is seldom a pretty sight. But what should we expect from history’s most successful example of multilateralism which has expanded from 6 to 27 countries since Dec 31, 1972?

There has always been an idealism element in the EU project – – why else was a poor country like Ireland admitted in 1973 — and a flawed EMU governance system now collides with a reality that every country has seen public debt levels spike during the severe recession.

The approx €50bn in senior debt at BoI and AIB is about 40% of the current borrowings of Irish domestic banks from the ECB and Central Bank. Haircuts would mean exclusive reliance on public funders for some years.

The 2 banks had a combined market cap of €2.5bn on Friday; restructuring, selling and downsizing must be a priority.

Anglo had 1,250 employed last month — which is still a huge number for an Irish company; the new government will be faced with the unpleasant decision on big layoffs also at BoI and AIB.

The current issue of the Economist says: “A 20% loss on euro-zone and British banks’ combined exposure to Greece, Ireland, Portugal and Spain would mean a hit of about €300 billion.

That is a fraction, albeit a hefty one, of the €1.1 trillion aggregate Tier 1 capital of the 91 European banks that were stress-tested earlier this year. Some think the BIS data overstate the danger. For instance, German regulators reportedly believe their banks’ exposure to Ireland is only €25 billion-30 billion, against a BIS number of €150 billion. This echoes the complaints of Austrian bankers in 2008, who said the BIS figures on their exposure to eastern Europe exaggerated the true risk and panicked the markets unnecessarily.”

Restructuring may come in a few years when the global recovery is sustained and as IMF programs wind down. However it will not be simple nor will it be a free lunch.

For example, how could Italy with a debt ratio of 119% be excluded?; how could it be included?

As we obsess about default with its identifiable villains, we ignore the issues of not only reform but the challenge of creating 200,000 net new jobs.

Our cargo-cultists put their faith in a ‘flexible’ economy, university research and American FDI.

Facebook and Citi announced 350 jobs this week, which is welcome but despite the spin from the IDA, FDI has peaked as a jobs engine; we are heavily reliant on the pharmaceutical sector which employs less than 30,000 and is responsible for more than 50% of merchandise exports; just last Sunday, the CEO of Pfizer abruptly resigned because of the challenges.

The FDA approved as many new drugs in 1950 as it did in 2008.

Anti-euro flat-earthers should note that apart from the tax rate, our membership of the EU is an important factor for US firms; most significant Japanese and Korean operations have shut and beyond the IFSC, Ireland isn’t an attractive location for the big German firms.


I am grateful for this – as I am sure many here are – but didn’t expect such a detailed response – in particular during the weekend. I expect our old friend, LTEV, is coming into play to maximise the gap between total exposure and the net – backed by assets of zero value now or ever – exposure. I suspect the long term game plan, as also indicated by Michael H, is to release these exposures gradually from the ‘warehouse’ as the assets backing them increase somewhat in value or the economic and financial ability to absorb any losses improves – or a bit of both.

Any precipitate action forcing the emergence of some of these exposures from the warehouse is likely to overturn the applecart – and will be strongly resisted by both the Troika and Sarkozy, Merkel & Co – which may be appropriately abbreviated to S-MCo.

The problem confronting the Troika/S-MCo is the wide variation in the sovereign/banking system debacles that the peripherals present – and not only the peripherals. It would be easier if all presented the same symptoms, but that’s not the case. At one extreme the Irish sovereign appears to be on top of the fiscal adjustment – and its tradable sectors are resilient – if unnecessarily burdened, but risks being buried by its banking system. At the other extreme, Greece is less troubled by its banks, but the viability of the sovereign must remain in doubt. Spain and Portugal sit along this spectrum – as do Belgium and Italy which have been indulged from the beginning by the other four founder members. And this doesn’t even look at the post-2004 members outside of the EZ.

Chancellor Merkel has been quite emphatic that investment in sovereign bonds should not be seen as the only risk-free investment – with taxpayers picking up the tab. This applies equally to senior bonds in banks. It is the same ‘sophisticated and professional’ investors who bought these bonds. S-MCo must be encouraged to confront this reality – and only co-ordinated political pressure by the peripherals – and other vulnerable member-states – will force the pace gradually and constructively.

Ireland is taking economic pain and many voters seem resigned to some more, but there is a limit – and, as in all tangos, there were two parties involved in this debacle – the party who danced while the money kept flowing and the party who kept the money flowing without consideration of the consequences.

A Michael H

+1 as usual.

‘As we obsess about default with its identifiable villains, we ignore the issues of not only reform but the challenge of creating 200,000 net new jobs’

Plus another 100k+ (?) to replace those which will be shed in the restructuring/reform/privatisation processes. It’s hard to see anything other than another big emigration wave on the way.

@Paul Hunt

“I suspect the long term game plan, as also indicated by Michael H, is to release these exposures gradually from the ‘warehouse’ as the assets backing them increase somewhat in value or the economic and financial ability to absorb any losses improves – or a bit of both”

In the capital markets the future is today. There is no patience to wait this out and hope that economic growth fixes the problem.

The EU has a choice. Either hit the bank boldholders now or wait for a massive wave of sovereign default. Hoping for deeper political union or a return to the mean is not going to bring yields down tomorrow.

The Irish banks issue gets very interesting when the facts change. Why should bondholders and depositors get all of their money back if in the process the country’s sovereign debt enters guaranteed default territory ? Who shall be happy? Whose interest is served by an adherence to the existing rules? Ultimately everything comes down to politics. All laws are revokable. All guarantees may be cancelled.


I have consistently argued that the markets will continue to press to close the gap between the political fantasy being purveyed by the Troika/S-MCo and the economic reality the markets perceive. This gap will be closed. You seem to be in favour of Ireland putting on the headband, climbing into the Zero and going on a kamikaze run.

Magnificent, yes, but stupid and self-defeating in the extreme. The immediate requirement is to build political cohesion among the peripherals to confront the naked self-interest of S-M&Co. This is how the EU has traditionally – and excruciatingly slowly – moved through successive crises to something better.

Your recommended approach, if pursued, would render Ireland no longer fit to be a member of the EU.

There seems to be a contradiction in your position. I am not clear whether you believe that the capital markets have the power (“In the capital markets the future is today. There is no patience ….”) or whether states and political unions have the power (“Ultimately everything comes down to politics.”) If laws are revoked and guarantees are cancelled, what happens afterwards? Can the states and unions get away with it? Can they impose the pain on the markets and their constituents?


@ Paul Hunt

This Eurozone crisis is moving faster than the political cycle. We have no idea how things will stand by Christmas. A union of the peripherals would be great but all of the houses of the peripherals are under similtaneous attack. Spain has to fund 150bn next year and it is desperate to get its yields down and will do almost anything in terms of austerity to placate the markets and still it is not enough. What can a union of peripherals do between now and Christmas ?

The whole EU philosophy of the last 50 years is under threat IMO.
Under severe pressure there is a reversion to beggar my neighbour politics by individual states which damage everyone.

Ireland is going to have a sovereign default anyway if the Troika deal goes ahead. And so will Portugal ad Greece and Spain and possibly Italy.
And if they happen so will everyone else because everything is fite fuaite ina cheile.

The EU can’t afford a bailout fund bigger than the EFSF because it has to borrow in the markets for the money and the market is demanding a higher premium for this money and each country that chips in must
borrow its share and that increases their debt… It is a savagely vicious cycle.

The markets want someone else to pay for the losses of the banks and the sovereigns can’t pay.

It’s a battle between the markets and the people and it demands a coherent response from our politicians. As well as coherence between countries.

The markets have enough money to absorb the losses of the bank bondholders. The sovereigns don’t. Merkel and co. are trying to hold the line because they don’t want the cost of funding their banks to rise next year but that is a forlorn hope IMO.

Interest rates will go up regardless as risk has been very badly mispriced and bond rates are too low.

A wave of sovereign debt will wipe out many mainland EZ insurance companies who are heavily exposed to savings funds linked to sovereign bonds. In whose interest is this ?


The capital markets at the moment are in risk off mode and are not taking the long term view.

If the guarantee stays, Ireland will default. That is what the markets are saying at the current level of yield. The markets are telling Ireland that it can’t afford the guarantee.

As to your previous point about the ESB and foreign ownership- Connex is a French company that owns railways in the UK. It price gouges as well as the local firms. That is the way of the market.

Clearly we need to be building a position with the other peripherals that supports our interests against those of the S-MCo. Guarantees can be cancelled, treaties broken etc BUT only when you have assured your political position internationally. Restructuring or default is coming at some stage. We need a governement that prepares for that situation by making a strong argument and winning support from as many others.
Politics is about building a consensus. Something unthinkable today can become accepted as inevitable if the case is well argued and support assiduously built. We need people to do that, not the present government who seem to be working with S-MCo to shaft their own people.
They can’t all get jobs in Brussels surely?


You are perfectly entitled to express a pessimistic view about the future of the EU. My view is that the project is worth sustaining, as I fear the alternative. S-M&Co are compromised on two counts. First, too many of their financial institutions are vulnerable and it is in their interests to seek to protect them – even at the expense of the peripherals. Secondly, the institutions and mechanisms they and their predecessors have developed – and which have now being found to be unfit for purpose – were established without the full consent of their voters. They will now have to confront their voters with these two unpleasant realities. And their instinct is to duck and dive, but the markets, as you rightly point out, won’t allow this to continue indefinitely.

Very few in the markets will profit from mayhem. Most want resolution and some measure of certainty. But none will volunteer for haircuts. The EU is ruled by law which is made by politicians and any resolution will only come from revised institutions and mechanisms.

If the EU is to survive it will have to happen, but Ireland pulling the plug won’t make it happen any faster; it will put Ireland outside the pale. That’s why we need a new government to speak calmly and persuasively, with our fellow-peripherals, both publicly and privately, to S-M&Co about Ireland’s inability to endure the medium term measure of economic pain that is being prescribed. But it will also need to demonstrate a commitment to reform political governance and to make structural economic reforms to unburden the economy.

@Paul Hunt
Th markets will not volunteer for haircuts but as you say they want certainty, and there will only be certainty when the reality of the situation is faced and haircuts are on the table.
Of course there is a desperate need for reform at home and in each of the peripherals – and arguably in Germany too – but there is bound to be a very deep rethinking of the whole EU structures. All the more important that we are working on building our position and alliances. I think we are going to have a lot of choices coming up.

@ Paul hunt

I agree on the need for reform. It must happen. But the situation now is not about what to do in 2012 and beyond. It is how to get through next week. The EU is ueberfordert. It boils down to a row between Trichet and Sarko at Deauville. Sarko said that ultimately there is a limit to what the people can pay. And Trichet said the markets should decide .
Now the markets are saying that if Ireland doesn’t sort out bank debt it will be forced into a sovereign default. And the cancer has spread to other countries. The financial system is inherently unstable and also desperately fragile.
Too many banks grew on the back of leverage at cheap rates. There is probably too much money in the system too. And there is no magic growth rabbit to pull out of the hat before Christmas. I don’t think anyone in the Government has a proper handle on this. Neither does Olli Rehn.

Too much money in the system? Do you mean that investors are unable to find satisfactory homes for their money? Because I would have thought less money in the system is the last thing we need.

Looks like FF Lite (main opposition party FG) are waiting to see if FF and presumably FG’s Creighton are sufficient to pass the IMF deal. If they aren’t then further FG “in the national interest” defectors will be necessary.
From Labour poster on
Regarding FG voting for the IMF deal:

“”former deputy leader Richard Bruton said it was ‘not a foregone conclusion’ ”

“communications spokesman Leo Varadkar said Fine Gael support for the deal was ‘unlikely’”

One hinting that they will support it and another hinting that they wont. So like the budget, they’re at sixes and sevens over the bailout. Perhaps they’ll do the same as they did on the budget and speak against but provide pairs to the government to facilitate getting it through.

We’ll have to keep an eye on Al Jazeera in case the Taoiseach in Hiding (AWOL opposition leader Enda Kenny) releases another video.””

Cowen was concentrating his fire on Labour in recent interviews. May be tactical but journalist John Drennan says FF TDs hoping to link up with FG after the election, presumably if decimated.

Rafa hijo Says:

”We can still negotiate, because sooner or later default or “restructuring ” are coming our way.”

Agreed.But my point is there is no point in voting unless political parties express in manifesto form prior to the election if they will default or support the deal.
If they support the deal or state they will renegotiate without default the final option they WILL use then voting in the next election is pointless.

You vote for people who make the critical decisions that affect your life and who govern your life.These decisions are now made by Ollie Rehn,the ECB and Angela Merkel.

I suspect FG and labour will say they ‘ll renegotiate but that should be trashed as a ruse by them to fool the electorate straight away..

Remember FG and Labour colluded with FF to overthrow the result of the NICE referendum until we voted yes.That resulted in mass immigration from 2004 onwards which combined with unrestrained hosing of our financial system with limitless credit from German banks etc has in large measure lead to our current demise.
Lisbon should have taught them a lesson but they still went ahead and campaigned for a second referendum.

In my view the scenario most people fear a far right anti EU political movement will a step in the right direction.
Rescue as the title of this thread alludes to,is best if it comes from ourselves.
The EU are not our friends or our partners,they are in fact hostile to our best interests.

Sean O’ I don’t think it is a question of threatening to default unilateraly. I don’t think the deal with the Eu-IMF will hold. The crisis will spread and spread until either the EU wake up and realise re-structuring is unavoidable for us and everyone else or the whole thing ends in a series of uncontrollable chaotic defaults. We need people in governement who can use the time betwwen now and then to prepare our position and who can work to protect our interests in the shake-up.

I see this as an opportunity to create a better europe. I don’t know what that europe should be, but now is the time we should be thinking and discussing the future shape of europe.

The threat of anti-european ideas around the continent is quite scary. There is enough xenophobia building against the poorer europeans as it is. There was a very good reason for building a european union.

@ Rafo

I mean a lot of money was created over the last 30 years and it went into assets that were sub standard and not worth what was paid for them and so deleveraging needs to happen and the issue of who pays for it is crucial. Taxpayers can’t do it all. Total global financial assets were c USD 40 trn in 1980 and over cUSD 200 trn in 2007 and a lot of that growth is *possibly ;)* bogus.


Yes. Thanks that makes sense. And isn’t the whole crisis really about whoshoulders the losses? The bank guarantee and the “baiil out/in” is about making sure that some people don’t have to take a loss, about shifting it all onto the taxpayers.

Would QE be a more egalitarian way of spreading the losses? Would it write down assets and debts equally, and free all agents to “start again”?

“It price gouges as well as the local firms. That is the way of the market.”

Surely that’s the way of the non-market? Free enterprise as opposed to free markets?


Free markets are a joke, BJG. The private sector is dependent on the government sector for a huge chunk of income even in the market shangri la that is the US. If there were a free market anywhere there would be no need for lobbyists. The US has 600 congresspeople and last autumn USD 20m per DAY was spent on DC lobbying.

@ Rafa hijo says

”There was a very good reason for building a european union.”

Yes for Germany and France.But I dont see what the benefit for Ireland was other than for farmers to sit in front of the EU with a begging bowl for the past 35 years.
Certainly its difficult to see what a great union it is.

….”The threat of anti-european ideas around the continent is quite scary.”…

Not sure what you mean by this but if its a rejection of the undemocratic and unwanted intrusion of the EU in our country and all the harmful effects brought to these shores post the Nice and Lisbon treaties then anti european ideas are a legitimate political response.

The only reason that seems to be put forward in defence of the Euro and EU is that we would be a lot worse outside of them.Thats not much of a positive reference.
A year ago the pro europeans were propogandising that if we left the euro or if we did nt bail out the banks we would end up like Iceland.
Objectively Iceland’s course was the correct one and we are the fools.
I cant think of a single public person ,organisation or political party that can make the case for Europe that is convincing any more.

@Sean O
Ourselves and the UK allowed access to our labour markets from Eastern Europe – not the EU.

@Disappeared comment
He was putting himself forward for Taoiseach last week. I understand the sensitivities but he isn’t working for a private company.

@ Oliver Vandt Says:

..”Ourselves and the UK allowed access to our labour markets from Eastern Europe – not the EU.”

Not a true statement.
The EU mandates access to our labour markets in the Nice treaty.

The Irish government had the option ,contained in that treaty of deferring access up to 2012 .

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