Prime Time on the Euro

Last night’s Prime Time contained some interesting material.  A reader has provided a summary of some of  the main points, reproduced below:

Transcripts below of  remarkable comments by the ECB’s Executive Board
member, Lorenzo Bini-Smaghi, and  Fine Gael’s Leo Varadkar.

The stark contrast in the two viewpoints is a good summary of today’s
difficulties in Europe… Something has got to give, will give. And
probably in favour of the governments generally, not the ECB.

Leo Varadkar was asked on Prime Time what Ireland’s opposition Fine Gael
will be saying to the European Commission at their meeting today in
Brussels.

Leo Varadkar  – “They will be saying that Ireland does want to pay, that
we do want to take responsibility for our sovereign debt. They are going to
be saying that is a European problem, not just an Irish problem, that there
are flaws in the system in Europe. We are making it very clear to them,
which is very important, that at the current rate of 6%, we won’t be able
to pay. If they insist on this deal, on this interest rate, there will come
a point when Ireland won’t be able to honour its debts. And the money that
has been lent to us, we will be unable to pay, you know”.

Lorenzo Bini-Smaghi was interviewed by Prime Time –
“The amount of senior bonds is so small compared to the overall amount that
if you give a haircut to the bonds, immediately you would have a run on the
banks, by the Irish themselves by the way, because they would not trust
anymore their liabilities, their assets held in the banks are safe. So you
would have immediately a run on the bank, a collapse of the banking system
so the banks would not lend anymore to corporations. They would have to
restructure their own liabilities with the Irish citizens. So the Irish
people in the end would pay, pay for it, in the same way as the Americans
paid for the collapse of Lehman”.
“The government engages a country when it signs a agreement. .. The
programme is there has been signed and has to be implemented”

More material here

Bini Smaghi made additional comments here –
“if the country is successful after the first year of adjustment, then the
terms can be adjusted – the maturities can be lengthened. Many other things
make it easier.
[Interviewer – are you suggesting … that the rates for Ireland can be
adjusted and so on?]
“No. There are standard procedures at the IMF. These things take place
generally after two, two years after the stand-by agreement, in line with
the conditionality. So if the programme is on track, there are procedures
to lengthen the debt and modify the interest rates.”
[Interviewer – banks are saying that default for Ireland is inevitable…]
“First you should know that when banks give advice, they may have an
interest themselves. And unfortunately in modern financial markets, certain
parts of the market have an interest, and advantage, if the country
defaults. My point is that it is certainly not in the interests of the
Irish people, certainly not the poorest ones, if Ireland defaults. Because
the impact of the default would fall on the Irish people in a dramatic way.
If you look at the history we have, it is generally only the poorest
countries which have defaulted and generally not democracies”
[Interviewer – is it not more about protecting European banks]
“You have to know that the exposure of the Europeans to the Irish is a
small proportion of overall assets, while the exposure of the Irish people
to the Irish banking system is basically 100% of the total.  So the Irish
would pay much more than the other Europeans.

The full 20m+ interview with is here

Some of the other headlines
: IT’S UP TO GOVTS TO HELP RESTORE MKT CONFIDENCE
: IN `BAD TIMES,’ IRISH TAXPAYERS `CAN’T COMPLAIN’
: MARKETS FORCED IRELAND TO ACCEPT RESCUE PACKAGE
: IRISH `DRAMA’ PARTLY DUE TO GOVT DELAYS ON RESCUE
: `INEVITABLE’ FOR IRISH TAXPAYER TO ADDRESS CRISIS
SAYS TERMS ON IRELAND ARE `MORE OR LESS STANDARD’
–       SAYS `TRIED TO APPLY EQUAL TREATMENT FOR EVERYBODY’

46 thoughts on “Prime Time on the Euro”

  1. How could you tell, from the tone of the comments from Messrs Smaghi and Varadkar, which is the appointed, and which the elected, public official?

  2. Daniel Gros’ comments this morning on RTE’s Morning Ireland made an interesting counterpoint to the central banker.

    For all their flaws, Europe’s politicians are convinced democrats, and when push comes to shove I think (hope) they will understand that if something is economically and — as important — politically impossible, then it ultimately won’t happen.

    By the way, does anyone know how many unguaranteed bonds were repaid by us this week? Last week? The week before? Should we not be told?

  3. “They will be saying that Ireland does want to pay, that we do want to take responsibility for our sovereign debt.”

    Is this a misquote?? I hope this is not what FG are saying. We have to pay our sovereign debt. There is no point in saying you don’t want to pay it.

    The only thing of interest is if you say “we cannot pay it” and there is no point in saying that before you draw-down the money and incur the debt.

    We do not want to pay unguaranteed bank debt first and foremost.

    Is this a misquote or is Varadkar out of his mind?? Is he trying to unilaterally scupper the deal?? Is this the FG version of unilateral renegotiation??

  4. Leo should be perhaps more careful what he says in public.

    As for yer other man – I thought there already was a run on the banks and it has been going on for some time? Oui? Non?

  5. “You have to know that the exposure of the Europeans to the Irish is a
    small proportion of overall assets, while the exposure of the Irish people
    to the Irish banking system is basically 100% of the total.”

    This is missing the point that they are propping up our banks to keep their own banks propped up. Their banks have other dodgy assets and confidence is low after pathetic EU “stress tests”. The rest of the EU’s exposure to these systemically linked banks must be close to 80% (off the very top of my head).

  6. As I’m only learning how to use your “board” ( beaucoup de confusion on my part en ce qui concerne which thread to use!) I had already posted a couple of comments “over on” the Bruton letter thread before watching “Prime Time” this morning.

    So, I’ve nothing more to add other than to say:

    1.) The quality of the programme (and of Irish current affairs tv coverage in general) seems to me to be vastly superior to anything available here in France.
    2.) (I say this kicking and screaming), the politicians, at least on the evidence of what I saw this morning, are vastly superior too!

  7. The fewer liabilities a company has (and this goes for banks) the more solvent they become and the more likely they are to have a better shot at continued operations. That’s a rule of accountancy, not central banking.

    So how does a reduction in capital and coupon – given that (for the holder) to exit the position there has to be a buyer – mean we’ll have a run on banks? At worst the liabilities collapse, not the worst result really.

    At a certain point you could just buy back the bonds in which case you haven’t totally burned them, just subjected them to the actual market they signed up for and have thus far evaded by socialising the debt.

    The bank run is already in full flight, and that ECB line is a spoof.

  8. The debate that kicked-off at the end of the thread provoked by this comment:
    http://www.irisheconomy.ie/index.php/2011/01/27/john-bruton-writes-to-barroso/#comment-120477
    is very relevant here.

    The gist is that those representing Ireland should
    (a) acknowledge the extent to which we have screwed up,
    (b) assert that banks and financial institutions (both within and outside the EZ) were complicit is the run-up to Ireland’s banking crisis,
    (c) stop whining about poor, lil, ole Ireland being abused by evil foreigners,
    (d) accept full responsibility for dealing with our fiscal incontinence,
    (e) highlight the risk of no escape from the current support package (and of possible default) if the current burden of bank resolution is imposed (and the risk of popular support for the self-destruct option) and
    (f) advocate the urgent requirement for an EU-wide banking resolution package.

  9. I agree that whining will not help us. We should just shut up and keep our heads down when Corporation Tax is mentioned. Any defence should take place behind closed doors in Brussels (preferably in smoke-fille rooms). Turning the rest of the European populace against us and thereby forcing their politicians to punish us is not a good game plan.

  10. @all

    There isn’t a real bank run and suggesting there is only delivers us fully into the clutches of the ECB. Mr. Bini Smaghi tells us to watch for others’ motives. Aithnionn ciarog ciarog eile.

  11. I dont see FG playing hardball. So I suspect the most we will see is some negotiation around the Euro interest rate. It may well be that a strong vote for ULA/SF would strengthen the hand of FG. I wont be so doing but this is long gone from being an economic argument to a political one. Can, will, our partners ramrod through a deal in the face of mass political opposition?
    Over to BW2 now for some trolling…

  12. I am not A FG supporter but I have been impressed by Leo Varadkars honesty on Ireland’s debt problems . In fairness to him he has been both vocal and consistent for the last few months. He more than any other elected official is laying out the severity and the obvious need for restructuring/forgiveness/default.
    The strategy of others (especially economists) who believe that we can get out of this without default could be used against us if there comes a time for negotiating.
    Due to current events I think its is important to get some numerical feedback from the professionals.
    Should there not be a thread asking economists to give what they consider to be the % likelihood of a need for default/restructure//debt forgiveness?
    How many other economists have a similar view to John McHale that we can get out of this without default?

  13. @zhou when 26bn leaves our two largest banks in a 6mth period and you see the likes of NationwideUK go from 25 account openings a day worth 1m to 160 a day and 10m then it can’t be called anything else really can it?

  14. @Karl
    Zhou is afraid that naming calls. However, ignoring things also doesnt work. Im sure BW2 and JtO will be along soon to give us the pollyanna story.

  15. @Brian Lucy
    @Zhou_enlai
    @Paul Hunt

    Gentlemen,

    If this were a meeting in the international private sector, it would now be over.

    Just take Paul Hunt’s summary and give it to the head of the negotiation team ( bearing in mind Mr. Lucey’s tactical suggestion for creating the political context), give him (the head of the negotiation team), a date to report back with the right result, an incentive for achieving it, and a death sentence in the event of failure.

    And we all go home, shut up and wait for the “report” date.

    I’ll leave you on that note but will be back at some point to talk ( again, I’m afraid) about a new ” industrial” policy, new mechanisms for formulating and executing it and incorporating a new attitude towards “emigration”.

  16. Do we wish to get bogged down in a pantomine debate about debt restructuring?

    In the final analysis, Ireland will continue to feel a lot of pain and hardship whether we default or not. This has to be emphasised in public discussions. It is futile pretending to the Irish public that all the options facing policymakers – default, restructuring or EU/IMF “bailout” – do not present a silver bullet to rescue the economy.

    The key question is: do we procrastinate or restructure the Irish economy?

    Either way is not gonna be pretty. The real problem today is not economic intelligence, but political courage and long-term vision to drive through the reforms that are needed. And let’s be honest, the restructuring needed in the economy will not to be able to avoid winners and losers.

    Procrastination will continue as long as politicians are unable to convince and inspire the public of significant economic goals other than burning the bondholders.

  17. Oops. Typo

    Should read:
    It is futile pretending to the Irish public that all the options facing policymakers – default, restructuring or EU/IMF “bailout” – present a silver bullet to rescue the economy.

  18. @Zhou,

    “There isn’t a real bank run..”. True, but we have a slow-motion one. Mr Boni-Smaghi is pointing out that, in the market for sovereign, bank and corporate bonds there are sharks who will make a killing from shorting, vultures who will hoover up assets at the bottom of a market, indeed a whole menagerie. But there are also investors of ‘good money’ who foolishly treated bank bonds in EZ sovereigns the same as sovereign bonds and now have to meet pension fund liabilities. Mr Bini-Smaghi is constrained by the glaring institutional and procedural deficienies in the EZ and is talking the best game he can. He and his collegaues can’t alter the current legal constraints; it is the politicians who make the laws. One can only hope that he and his colleagues are providing the appropriate advice to the law-makers. But beating up on him will serve to dampen his enthusiasm to do so.

  19. :Richard F
    “If this were a meeting in the international private sector, it would now be over.”
    yes but that would be capitalism in action. And we coundnt have that could we….
    @Zhou
    Whats a “real bank run”? Jimmy Stewart involved..? This is a modern, full on, slowmotion electronic bank run.

  20. I found the comments by Mr Bini Smaghi most surprising, both his talk of terrible future events, and the suggestion that banks somehow want this (it is the total contrary of course). Mr Bini-Smaghi has a history of making unusual comments. I thought this op-ed article in the Irish Times and his interview a few weeks ago were reasonable and helpful. But these new comments go a step further and I find stunning. I wonder what Mr Trichet might think. I can only wonder what central bankers outside Europe or at the IMF, BIS etc might think. Could you imagine a Fed or Bank of England member using similar language? (and Mr Bini Smaghi is US-trained).
    This link might shed some light on what Mr Bini-Smaghi could mean. It dates from 2008. http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=THE+MARKET-qqqs=themarket-qqqid=36979-qqqx=1.asp
    The stark contrasts in the viewpoints of Mr Varadkar and Mr Bini-Smaghi is a good summary of today’s difficulties in Europe… Something has got to give, will give. And probably in favour of some of the elected officials, not the appointed ones, to use Colm McCarthy’s distinction.

    @ Kevin O’Rourke “how many unguaranteed bonds were repaid by us this week? Last week? The week before? Should we not be told? “
    Yes this is obviously critical information for taxpayers. You’d also want to track not just outflows but inflows too, as I’ve referred to in past posts of late. Much of the information is there (not all though, and you’d wonder why). But it would need collation and interpretation by some free and hard working spirit.
    I would have thought it would be in the interest of the incoming government to make it very clear what the numbers are looking like, right now, to that no one is any doubt about the legacy.
    Between March and early August, there should be a respite in outflows, and only a gradual pick-up again into year-end. Inflows however are being heavily front-loaded. That said, the pace of the socialisation of private debt to date leaves both less potential, and less incentives, for the new government.

  21. re Beni Smagi comment
    ” So you would have immediately a run on the bank, a collapse of the banking system so the banks would not lend anymore to corporations. They would have to restructure their own liabilities with the Irish citizens. ”

    Why?
    The “haircut” would be for the bond holders only. This would strengthen the bank balance sheets and significantly improve the Stae’s ability to pay its debts. Why would Irish citizens withdraw money from the banks in such circumstances.

    It is clear that it is not the Irish citizens that are being protected but the European banking system which is overly dependant on bond financing, under capitalised, badly regulated and has no mechanism to deal with bust banks except to foist the losses and liquidity shortfalls onto the citizens.
    Notwithstanding the Irish government’s reckless culpability in this matter, if Beni-Smagi and others did their jobs right the whole ponzi scheme would never have happened.

  22. @zhou

    the ability to create digital zeros is the only thing saving Irish banks. So for a minute: put the CB emergency funding and ECB support aside and you are right, we don’t have a ‘run’ we have a ‘ran’ because the banks would be long dead already.

    So apologies for the terminology, I should have said we have a bank ‘ran’.

  23. @Zhou

    I’m turning more pedantic as time passes! ‘bank run’ as defined by Barrons Dictionary of Banking Terms is as follows:

    a series of unexpected cash withdrawals, caused by a sudden decline in depositor confidence or fear that a bank will be closed by the chartering agency. Today the ‘silent run’ is much more prevalent than bank runs in the past where customers lined up in front of tellers windows and demanded their savings in cash. Today depositors simply transfer their interest sensitive funds to other institutions, this is also called a ‘run on the bank’.

    Just explain how €23 billion was expected and then we can put the question of what we have as being a run or not to bed.

    http://www.rte.ie/news/2010/1119/aib-business.html

    http://www.irishtimes.com/newspaper/finance/2010/1113/1224283235515.html

  24. @ Eamonn Moran

    Internationally, these are among the numbers calling for debt restructuring.

    They all agree with the position that the debt should be restructured, and specifically in the case of Ireland:

    Krugman http://www.nytimes.com/2011/01/16/magazine/16Europe-t.html?_r=2&pagewanted=7&ref=opinion

    Former chief economist of IMF Rogoff and Prof Roubini of NYU http://www.irishtimes.com/newspaper/finance/2011/0127/1224288397995.html

    plus The Economist magazine http://www.economist.com/node/17902709

    The latter on the entirely pragmatic view is that atleast bondholders will have a chance of getting 66% of their money back – as under current terms the likelier outcome is that they will lose the lot.

  25. @Ciaran O’Hagan,

    You have previously highlighted the implications of the front-loading of the support package – as you have here again – but without provoking any reaction. Is there not a possible political element to this front-loading? Merkel, Sarkozy, et al can say to their voters “Look, we’ve rammed as much of the responsibility for this banking cock-up on to the Irish as they can bear. They can’t really take any more – or we’ll bury them completely (or provoke a very bad reaction). And it’s not just their banks; all our banks are affected. So you’ll have to allow us to give them a bit of a dig-out’ while we sort out the banks”

  26. @ Richard Fedigan:

    Methinks you are attempting to initiate a meaningful intellectual engagement with a somewhat delicate matter – we’re a little bit insolvent, like! And our pesky incomes are shrinking like;_

    a: use any plausible issue to psychologically disengage, or,

    b: accept our fate resolutely and file for bankrupcy – fast like!

    I am definetly not advocating surrender. I am advocating Mushashi’s strategy in Book Two – Water (Book of Five Rings).

    Keep poking their egos.

    BpW

  27. @Paul Hunt
    I would like to remind you of the elementary economic logic that states that you can only tax the existing money supply.
    The money supply is collapsing due to lack of loan provision so that the commercial banks can save their now scrawny arse.
    The banks are eating the state – its as simple as that.
    Fiscal fetishes are unpleasant to the eye.

  28. @Karl Deeter

    I think most people are happy that the IMF deals shows enough firepower for the Govt to back up the banks and to ensure the safety of ordinary depositors money. Therefore, ordinary people are not fleing the banks. If we want to create a panic then we can give it a good shot. Varadkar, Bini Smaghi and us here are making a good start in that direction.

  29. @KD

    We’re digging a hole here. Capital deposits have fled, bondholders have already sucked most of what they can out of Irish bonds and the state is drawing down more unsustainable loans from EU/IMF et al.

    We need forward thinking (not false optimism, mind).

    What will put Irish economy back on track is some real no holds barred public discussions to cultivate a sense that economic policy has a purpose. At the moment, the public are being told it’s a disaster and, on the other hand, it’s not that bad. It’s fatalistic, and counterproductive.

    Economists need to face facts. They can no longer shirk the hard arguments and must explain to the public that Irish business sector is skewed and weak (esp retail & non-tradeable services), public sector is bloated and the only positive dynamic in Irish economy is foreign MNCs. On top of that we have a debt overhang that will strangle the exchequer, bank deleveraging that is crippling new capital investment and mortgage overhang that has frozen private liquidity of households. Unless we can admit this, we will remain spectators to the slow and painful implosion of our economy.

  30. @Keith,

    I fully agree that the ‘banks are eating the state’. I’m simply making the case that there are other options that should be on the menu – and on the table. But Ireland doesn’t control the menu – or the kitchen; and Chinese or Gulf cousine, while immediately refreshing and nourishing, includes dishes that would not be palatable.

  31. The simple solution is to seperate deposits from liabilities in total – the bonds can have the loan book.
    In essence treat deposits as money and not a liability dependent on a return
    Euro cash is only a liability to the ECB which at the moment is nearly half their liabilities – people are becoming their own central bank when the central bank acts in the interests of bonds over deposits.
    If the ECB does not expand its balance sheet soon then physical cash will become the investment of choice – however I very much doubt the ECB will go down the route the FED took in the last depression.
    As Karl said above – they are bluffing … badly
    Expect a explosion in the Euro balance sheet soon.

  32. This is all very well and good but what’s in this for the Europeans.
    They have somebody lying on the grenade that is European bank collapse – why would they want to take us off it?
    They will leave us on that grenade placated with slightly better terms to shield them from the fallout.

  33. @ Michael Burke

    Thanks for the links
    I was actually trying to get a gauge of the Irish economists.
    Many, even ones that contribute regularly on this site, are still on the fence as far as I am aware.
    It would be useful to get a gauge of where economists feel we stand.

  34. Well, Paul ( I said I’d leave you alone!) but you’ve been so incisive up to now I owe it to you to set you straight on Merkel and particularly Sarkozy’s latitude, or lack of it, when it comes to what they can tell their voters.

    Sarkozy’s entire narrative vis à vis French voters ( until he loses the next election!) is based on a pretence that France is so vital a component of the “Franco-German “moteur” of “Europe” that France and Germany together are the bulwarks that protects France’s AAA “signature”( capacity to borrow…. on the international bond markets.)

    Merkel ( backed by/chanelling her bankers), while continuing to “salute the French flag” is more of the view that Sarkozy spends most of his time borrowing from/being bankrolled by…….Germany!

    Sarkozy can NEVER tell his voters that burying Ireland completely would render HIS banks wobbly. He beats up HIS banks on behalf of HIS voters but there’s NO question of his banks being wobbly ‘cos they’re “protected” by Angela & him. World leaders, y’see. President of the G8 and the G20…. President of the the World, really!

    Angela knows the truth but her voters are fed up with this “Europe” thingy that they only went along with to get reunited (and preserve their Euromark and they’ve ended up paying for this both before and after reunification. Since this “Europe” thingy started really!

    So, Yes. They know that screwing Ireland could “contagion” the whole wobbly shooting match but the only way they can explain this to their voters ( and avoid runs on their own banks!) and retain their own “credibility” is by wagging the finger at us and the other peripherals (except France whose finances look so bad up close that Germany considers it a peripheral!) and agreeing that as good “Europeans”, Germans might be kind enough to suffer even more pain. But only if the bad peripherals adopt German ( sorry, “European”) fiscal governance and even changes in their constitutions.

    In negotiation terms, Ireland can hold the gun to the Paddy’s head and threaten to fire ( knowing the bullet would hit Angela’s banks in the head) but neither Angela nor her Monsieur Nicolas Bean can tell their voters this!

    Is that clear? So, Bye for a while.

  35. @Richard Fedigan,

    Many thanks for these additional insights and background. It is vital that we shift from the navel-gazing at Irish politcis and economics and focus on the EU politcial and economic reality with which we should be fully engaged.

    I am quite aware of the dread that grips Merkel, Satkozy et al when they contemplate confronting their voters with the reality of the current situation. They and their predecessors have pushed though the EU Constitution (re-wrapped as the Lisbon Treaty and finally the TFEU) and EMU and the Euro over their voters heads on the basis that it was all far too complicated, they didn’t need to worry their pretty little heads and, in eny event, they (the politicos) had everything under control.

    A President seeking re-election in a little over a year, a Chancellor facing elections in 7 lander this year and governments in the economically-aligned countries facing an upsurge of right-wing, xenophobic parties are very unlikely to welcome confronting their voters with further sacrifices.

    But something will have to give – and the ball is in their court.

  36. There is still equity within both AIB & BOI. The discussion seems to be about banks were all the loss-absorbtion before hitting seniors had taken place. It hasn’t.

    Anglo is a bit of a special case….. The guarantee and the promissory note does seem to complicate things.

    I haven’t heard the ‘idea’ of granting debt-forgiveness to Irish households lately. If I’d be cynical, I’d expect that to be heard as soon as a lot of cost of bad loans to developers have been passed on to bondholders & then hitting them again with the cost of debt-forgiveness for mortgage-holders…..

    When the majority of losses have been recognised then it might be possible to allocate losses.

    & it’d make more sense for the EZ-core to let Ireland default. They can recap their banks in exchange for equity & that equity will be a lot more valuable than Irish government bonds. Equitycan appreciate in value, government bonds will at best keep their face value.

    How would Ireland deal with the results of a default? The government is currently spending more than it is taking in. When borrowing is no longer available to meet the shortfall, what will happen then? Non-payment of wages?

  37. @zhou.
    re There isn’t a real bank run and suggesting there is only delivers us fully into the clutches of the ECB.

    How much interbank borrowings have any of the Irish banks managed to renew in the two and a half years?
    They other banks ran.
    How many bond issues have they managed to get away in the past two and a half year?
    They matured bond holders ran.
    Irish and other corporate depositers are now running.
    The only people left are the bondholders whose maturity dates haven’t come up yet and small time depositers who have no where to put money except under the bed.
    The loss of funding is such that the in effect the Irish government is having to make good the ludricious guarantee originally estimated at approx €400 billion. I understand that ECB and CB funding in total now stands at close to €200 billion.
    Not bad. Only another €200 billion or so to go.
    Meantime NAMA is collecting the assets.
    Did they get the keys of the Maybach yet, I wonder?

  38. @Karldeeter

    “The bank run is already in full flight”

    Not any more, yet.

    Those links for the 23bn are for pre-“bailout”. There was a bank run/walk but the latest figures suggest there was very little outflow in Dec, post-deal. In this respect the central banker is right – the banks were going under without the credit line being put in place. Its kind of a bank relay-run where the second leg may happen if the baton gets passed.

    He is also more or less right about the implications for Irish depositors with these banks if the slowing down / halting of that run were removed by an event which provoked another loss of confidence. He suggests hitting senior bond holders would do that and, (@Joseph Ryan) unless it were handled very very carefully – say with a parallel bank ready to accept compensated depositors – he is probably right about that too.

    If there is a loss of confidence, the deposits will be off, and those Irish deposit holders will be asking Patrick Honohan to print ooooodles more Euros to allow them to get their money out – euros that are ……a promise to pay by…..the Irish state; either that or the “restructuring of liabilities to Irish citizens” takes place.

    “So how does a reduction in capital and coupon – given that (for the holder) to exit the position there has to be a buyer – mean we’ll have a run on banks? At worst the liabilities collapse, not the worst result really.

    At a certain point you could just buy back the bonds in which case you haven’t totally burned them, just subjected them to the actual market they signed up for and have thus far evaded by socialising the debt. ”

    If you do this o the guaranteed seniors – viewed from overseas – that would be simply viewed as a sovereign default and the logical reaction for asset managers is to get their assets out ASAP before there is a default on anything else. Deposits will just go.

    Even if you apply resolution in order to get at the seniors (which in my view you should) you have to treat them pari passu with the depositors so the only way to do this and keep any deposits is to convince the depositors they will be compensated in full from state assets outside the resolution. That convincing will not be easy since everything said by an Irish politician by then will be treated with the same suspicion that should have been applied to the last lot

    I remember back in the bank run that prompted the original guarantee in Sept 2008 that some “experts” trotted out on the telly were pushing the line that the bank run wasn’t too much of a problem since 30 odd grand was guaranteed and if anyone had more than that on deposit well, ppffff, who cares about them, they are obviously rich enough to take the losses. This went down badly both with locals who had, for example chosen to rent a house and save, and with treasury managers generally – who got the message and headed for the hills.

    The blanket guarantee covering alreaduy issued bonds was stupid -and made it clear “Ireland” had no clue what it was doing, but some of the arguments that the bank run itself didn’t matter weren’t very clever either.

  39. @ Brian Lucey

    “I dont see FG playing hardball”.

    No, neither do I. Neither will anyone from abroad who notices that there is no political leadership towards preparing popular support within Ireland, for a fall-back position where the public payroll (wages not redundancies) could be cut to deal with the option of hitting bank creditors and not requiring access to the credit line.

    “Reduce the interest rate and write off a significant portion of the debt or we will …..er….. continue to draw on the credit line at whatever interest rates you tell us to and pay back bank bondholders in full, because we have no politically viable option”……..is not a credible position from which to play hardball.

  40. @grumpy,

    Prof. Lucey may be being a tad harsh. This isn’t megaphone stuff. What about a quiet word in the shell-likes of the EU’s Grand Panjandrums (political and instutional) along the lines of “Do you want to deal with a Labour/SF/assorted left supported government with its finger on the Euro destruct button? Because that’s where your intransigence is pushing Irish voters.”

  41. Paul,

    Labour think that everyone who is a public sector employee and earns between 100,000 and 250,000 must be protected. They will not do anything that can get them blamed for affecting the pay packets of that sector. That is their identity. Public sector = good. They are as idealogically rigid as FF and the PDs.

    SF might, but if they alone offer this “risk” they the pro-bailout consensus will swamp them.

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