S&P Rating Downgrade

See here for the reasons behind S&P’s downgrade (registration required).   See here for Irish Times report; here for Bloomberg report. 

This is noteworthy:

The downgrade reflects our view of the concluding statement of the European Council (EC) meeting of March 24-25, 2011, that confirms our previously published expectations that (i) sovereign debt restructuring is a possible pre-condition to borrowing from the European Stability Mechanism (ESM), and (ii) senior unsecured government debt will be subordinated to ESM loans. Both features are, in our view, detrimental to the commercial creditors of EU sovereign ESM borrowers.

39 thoughts on “S&P Rating Downgrade”

  1. Is this one of the same ratings agencies that was giving AAA status to the like of Lehman brothers on the day of the crash? Or just one of the ones who gave the Irish banks AAA ratings in every day of the boom.

    Why do people think Standard & Poors has any credibility whatsoever as a ratings agency? You could get more reliable figures from talking to OAPs at a bus stop. The institutional inertia in the financial sector is really dreadful.

  2. Does anybody really care what these guys think any more. Here’s a somewhat cynical view of things:
    1: Blackrock paint a picture that requires just enough capital to pay the bondholders but not enough to make the state refuse point blank to pay it (the fudge re derivatives and the failure to factor in current growth and unemployment rates suggest this.
    2: This state keeps Blackrock and it’s clients happy and promises some nice little action on distressed sales
    3: Since S+P are also part of the circle they downgrade just enough to send a message to Europe about allowing haircuts on sovereign bonds

    The whole thing is a sham concocted by people whose only way of making money is to manipulate markets. All these rating agencies and hedge funds are parasites on the productive economy. And parasites love living but weakened organisms. They have a perfect little feast in poor old Ireland

  3. @ OMF and Eureka

    For goodness sake; why look a gift horse in the mouth? cf. extract from Bloomberg report.

    ‘Positive Surprise’
    “The outlook on the ratings is now stable, reflecting our opinion of the credibility of the stress tests,” S&P said. The company on March 29 downgraded Portugal and Greece, saying the European Union’s new bailout rules may mean those nations eventually renege on debt obligations.

    “The downgrade isn’t surprising given that S&P is only bringing its rating into line with the other main ratings agencies,” said Eoin Fahy, chief economist at Kleinwort Benson Investors Dublin Ltd. “The fact that S&P has given Ireland a ‘stable’ outlook and described the bank stress tests as credible is a positive surprise.”

    Ireland is teetering at the bottom of the Second Division and you wish to see it relegated to the Third?

  4. @DOCM
    If we are teetering at the bottom of the second division we will be relegated to the third. That’s how football works.
    As an ordinary citizen Ive had enough of this moneylenders charade!

  5. @ DOCM

    “Ireland is teetering at the bottom of the Second Division and you wish to see it relegated to the Third?”

    Can you think of a reason why we weren’t junked?

    Let me suggest one.

    There are sufficient dumb fund managers in the world who will continue to hold Irish debt because it it still “investment grade”.

    What’s left of the smart money makes a bee-line for the exit.

    I think it’s called the greater fool theory.

  6. @DOCM @ Eureka

    I agreed with DOCM on another thread but I have to agree with Eureka on this one.

    If we had “burned bondholders” we would have been down graded. We did not “burn bondholders” and we still get downgraded.

    All we are getting from moneylenders(who have abdicated responsibility for fixing our banking crisis to politicians) is a “charade” against a background of unhelpful mixed signals from European “partners”.

    I know it sounds slightly populist but the sooner we relegate many of our European”partners” to the status of “friends” and start discussing the possibility of a new currency (which may or may not result in another “downgrade”) we can start operating as a North West European/mid Atlantic open economy.

    That way we wont be burning up energy negotiating with a disparate group of European countries orbiting within Germany`s East European concerns or France`s Southern European pre-occupations, coordinated by unelected officials in Brussels/Frankfurt and receiving “downgrades” for our efforts.

    If we are forced to fix our own banks (which many European banks were stupid enough to lend money to at low interest rates suiting France and Germany at the time) without any real help from our “partners” then we need to consider fixing our own economy with the help of a variety of “friends” whether they be from Boston, London, Melbourne, Paris and Berlin.

    Bi-lateral negotiations may be a lot easier than the kind of multi-member negotiations we have been trying to negotiate.

    Our European friends may have been great lovers for may years but setting up home with them on a more permanent basis is proving to be a different story altogether as the first major challenges are exposing the possibility of a flawed relationship.

  7. S&P puts Ireland on the same ratings level as Thailand and the Bahamas, but says that Ireland is in a strategic position because of it’s increased competitiveness. Well last time I checked, wages, property, cost of living and all the basic indicators of competitiveness were a lot lower in our fellow BBB+ countries. We’re about the same in terms of competiveness as France or Italy which have a much higher credit rating and we’re surely far less competitive than Germany. Our competitiveness is being further eroded by the race to the bottom with the corporate tax rates and the very high cost of commodities. In fact I recall S&P about a year ago saying that the Irish property market was possibly undervalued. The only way it was undervalued was with the aid of a time machine to bring you back two years. Yes, we have improved in terms of competitiveness in comparasion with the ‘peak’, but the peak was an air filled bubble and isn’t useful for real world comparasions.

  8. Also, the upcoming interest rate increases will further erode our competitiveness. With the UK probably not pursuing interest rate rises despite their high inflation, imports for UK companies will be that bit cheaper (is this their way of trying to evaporate their debt mountain? Oh to have your own Central Bank!). We are really in for an ugly six months as I see it. I would very much imagine S&P will put Ireland back on the watch list.

    Sorry to be gloomy – I think we’re truly foobared.

    Also – I recommend Robert Peston’s recent analyses of our situation. He puts an outsider’s perspective on things. http://www.bbc.co.uk/blogs/thereporters/robertpeston/

  9. The following extract from an RTE story online seems to be of major significance –

    “Mr Noonan denied that Europe has treated Ireland badly and said that Europe has been very good to Ireland and provided billions of euro to enable people to keep cashing their pay cheques.

    He added that Ireland’s credibility has suffered because there have been so many claims in the past that did not come to pass and that restoring Ireland’s credibility was now crucial.

    He said for the first time Ireland has received – in writing – a commitment from Europe that funding would be ongoing.

    Mr Noonan said that for the first time in a long time Irish banks are secure and that Ireland can not be rebuilt without fixing the banks and providing credit to the country. He warned that it would be a slow process but it could be done. ”

    If it is in writing then it should be published to reassure depositors.But of course the question is, who from “Europe” gave the written commitment.

    The other significant matter arising in this story is that we seem to be deeper in the hole with 200b and not the 150b being quoted here – “He said that given the fact that Frankfurt is providing almost €200 billion of liquidity to the Irish banking system, the Government has agreed not to enforce burden sharing unilaterally. ”

    Has anyone seen this document?

  10. @ceteris paribus – “Has anyone seen this document?”

    Piece(s of silver) in our time… another one of those worthless documents?

    Good question. Where is this written commitment and who gave it?

  11. Parasites do well for a while. Eventually they weaken their host sufficiently, that the host succumbs to a curable disease.

    I do not detect much ‘gloom + doom’. I do observe a lot of real reality though.

    A ‘federalized’ (I use this term advisedly) currency area mandates that the wealthy parts (those who have end-of-year accounts in black) transfer funds to those parts that are in the red. Else the currency area collapses. Dublin has a problem: the flow is the reverse direction!

    So, all this wittering about applying the ‘instruments of torture’ to creditors is simply an attempt (and it is succeeding!) to baffle and distract the unfortunate payee. We are being threatned: but I fancy the threat is not credible.

    ECB: “I’ll shoot myself in the head, if you do not hand over your, I mean my, money”.

    IRL: “Yeah, bring it on!”

    BpW

  12. I pretty sure he means this statement from the ECB (linked in another post).

    “The Governing Council therefore deems debt instruments issued or guaranteed by the Irish government to fulfil the credit standards required for collateral in Eurosystem credit operations.”

    I presume that this means the bonds issued by the banks to themselves will be accepted by the ECB as collateral to provide the funds to keep the banks operating. The talk during the week of a “medium term” facility was just that. It now seems the ECB is willing to provide funds to the Irish banks at the base rate indefinately. In my view this is a significant concession.

    For months Trichet had been saying that the banks will have to reduce their reliance on ECB money. Now it seems they can have as much of it as they want. This is a huge sum of money at a very attractive rate. So far we have drawn down €18.4 billion of the EU/IMF package. A reduction of this interest rate will not bring substantial immediate savings.

    The banks have €85.6 billion borrowed from the ECB. Any immediate changes in the interest rate here will have significant effects. This money has now been guaranteed at the ECB rate. This is lower than the banks could ever expect to borrow from inter-bank markets. In fact, there is a potential moral hazard problem as the banks are now more likely to seek ECB funds rather than through markets.

    It is likely that Trichet had wanted to wean/force the Irish banks off ECB dependency before he retires in October. The view now seems to be that the banks will need ECB support for much longer than that and Trichet will just have to accept it as part of his “legacy”.

    When questioned about the €70 billion ELA on Thursday, Governor Honohan seemed a little nonplussed and shrugged his shoulders and generally said that the funding was there for the banks and would eventually work itself out.

    I think this is the concession the ECB has given Ireland. There is an acceptance that Ireland is taking expensive measures to fix the banking fiasco. Whether rightly or wrongly, every effort has been made to ensure the senior debt is not harmed as per the ECB’s wishes. In return, it now seems they are going to provide as much liquidity as the banks need for as long as they want it at a very attractive rate.

    Of course, whether one ultimately views this as a good thing or just more “can kicking” depends on your overall perspective.

  13. @Seamus

    Great post. I largely agree with your take, though maybe with a bit less confidence on the strength of the commitment. If true, it is a very significant development in the crisis resolution effort. Overall, it has been one of the few positive weeks we have had in a while, but many are too blind with rage and entrenched positions to see it.

  14. The S&P report, if you get to read it, goes into the implications of ESM and the likelihood of restructuring at length. But S&P doesn’t see restructuring as likely as Portugal, rated two notches lower at BBB-, negative outlook (e.g. no mention in the report on Ireland of the risk of subordination etc. in contrast to Portugal, Greece).
    The key difference explaining Ireland’s higher rating is its far higher income and wealth, greater productive capacity and a much stronger potential for growth than most other European economies should external conditions improve. S&P doesn’t say it quite like this, but Ireland is seen as – still – being far more resistant to whatever shocks and surprises lie ahead.

    At the end of the day, restructuring for a sovereign is a choice (unlike many corporates that go bust). Countries like Ireland, even Greece and Portugal, have the wherewithal to avoid the worst if their governments are of that mind, and show leadership in implementing the real, deep austerity (not hysterity like seen till now) that is needed to meet obligations. All the more need for Latvian style austerity if financial contingent liabilities are not brought under control. As DOCM notes, S&P prefers to give the government the benefit of any doubts for now and expects the latest plan to stabilise the contingent cost for the taxpayer.

    There is a real paradox in comparing the ratings of Ireland and to those of Portugal, compared to market pricing. Portugal’s ratings are generally lower, but the yield on Irish bonds is much higher. So what gives? The ratings agencies place a higher premium on a broad set of factors that make an economy more resistant to shocks; that favours Ireland in their eyes.

    In S&P’s eyes, Ireland will have less of an interest to write off any debt, and a greater capacity to take the very painful actions that avoid that fate, once it does its cost benefit sums in 2013 (that said, any investment grade rating is still putting a low probability on such an event, although some Irish government bonds have been flirting with a 70 price handle).

    .

    As for the initial comments above pooh poohing rating agencies, remember that many are prepared to pay good money to subscribe to their services (and those criticising S&P probably haven’t read the report as it costs $$$+++). Sure, rating agencies have their problems. But there is a need for ratings. Whether it is S&P or Dagong Global Credit Ratings or some other agency, I suspect that the issues they raise will be similar. Please, be more constructive.

  15. @Seamus Coffey,

    Like John McHale, I broadly agree with the thrust of your post. And I also recognise the open-mindedness of your final observation re ‘can-kicking’. Now that a serious effort has been made to recap and restructure the potentially viable banks the ECB is duty-bound to provide liquidity support. That is one of its primary functions as a central bank. But one has to wonder about its willingness, or indeed the propriety, of it continuing to provide such extensive liquidity support.

    This, I expect, is where the tensions are arising behind the scenes. Difficult to know how this might play out, but, in the meantime, Ireland has no option but to stick with the programme and ensure that the quarterly reviews are thorough and comprehensive. By the end of this year we should have some progress on privatisation (which will open up some fiscal space) and some structural reforms in the sheltered sectors that will boost economic perfromance. (I know there are considered ‘slow-burners’, but that is no excuse. They should have been kicked off when the brown stuff hit the spinning blades and we might be beginning to see some benefits now.)

    And there’s noise about a ‘jobs stimulus’ – on which I’ll suspend judgement until we have some facts. It’s all still to play for. We’ve been through worse before. And we have an opportunity to shake up political and economic governance that has become stale and moribund and whose dysfunction was concealed by the various bubbles.

    The ‘burn the bank bondholders’ brigade is indulging in displacement activity. (They will be addressed when our EU partners are convinced that it may be done with due process in insolvent banks without sparking serious contagion.) Unfortunately this brigade is providing solace to those who wish to retuen to ‘business-as-usual’ asap. There should be no possibility of a return to the ‘status quo ante’ – in particular, for those who by sins of omission or commission fostered/profitted from/turned a blind eye to these bubbles.

    We have more than enough to be getting on with to ensure there will be no repetition of the ‘status quo ante’ for as long as we possibly can.

  16. @ Seumas Coffey

    On this point, I do not think that you are correct. This statement refers to the preemptive action by the ECB in respect of a downgrading of Ireland by S&P which it knew was coming. Had it not done so, various (negative) actions would have automatically been triggered in the bond markets for holders of Irish paper, including the obligation to sell for some institutional investors.

    The key statement is in another press release.

    “Against this background, the Eurosystem will continue to provide liquidity to banks in Ireland”.

    http://www.ecb.int/press/pr/date/2011/html/pr110331.en.html

    What Ireland, broadly defined, has not yet fully grasped is the fact of the total legal and political independence of the European Central Bank. It cannot “negotiate” with anybody. This independence is the counterweight to the fact that the EU is not a federal state. (This lack of understanding is, in a way, very understandable as, until recently at least, the President of the French Republic seemed not to understand it either).

    On rating agencies, I agree with Ciarán O’Hagan. If they did not exist, they would have to be invented. (Can you imagine governments rating their own bond issues: quadruple AAAA anyone?). They have come into existence in a haphazard way and are dominated by the big three located in the good old USA. Like the Microsoft operating system, they dominate because they dominate. But moves are afoot to ensure that their experts rating European sovereign debt be located in Europe (which seems reasonable enough given the widespread ignorance of matters European in the US).

    By the way, and unrelated to your post, on the various article in today’s IT, I would use the quotation “opinion is free but facts are sacred”. Usually, the facts eventually succeed in changing opinions. We are still uncertain as to what those facts will be. But we cannot limit the right to express opinions or, for that matter, call into question the bona fides of those making them. The first would be contrary to democratic principles and the second is a waste of time.

  17. @ PH: “It’s all still to play for. We’ve been through worse before. ”

    No! and No!

    Sure, the ‘game’ is still in progress but the final score is already on the board. Credit United 1: Irish Taxpayer 0.

    Our real, total debt, exceeds by several orders our hypothetical future income. We would have to have an exponential growth (my guesstimate) of +7%, per annum for a decade to pay the debt down. Unlike previous eras we are now facing into a series of increasingly severe energy shocks, both in number and duration. So, that’s it. We (and a few others), are done.

    Job stimulus! Please, you can’t be serious? That just means more ‘incentives’. Exsanguinate the taxpayer , again!

    Status quo ante is alive, kicking and totally delusional. They barely have their feet under their desks and they are lying already. If you do not maintain the SQA – your accepting a future with less and less credit being emitted year-on-year. Its not a like severing an artery and bleeding to death in a few minutes. Its more like going on a diet of chalk biscuits and water. You eventually have insufficient surplus chemical energy to sustain your metabolism. You snuff out!

    Reform? I fancy none, (of any substance anyway).

    BpW

  18. It’s time to move on from the festival of breast-beating and focus on reviving the domestic economy.

    There are no simple choices on reform and addressing problems.

    For example retailers are screaming for downward rent reviews and as the Irish Times reports today, NAMA warns that quick-fix moves may result in losses on it property holdings while for example the likes of Tesco and Dunnes gain.

  19. The facts that help contextualize this are:
    1: Interest rate of about 5% on the money the Irish government has to borrow to shore up the banks
    2: Rising unemployment and
    3: Falling GDP

    The ECB put a gun to the governments head and said if you don’t pump this money in we remove liquidity from the banks. It was a nasty move designed to kill off the governments previous threat of – if you don’t lower the interest rates we won’t continue to bail out the bank.

    Make no mistake this is nasty ECB hardball. The question we need to ask is: do we really need Irish owned banks at all?

  20. @Seamus

    I think the rug was pulled out. There was a kind of negotiated bone the Irish wanted thrown over a formal Ecb agreement but those with power put their feet down.

    The waiving of ratings is a copy of the Greek deal and protects banks holding Irish sovs from having to conduct, wait for it…………fire sales… as and when there is a downgrade. This surprised few. It does though, have implications for stuff the state has or might “guarantee” so is not trivial.

    The wording, 2 lines in particular, seems intended to send a message to some Irish politicians.

    “As a result of this process, €21 billion of core Tier 1 capital and €3 billion of contingent capital will be injected into Irish banks. This will substantially strengthen the banks and give them a sound capital basis. Such a situation of solvency is a prerequisite for continued access to Eurosystem refinancing. Against this background, the Eurosystem will continue to provide liquidity to banks in Ireland.

    The Governing Council also supports the Irish banks’ plans to deleverage and downsize their balance sheets. This will help these banks over time to regain market access and to play their important role in providing credit to the Irish economy.

    The aforementioned measures are to ensure the full implementation of the EU/IMF programme.”

    There is also Fitch…..

  21. “Overall, it has been one of the few positive weeks we have had in a while, but many are too blind with rage and entrenched positions to see it.”

    Per Bloomberg, the 10-year dropped by 14bp this past week, from 10.12% to 9.98%. I am not so blind with rage as to deny that this is an improvement. But it’s a very small improvement, reflecting the fact that the ECB conceded just a little when it was expected to concede nothing at all.

    To restore its finances, the government will need to do a far better job of extracting money from workers, pensioners, taxpayers and welfare recipients than it has with its creditors. If these groups (not all of whom are weak) follow Trichet’s example, the outlook is very grim indeed.

  22. To put even more context on this the IT today reports on NAMA’s opposition to rent reviews. NAMA is another leech on the Irish economy.
    This is very simple. The moneylending industry has always instilled fear with its “too big to fail mantra”.
    We have found out that those same things are too big to save too

  23. @Ciaran O’Hagan
    re

    Please, be more constructive.

    Its a matter of psychology. This week the cell door was slammed shut by the ECB on a nation whose ordinary citizens had committed no crime. The bank thieves were released by the ECB with a full pardon.
    It is no longer a matter of economics. The Euro hawks have seen to that.

  24. @ Ciaran O’Hagan

    ‘As for the initial comments above pooh poohing rating agencies, remember that many are prepared to pay good money to subscribe to their services (and those criticising S&P probably haven’t read the report as it costs $$$+++). Sure, rating agencies have their problems. But there is a need for ratings. Whether it is S&P or Dagong Global Credit Ratings or some other agency, I suspect that the issues they raise will be similar. Please, be more constructive’

    Such a perspective on your part is indicative, I am afraid, of a real lack of appreciation of governance issues. The difficulty is nor a technical one, it is a problem of conflict of interest, analogous to the funding of politcal parties by corporate donation. Conflicts require regulatory solutions.

    The rating agencies simply cannot deliver on their espoused commitment to ‘objectivity’ while simultaneously serving as a private resource to well heeled parties with a dog in the fight.

    This is problem of information assymetry, where public agencies provide a general overview, and private agencies provide ‘critical’ information for a price. I won’t call it ‘insider informatin’ as I am trying to be fair. It’s a case of caveat ‘well informed’ emptor. Just because it is ‘normal business practice’ doesn’t make it OK.

  25. Indo “opinion” (permitted thought process post election):

    “With the Exchequer totally reliant on the EU/IMF bailout package to pay its bills and only short-term emergency lending from the ECB keeping the banks alive, the Government has no choice but to do as it is told. Indeed there are many, mindful of the mess the previous government made, that might think this is no bad thing.

    If we want to regain control over own affairs then the first thing we have to do is to get ourselves into a position where we no longer need to borrow to fund day-to-day public spending. Getting to that position will involve many painful spending cuts and tax increases. Until we do, we should remember: He who pays the piper calls the tune. ”

    How odd the electorate were not allowed to know this before casting their votes.

  26. @ Grumpy

    Having read the editorial in full, my only comment, given the very wide readership that the Indo enjoys, would be: Hallelujah!

    But the self-same electorate, in my opinion, knows exactly what the financial situation of the country is and elected representatives not to defend the broader interest of the country but their own narrow sectional interests. The two can no longer be reconciled.

    This will end either badly or well but, on balance, I think that it will be the latter. And it may finally contribute to meeting Emmet’s timescale for his epitaph i.e. his wish that the country (finally) take its place among the nations of the earth.

  27. @ Eureka
    April 2nd, 2011 at 11:36 am

    ‘The question we need to ask is: do we really need Irish owned banks at all?’

    No. Do what new Zeland have done and get rid of them – no banks, no liability QED ! 🙂

  28. Indo is full of interesting things today.
    “IL&P bosses plan move to insurance unit in IPO”

    http://www.independent.ie/business/irish/ilp-bosses-plan-move-to-insurance-unit-in-ipo-2606502.html

    Thats just what the shareholders wanted to hear. Management abandons the sinking ship in the only lifeboat with assistance of MoF. Yea things have changed!! This should inspire confidence in every body.

    ” “Put it this way, we wouldn’t have gone down this route if we didn’t think we could do it,” one said” well there you have it.

    I wonder for how long they knew this was going to happen.
    Is there no other choice, could the whole of IL&P not have been sold to a foreign bank or insurance company with access to capital at lower interest rates which could make it viable and so given some return the shareholders?

  29. @ Paul Quigley

    The occasional depredations of the three leading credit rating agencies are well-known. Action to limit these is being undertaken on both sides of the Altantic. The problem, if it is a problem, is that they are trusted more than governments by the markets. It is difficult to see how this conundrum can be resolved. Indeed, I think that it is probably impossible to do so.

  30. @Ciaran O’H

    With the greatest of respect to yourself, professional services are not infallible.

    A look-back over the early history of the Irish banking crisis witnesses a government completely captured by various commissioned reports that were intended to put a floor under bank debt. The various professional firms for whatever reason produced figures and conclusions that turned to dust almost as soon as their reports left the printers.

    I have personal experience of an accounting oversight causing deep trouble with the Revenue over CT.

  31. @Seamus Coffey

    “The talk during the week of a “medium term” facility was just that. It now seems the ECB is willing to provide funds to the Irish banks at the base rate indefinately. In my view this is a significant concession. ”

    I am not sure that your assessment of the ECB liquidity commitment is correct. The statement from the ECB is, at best, ambiguous and would not reassure depositors. Your statement above appears to be contradictory.
    If the medium term “facility” was just talk, how does the ECB statement translate into an indefinite ongoing commitment.

    The figure of 200b quoted by Michal Noonan indicates a rapid worsening of the liquidity situation at the banks as the consensus figure being quoted seemed to be 150B. The amount is astronomical and the question must arise as to how long it will take to unwind this position.

    @Paul Hunt
    “But one has to wonder about its willingness, or indeed the propriety, of it continuing to provide such extensive liquidity support.”

    If the reports of the liquidity support commitment from the ECB are correct, one also has to wonder at the legality of it. 200b at 1% is a massive indirect financial support for our banks. Would this be the reason that a time commitment seems to be absent in any ECB statement.

    We need clarity.

  32. @Brian Mercer
    “Is there no other choice, could the whole of IL&P not have been sold to a foreign bank or insurance company with access to capital at lower interest rates which could make it viable and so given some return the shareholders?”

    The difficulty with that course was always the liquidity problem. At one stage they had a ratio of 250% loans to deposits. Also, the losses on banking meant nobody would touch it. The proposed IPO will generate fees for the stockbrokers – wait for the hype.

    As for the lads bailing out-I suppose it is human nature. A nice clean insurance company with a quote-stock options etc seems a better route for career minded individuals.

  33. @Ciaran O’Hagan

    Please, be more constructive.

    You favour foreign capital over domestic welfare. Please be less destructive.

    @DOCM

    “This will end either badly or well but, on balance, I think that it will be the latter. And it may finally contribute to meeting Emmet’s timescale for his epitaph i.e. his wish that the country (finally) take its place among the nations of the earth.”

    Of course, of course. Many of the figures instrumental in Ireland’s long path to independence would completely agree that only by finally accepting the primacy of foreign political interests over Irish ones and resigning ourselves to insignificance could we ever be truly free. It is on a plaque somewhere.

    It is difficult to know whether to classify this as mere disingenuousness or delusion and I am not sure that many of the supporters of the bank reparations, privitizations and the apostles of continuous austerity quite know themselves.

    It baffles me that some see our loss of sovereignty, and the capitulation to the interests of greater European financial capitalism that enabled it, representing progress toward a higher form of nationhood – one presumably untainted by any traces of idealism or collective purpose and grounded in realism and knowing our place.

    It has confirmed to me what I long suspected, that those on the right and neoliberal right (though they would describe themselves as merely liberal) see opportunity in the financial catastrophe Ireland has been engulfed in. An opportunity to pursue a society with a smaller state, a more paternalistic and less distastefully populist government and a bigger role for the market (and its harmless friend inequality).

    Taxpayers not citizens. Property rights and not civil rights. A free market and a shackled state. Business friendly and union hostile.

    What a great dream for Ireland, for the world.

  34. @Seamus Coffey

    (Disclaimer: Not an expert on anything.)

    Certainly the ECB’s announcement means that the banks’ funding is safe for the next few weeks or months, and safe for the indefinite future from the specific threat of automatic cutoff in response to sovereign downgrades. But it doesn’t contain much of “a commitment from Europe that funding would be ongoing” beyond the next few weeks or months, which is what the Government was seeking in the form of a medium-term funding program, and is what Noonan seems to be hailing in that RTÉ report. “The relevant risk control measures will be reviewed on a continuous basis.” implies something closer to the opposite. The press release lists a bunch of commitments as having convinced the ECB (to pretend) that we really ought to be an A-rated investment, but there isn’t even a clear indication that continuing to keep those commitments in future will be enough to get the ECB to continue to keep up the pretense. Obviously the ECB can’t reverse itself too quickly on its public assessment of the state’s credit-worthiness without making a fool of itself (except in response to something dramatic happening), but that’s about all. If there is a written commitment to fund the Irish banks in the medium term, it has to be some other document.

    Regardless, the ECB is very unlikely to shut off the liquidity to the banks soon as long as the government continues to play ball. But this has more to do with saving its leaders’ own hides than honouring quid pro quos. Frankfurt’s situation is strangely similar to that of Ireland, partly because the weapon it has in negotiations is a hand-grenade. Since the only way the ECB can get its money back from the Irish banks is to lend them more, cutting off the banks’ funding would immediately blast a big hole in the ECB’s balance sheet. The hole wouldn’t sink the ECB, but (see Buiter) repairing it would amount to a dramatic and unscheduled fiscal transfer from the core to this country via Frankfurt. (However much we might not enjoy the experience.) Crash money-printing might be involved. This would be extremely bad politics. Resignations might not be the end of it. And that’s cheerfully assuming that the systemic consequences of detonating Ireland would all be nicely contained. Small wonder that the ECB was trying to get the EFSF to pick up the task of lending to Irish banks last month. This was refused, so we and the ECB remain locked in our deadly embrace until depositors and private lenders return to the Irish banks, or until something else happens first.

  35. @ DOCM

    ‘The occasional depredations of the three leading credit rating agencies are well-known. Action to limit these is being undertaken on both sides of the Altantic. The problem, if it is a problem, is that they are trusted more than governments by the markets’

    For the avoidance of misunderstanding, as the lawyers say, we are not discussing occasional depredations. The issue is a systemic and deeply rooted conflict of interest.
    I know that democracy and good governance are seen as a kind of optional extra, or even a nuisance, in money markets, but that perspective is, I believe, ultimately self defeating. Even for the markets.

  36. @Anonym
    “If there is a written commitment to fund the Irish banks in the medium term, it has to be some other document.”

    It is imperative that this is clarified otherwise depositors will continue to flee.

    We cannot depend on the kindness of strangers.

    Maybe we could get some advice from Warren Buffet –

    ” I have pledged – to you, the rating agencies and myself – to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.”

    Source: Letter to shareholders, 2008

  37. @Seamus Coffey
    I agree, subject to there actually being an agreement. Indeed, does it really matter if there is no actual written agreement if we say there is one and nobody dares deny it? If the market perception is that the ECB is finally acting as a central bank and not permitting bank default by ponying up, then it becomes a self-fulfilling claim.

    If the ECB is supplying cheap money, then it matters little that the bondholders are paid back or that there is deposit flight. Essentially, one form of money (bond and deposit) is being replaced by another (ECB/ELA). That this CB money is cheaper than market money is to the benefit of the Irish state given it owns the banks. It allows the missing element of time to be provided for deleveraging.

    The losses must still be made up, hence the further 24 bn, but the immediate funding needs of the banks have been cut. Come 2013 (or whenever) we may start to see demand for Irish bonds from Irish ‘residents’ increase. At the moment they would be a steal for the banks if they banks had sufficient cash – ECB repoable without apparent limit, high yielding.

    I recall some years ago (!) making the point that cheap liquidity was one of the essential pillars to stabilise the situation in Ireland. Finally it seems to have been delivered. Now on to the deficit and structural reform. Delivery of sustainable public finances and a more efficient private sector should provide the basis for future growth, notwithstanding the drag of outstanding debt.

  38. @ hoganmahew

    Good contribution and think the continued access to the funding is very significant. There is an entire thread elsewhere about phantom threats from the ECB to pull the funding. We have no evidence that such a threat exists.

    However, as outsiders it is difficult for us to know the exact nature of the discussions between the government and the ECB when all we have is their public statements. Is it possible to believe that the statements given by players and managers at sporting press conferences reflect what is said in the dressing room?

    Whatever is being said in private we now know that “the Eurosystem will continue to provide liquidity to banks in Ireland”. In my view this is a good thing.

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