U-Turn on Bondholders?

Today’s newspapers contain stories that the government are denying any U-turn in relation to previous commitments on bondholders.

“We have not broken our word,” Mr Noonan said, arguing that all election promises were predicated on agreement being reached at European level.

He said that since the banking crises had emerged Fine Gael had been in favour of burden-sharing and said that it has already happened with subordinated debt.

“We want burden-sharing but we would not do it unilaterally. We would only do it with the agreement of Frankfurt and we did not get it,” he told RTÉ.

“The ECB in Frankfurt has held out solidly that senior bondholders will not be touched. It’s a majority view in Frankfurt. There are governors in Frankfurt who do not hold that view.”

He said the ECB had been “very good to Ireland”, providing almost €200 billion in liquidity. He also added that the Government was reserving its position in relation to Anglo Irish Bank.

He said if Anglo told the Government there was a need for more capital the Government would enter discussions with the ECB on burden-sharing in respect to senior bonds in that institution. But he agreed the Government would not be pushing for renegotiation on senior debt in either AIB or Bank of Ireland.

“The debate is over. Frankfurt would not agree,” he said.

Well let’s take a look at Fine Gael’s banking policy document “Credit Where Credit’s Due”. Pages 5 and 6 list a set of options that Fine Gael wished to pursue for “a more credible, fairer package that is better for Ireland and Europe.”

These options included extending the EFSF “to take equity and long-term debt investments in systemically important European banks, such as AIB and Bank of Ireland”, EU-funded insurance schemes, procedures for restructuring debts of troubled banks, and “a more sustainable funding solution for the Irish banks.”

Page 6 then tells us that

Should some credible, combination of these options prove not be available from Europe, the next Irish Government would – in order to restore its own credit worthiness – be left with little choice but to unilaterally restructure of the private debts of those Irish banks in greatest need of recapitalisation.

Well, none of these options have been made available. And yet rather than unilateral restructuring, we’re told “The debate is over. Frankfurt would not agree.”

Looks like a U-turn to me.

17 thoughts on “U-Turn on Bondholders?”

  1. @karl

    Some awkward home truths by Catherine Day.

    I wonder are previous ministers still ready to standby the ‘closer to Boston than Berlin’ cheering?

  2. Thanks for pointing that up, Karl.

    I’m not surprised it has happened through. Election promises and the Programme for Government pretty much commit the government to playing without cards.

  3. To be fair to Michael Noonan if he got the liquidity commitment of 200billion he is quoted by RTE as having achieved, then he did extract a major concession from Europe.

    But it not at all clear the strength of the commitment.

  4. No political party sought a mandate that included permission from the electorate to carry out policies that would have been necessary without either the bailout or full cooperation from the ECB.

    Their strategy was to merely get a mandate that the electorate wanted easier terms for the credit lines and that, as I have now got bored of writing, if they didn’t get them they were um, going to use the ones already offered.

    The electorate were either sold a lie – that the EZ could be “hardballed” into concessions by cynical politicians and cynical intellectual enablers without a credible threat, or those politicians and their intellectual advises are not very bright.

    Be honest, put your hand up if you are genuinely surprised by this. Put both up if you a while back also thought there was no property bubble.

    Maybe it is time to stop filling the airwaves with the mantra that the debts can be handed to someone else without objectively observable preparedness to assume consequences for so doing.

    How are consumer costs, payroll costs, business costs, rent, and for some mortgage costs, going to be reduced? Its either that or just do what you are told.

  5. @ Eoin

    Absolutely — this certainly seems to be a bipartisan U-turn. I picked out the FG document because it is Noonan that is claiming the absence of a U-turn.

  6. Don’t you have to be in control of the vehicle to perform a U-turn?

    How is it remotely possible for Ireland to hit senior debt without the ECB deciding that it is OK to do so?

  7. @ Pager

    Simple. Tell the banks not to pay it – if the ECB wants to pay it they can be my guest (which is what they should really be doing instead of lending us the money to do it then charging interest).

  8. To be fair, I think that the positions of the parties evolved over the course of the election. By the finance ministers’ debate I’m pretty sure I recall that FF, FG and Labour had more or less converged on the position that senior haircuts “could only take place with the agreement of our partners in the EU” – in fact, by that point they were united in going after SF with the no-cash-in-the-ATMs argument. Well before the debate, I fthink I recall Noonan (or was it Kenny?) being interviewed by (I think) Pat Kenny, wriggling away from the “left with little choice” commitment quoted above. By election day, I had the clear impression that the (metaphorical) small print on the big three parties’ banking policies ruled out unilateral senior-burnings. (Even aside from the other reasons to expect them to fold once in office.) I’d be willing to bet that a (deeply boring) detailed examination of the news coverage over the election period would prove my impression correct.

  9. Again, it did not change, and I am convinced that the way forward should be to call a referendum on banking matters Iceland style, use this political leverage or continue brown nosing Frankfurt and Brussels.

  10. Just to be clear on this issue, I’ve never held out too much hope that we would see bondholder haircuts. But I did have some hope that we get something in return for agreeing to this. And so far we’ve got nothing.

    e.g. http://www.businessandfinance.ie/bf/2011/3/commentanalysismarch2011/karlwhelanaftertheelectionreal

    “How this situation gets resolved is unclear at this point. One possibility is that the ECB, and perhaps the wider European Union, are persuaded to accept having a longer-term involvement with the Irish banks than they would like. But such an outcome could come with strings attached that the government may not find attractive. For instance, those who feel that the government is in a strong position to default on the remaining senior bonds owed by Anglo and Irish Nationwide Building Society should keep in mind that there are wider and more important banking issues yet to be settled.”

  11. @Karl
    “And so far we have got nothing.”

    What about the 200 billion of liquidity allegedly agreed (in writing)?

  12. this my first post, i have been been reading this forum for some time and i find the well thought out commentry hitting home time and again ,but with the powers that be too busy to hear, and as a person who runs a small business geared at the domestic economy and seeing that my company sales and finances get weaker every month even doe we have slashed our cost base by more than 60% in the 3 years we are just about hanging in there and like most businesses we need some positives , i have not taken a wage for over one year in order to keep the business and employees going i am near bankrupt and at breaking point as this crisis has become groundhog day over and over again at this stage i have come to accept that my business and my family home are on the line and i done everything i can imagine and worked 70 hour weeks for the last 10 years without excesses such as one a week summer holiday with my family every year ,but through the incompetence of the executive running this country i feel we are at that downward slope of no recovery my only hope is that we do not feed the young people of this country to the wolves but i feel maybe we already have ,putting more money in to the banks is futile and at this stage serves no purpose and is going down a drain that only brings us over the edge . ECB as central bank will have to step up to the mark either fully support not just Ireland but all of the troubled countries and stop sitting on the fence ,are show its colours as the central bank of the core of the euro zone only and at some stage the people here who call the shots the goverment will have to accept that we are in a debt spirile that we can not exited through our means alone we cant afford to pay this debt but private and soveriegn and that what we need as a country and society is debt forgiveness on a grand scale or restructuring if you like in order to reset our country by which i mean driving the cost of living downward and go for full employment ,but also break up uncompetitive vested interests such as health ,law ,goverment agencies all of which have been driving up the cost of living in this country for over a decade

  13. Does anyone remember the old adage “I owe u a million u own me. I owe u a billion I own u?” It’s a classic cave. What is the capitalization of the ecb? We had an opportunity to take a stand and failed. From a far, I wish us well.

  14. @ Clint Ideal

    I have stood in those shoes you are standing in now in the 90’s.
    My only advice is to keep going as best you can, the b*****ds only win when you give up – I made out the other side thank God.

    Sincerely, I wish you the best of luck.

  15. @ KW

    From FG manifesto:

    “Agreed Procedures for Restructuring the Debts of Troubled Banks: Fine Gael in Government will force
    certain classes of bond-holders to share in the cost of recapitalising troubled financial institutions. This will
    be done unilaterally for the most junior bondholders (owners of preference shares, sub-ordinated debt
    and similar instruments), but could be extended – as part of a European-wide framework – for senior debt,
    focusing on insolvent institutions like Anglo Irish and Irish Nationwide that have no systemic importance.”

    This is totally consistent with what happened on Thursday. Now “Labour’s way or Frankfurt’s way” is a completely different kettle of fish.

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