Honohan: Irish debt repayments should be linked to growth

Patrick Honohan writes on this topic at the FT site: the article is here.

99 replies on “Honohan: Irish debt repayments should be linked to growth”

Could Ireland issue GDP bonds and offer to swap them with existing longer term bonds, giving believers a chance to buy in. This would reduce interest in the short term, and increase towards the end of the decade if things go well.

Now assuming the above (as promoted by Philip on a previous post) is an acceptable mechanism the issue in political terms is;

How much squeeking the pips are going to do? Discuss

The crux of the matter is contained in:
“If economic growth recovers as it did in the late 1980s when debt and deficit levels were as high, then delivering the needed multiyear fiscal adjustment will be well within the economy’s capacity. But a weaker economic recovery could exacerbate what some in the market interpret as a debt overhang.”

The Governor, quite rightly, would like to see some insurance against the down-side using GDP-linked Troika support. However, the rigidities, the entitlements, the extent to which these entitlements are copper-fastened legally and contractually and, more importantly, the ‘sense of entitlement’ that characterise the domestic economy now when compared to the economy of the late ’80s and early ’90s mean that there is a higher probability of the down-side becoming the reality.

To avoid this outcome it would require a combination of political will, altruism and genuine patriotism. But nobody who has something to lose, but which may be defended, will make the first move – and all will fight tooth and nail if they are put in the firing line (irrespective of their economic well-being). There is always the fear of being the fool who made the concession that allowed another person – much better resourced to make a concession – not being compelled to make a corresponding sacrifice.

This, I fear, it will all come to grief.

I do not think that there is much of a market in Europe at the moment for financial innovation coming from Ireland.

The other problem with the proposal is that it may suggest some doubt on the part of the proposer(s) about Ireland’s capacity to dig itself out of the debt hole into which it has fallen. They may well be right but it is not the tune that the other euroarea countries seem willing to listen to at the moment unless, of course, some ground preparation has been put in.

The whole structure of the ESM is posited on the possibility, as ultima ratio, of a sovereign default. That is fine with me as long as it does not include Ireland.

Honahan writes:

Honahan’s myopia knows no bounds. Firstly, there is the telling, ‘if economic growth recovers’

Any stress test of the economy burdened with the penal debt repayments, plus the hemorrhaging due to the end of the property bubble, unemployment, business closures and a highly uncertain global outlook, increasing ECB interest rates and growing fears over the euro, cost of bailouts…and current evidence of declining GNP, makes this mindset rather absurd.

“If economic growth recovers as it did in the late 1980s when debt and deficit levels were as high, then delivering the needed multiyear fiscal adjustment will be well within the economy’s capacity.”

This gets more absurd. Personal debt levels in the ’80’s were never as high as they are now eg you were given a mortgage 2.5 times gross income, 25 years, not 8 times gross income at 40 yrs. We did not have a huge negative equity problem, not to mention personal debt levels. The population were not burdened with the disastrous results of the property crash as they are now. We did not have a distorted economy with credit siphoned off into the financial sector, the banks and Nama..

More Absurdity here:

“A simple version, which could indeed be useful beyond the specific case of Ireland, would, over time, shape the arrangements with European partners in such a way that Ireland pays more if its GNP growth is strong; less and slower if growth remains weak. The aim of such GNP-linked bonds or similar risk-sharing innovations must be to restore, through growth, a favourable dynamic to the sovereign debt ratio, putting its sustainability too, like that of the banks, beyond doubt.”

My, O MY, we seem to have a consensus developing, a consensus of the blind. The above echoes thoughts of Philip Lane in the FT also during the week. We penalise the economy when its doing well by taking more out of it then; we reward it by not taking out of the economy when its doing bad.

This absurd idea I suggest we test out on our children. Lol. But it reminds me of economics that must have powered satellites of the USSR during the Cold War. Why bother to achieve anything when the rewards of labour go to the senior bondholders of criminal Anglo or the penal EU/IMF bailout? This is Fr Ted economics. Curiously, it rather sums up the Irish response to our local financial collapse LFC, punish the innocent and reward the criminal banks..

But then we don’t have a sovereign economy anymore, its some hybrid debt collection agency swansong for free capitalism where we’re supposed to suspend disbelief to swallow the “@!#-)

@Colm Brazel

Given that GNP has increased in the last 3 quarters for which we have data, the evidence for declining GNP is not very strong.

“We penalise the economy when its doing well by taking more out of it then; we reward it by not taking out of the economy when its doing bad.”

This seems a perfectly reasonable proposition to me. Indeed it is almost ideal, since government would then act to smooth out the economy rather than aggravate the economic cycle.

“Most of the senior debt in these banks is government guaranteed; insulation of the remainder reflects not only the legal complexities and reputation costs that would be involved in any other approach, but also and especially the sensitivities of EU partners in this regard.”

What are the legal uncertainties? Can we please have these explained to us?
What principle of law, be it constitutional, statutory or otherwise precludes imposing losses on seniors?

Given that these bonds trade significantly below par and sovereign debt trades at 9-10%, the reputational damage caused by losses on seniors seems less of a concern.

Whose sensitivities is he speaking about here, the ECB? If it is, can we please have the ECB explain why they oppose imposing losses in a more detailed way then simply saying “contagion”?

Also, please explain why Ireland ought be compelled to repay bondholders in the name of eurozone financial stability in circumstances where it is facing serious solvency problems.

Also, please explain with some precision the role played by the ECB in these negotiations. On what basis does the ECB claim to intervene in the decision as to whether losses ought to be imposed on seniors in Ireland?

If it is simply that they have advised member states against it, let us see this advice and let them answer and respond to criticisms of that advice

This was discussed on an earlier PL thread.

Selling this with reference to Irish GDP raises the question of perverse incentives – there is already difficulty persuading sections on the economy that they will have to reverse more of the boom time gains. Incentivising them to keep this up on the basis that debt repayments then would be lower – as this would be seen in Germany – doesn’t look like a runner.

Why not link debt repayments to G20 metrics?

Pre-ESM default could take the form maybe of converting existing sov debt into this sort of instrument – as long as there was proper senior ESM debt.

These look a bit like participating preference shares.

The ECB’s role in these matters appears to be an example of the exercise of unaccountable power in a manner that is inconsistent with the basic principles of fair procedures.

Did the governing council of the ECB discuss and then vote on what its position would be in relation to the imposing of losses on seniors?

If not, why not and how can it then be said that the ECB has a position on it one way or the other?

If so, what was the outcome of the vote and which members voted which way? Did these members vote in accordance with the financial interests of the countries from whence they came?

I’ll re-mention my previous comment.

[Honohan] more or less sounds like one more fellow trying out the idea that the EU will reverse its opposition to grants and senior haircuts if we propose just the right mechanism for implementing one of both of them, or if we ask for them using just the right argument and tone of voice. “What part of ‘no’ don’t you understand?”


Perverse incentives on our part is actually the relatively easy problem to overcome, since the Troika would obviously choose to retain the right to deny any relaxation of the terms if it judged we were slacking on the adjustments.

I’m not an economist but I’d say fair play to Prof. Honohan – this is a really great contribution to the debate. It takes great courage to propose solutions.
If the EFSF rate is reduced by 1% as rumoured this is a signal that the rate is being tied to flexible parameters such as growth and deficit reduction.
The way this could work is a provision for yearly review of the rate with some opaque formula linked to parameters such as growth etc.

@Paul Hunt

There is always the fear of being the fool who made the concession that allowed another person – much better resourced to make a concession – not being compelled to make a corresponding sacrifice.

Well, of course, provided you recognise our ECB and EU Commission partners among those other persons. You can bet that our public-sector workers do. In many ways our present pass can be seen as a stitch-up between the Troika and powerful domestic interests (public-sector workers, the Irish banks, people with fat Irish private-sector pensions, …) – no matter how much they like to storm and rage against each other. In the words of the song

Daß nur er im Trüben fische
Hat der Hinz den Kunz bedroht.
Doch zum Schluss vereint am Tische
Essen sie des Armen Brot.

To be the only one to fish in troubled waters
Smith has attacked Jones.
But at the end, united at the table
They eat the bread of the poor.

But of course this game starts to come to an end if and when there’s no longer enough to feed Smith and Jones even if no-one else eats.

@Paul hunt
Realism as usual ++
The thing that struck me in that quote ‘…what some in the markets interpret as a debt overhang’.
I really find it difficult to understand the learned Governor. Such a minor irritant as 200 billion of short term liquidity and long term debt mounting by the day (for reasons well documented here) can only be interpreted one way…insolvency.

I would add – what legal basis exists for money creation by the Central Bank of Ireland

(The above should say “no matter how much they all like to storm and rage against each other” and “no longer enough to feed both Smith and Jones”.)

In terms of where the real weight of influence lies in Europe, the attached map – courtesy of The Economist – provides a very useful guide, especially in terms of judging the Irish economy – and its growth possibilities – relative to others in Europe.


As far as the other countries of the euroarea are concerned, our shoulders are broad enough – if considerably narrower since 2008 – to meet the burdens that we have ourselves placed upon them.

“to meet the burdens that we have ourselves placed upon them”.
You seem absolutely determinded not to acknowledge any role that Europe might have played in our current calamity.
Your steadfast refusal is baffling given that most Europeans, when presented with the facts, can readily see that at least part of the problem was due to an interest rate policy that was tailored for the core, a central bank that had no oversight capacity, and German/French bankers who ran out of ideas and flooded the periphery with cheap credit.

Given that the population of the doghouse has just risen by 50%, perhaps we should bear in mind that Patrick Honohan’s suggestion does not relate to Ireland alone.

@Kevin Donoghue

Yes – the paper I linked to above provides a very good overview on #why and how# for Portugal and why perhaps it might go further – as might Greece.

The unthinkable also remains an option around here ….

Europe needs a new model – present one ain’t workin!

Problem locally and at EU level relates to a strange combination of ‘immature half-bought political class imbued with half-paid for flawed ideology’ …. and if we can’t figure some way out … we go before it falls apart …

Growth? In what? Debt, definitely. Hence, you must subtract out debt growth from G*P growth to ‘get real’. Could someone do the math on this – say since 2005?

The decision makers are well aware of the true situation: An unstable edifice in imminent risk of collapse. Hence the emergency shoring-up job. If this is successful, and it appears promising (with some dodgy assumptions), then controlled demolition can commence.

Please keep a close watch on spot crude prices. These MUST decline soon, else there is a mandatory price feed-through into lots of stuff. When (if) that happens (6 – 12 months), all bets are off.


@ Eureka

I would like to meet some of the Europeans that you mention as I personally have not bumped into any.

Even Vincent Browne now seems to agree with me (which causes me some soul-searching).


The EU is neither a benevolnet society nor a parlour game. It is an organisation of nation states that follows the rule of law.

I do not wish to see my country placed in the company of countries with which it does not belong. Since, the state was founded, Ireland has honoured her international commitments and paid her debts. I wish her to continue to do so. Full stop.

Come on now!
You make no distinction between sovereign and bank debt. How convenient!

@ christy

‘Did the governing council of the ECB discuss and then vote on what its position would be in relation to the imposing of losses on seniors?’

The answers to those sorts of questions lie in sociology, among writers such as Max Weber and Pierre Bourdieu (Language and Symbolic Power for example).

The ECB system is not a debating club. It is in many respects an apparatus. The governing council is a big body. By and large, the role of big bodies is to endorse decisions taken by a small group of key stakeholders. They are the people who set the agenda, and so get to frame the issues in a way which gets their desired result.

Given the vulnerabilities of the German banks, as flagged in the next thread, and the parlous state of the global economy, the imposition of losses on seniors was deemed unthinkable by the high priests. Simple as that. Next item.
Everyone on the ECB Board knows that is the reality, but they can’t say it, or they would not be a ‘suitable person’ to sit on the body in the first place.

@ Eureka

Neither, unfortunately, did the Irish government.

@ David O’Donnell

For the dignity of the country.


But fair play to you – you are good at it. One must admire a spinner who can convert ‘decreased outflows’ into ‘increased inflows’ to certain ‘pillars’ as a tactically well placed spinner. Don’t spose you bat as well – I believe The Bondspreaders Fraternity are short in making up an eleven for the Top Spinners Ball (-;

Patrick Honohan has contributed immensely to the debate over the past 2/3 years. However, now is not the time for more esoteric proposals. I am sure our Frankfurt/Washington overseers would like to see a bit less philosophy about the financial engineering and a bit more action on the primary balance.

The bond yields are falling sharply and the main pillar banks’ share prices are rising. We are likely to get a reduction in our bailout interest rate, which is, admittedly, more about presentation than substance, but presentation in our predicament matters.

Unthinkable only a few weeks ago, we are on the verge of a virtuous circle which could result in our ability to return to the private markets within the target timeframe to 2012. At this juncture, there is nothing to be gained by endlessly picking at the troika deal.

Edmund Burke is really coming into his own these days, isn’t he?

They tell you, Sir, that your dignity is tied to it. I know not how it happens, but this dignity of yours is a terrible incumbrance to you; for it has of late been ever at war with your interest, your equity, and every idea of your policy. Shew the thing you contend for to be reason; shew it to be common sense; shew it to be the means of attaining some useful end; and then I am content to allow it what dignity you please. But what dignity is derived from the perseverance in absurdity, is more than ever I could discern.

Anyway perhaps now that the EZ has presented the IMF with a third basket-case, we may hear a bit less about national failings and a bit more about the flaws in the system. I live in hope.


U must be smokin real good stuff … top grade delusional I presume … or maybe you are on the FETAC Grade VI for ambient spinners?


Only ‘pillar’ I remember in Dublin was blown up by Brendan Behan in 1966 during one of his roaring poetic liscence binges.

They are not ‘pillars’ – they are bust banks.

@Kevin Donoghue

JHC – even E Burke makes sense at times. Strange times – Igsy – got any more o dat stuff (-;

Pat Honohan says:

Here the policy dialogue with the rest of Europe, all too often portrayed as a zero-sum game with each side seeking to secure concessions from the other, will be key to avoiding this kind of trap. Instead the focus should be increasingly on measures that can help unblock growth.

Not a bad paragraph that. BOH.

If I am buying bonds I want to know a few things. The first is will the principal be repaid and two what is the interest rate and will the payments be made. The scheme proposed penalizes the buyer when conditions are bad (low growth/no growth) and also penalizes the buyer when conditions are good (healthy growth/high growth). As a buyer I want interest rates and repayments to increase in a low/no growth scenario as risk increases. In a healthy/high growth environment where risk is decreasing I want the interest rate indexed to inflation (as in real return bonds) and no shortening of the term. Can our finance people fashion a bond offering that will be attractive enough for Paudeen from Kerry to pull his stash out of the Amsterdam bank and the cubby hole and entrust it to Irish Gov’t backed bonds.
I am glad that I am not faced with that Herculean task. There is very little trust being exhibited in our Gov’t outside of a few blocks around Trinity College.

Yes Al – watching Vincent Browne … & cringing …

@An Taoiseach

When is the re-shuffle?

Dick_een’s replacement, on this showing, is completely out of her depth. Minister for Europe, albeit Junior, is vital to Irish national interests. Less than one week after last Thursday – and Lucinda is, quite simply, not up to speed locally on content, argument, or presentation – and too high risk for a protracted negotiating and diplomatic sojourn in Europe.

Reading between lines:
1: ECB forced the most recent bailout
2: ECB is running out of allies in Europe
3: Europe accepts Ireland will default but wants it to pay back as much as possible beforehand
4: If Europe passes this test it will be the most mature, stable and powerful force for good in an unstable world. If it passes this test it will make some sense out of the millions of lives shattered in centuries of conflict.
5: If Europe fails the world will be left only with an emasculated America and a morally bankrupt China to promote the rights of the common man

@all Europeans

Two leading German commentators have accused the Berlin government of being disingenuous about the role of German banks in helping to drive the Irish financial crisis.

German philosopher Jürgen Habermas and former foreign minister Joschka Fischer said the EU is facing “creeping death” unless Germany seizes the euro zone crisis as a chance for final European integration.


@ Jürgen Habermas & Joschka Fischer [& all Europeans]

Germany should admit its part in causing European crises, says former minister


Mr Joschka Fischer said Berlin was being disingenuous in factoring out the culpability of German banks – particularly state-owned institutions – in the Irish financial crisis.
“We are currently going about sinking 50 years of European history,” said Prof Jürgen Habermas at a Berlin event organised by the European Council on Foreign Relations.

Habermas: “Awareness of a historical-moral obligation was the source (in the EU) of German restraint and readiness to adopt the position of others and to defuse conflicts through advance payments,” he said. Pointing to the recently agreed EU austerity measures, he said: “The economic package … was put together with so little sensitivity by the economic model student that neigbours no longer talk of not wanting a Brussels political model imposed on them rather a German political model.”

Fischer: “In the backrooms in Dublin it was our (state-owned) Landesbanks earning all the money to the delight of our state governments of all political persuasions. No one tells the people here that part,” he said. “I don’t see in this a master plan, but a bit of the reality is being kept from view. Ireland could have gotten away well if Brian Cowen had said, ‘we will save Irish banks but English Banks and German banks are not our problem’.”

Economics professor Henrik Enderlein went further, saying Dr Merkel’s government was “hushing up on purpose” German involvement. “It’s clear German state-owned banks are a key issue in the (Irish) problem,” he said. “But if this got out into the open we’d have a problem with five state governors and if the German federal system needed to become part of solving European difficulties, then we would have a real problem.”

p.s. Sound man Jürgen! Apologies for not making the prize in Dublin – hope to meet you in Frankfurt some time soon … communicative action is the only way to go …

@ Colm Brazel

I totally agree with you about Honohan, he has been a grave disappointment and has proved to be an ineffectual negotiator when it mattered.

In an earlier thread an article in the FT was cited. In that article it stated that €7,600bn of German banking “assets” are supported by less than €350bn of equity and reserves, that is an astonishing figure!

Contagion of German banks can happen and will happen. Next, the markets will move on to Spain and its caja’s but believe me sooner or later the problems in die Detuche Landes banken and not just their regional banks are going to come under the spotlight. So far, the game is to keep the spotlight off these banks and raising the base rate is part of that subterfuge, as much as to say, we are on top of our inflation problem while underneath lurks an infinitely greater problems. The design of the monetary system was totally inadequate but before it is rectified countries like Ireland have to muddle along and keep their mouths shut! Meanwhile in 2013 bondholders will be burned and will also have to get in line behind those holding sovereign debt. Gemany’s bank resolution legislation includes burning senior bondholders but Ireland must not do that as part of their resolution of their banking crisis. This defies all logic and is only possible because our government and it FF predecessor are a joke.

Meredith Whitney in 2010 said she would not touch European banks with a barge pole, and for good reason as they have not even begun to address their problems. Ireland, has not addressed our bank problems, all we have done is create a monster called NAMA as well as incinerating 73bn rising eventually to the inevitable 100bn plus mark. We have converted private debt to sovereign debt and it is a strategy that will/has bankrupted the country. Meanwhile, our various ministers for finance parrot “the hole in the wall will not work” the Garda, nurse, teacher will not be paid! So what! is what I say. Are we going to allow the country to be held up to ransom time and time again because of ATM’s. This government and the previous one get a lump in their throat whenever someone says the ATM’s won’t work and they cave in repeatedly to guarantees, bad deals and bailouts that have been intrinsically bad for us. The trokia are leading us by the nose to a default. Eventually the hole in the wall is not going to work in any event and they will be getting 50% of what they are paid now along with many other of the untouchables, trade unions and Croke Park mirages. We need a structured default now. We should have sent Mr. Gurdgiev to negotiate for us along with others of his ilk and we would not be in the mess we are in and if we were in a mess at least we would be living in the real world and not living in a state of suspended animation hoping against hope, that, if only growth would grow out of deflation if only our European partners (strangers) were kinder to us…

It has all changed again with the capitulation of Portugal.
According to their PM they had enough money to pay redemptions due next week and in June.
Tonight it is different.
The markets got it right- next stop ?

@Kevin Donoghue

Edmund Burke is really coming into his own these days, isn’t he?

The banking bailout and the gradual slide to bankrupting the state to help keep the current European financial system whole started its journey as pragmatic and restorative, moved through necessary and purgative, passed unfair but unavoidable to reach its final destination – suicidal but dignified.

In the end this dignity we need to keep by not pushing restructuring sounds very like the reputational damage we avoided by not wiping out unguaranteed bondholders or the contagion we avoided by keeping Anglo Irish Bank operating.

Time perhaps for a period of self examination?

The FT article is a bit odd in the sense that there is a long preamble and little space for detail on the main proposal.

The first person to convince is Klaus Regling of the European Financial Stability Facility.

Heads of government and fin mimisters are likely afflicted with bailout fatigue to get enmeshed in this type of detail so soon again.

@ Ceteris paribus

Portugal apparently didn’t have the cash for the June maturity.

This Idea came from a Yale Professor, Rob Scheiller and has been discusses widely among top level economists. I hope Mr. Honahan is not trtying to pass it off as his invention

Eureka please take note, Mr. Honhan is not the person who came up with this idea, if he is making it as a suggestion fine, but he has to give credit to Rob Scheiller.

Brendan Keenan has an article today on the save-us-from-ourselves former bubble cheerleaders (?), who put most of the blame on Johnny Foreigner:

“In the longer term, though, the blame game with Europe spells trouble for Irish politicians. We can assume that the German TV reporter told her audience that the Irish were angry at the Germans for lending them money.

And indeed, our attitude seems to be that their banks shouldn’t have lent us money in the first place; and their government shouldn’t lend it to us now to help pay back the first lot. Not unless it’s very cheap anyway.

One can see why that wouldn’t go down over there. The political difficulties have been exacerbated by the fact that it also sums up the attitudes of the coalition parties during the election campaign — Fine Gael’s on interest rates and Labour’s on bank debt.

I think it was my friend Shane Coleman (apologies if it wasn’t) who quoted the ‘Carry On’ film line; ‘Infamy, infamy! They’ve all got it in for me’.

It is not a very attractive attitude even when there is some truth in it and in this case, I’m not sure that there is.”



As you can see, there is plenty of passion on the board. It’s not blind passion either, and it’s not ideologically driven. @ Shay Begorrah has a particularly nice turn of phrase.

‘The banking bailout and the gradual slide to bankrupting the state to help keep the current European financial system whole started its journey as pragmatic and restorative, moved through necessary and purgative, passed unfair but unavoidable to reach its final destination – suicidal but dignified’


You linked to the above VB article, in which he points to the groups and institutions who are at the heart of the current debacle. Not before time, as I am sure you will agree. The word poseur comes to mind. The only ‘bogey’ bit is the last two sentences where he slips in the weasel ‘we are all to blame’ meme.

I don’t have a mortgage, but I feel that people who were induced to pay bubble prices have every right to rear up at what is currently proposed. They got screwed. So were others, including folk who have been chucked out of their employment.

We need to take a hard look at the quality of leadership in our state and the business community. Joe Lee put it all much more politely, in his magisterial ‘Ireland 1912-85’, but we have every reason now to put an end to the looting of our institutions.

As for the rule of the mediocrats, enough already. This is not just about default. It is, as you rightly say, about dignity, both personal and national. We need a root and branch reform process, in keeping with the founding ideals of both Ireland and the EC. Otherwise good people will just give up or leg it to a better place.

The little creatures must be very, very careful if they choose to play where the elephants dance. The Finns took a lot of pain following the collapse of the Sovier Union and a bit of bank bust. They made a firm and considered decision to be armour-plated when they joined the Euro. And public sentiment there is increasingly of the view that other small players who didn’t equip themselves in a similar manner deserve all they get. And their resolve is probably hardened when some of the under-equipped were previously blatantly flaunting the flesh. It seems hard, cold and lacking in solidarity, but that’s where it’s at.

And yes, it’s cruel, unfair and unjust that Ireland has taken and is taking a hit ostensibly to protect a fragile EZ banking system, but most of the bank bondholders have fled and the ECB has replaced them, in an open-ended manner, at a much lower coupon and continues to provide vital liquidity support. How all this will be unwound is the big question I have. In the meantime we just have to get on with it.

@Robert Browne Says

Good to hear your views there. Because this is an academic list in the main I get the feeling in order to protect their own hides, criticism of the likes of Honahan and Philip Lane are off the agenda for some:)

But let me go further in my criticism earlier post.

Elsewhere I’ve compared the leadership of Honahan to the leadership provided by Lord Cardigan of the Light Brigade. This latest episode in that leadership is further evidence for me of that view.

Consider Portugal. Spooked by the short term loan, http://www.bbc.co.uk/blogs/thereporters/robertpeston/2011/04/portugal_bail-out_finance_look.html of approx €455 ml for 12months at 5.9% they’re going for bailout. Honahan came back with disastrous terms for our bailout of 5.8%. I’ve written elsewhere, they would have signed anything as long as they kept control of the bailout to pour it into the waste disposal unit of Nama and keep our financial industry’s glasses filled…but that’s another story.

Even Ollie Rehn is negotiating better than Honahan and Lane asking for extension of 3 to 7 years on terms.

I salute his scholarship in other areas, but as negotiator, Honahan is a recipe for disaster. Any farmers mart would do better.

Honahan in the FT is tipping off EU/IMF on a deal we’re apparently up for! Who goes to the mart to buy a pig, shows the seller the money(bailout) and says, by the way, I wouldn’t mind if you could throw me a bit of slack on the occasional year I can’t make a full payment, would you adjust it so in better years, I pay back more, to make up the slack. Honahan is a gift to the usurers and Shylock’s of this world who’ll eat him for breakfast.

The likes of Gurdgiev, DmcW, Morgan Kelly even Karl Whelan:) should make up a negotiating team that would restore dignity. A group of fighting Irish with smarts can deal with any negotiating team thrown up by the ECB/IMF bailout group. Working with Noonan, much could be achieved.

But you know, the depressing thing is this won’t happen. The reason is the financial class with their political cronies have a power grip on these negotiations. Once the bailout gets siphoned into their accounts, they’ll sign anything. Don’t expect reforms too soon!

We need a comprehensive deal: senior bondholders of Anglo INBS and other banks need to share loss in bail in or closure/receivership scenarios.
The repayment terms need to be extended to 10/20/30/40 yr.

None of this rubbish toe in the water of disclosing our negotiation hand in the FT.

Perhaps Honan should pay a visit to Puck Fair, pick out the most successful buyer/seller, and have a long talk to pick up his methods:)

We should thank the Portugese. It appears to be the only way we’ll get a better deal, is the fact The Portugese will not allow the embarrassment of 5.8% penal rate extracted from them or the pathetic, ‘please adjust it so I pay back more when I’m doing better than when I’m doing worse’ cobblers, the Charge of the Irish Light Brigade…


Not sure that the Portuguese bailout changes anything. Apparently the yield decline is continuing today.

@Paul Hunt
“how all this will be unwound is the big question I have”

The Minister is telling us that the deposit outflows have slowed down. What he is not telling us is how much departed prior to the stress test announcement. The figure he is using (200 b ) is simply astronomical and the plan to deleverage looks improbable. Even if they offload 70b and take a hit of 13b it still leaves a massive hole to be filled. In the current climate I cannot see how they will plug this gap. As you say, we have to get on with it. However, it is highly unlikely that the ECB will will continue this dubious (legally) support scheme which is not a liquidity support scheme but a deposit replacement scheme. It looks like something along the lines that Karl proposed is the only answer.


Thanks for the link.


At Phillip Lane’s lecture last night he advocated following the course we’re on, basically saying that the austerity plan needs to be implemented even though it is limiting our growth but not enough to change tack. Lots of criticism was inferred for the previous government/regulator but the general thrust was unvarnished logic… we are in debt…this how we get out of debt (austerity) along with a flexible interest rate and these are the measures we should take to reduce the possibility of it happening again (i.e. fiscal council). There was very little sentimentality or maybe we didn’t ask the right questions!

@ Colm Brazel

“On the Internet, nobody knows you’re a dog,” is the caption of a famous New Yorker cartoon.

What gives you the credibility to hurl abuse about in your rambling post on negotiating?

To cap it all you propoose a star team that would do a better job because you saw the individuals on televison!

It looks like Portugal is taking attention away from us, for now. I would not be getting too excited about paying 9.29%. Markets always over and under shoot.

@PH: Paul, elephants are scared sh*tless of mice 🙂

Thought everyone knew that! Otherwise A+


What is interesting about the present situation is that we should find out whether or not the domino theory is valid between now and June at the latest. As the ECB knows how to do its sums, I am inclined to the view that it is not valid.

The question then for Ireland is plain to see: is it our ambition to continue to be one of the limited number of fallen dominos or to get back on our feet? And the question for the other euro countries is whether there needs to be an adjustment in the terms of the deal agreed to facilitate that outcome?

P.S. Read “the latter outcome” (which would, of course, be enormously in the interests of the euroarea generally).

@ Michael Hennigan

Perhaps you should be more worried about the stones you’re hurling through rambling glass houses rather than the abuse Colm Brazel is throwing

@ Hennigan,

re “What gives you the credibility”

I’ve the credibility of a ‘nobody’, to borrow the term from Emily Dickinson. There again, the person who said ‘the emperor has no cloths on’ was a nobody as well. The credibility I offer is the view the truth is out there waiting for someone to reveal it, it doesn’t bother about credentials. But you do, so I’m sure you weren’t impressed with critics of George B for example. I also offer the credential of having some concern that I believe the future of this country is and has been poured down the toilet. But perhaps only your views count about that more than mine. Your views wouldn’t go down well in Iceland with their embarrassing referenda.

Actually, I’m very, very informed about what I write about, but judging from your ignorant ‘doggie’ post, doubt if you care….keep on sleeping there:)

Things that make you go hmmmmm……

ECB increase rates to 1.25%.

What joy.


how do you propose “we” get back on our feet with a large stone of debt around our necks?

@ finfacts Forgot to mention I’ve a sickener of a blog here http://colmbrazel.wordpress.com amongst some other things……, some technology background voluntary work here as Adobe usergroup manager http://www.meetup.com/augdublin/ (files section) So, if this site needs, which it does badly, a better forum experience http://www.bankpoll.net/ click forum link, but not enough time to fill that site with content, but may get back to it, basically I’m a pissed off web developer sickened by the economic mess we engage our minds with here. I should say, I enjoy hearing points of view even those different to my own, so keep posting finfacts, delighted to have roused you:)

@Colm Brazel, @Michael Hennigan

If anyone gets to drive away professional economists and casual readers from this site with overblown rhetoric, rambling fact free postings and unprovoked invective its me.

You two are amateurs.

I was at Philip’s presentation, thoroughly enjoyed it, and got useful information out of it and the Q&A. It was not really a forum to debate the pros and cons of his propositions, more to grasp what the figures and the thoughts were.

To one of my questions he suggested e50bn, as a likely figure, will be written off by the state as a direct cost for fixing the banking system. Just to be clear: I do not think that this is an acceptable outcome.

I was also thinking about the emperor who famously had no clothes, and the boy who pointed it out, particularly with regard to the upcoming European stress tests.

One moral of the story, could be that if only the boy had only kept his mouth shut, the emperor could have got away with it, and, carrying on fully dressed, the whole thing would have been passed off as an unpleasant dream.

There is debate here, I think, about what the real issue with the German banks is, but some suspicion that the stress tests will not really be designed, for good or for ill, to find them out.

As a member of the ECB and having gone through the process here in Ireland, it would be interesting to know if Governor Honohan has a chance to make the case for the tests to be as rigorous as possible.

@Brian Woods

@PH: Paul, elephants are scared sh*tless of mice

Thought everyone knew that! Otherwise A+


….yeah, and then the elephants start to do irrational things!!!

@ Pongo

The answer is simplicity itself; producing more than we consume and using the balance to pay down the debt. As all people at work are both producers and consumers, we need a good and equitable balance between the two activities to achieve competitiveness. This balance does not exist in Ireland at present. Some of the elements of how we might change this are set out in the MoU with the IMF/EU. There are many other areas that need reform.

There is also the added consideration that we may need more assistance than we are getting at present. But as long as we persist as a people and a government in moaning that we are incapable of standing on our own two feet – and blaming others for our predicament – why should anyone feel inclined to help us?

I think we need to make the point that we want to stand on our own feet. But we have a problem as long as 10% of our potentially productive labour force is out of production. With these back in production our finances will improve greatly, in the mean time the focus should be on achieving jobs for these people both for its own value and for the value to Irish public finances.

@ Shay Begorrah 🙂
@Colm Brazel
I don’t feel you don’t need to justify your anger and frustration (tone – well I have commented on that before ) to anyone on this site – it is justifiable and it should be Michael’s and every other professional Financier or Economists job to do the explaining if they wish to contribute.


‘For the dignity of the country’

The banks put us over a barrel,
FF pulled our trousers down with the guarantee and now
FG/Labour have given the bondholders and ECB a 24Bn ‘greenlight’ to do the unmentionable.

The only dignity in those circumstances is resistance !

Bit fed up with all the invective myself. No room anymore for civility?

I am completely mystified why Patrick Honohan comes in for bitter criticism. He has a most difficult job at the most difficult period of time since Independence. Negotiating from a position of extreme weakness can only lead to necessarily small triumphs. The best negotiators in the country re the EU are probably the IFA, but down the years the IFA has learned there are horses for courses.

There seems to be no reality to some of the comments. If the external parties to the bailout were to call this presumed fantastic bluff that Honohan and others have seemingly kept hidden in the drawer, the country would fall flat on its face.

I have experienced several ups and downs over the years in trade and investment, and I wouldn’t claim to be an expert on either. But one can’t always win. It is fiercely disappointing but sometimes, getting over it and getting on with it are the best outcomes. If even 50% of the bank debt was written off, there is still a huge range of internal domestic problems to bring under control. The 95% focus on bondholders and the like is a distraction from the real tasks.

Sorry Colm should have read

@Colm Brazel
I don’t feel you need to justify your anger and frustration (tone – well I have commented on that before ) to anyone on this site – it is justifiable and it should be Michael’s and every other professional Financier or Economists job to do the explaining if they wish to contribute.

@ Flyover: Yeah, I did sort of think that might be the outcome.

Though on ‘mature reflection’ I guess the elephant (being a very wise animal indeed) had it all sussed out ahead of time, and is indulging in a carefully scripted and staged drama just to distract us from nailing down the ‘substantive issue’.

Our debt that we no can pay! Which is bad enough. But when you take a closer look at the US!!

@DOCM: re your reply to Pongo. I wonder if you are actually engaging with the plot? Presumably you know what the FIRE is and why ‘it’ has brought ‘us’ to this place.

What happens when money meets debt? Poof! That’s why consumers are non-consuming. Money-flow sclerosis! Money, as in credit, not cash as in wallet.



“The 95% focus on bondholders and the like is a distraction from the real tasks.”

True. But maintaining this focus is the objective of many who are seeking to protect ill-gotten, or not fully justified, or unearned gains and who will do anything to prevent the search-light swivelling on to them. And some of them will shed crocodile tears about the poor, those forced to emigrate and the unemployed. The stench of hypocrisy is revolting.

And I suspect there is quite a bit of activity behind the scenes on these ‘real tasks’. For example we haven’t heard a dicky-bird from the State Assets and Liabilities Review Group. The odds are that something will be cooked up to meet the terms of the EU/IMF deal and will be presented as a fait accompli. We have no evidence to doubt the ‘good intentions’ of those doing the cooking behind the scenes, but the presentation and spinning of polic and legislation capable of being enacted almost immediately is precisely what got us into this mess.

It seems that nothing has been learned. One would think the costs that are borne as a result of previous serious failures of policy, governance and regulation would encourage a change of tack. But no. Securing and exercising executive dominance – and availing of the patronage which flows from this – are the only things our politicians know.

@The Alchemist
+1 on all counts. Particularly the civility to other posters.

On the banks, it is clear we are being told what to do and “not yet, if ever” is the answer to the clamour. As you suggest, it’s time to move on to what can be changed…

One obvious way to achieve what Honahan proposes, and one which would seem to have many advantages, would be to split the major semi-state businesses and sell them to the governments of other EU states at some premium. Splitting the organizations would stop or deter predatory behaviour. There would be a covenant in relation to debt and investment, and a commitment that they would not sell their interest on to an outsider for 10 or 20 years.

In this way, we would benefit from outward investment, from new knowledge in how we run our networks (think of a transport system run by the Germans or the French, as the Luas is). Unions and workers would have comfort about who they were dealing with. There would also be a great opportunity for change.

Without wishing to preach, it seems to me that there mightbe less heat in some of the exchanges if participants accepted (i) that both sides, assuming that there are only two, have the interests of Ireland at heart; they just differ as to how to protect them and (ii) stuck to the subject under discussion.

I think it might be useful for the information of all to quote Article 130 TFEU in full:

“When exercising the powers and carrying out the tasks and duties conferred upon them by the Treaties and the Statute of the ESCB and of the ECB, neither the European Central Bank, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other body. The Union institutions and bodies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the European Central Bank or of the national central banks in the performance of their duties”.

There is considerable material for reflection in that text.

“that both sides, assuming that there are only two, have the interests of Ireland at heart; they just differ as to how to protect them”
Remains to be proven. Policy to date suggests that the interests of their own national banks trump their interest in Ireland.
You don’t work for the ECB by any chance?

@ Eureka

Unfortunately not. (ECB employees are rather well paid).

The text I quoted raises the question of whether the view being taken of the role of the Irish representative in the ECB is correctly reflected in this discussion.

If lobbying is “seeking to influence” then M Noonan is guilty of breaching the principle enshrined in the Article you quote – he has publicly stated he was lobbying the ECB.
But so what. all are driving horses through various Articles and Treaties.

@ Ceteris paribus

Indeed! There is all the difference in the world between playing the game and appearing to publicly flout its rules.


I agree that the default/anti-default argument needs to be based on mutual respect. Otherwise we can’t hear each other.

The role of the ECB Board is a bit like the independence of the judiciary. That is a fundamental pillar of our constitutional order, but then we find ‘special legislation’ and ‘special courts’ in many jurisdictions. There always fudges and grey areas, espcially where big issues of power are concerned. 100 billion is a lot of dough even these days, ad the global environment is only half civilised.

Richard Posner is an appelate judge in the US and has written widely on justice. How Judges Think (Harvard UP 2008) is a fascinating and relevant read. Chapter 10 is entitled ‘The Supreme Court is a Political Court’. On that logic, the Board of the ECB is a political board.

The Board is apolitical in terms of the usual political alighnments, but like all institutions it has its own internal dynamics, and it relates to the political institutions in idiosyncratic, and evolving ways. JCT is scratching around for solutions like everyone else.

@ All,

I don’t know if it is of any help to anyone in attempting to visualize the dynamics with regards to the Euro crisis at the moment. I scribbled down a blog the other evening, in response to the Rogoff article linked by Philip. I am using a very simplistic analogue for the European debt markets, of a group of students in a classroom who have an assignment to complete together. This analogue may seem daft initially, but it has got some legs, and the coolest part is that it dovetails neatly with expressions frequently used to describe Germany (top of the class), and Ireland (fill in the blank).

I had my final assessment for our group project at university today. I had some reflections on the matter afterwards, which may further enhance the model I created of the Euro crisis. The link to the entire blog is below. Basically, what happened in our group was that one very dominant fellow took charge and encouraged half of the group (2 of the 4 group members that is), to specialise on one part of our assignment. In other words, he did not trust them to have enough ability to spread themselves over the entire project. He was trying to be rational. What happened, was half of the group was dis-couraged from keeping an attendance in most subjects. In my model, I equated attendance to a leveraging in various borrowing categories. Anyhow, the outcome was, the more attendance that half of the group lost, the less they contributed to to areas outside of their specialisation. In turn that put more pressure on the other half of the group, to work harder to compensate in those areas. Which meant that in areas of overlap between the two halves of the group (that is perhipheral and non-peripheral, you get my drift), there was atrociously poor levels of communication going on. That is to say, having expressly decided to devote the resources of half the group to a speciality, the returns were less than linear, but rather dipped aggressively downward, owing to the fact that the group was no longer working as a group. Simply demanding submissions from each other, lumping it together, and blinding hoping it all came together. Needless to say, it didn’t.

A bad strategy. But it is very clear to me there is a strong impulse on the part of human beings to mis-diagnose the group dynamic and employ it to good advantage instead of having it work against you over time. The other factor at work, in the above situation, was that 3/4’s of the group knew one another from previous project. The fourth member of the group was new, and unfamiliar with the arrangements, and took the most risk for the least reward. That would equate somewhat to the European situation, given that some member states have co-existed for so long, both politically and economically. And that Ireland was the new entrant to that culture. The optimal way to use the group-ing, and it is quite easy to see it in retrospect, I advance to you all, is as follows. It is better not to divide the group up in the beginning. It might make you feel safer to begin with, in the sense that you feel you have isolated the problem group members from all the rest. But the way dynamics work over the time dimension has an important effect that humans fail to factor in it appears. The trick in my estimation, is to create some kind of incentive for the weaker half of the group to keep up a high attendance level. Because a higher attendance level equates in turn to a greater contribution from their part, to the various stages in the assignment completion. Which in turn takes some pressure off the stronger half of the group at critical points in the process, which in turn has the effect of un-locking their potential fully. That is, they get stronger, and fitter and more able as the assignment time line unfolds. You end up with a virtuous circle from everybody rather than a zero sum game. Just my opinion. I’d be happy to discuss further with any behavioural economists later in the summer, if necessary. But this can be modelled and played out using simple human agents in my own experience. BOH.


@ Paul Quigley

I agree with what you say and this is implicit in my reply to Ceteris paribus.

The Irish “policy community” does not yet have an accurate paradigm, in my view, of the European Union and still less of the euroarea’s attitude to Ireland. It is not necessary to explain Ireland to Europe. It is necessary to explain Europe to Ireland.

The problem can be seen in the use of the phrase “reputational damage to the country”. But what does this mean? It means that the creditor countries of the euroarea, which are those mainly concerned, consider that the governing elites – not the plain people of Ireland – right across all sectors, cannot be trusted to run even a sweetshop. Apart from being dependent on the kindness of strangers, we are also dependent on the reputation of visiting strangers. This reality has either not sunk home or has not been fully internalised, to use the buzz phrase.

The road back need not necessarily be long. I think that the bank stress tests prove this. And the release by the Department of Finance of its briefing notes to the Minister, whether redacted or not, is an excellent government procedural step (if it is the first occasion on which this has been done). A seachange in approach is required and I think that it is happening.

Both Philip Lane and Patrick Honohan addressed the design issues associated with drawing up the NPRF prior to its establishment in 2001. Honohan, specifically identified two critical weaknesses that needed to be addressed. One, was that the fund should be ring fenced from the government, otherwise it would be raided by the government. The second point, was that the fund should be diversified into bonds and stocks mainly outside of Ireland so that crony capitalism would not come to dominate the fund.

Now, the government have “emptied” out the fund and have mono invested it for the want of a better words in Irish banks which were, and still are insolvent and which will require another 25bn to 30bn of capital. Who signed off on the memorandum of understanding with the IMF/EU none other than one Patrick Hohohan. The same Patrick Honohan who said that our problems were “manageable” a couple of months before the country had to surrender its economic bailout. The same person who told us back in March 2010 that the banks were well capitalised. But nobody resigns in this country do they? Brian Lenihan, in the dail yesterday, accused those of wanting to burn bond holders as being treasonous. “Projection”saying out loud what one is sub consciously thinking about one’s self then accusing others of those thoughts and actions . When my children are working if far off climes as a result of these peopl, it will not help to remind them of how well qualified these people were.

Some people realise that there will be no growth. The premise for growth in the teeth of banks gobbling up borrowings, rising interest rates and deflationary politics which will shortly include a raft of stealth taxes is dishonest. Let those who speak of growth watch in horror as the Irish sub prime and negative equity crisis begins to unfold in earnest.

Here is some of what Shane Ross had to say on Wednesday in our national parliament speaking without rose tinted glasses, on Bank Reorganization.

“I view default as part of the solution rather than part of the problem. I consider it as possibly the only solution to the mess we are in. I have not seen any plan, projection, graph or figures which explain how we are going to pay off our debt. I have certainly not seen any convincing plans. I have seen plans that show inflated growth rates that suggest we could, possibly, pay it off over a period of time. They are not credible. No respectable commentator believes them.
The inevitability of default is something we should accept and go for as quickly as possible. In the United States and other countries, default is no shame. It is a solution. One does it, particularly as a corporate entity, one gets on with it and one starts again. Ireland is now in that situation. We really must start again. We are in that sort of deep doodoo. Default is a practical solution that would give us the opportunity to rebuild our financial institutions on our own terms and not on the terms we have at present, which are dictated to us by President Sarkozy and Chancellor Merkel.”

@ Lassie

Perhaps you should be more worried about the stones you’re hurling through rambling glass houses rather than the abuse Colm Brazel is throwing…

Despite your moniker, I don’t assume you’re a dog nor did I in respect of the New Yorker caption and Colm Brazel.

Language can be a little more subtle than you appear to believe.

In early Sept 2008, Barack Obama said the John McCain-Sarah Palin policies didn’t represent change; they were “just calling the same thing something different.”

“You can put lipstick on a pig, but it’s still a pig,” Obama said during a town-hall style event.

The Republicans spent the succeeding days claiming Obama called Palin a pig.

BTW, I’ve never lived in a glass house!

@ Robert Browne

Shane Ross TD comparing sovereign default with Chapter 11 is just playing to the gallery, because he knows the difference.

In September 2000, the then Sunday Business Business Post journalist Emily O’Reilly, now the ombudsman, lambasted Ross for what she termed the former stockbroker’s pitching of the shares in the public floatation of State-telco Eircom and later heading a public crusade against the company.

@ Michael Hennigan

The “gallery”, in this instance, being most sane Irish people or those who do not inhabit the rarified atmosphere of the higher echelons of the public and civil service. Those who still know that one billion is one thousand million a vast sum of money and that resource teachers in schools are being sacked for the sake of as little as 20,000 Euro and that blind people and carers have had their allowances cut. Perhaps, I should remind you of the world they inhabit. http://www.finfacts.ie/irishfinancenews/article_1021881.shtml It escapes their attention or is an inconvenient truth, that none of the salaries currently demand can be paid for without bailout money. This country needs to go back to wealth creation and the fact is that most government workers are wealth consumers and latterly sovereign debt consumers. This is why they will tell ordinary people that things are manageable to the bitter end. Mr. Noonan blithely tells people who have lost vast sums of money in these banks i.e. shareholders that their deposits are safe. Let me get this right. They are safe because the Irish government says so or they are safe because the ECB says so? I thought so!

@ All,

I developed a couple of final slants, on the group dynamic issue, in a last blog entry, if you care to examine it. I didn’t try to tie it back as forcefully this time, to the EU debt situation. But listening to George Lee on his RTE radio program The Business, this morning, the notion of Ireland as being the most open of the three peripheral states – Greece, Ireland and Portugal – did strike a chord with me. In terms of group dynamics amongst students doing assignments together, this issue of access and honey bees is interesting to play around with. BOH.

A good analogy to think of may be the bee hive. Where the professor in the classroom is replaced by the Queen bee, and the students in the classroom have now become the drone bees. The weaker student group members flying outside around in the vicinity of the hive are the worker bees, who have to collect nectar and deliver it to the hive.

The drone bees maintain a guard at the entrance to the hive and deny access to any worker bees who may wish to enter without their payload. The Queen bee, and all the rest are in the hive making honey out of nectar and are blissfully unaware of the plight of the workers outside.


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