Charlemagne: A Parable of Two Debtors

The Charlemagne column in this week’s Economist returns to the comparison of Iceland and Ireland: you can read it here.

33 replies on “Charlemagne: A Parable of Two Debtors”

“A Dutch threat to hold up its bid for European Union membership”.

At least the economist has a sense of humour.

Besides the economist has lost its credibility many moons ago when its tribunes junked Gold from the financial system instigating the greatest economic calamity in the western world since the fall of the Roman Empire.

I recommend you junk the economist from your reading list – although building a bonfire maybe a bit extreme until your currency has more BTUs then its face value.

From the article:

The right answer surely lies somewhere between Ireland’s near-comprehensive guarantee for the banks and Iceland’s bank default. The Irish state should bear some consequences for its mismanagement in allowing the housing bubble to inflate so far. But the senior bondholders of Irish banks should also take a hit.

Even The Economist is in favour of burning the bondholders now.

Are we all stupid? Do we all think that somehow, not paying an investment fund its money back is going to cause our society to revert to the stone age? Well, Iceland is not only still there, it’s actually doing a lot better than Ireland and will continue to do better.

This whole situation is bearing more and more resemblance to the Reformation. A corrupt but seemingly infallible church (The Market), being hereticaly rejected by people who had just had enough of the rot (Iceland). With the Irish typically remaining loyal to the old faith, and never backing the winning horse.

The country should just Default. Let’s get this over with already!

Can I ask what the differnce is when it comes to bonds? What is the difference between senior and junior, which are peoples pension funds in, and which are things like prize bonds etc.

There is no evidence whatever that Iceland is recovering faster than Ireland. If we use GDP as the criterion, the figures are not decisive either way, with both countries bouncing along the bottom. But, have we not been told for 30 years (by among others, such luminaries asw David McWilliams, Morgan Kelly, Constantin Gurgdiev), that, in Ireland, GNP is a better measure of growth. If so, Ireland is clearly growing faster than Iceland. From its trough in Q1 2010, GNP in Ireland has risen for 3 successive quarters, and by a cumulative 4 per cent between Q1 2010 and Q4 2010. Iceland has grown by only 0.2 per cent in that period. We can be pretty certain that, if Ireland’s recent GDP and GNP figures had been the other way round, every ‘celebrity’ economist in the country would have been saying that it was the GNP ones that mattered. So, let’s have some consistency.

Regarding the public will in Ireland, if the Irish electorate are so anxious to default, then why did Fine Gael go up by 3 per cent in the Red C poll last weekend, as compared with the general election just a few weeks ago? That was the first poll to be carried out since Fine Gael made it clear that they were going to follow exactly the same policy as Fianna Fail in regard to the ‘default’ option. Given the magnitude of their ‘sell-out’ over the ‘default’ issue, if the Irish electorare really wanted to default, I’d have expected Fine Gael to have gone down in that poll and one of the ‘default’ parties to have gone up. Didn’t happen.

Maybe you are right – it may be more comfortable to be a prosperous automan rather then a dirt poor freeman and indeed there may be not much difference between both in real terms.
But there comes a time when its best to confront the true nature of the beast.
(“The time is out of joint; O cursed spite!/That ever I was born to set it right!” [I.V.211-2]), – Hamlet

Time Out of Joint – Wikipedia, the free encyclopedia


Even Dorks knew it was a bubble back in 2005 – it took no expertise.
The final act of the 1971 dollar default saga was the artificially strong dollar policey of the second Clinton administration.
I guess those Tribunes of financial virtue were pretty quiet back then.

What was surprising for naive persons such as myself was the bailing out of the shadow banker sector.
I will not trust the “authorties” again.
In the immortal words of last president – this sucker is going down

There is no evidence whatever that Iceland is recovering faster than Ireland.

Except for their respective unemployment rates. You know, that single biggest indicator of a healthy economy?

Regarding the public will in Ireland, if the Irish electorate are so anxious to default, then why did Fine Gael go up by 3 per cent in the Red C poll last weekend, as compared with the general election just a few weeks ago?

FG went up because the dumb Irish bought the line about the deposits going back up. Some of the more brazen elements of society saw an opportunity to return to their old ways and hence NAMA, at the behest of the Society of Chartered Surveyors, decided to morph into the landlords Anglo.

This is a dead cat bounce as anyone willing to look can easily tell. Unemployment remains enormous, the banks are still making colossal losses, the government is still running a deficit of €18 billion per years, and neither the country nor the banks are able to obtain any funding from money traders. AIB will be asking for 6 or 7 billion more before the end of the year at the very least.

GNP going up?! Just because Pzfizer and Intel are selling a few more Viagra tablets and computer chips does not mean that Paddy is either able to get a job or is more eager to spend his money. Call back again when the dole queues get shorter.

Correction – the beginning of the final act rather then the final act.
This tragedy is far from over
The strange events of the late 90s – teeing up Euro free gold is chilling in its complexity and behind the scenes organisation.


Try telling that to all the people who have lost their jobs and remain on the dole queue or have had to emigrate…….I am sure they would tell you where to go……at least Iceland can provide jobs for a lot more of its citizens!!

What’s the difference between Iceland and Ireland…..Iceland grew a pair while Ireland’s shrivelled up under the cold glare of Merkel!!

@ ObsessiveMathsFreak

Well, Iceland is not only still there, it’s actually doing a lot better than Ireland and will continue to do better.

People choose foreign examples to bolster an argument when the facts appear to suit.

The devaluationists cite Iceland for example while ignoring the inconvenient example of sterling.

Comparing a country of 320,000 people with its own natural resources to provide export earnings with one that is dependent on foreign firms where local units have no input on destination of exports, has its limitations.

@ De Roiste

at least Iceland can provide jobs for a lot more of its citizens!!

Both countries’ public debt and unemployment has shot up but because the data for the smaller economy is better, proves what?

Almost 20% on the Irish Live Register are foreign workers — a legacy of the Irish boom.

Iceland apaprently is not a very welcomig place for migrant workers and according to Statistics Iceland, there was a population of 10k Poles in Jan 2008 and also in Jan 2010.

As to debt, the IMF projects a 2011 budget deficit of 4.6% of GDP compared with Ireland’s 10.8%.

Could Ireland have a smaller deficit?

The biggest jump in exports was pre-Sept 2008 and the collapse of the currency.

This is where comparisons can be limiting; a new aluminum smelter could do wonders for the trade figures.

Iceland and Ireland: From boom to bust and the road back

@ All

Ireland and Iceland have a great deal more in common than they have differences and arguing about which is growing faster or slower or the impact of economy size, unemployment rate etc disguises the most important point that both are small economies on the edge of Europe with citizen voters and governments.

Voters in both countries were told that if they didn’t repay the international debts run up by their banks, then the sky would fall, the cash machines would stop working and the streets would run red with blood. The citizens of Iceland tested this theory and it was found lacking. Whether they are growing faster or more slowly than Ireland today is not as relevant as the fact that they were not in fact condemned to revert back to the stone age as their politicians told them they would be.

@Edv2.0L “Whether they are growing faster or more slowly than Ireland today is not as relevant as the fact that they were not in fact condemned to revert back to the stone age as their politicians told them they would be.”

The Substantive Issue v Spinola of Fear. 250,000 Irish citizens have Euro p/m to live on. “What? Me worry?”


How much can be saved if unguaranteed senior bondholders take a hit? I think a 50% haircut on the unsecured unguaranteed senior debt would generate about €8 billion (this would be around €5.5 billion if BOI is excluded).

There are problems with doing the same for the secured unguaranteed senior debt and also the fact that over 60% of these bonds are in BOI, the one bank that has avoided “zombie” status. Still, it is pretty obvious that there are several billion euro to be saved by extended losses to senior debt. Yesterday, the DoF once again reiterated that this will not happen. I think we can survive without enforcing such losses, but with the taxpaying “taking all the residual blame” after shareholders and junior debt it would be nice to know why some of it can’t be shared around.

When questioned about this on the night of the stress-tests Prof. Honohan said:

“There will be consequences. One has to calculate them. The calculation of expediency that one would make is ‘is the amount recovered, is that going to be offset by higher funding costs and the smaller the amount to be recovered relative to the total amount of debt, the more adverse that calculation becomes’….So the amounts of debt that are involved here, that are in play here, are small relative to the potential losses. That is the calculation that has to be made…..What I am doing is a calculation that says the net advantage to the fiscal accounts, to the ability of Ireland to fund all the services you are talking about. That is the calculation that has to be made and it is not at all clear that without the support of our European partners, this would be positive. In fact I think it would be negative.”

It is clear he has done such a calculation but it would be nice to know what the costs and benefits on both sides of the ledger are so we can see exactly why he thinks “it would be negative”.

@ Edward v2.0

You appear to ignore the fact that the UK and the Netherlands are priority creditors in the LI bank liquidation and will likely get 90% of what they are owed. The president and PM have reaffirmed this.

Small countries also need neighbours in times of need and the Nordic countries plus the IMF chipped in to help.

The reality is a little different to the narrative that you would like to believe.

As for their president, there is little noble either in his flip-flopping:


From its trough in Q1 2010, GNP in Ireland has risen for 3 successive quarters, and by a cumulative 4 per cent between Q1 2010 and Q4 2010.

Jobless GNP growth is of little value to hundreds of thousands of people. More to the point jobless GNP growth that is also shifting the proportion of income away from labour and towards capital is of little vale to millions of people.

I also would not be optimistic about GNP in 2011 based on the YTD govt revenues.
I am aware of one set of company data comparing Q4 2010 with Q1 2011.
In that case an 8.0% fall in Gross PAYE income has yielded an increase in total Govt taxes of 1.0%. If one extrapolated this data to national income tax receipts, one would have expected to see a substantial “PAYE” income boost in Qtr 1 2011.
It didn’t happen. This would indicate significant reductions in working hours or earnings for those employed.

I should also add that I believe that the Dept of Finance has not got the foggiest notion of what it is talking about and is absolutely spoofing in its March commentary below :

“PAYE receipts in the first three months of the year amounted to just over €2 billion, a ½% above the same period in 2010. PAYE receipts show the impact of the income tax measures introduced in Budget 2011 but as they do not include receipts from the USC, they allow for a comparable year-on-year analysis to be made.”

They have no idea of the the split between PAYE/USC in 2011 or PAYE/LEVY in 2010 because they do not collect the data on P30s. The PAYE figure returned to revenue is an amalgam of both PAYE/USC.

So to paraphrase Dorothy Parker’s comment on the death of President Calvin Coolidge,: How can they tell?

The EURO and other parts foreign will ‘suffer losses’ or whatever, if we (the Irish taxpayer) do not take up the burden of repaying someone elses’ gambling debts. So we must ensure that insolvent banks are re-capitalized – by whom? Not again!

So what happens when the ‘whom’ become insolvent also (looks like we are making very good progress on this issue). Who will re-capatilize me when my income stream dries up? Oh! I was afraid of that!

I know what the Boyz are at. But am powerless to stop it. My elected reps have funked the substantive issue. But surely I should have known that would happen? Yes. But you do have to have some hope. ‘Cept hope and confidence are not legal tender at the supermarket checkout, nor at the petrol filling station, nor for my utility bills.

Our new, Pillar Banks (who thought up that c**ppy term) – of salt I presume? – need us customers to keep them in business. Well, what if we decide to restrict spending and consumption? Down they go, again!

This matter is just a few overs into the innings!


@Seamus Coffey,

You quote Prof. Honohan at length, but I think the key point, which many people seem to miss, is the crucual caveat in the penultimate sentence – “without the support of our European partners”.

I’ve made this point previously, but it doesn’t seem to register with many, and it is that, yes, bondholders who probably should have been haircut have escaped unscathed, but the ECB is providing enormous funding support to replace the bondholders and depositors who have fled – and at a much lower cost than bond investors or depositors would demand. So, yes, Irish taxpayers are supporting the core EZ banking system, but I would venture that the ECB is even more on the hook – and I suspect wriggling even more.

And there are occasions when we have to trust and not to second-guess, the judgement of appointed officials. It would have been wonderful if a fraction of the scrutiny that is being applied to Prof. Honohan and Mr. Elderfield (who have given us no reason to doubt that they are they are doing their jobs to the best of thier ability) were applied previously to their predecessors. And indeed, rather that concentrating on these officials, it would be useful to focus on senior appointees and regulators in other sectors. Do we have any evidence to suggest that the banking supervision and financial regulation failures were or are unique among all the areas where regulation is applied? I have seen enough to convince me that the rottenness was and is pervasive.

@ Michael Hennigan

You are 100% correct, I am ignoring that fact that the UK and The Netherlands are likely to be repaid most of their money (although I note that this was not clear a year or two ago). I am also ignoring the fact that Ireland is part of the Eurozone, part of the EU, does not have much in the way of geothermal energy, speaks a different language and is substantially better at rugby.

I have read many of your posts on the subject of default and the potential impact on the Irish working population and I wholly understand your point of view [and to be clear, I don’t live in D4, I know what it’s like to run a small business, have the bank refuse an overdraft and have to borrow from friends to make payroll etc etc]. On the other hand, I am sick to the eye teeth of the scaremongering of politicians and technocrats that tell us the sky will fall down on our heads if we don’t bail out every private creditor within the financial industry. This position has been maintained by the absence of a counterfactual – it’s easy to say that defaulting on senior creditors will results in the apocalypse when there are no close examples of actual outcomes to with which to compare. The Iceland example is not an exact counterfactual, but it is the closest we have to one.

Ordinarily, I would be the first person to take the pain of a hefty bank bailout to avoid the long-tail risk of a financial meltdown, but by doing so in Ireland we are putting forward the tail risk of a sovereign default. I’d like to be optimistic about Ireland’s chances of growing its way out of this mess, but the easy money policies recent years are shortening the business cycle and Ireland does not appear to have a Plan B if the next global recession starts in a couple years time (in fact John Taylor, who runs the world’s largest fx hedge fund said yesterday on CNBC that the US would be in recession by year-end

@Micheal Hennigan

You do the man a disservice – he had a long history of skepticism with regards monetarism and its servants.
I recommend you listen to the Friedman Iceland 1980s video – while the Iceland’s presidents analysis got it wrong in many ways many of us did not fully understand the scale of the malice back then.
The free floating FX markets designed by Friedman to save the dollar has been a disaster of epic proportions.
The nail in the coffin was the selling of Gold by central banks for the last decade or more.
This kept sovergin yields artificially low – setting the stage for a dramatic increase in credit and malinvestment.
Their Goal of course was globalisation through debt saturation.

to webmaster:

Sent a post earlier not appearing, have sent email to akismet to remove me from their spam bucket(my critics might say its the best place for my posts, but how did I get on that?), so could my earlier post be posted up under comments?

Moody’s downgrades Ireland to optimistic notch just above junk status

Beware of Orwell’s Squealers telling us “black is

white”, Squealer here:

The message:

“”The lone worker,”

preaches Novelist Laxness, “will never escape. . . . The life of the lone worker, the life of the independent man, is in its nature a flight from other men, who seek to kill him. From one night-lodging into another even worse. … Such is the story of the most independent man in the country.”

Read more:,9171,777080,00.html#ixzz1JaIZQ


1. If we stay in the EMU, our economy will be crushed, our sovereignty
lost, we default anyway, we need growth of 7-9% to escape default, we have IMF .5% projections. Moody’s and those of us who say this are supported by the Math unlike those whose only support is false propaganda to the contrary.

2. The story feeds into the politics of fear and false propaganda in the following way: we will not be like castaways if we default and leave the EMU, we are part of a global economy. Our corporate footprint as well as exporting to the EU, exports to the rest of the world. Food prices are rising, China needs our food, countries like Singapore, Japan, have actually done very well outside the EU. Our real problems are competitiveness, poor development in areas such as tourism and a property financial bubble that has sucked investment from enterprise into the bubble of property and financial services/ legal services that have risen to be some of the most costly in the world. Our economy still suffers from the distortion created by the bubble and financial class milking it.

3. Do we have the political culture, the smarts, to overthrow the “black is white” propaganda rubbish telling us, not to default, not to burn bondholders, to stand on our own feet seeking support from outside the EMU, from the US, UK, China, don’t think so, so we’re doomed passengers on the titanic, many first class!

“When Squealer masks the evil intentions of the pigs, the intentions can
be carried out with little resistance and without political disarray. Squealer is also thought by some to represent Goebbels, who was the minister of
propaganda for Germany. This would seem inconsistent with Orwell’s satire, however, which was supposed to metaphor characters in Russia.”

Iceland unemployment down to 8%, ours heading upward at 14% plus in spite of emigration

@Colm Brazel
If you post more than one link in a single piece, you get put on a deferral list for spam checkout. That’s just the way it is…


What is deferral list for spam checkout? Have you a link to akismet spam rules, I’d like to have a read. Post more than one link and you’re put in bucket?

Never had that problem before??

@Colm Brazel
Dunno. That’s the response that’s come from the authors on here. Their comments are subject to the same rules. I can’t believe you haven’t seen it before as that is the way it has been for the life of the blog. Eventually the post appears once the links in it have been checked out by the anti-spam bot. Kind of knocks the flow of conversation a bit.

Ireland and Iceland have up until now taken polar opposite approaches to their respective banking crises, which has been analysed extensively in this Economist article and elsewhere.

However, I think an argument can be made that the two countries’ approaches are going to start to look more similar going forward. Iceland recently voted down the terms of repayments of loans to the UK and Netherlands. Voters were emboldened to do so given that they really do not have much left to lose at this stage. Their country has already defaulted, the banks have already collapsed and capital controls have already been imposed. Ireland too increasingly looks like it has nothing left to lose, with the EU, ECB and IMF offering no concessions on the Irish bailout package. We may begin to see the Irish government push back. I’ve explored what form this could take here:

Comments are closed.