Dan O’Brien on the Story of the Bailout

Dan O’Brien has an interesting article (and an accompanying news piece) in today’s Irish Times on the “behind-the-scenes” story of Ireland’s bailout. The article is based on interviews for a radio documentary to be aired tomorrow on BBC Radio 4.

I suspect that regular readers of this blog won’t be surprised at the story of how the ECB triggered Ireland’s bailout and then favoured a plan involving a larger upfront fiscal adjustment than the government were comfortable with and a massive and rapid downsizing of the banking sector.

Time will tell whether the ECB’s actions in November helped or hindered the resolution of Ireland’s economic problems.  However, the story of November’s events does raise very serious questions about the role the ECB now plays in European politics. Should the key role in this historic decision have been played by an unelected and essentially unaccountable organisation?

53 replies on “Dan O’Brien on the Story of the Bailout”

Spot on Karl.

Brian Lenihan’s comments on the role of the ECB are most disturbing. There is no need for an independent central bank to be unaccountable.

As long as executives accept there is no difference between goverment money and private credit their citizens and subjects will be the slaves of central banks and their clients.

“Germany’s Asmussen provided the clearest statements to date on the reason for rejecting the government’s proposal to haircut senior bank bonds. He said it had not been tried in the past and “we have no idea how market participants and investors would react”.

When asked if other countries should share the cost of bailing out senior bondholders in Irish banks, Asmussen raised the multibillion euro cost to German taxpayers of HRE, the bailed-out parent bank of Dublin-based Depfa, saying that the major problem stemmed from its Irish operations”

Mr. Asumussen is talking out of his hat, the following goes into detail of Depfa’s collapse…


“Less than 1% of Depfa’s business was Irish. Virtually no Irish Banking money flowed into Depfa or its deals. Depfa was not a major employer in Ireland. A couple of hundred jobs at most. Few of its senior positions were held by Irish people. Thus in purely bloodless financial terms there was virtually no reason for Ireland to bail out Depfa. Depfa was not systemically important to Ireland or the rest of its banking sector. Depfa was, however, vital to the continued health of the German banking sector. Add to this that the size of any bail out of Depfa was quite beyond what Ireland as a nation could have done. Ireland’s total IMF bailout stands at €85 billion. All on its own the HRE/Depfa bail out has already cost Merkel well over €100billion. Depfa, like one or two other banks in Ireland, was simply too big for its host. It was a financial cuckoo in the nest.

The German’s, however, would, I think, have bailed out Depfa even if it had not been bought by HRE because Depfa’s failure would have crippled something essential to the entire German banking sector – the Pfandbrief business. The Pfandbrief is a German ‘covered bond’. A covered bond is simply a super safe kind of bond. It is considered as safe as Sovereign bonds but gives a higher return. Germany invented the Pfandbrief and its banks relied on it.”

The ECB has got involved in the political arena not by choice.

The Masstricht Treaty guarantees it independence but as with the independent Bundesbank, it is not unaccountable.

Outside of its single mandate, price stability, if a majority of the Eurogroup or the European Council of heads of government was to oppose a particular position that impinges on their roles, the ECB would look pretty stupid.

The political reality is that Ireland would have got very little or zero support if it had made an issue of it.

The serious question is how long we could have avoided a bailout when funding rates were over 10% or is the issue that the ECB was responsible for the rise? Who triggered Portugal’s impending bailout?

My answer to the Irish question is that Lenihan’s 2-year slow-motion response to the banking crisis was the key issue.

Of course as in any drama, there are a number of subplots.

On a related issue, Stephen Collins writes in the IT today: “It is probably no accident that some of the cheerleaders of the boom have now turned into leading prophets of doom. The same reckless, gambling instinct that fuelled admiration for Seán Fitzpatrick also underpins the “burn the bondholders and damn the consequences” philosophy.”


The article also mentions that Lenihan thought the ECB should have been speaking with one voice. This alludes to the splits in the ECB, which pretty much boiled over into the public. Also Bini Smaghi has had an unusually prominent role, with some of his comments less than prudent. I’m not so sure the ECB know what they are doing, and as an agency of last resort, they shouldn’t be so eager to get involved, in matters so uncertain.

I wouldn’t mind if the ECB were truly independent – not just the creature of big states.

Here’s what President Andrew Jackson said about the 2nd Bank of the United States (which he vetoed in 1832):

““The bold effort the present bank had made to control the government…are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.”

In the US, the fed at its creation was hedged in by due process and strongish democratic accountability after >100 years + of political conflict.

In Ireland, we sleep-walked into a tyranny at the hands of those who mean us no good

“I didn’t share the bank’s analysis that putting the fiscal house in order on its own would solve the banking difficulties. But that seemed to be a strong conviction in the upper echelons of the bank”.

Says it all, really.

@Micheal Hennigan
I prefer to think of those Seanie like boys as saying “save the bondholders and damn the consequences ” – but there you go.
I do accept the ECB has huge power to hurt us – but if the bully is beating you up every morning you should still go to school regardless of his threats or violence.
No Fear Micheal – all they can do is take your money more quickly , they are doing it slowly anyway.
Whats the difference in the long run ?

Have some pride in yourself – lets not give them more lunch money , lets give them our spite.

I really can’t get my head around the rush to bash Lorenzo Bini-Smaghi as if he bore responsibility for decisions made within Ireland by Irish bright sparks that burnt down the Irish economy. Wasn’t there a government in place in Dublin during the period leading up to the bailout?

The ECB is surely more part of the solution than part of any problem. The degree of denial taking place across the economy, reflects the traditional put-upon victim status so cherished during the decades when the Germans etc, were lavishing development funds on the country.

Irish politicians in the decade of the last government turned their backs on Europe and treated the European project with disdain. Now the tables have turned. There is a long road ahead to achieve any measure of recovery and constantly focusing on the presumed defects of external actors doesn’t strike me as productive when there is so much to be done at home.

What we do see is how naive poor old Lenny was. He totally overplayed the fact that we had enuff cash in reserve to last till the middle of 2011.

He was missing the real elephant in the room, as Chopper describes it Irish Banks were in cardiac arrest. The ECB was the surgeon desperately trying to keeping the patient alive and now the patient’s GP casually asserts everything is fine for at least another 6 months. No wonder the ECB called a halt to such self delusion.

All very interesting.

I’ll have quick go at rephrasing a bit of it in the hopes of clarity and questions.

We the public (in the person of me, my mates and fellow mushrooms) were surprised by the speed and timing of the bailout. We were surprised as we had been informed (in my case personally in Drumcondra), that the state was ‘fully funded’ until summer 2011. We knew ‘fully funded’ meant borrowings not savings, but had no other info to indicate anything else was happening.

But this was not the key issue, as the ECB could see a (snowballing?) bank run. They could see it as they were the ones replacing the withdrawn deposits. They were doing this as part of their remit, but weren’t at all happy about the scale or the duration.

The DoF were shocked when they saw the figures.

The government, in the form of Brian Lenihan looking at the melting snow, ‘knew’ they had to do this, under pressure from, at heart, the ECB.

So some questions:

(1) Who specifically, could actually see the bank run as it happened? My guess is that this includes the CB, but it seems to exclude the DoF. This would be extraordinary.

(2) Why did the government not discuss this with the public, their electors and ultimately the people asked to pay. IE why had B Lenihan made himself an individual not a collective?

(3) Why did the government not say to the ECB, we feel your pain, but this is a matter for elected and thus accountable bodies and while your views are valued, we’ll be dealing with this at commission level, damn your eyes.

(4) It feels like a sense that the government and all involved feel they can’t make vital facts and figures public, as this will spook the markets and we can’t have that. Has anything changed, or is this still the current situation? Specifically, are the true affairs of the banks still central to the ongoing crisis, and are these true affairs still only accessible to limited parties, whilst those outside this information expected to pay? Or put it another way, under the current government, are we still mushrooms?

Any thoughts?

Pity the Barrister and the Solicitor didn’t seek a legal ruling from Frankfurt around the end of September in 2008! Or even an ‘economic’ ruling, let alone some ruling related to ‘banking’!

As for the Nov 2010 – The Governor had to use his powers of ‘independence’ to inform the Irish Citizenry that an expensive ‘LOAN’ from externals was in the offing as Ministers fed us loads of paternalistic bullsh1t as the fruits of their prior incompetence unsurprisingly decayed.

@Karl Whelan
“massive and rapid downsizing of the banking sector.”
The problem is not the massive and rapid downsizing, it is who has paid for it. Even equity holders still retain some ownership in two of the banks (and probably in PTSB later?).

Is it not time to get away from the “he said, she said” debate and concentrate on the fundamental challenge, that of getting Ireland out of the economic difficulties in which the country finds itself?

There can be no doubt about the fact that there are faults in the construction of the euro and blame to be attached to all concerned with regard to the failure to deal with the crisis more expeditiously. However, a more accurate paradigm of how membership of the EU actually works needs to be established not alone in Ireland but elsewhere. Sentiment simply does not come into it.

I have not come across a better paper than the recent one by Paul De Grauwe which should interest the people technically skilled to interpret the economic thesis underpinning it.


I do not agree with much of the political and institutional inferences drawn, notably the use of the UK as the reference country or the assumption that the ECB could or should have endeavoured to intervene in the matter of prudential supervision at a national level. But it does bring out the limitations that membership of a single currency implies and the unfortunate actions by the decision-makers in Ireland not alone to fail to recognise them but to actually make them worse.

It seems fairly certain at this stage that there will be some form of restructuring of Greek debt. But neither Ireland nor Portugal should draw any comfort from this. It simply confirms the weakness of the Greek economy and its inability to service its debt. The objective of both Ireland and Portugal must be, by hook or by crook, to win back market confidence. The politicians in both countries are making a bad job of it as they seem unwilling to face their electorates with the simple truth; they have lived beyond their means and must now live within them, paying back debt at the same time. The problem in Ireland – and equally in Portugal – is that certain sectors of society in the state and state owned sector, including practically all branches of the commentariat, wish to continue as if nothing had changed, pointlessly debating issues of no real significance while the house is still burning.

There is the unique Irish problem of the banking debt. But the very fact that it is unique suggests that the design of the ESM, apart from being faulty in the manner outlined by De Grauwe, is erroneous in terms of its very concept viz. there can be no once size fits all for dealing with sovereign financial difficulties and the very idea is likely to precipitate the action that it is designed to prevent.

This is what now appears to be happening in the case of Greece.

In the case of Ireland, as with any bank manager, there will be no re-discussion of the emergency loan until further evidence of credit performance has been provided. This evidence will emerge as the figures for economic and budgetary performance emerge. Other topics simply serve as a useful camouflage for this basic fact.

One thing is certain. The collective errors that have been made at the euro dinner table have left a very hefty bill. Those that consumed the least have no intention of paying it (the True Finns will see to that!). Those suffering from indigestion have to go back to the maxed-out credit situation in which they were BEFORE they joined the euro cf.


And for a more balanced view of cause and effect with regard to the role of the euro cf. Dan O’Brien.


There is no danger to the euro as its strength currently against the dollar underlines. There is no legal onus or imperative on the creditor countries to provide funds to Ireland to cover everyday living expenses and, if they do, they decide the terms. The blame game, or, even worse, the “suicide bomber” strategy, as Pat Cox described it, serves no useful purpose whatsoever.

The question of how to deal with Ireland’s wholly owned banks is a discrete one and whould be dealt with as such if there is to be a satisfactory outcome.

I find your thought processes very strange and lacking in logic.

The primary function of a currency is that it is recognized as a medium of exchange and under a central bank system the payer of all debts.
It has also to have some value at any given time – the ECB to its great credit has recognized the value of fiat is variable due to their free moving Gold on their balance sheet.
However there are considerable mico variations in the nature of the debt structure in various jurisdictions.
When too much currency pays for debts, trade and commerce becomes less effecient and begins to break down – the ECB must know this.

The fact of the matter is that there is too little currency in the Irish juristiction to pay private debt – you either increase the money supply or default on private debt.
Because of the nature of exponential interest relative to a static or falling money supply the logical consequences of the ECBs stated policey is famine and destitution in Ireland.
Is that the real goal of the ECB ?

PS these are the most simple and basic foundations to monetory dynamics – the ECB is no fool in this regard.

@Fergus O’Rourke

The German citizens are paying for it. After June, if ‘stress tests on German Banks are real, and if ‘ECB policy on citizens paying for ALL ILLS of the financial system’ is applied to the Kore – then German citizens will pay again. Woe is me – an Irish indentured citizen-serf – to advise German citizens to cop themselves on! … to advise ALL EU Citizens to cop themselves on … and times that are in it …. to take back the Democratic European Project from the MoneyLenders in its Temple!


“Famine and destitution in Ireland?” Is one expected to take such comments seriously?

De Grauwe deals with the problem of the withdrawal of funds from particular national markets at pages 7 and 8 of his paper. But he carries the argument too far, in my non-expert opinion. Investors – including domestic investors – are not deciding “to pull out the money from a particular national market” but from national banks that threaten to become insolvent (and the sovereign with them). One could argue that Ireland is already at that stage (not helped by over the top commentary) but I do not consider it to be the case.

I happened on another thread upon the fate of ABN-Amro as summarised by Wikipedia. It bears out the obvious facts; the responsibility of the ECB is for the soundness of the currency, the problems of the national banks are just that, the problems of the nation to which they belong. Maybe things should be different. But they are not. The ABN-Amro case involved no less than five nations, the original parent nation (the Netherlands), Santander (Spain), the UK (RBS), Belgium and Luxembourg (Fortis).

As Dan O’Brien points out in his article, if one is looking for culprits they are to be found principally in the ranks of national and international banking.

P.S. It would be useful of someone among the policy wonks on this blog totted up how much banks owe the UK government.

@The Dork of Cork

‘I find your thought processes very strange and lacking in logic.’

Unsurprising – I hear he is spinning novenas for Lorenzo Bini-Smaghi; and has inclinations towards being accepted into the ‘astute cute hoor’ fraternity through winning its ‘spinner of the year’ for services rendered!

You are probably best advised to continue chipping away at the global financial system …

You need to seperate Money from credit.
The commercial banks have credit money and the Central banks have control of base money.
There is simply not enough money to pay for the interest liabilties at the present value of the money.
If you follow this logic exponential interest will destroy all economic activity to get a return.
Remember exponential numbers have a nasty habiat of surprising on the upside.
Central banks create a artificial high value to the currency by expressing their currency on the limited Central Bank balance sheet.
However private institutions use this currency as a artificial leverage for their banking operations.
Back in the good old days some private banks were more honest in their dealings by having their own currency but those days are long gone now.

If the ECB truely wanted to peserve the value of its currency under the above conditions it would have destroyed private banking liabilties in the shadow banking sector – this would have restored some equiliberium to a grossly distorted debt system but would have kept both order and demand to the Euro economy.
The ECB has already failed in its duty to peserve the value of its currency has the damage was done before 2008 when it over seed a massive increase in shadow bank liabilties relative to the money base.

The only mechanism it can now use to maintain the value of its currency now is economic collapse – it has clearly failed and since the value of paper money is secondary to the physical ability of a economy to produce adequate goods and services it has no choice but to monetize.

PS if the commercial banks kept more goverment money on their balance sheets rather then deposits which were a function of the banks credit policies we would perhaps not have to devalue to currency.

But such is life – the ECB needs to acknowledge their flawed monetory policey.
Banks Fractionally multiplying on tiny sov debt bases is inherently unstable.

Should the key role in this historic decision have been played by an unelected and essentially unaccountable organisation?


Which in consequence makes it even more unforgiving that Mr Lenihan did not call for a referendum on banking matters.

@Michael Hennigan
“My answer to the Irish question is that Lenihan’s 2-year slow-motion response to the banking crisis was the key issue.”

Indeed. It was the failure to give any indication that the ELG scheme would be in place in September last that provoked the run on banks by corporates. It was announced at the last minute when corporate treasurers had already had to decide on existing maturities. Hence the ECB had to plug the hole. Little wonder that they exerted pressure to take a bailout – they hope to get their money back.

The fact that our biggest creditor (200billion+) exerted pressure (if BL is correct) should not surprise anyone.

It is the next pressure point that concerns me. When Greece defaults/restructures?

@ceteris paribus

… the next pressure point …???

Simultaneously hit a 15_man scrum over the restructuring line [call it whatever] with every ounce of balls available. Announce the State of Emergency a nanosecond beforehand … hence, taking back the state from the charlatans. All signals from Germany and France are that ‘their banks’ [which is what all this is really all about] can now [about bleed1n time 30+months later] handle a sovereign default. Tuff on ECB, but their policy decisions come home to roost as well as most bondies in the vichy_bankies have been paid off …. & the Chinese have a few bob at the mo ….. even Blind Biddy could negotiate a few billion to tide us back into the real sovereign bond market ….

I think it is valuable to want to try to understand the factors and events that led to the EU-IMF intervention in Ireland. But the 8 November is too late a starting date. The writing was on the wall beforehand, and largely because of the actions undertaken by the government leading up to it.

Gary O’Callaghan’s article referenced here some time ago is titled “Did the ECB Cause a Run on Irish Banks?”, with the answer supposed to be a yes. There is much I’d disagree with in that article, but Gary O’Callaghan does write “the ECB had argued in August 2010 for an early budget. But the Government had already undertaken substantial measures and had announced that it would launch a further series of fiscal measures”. Yet with all these “substantive” measures, the EC and the IMF were left forecasting last December a budget deficit for Ireland of over 10% of GDP for 2011, some 13% GNP. This was hardly an “up-front” fiscal adjustment, and efforts to frame it as such are disingenuous.

Gary O’Callaghan notes too. “If the markets only lost confidence in Ireland’s fiscal sustainability in September, this could have led to a loss of credibility in the guarantee scheme … [so] one might have expected a run on the domestic banks only”.

Another way about thinking about the issues raised by the paper is to ask, “suppose Irish banks were all as healthy as a fiddle, with no need for recourse to the ECB, what would have been the consequences of a third year of a deficit / GDP level superior to 10%?” Maybe there’d have been no need for intervention. But there would have been serious consequences, sooner or later, for having the largest deficit in the eurozone etc., the last to be announced in 2010, and no immediate prospect of seeing it narrow much.

Brian Lenihan also states

“I was concerned that once we went beyond the figure of €4.5 billion adjustment, about the economic damage it would do to the country, and I was unhappy at having to put the figure much higher than that.”

Indeed the very sudden lack of commitment to meeting Maastricht targets (supplemented by a one-off “adjustment”), and the dropping of meaningful long term measures to tackle the fiscal deficit explained a large part of the loss of confidence prior to the aid package.
On the Thursday prior, the 4th November 2010, the government at the time released the “Economic and Budgetary Outlook, 2011 – 2014” As you can imagine, it wasn’t quite what I and many other thought was quite appropriate, even if Mr Lenihan was pushing a so-called “adjustment of €6 billion” for 2011 with this plan. Memories it seems are short. Monday, 8 Nov. and Morgan Kelly published his “kindness of strangers” article.

Remember too that November was a little while after the taking of some very important decisions by Ecofin and the European Council, in relation to the “European Semester”, the ESM etc. Yet the Irish government at the time was showing some disregard for the spirit of what was agreed at European level, e.g. by setting the Irish budget for December 2010, the last in the eurozone, and making it stand out like a sore thumb needing amputation.
Among other claims in the Dan O’Brien article, I was quite surprised by generalisations

He (Brian Lenihan) claimed that prior to November, that the ECB had been “rather disinterested in Ireland” in relation to banking issues.

“The ECB” is not some amorphous creature, but an organisation comprising hundreds of economists, many of whom were taking, or were obliged to take, a keen interest in Ireland at the time, and not just the banking issues.

I remain convinced that in the autumn of 2010, the government at the time had the power to make a sharp fiscal adjustment that would have avoided the need for EU-IMF loans. Extraordinarily painful measures yes. Yet we saw a government in Latvia re-elected around the same time, in thanks by the electorate for taking such measures.
So yes, it is valuable to want to try to understand the factors and events that led to the EU-IMF intervention in Ireland. But we need fuller accounts still, without the express intention of painting Frankfurt as perfidious. Yet another example of “blame the foreigners” syndrome in Ireland from some quarters, wanting history to be recorded a certain way. (idem criticism above of Mr Asmussen’s position on Depfa-HRE).

@ CO’H

I agree entirely! What surprises me is that there is any residual belief in any competence on the part of the previous government when the evidence to the contrary is so overwhelming, except, of course, in the matter of organising their individual exits. But that seems to be a talent that is widely shared.

@ Ciarán O’Hagan

A small thing.

I was interested in: “rather disinterested in Ireland”

Do you think Brian Lenihan meant:

‘disinterested’ like an impartial judge (implication, the ECB later became partial).

‘uninterested’, as in Ireland was not high on the agenda?

@Ciarán O’Hagan

Brian Lenihan’s claim that prior to Nov 2010 the ECB had been ‘rather disinterested in Ireland’ shows either that he was completely out of his depth in his position as Finance Minister (which empirics suggest), or that, similar to many others, he is projecting blame as a cover for his own, and his government’s, incompetence [or maybe both].

I’m pretty sure, checking back on this blog, that many here prior to this time, observing the increasing reliance of dead banks on ECB liquidity were waiting for ‘action’ from ECB ……… imho, and based on what we now know of ECB ‘policy’, I would think that most within ECB would have looked at Irish banks each morning with absolute DREAD .. the zombies that could rise up and infest the kore-banks. … and they would have bought ‘disinterest’ in dead Irish banks at any reasonable price …….. methinks ECB may yet pay a much more substantial price …

There is no doubt in my mind that we are somehwat but by no means completely responsible for this mess due tothe fact that our government and leaders at all levels were/are either co rrupt, incopetent or both. The cosy relationships that existed with bankers, developers and other vested interests are at the core of the problem. I know not everybody voted for them but in a democracy (or at least our version of it) we are collectively responsible – if we cant handle that then we need to change the system and I dare say we do.

There is also no doubt in my mind that external reponsibilities lies with initially foreign banks, followed by EU, ECB etc and that they should no doubt pay some of the bill.

What’s changed in Ireland though since the beginning of this crisis in 2008?
Austerity has visited those who can least afford it – Developers are bailed out, Banks are bailed out, Politicians jump ship with pots of Gold, Senior Civil Servants escape with pots of Gold, and Bank directors ride off into the sunset with treasures the general populace could only dream of – the fact that Doherty could get our with 3M package at this time is absolutely incredible?

Why should we expect outsiders to help us when we cannot even help ourselves?

@Gavin re “Are we still mushrooms?”

Two questions tell mem we are……

What’s that smell?
Why is it so dark in here?

Happy Easter

“Germany’s Asmussen provided the clearest statements to date on the reason for rejecting the government’s proposal to haircut senior bank bonds. He said it had not been tried in the past and “we have no idea how market participants and investors would react”.”

This is so crass it just might be true.

Utterly pathetic.


This is so crass it just might be true.
Utterly pathetic.

It clearly is true.

State secretary at the German finance ministry, Jörg Asmussen who attended the meeting, said: “It was made very clear to the Irish finance minister that it is not just about Ireland. The functioning of the currency union was at stake.”

That was and still is the view of the German finance ministry and by extension the view of the ECB.
If anybody thinks the actions of the main European powers / ECB want to “save” Ireland or Greece or Portugal for altruistic reasons, they are being very naieve.



I read this narrative by Lenihan’s with two qualifications in mind:

1. He has a solid history now of saying whatever suits on the day. Blaming the ECB works today. This time it might be right – but we have no way of knowing and can’t rely on his current version of events.
2. A bailout was always on the cards post-guarantee and post-fiscal collapse. To avoid it required serious work, which was avoided. In the summer of 2010 an emergency budget was required and the government, as usual, went on holidays. It was negligence of the highest order.

There has been heavy emphasis on group think as a factor in the boom. I think in time a Finn will write a report on the effect of denial in managing the bust.

Basically, what I’m getting from this article is that while the EB were putting the wind up Lenihan, Honohan got spooked by an impending FT editorial and decided “as a chomhairle féin” to take the ECB loan and put the country in hoc for another 35 billion or so, or whatever the figure is running up to now. This is different to Sean Fitzpatrick and Fingers Fingelton’s running up colossal debts, because……?

It seems that the Banking Putsch Formerly Known As The EU was extremely determined to make sure that the Irish people, and not the ECB and big banks, ended up with the banking bill. I don’t hold the obsequious Irish government officials blameless, but the ECB Putsch is ultimately the party most culpable for the banking crisis now facing Europe.

The country should pass its debts on to where they rightfully belong, the ECB, by promptly defaulting. I suspect that the government is gearing itself and the country up for such a move via stories like these.

@Sarah Carey

1. He has a solid history now of saying whatever suits on the day.

OK, just to be clear here; You’re a _different_ Sarah Carey, right?

@Fergus O’Rourke

A previous comment dismissed the Depfa thing because so little of its business was Irish. Surely what matters is how much of its losses occurrred when it was in the care of the Irish regulator? Presumably most of the 100B. Do the Germans feel they were sold a pup with the impramatur of the Irsih regulatory system? If so we owe them.

2 questions arise.

1. Is this the real source of German hostility? If we close down the IFSC without getting rid of the 12.5% for real job rich manufacuring industry, can we get a restructuring deal from the Germans. Give them back their banks in return for avoiding soveregin default. Is that a possible deal?

2. Are there other Depfas lurking in the undergrowth in the IFSC?

The supporters of low corporate taxes in the Euro Zone do not look forward to Irish corporate taxes rising. By and large the supporters are large MNCs’ with clout in Merkel’s and Sarkozy’s right of centre political parties.
In Ireland we do not think through our positions in a sensible manner, just a simple minded foray into low corporate taxes the lower the better. Does anybody in the Finance Department know that US corporations pay the difference between the tax rate in their foreign jurisdiction and the US domestic corporate tax. This means we are throwing away 12.5 to 15 percentage points of our take from US corporations. This also applies to other countries with the amounts and rules differing for each one.

Small countries have to tread nimbly in the political and economic jungle, we simply trudge along with a few idee fixe from one bumble to the next fumble. Did Patrick Pearse, Sean Barrie, Rory O’Connor, James Connolly and Michael Collins die for this?

The seasonal touch to Lenihan’s remarks was a nice flourish. Apparently, like Pontius Pilate and Jesus, the ECB wanted Ireland “totally nailed down”.

@Karl “serious questions about the role the ECB now plays in European politics”. Agree completely.

I also just re-read Professor McCarthyś article in the Sunday Independent of 17th April 2011. I urge everyone to read that article along with Dan O`Briens article.

Apart from the fact that very recent German history (and current internal German politics) gives us an “opt-out” regarding banking obligations, which we would be fools not to use, Professor McCarthy also refers to reported comments by Bini Smaghi.`

Without the benefit of Colm McCarthyś article I would have found Dan O`Briens article to be frightening. Now I consider it alarming and serious for Ireland but actually more frightening for many EU member states on the continental shelf.

Mr O`Brien highlights “serious questions about the role the ECB now plays in European politics”. However Ireland is not on the continental shelf (and has the longest continuous democracy in the EZ) so as a result is less vulnerable to “democratic deficit contagion”.

That fact, however does not mitigate Irelandś responsibility to ensure democracy, unity, stability and “social cohesion” remain core objectives of the EU even if it means exercising a veto which will probably not be necessary.

It would not surprise me if Mr Smaghi`s comments (referred to by Professor McCarthy), regarding Greek democracy, in the Italian press may indicate that as of 14 April 2011 the ECB has ceased to be an organ which can legally operate with EU sanction.

Germany is more concerned about “maintenance of democracy” in Europe than whether Ireland declines to take responsibility for the mistakes of German (and other European) banks because some unelected leader in Dublin made commitments prior to having his party ejected.

Everyone recognises Angela Merkelś right to lead a united Germany from Berlin but no one expects her to abide by international commitments made by previous unelected East German leaders.

” I suspect that the government is gearing itself and the country up for such a move via stories like this”.

IMHO you may well be on to something here. I sense something major is about to happen at European level and that the entire Irish government (including opposition) is determined to ensure the country is ready to take advantage of it.

The really important lessons are for politicians in the current government:
1: You are playing with tough guys now
2: Many political and personal reputations will suffer terribly at the hands of EU/ECB
3: They will chew up and spit out anybody

Europe is in tatters. The core is resentful of bailouts a d the periphery is resentful of austerity. Nobody wants it any more.
The political discontent combined with major bank insolvencies will set the dominoes to fall all the way to Berlin.
You can only back austerity if you believe a good Europe will survive. If you don’t the prudent thing to do is get as much energy independence as possible and brace for default. Europe will end but the Irish Green Party, Fianna Fail and now Labour are in danger of sacrificing themselves for no good cause

@ Tim O’Halloran

The probem of Depfa was not one of bad regulation or dodgy lending. Depfa’s loan book was rock solid as they lent for infrastructure projects mostly to govt’s. Their loan repayments were coming in steady and their loan book remained healthy. The problem of Depfa was one of the business model of borrowing short and lending long and that was something allowed by regulators pretty much everywhere. Depfa was collateral damage of the worldwide credit crunch, which can’t be said for their parent HRE (which was subject to the German regulator!) and which had large exposures to commerical property and which for that reason had to be bailed out to the tune of €50b. Germans are selling the pup to to the uninitiated when raising the issue of Depfa in response to valid queries from Ireland.

@Dom K.
The Depfa site says less about what it was doing than other people. http://www.thepropertypin.com/viewtopic.php?p=308754#p308754

There are plenty of other posts about Depfa on the ‘pin and if you google “depfa wisconsin schools” you’ll get a whole rake of other stuff about them.

Infrastructure financing was part of their business, but it isn’t what led to them almost collapsing the banking system, according to Josef Ackerman.


I did not get my information off the Depfa website but from the inside. Depfa is a handy political scapegoat for the Germans.

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