Between Two Stools

In the Eolas piece I looked at Ireland’s policy options taking the European bailout/bail-in regime as exogenous (albeit uncertain).   Of course, a different question is what we would want that regime to be, one now being hotly debated given Greece’s new difficulties. 

A central focus in the recent debate is the proper extent of early private sector involvement (PSI) in bail-ins.   Looked at from an Irish perspective, a range of considerations come into this calculation: (i) the reputational damage in a debt restructuring/default; (ii) the ultimate reduction achieved through a restructuring in the net resource transfer; (iii) the risks associated with increased dependence on official creditors and their domestic politics; (iv) the risks of domestic and international contagion; and (v) the implications for future market access of a weakening of the implicit guarantee given to private creditors. 

 I think the last of these points deserves additional discussion.   At the moment we seem to be between two stools.   Early PSI is ruled out; but PSI is central to the post-2013 ESM regime, substantially weakening the implicit guarantee and scaring off potential new creditors.   Thus there is a certain incoherence at the heart of European policy.   It also is a particularly bad combination given the trade-off involved with any resolution regime: it is good to be able to share losses with private creditors ex post; but a regime with easier loss sharing will weaken the implicit guarantee and make you less creditworthy ex ante.   

We need European policy makers to move one way or the other, either allowing early PSI before a substantial amount of private debt is paid back, or providing clarity on the nature of the implicit guarantee that gives a feasible route back to the markets for countries that follow through on their adjustment programmes.   The ECB seems to be calling for a full guarantee by effectively ruling out defaults.   This seems neither likely nor desirable.   However, further clarity on the way PSI will be applied in the future, with a reasonable path to avoiding it, would give a country a chance of regaining market access and not having to resort to default.   It is probably unfortunate for us that policy precedents are being set in this area based on the quite different Greek situation. 

60 replies on “Between Two Stools”


I’m sure you realise we are dealing with two very different issues here – a BOG standard fiscal blow-out (Greece and Portugal) and a failed banking system that is dragging down a viable sovereign because there was no national or EU-level bank resolution process to deal with ‘systemic’ banks (Ireland).

The sovereign bond market treats them as the same – sovereigns shouldering too much debt at risk of default. But the solutions are very different. I have the sense that whatever the EU/IMF decides to do with Greece (and potentially Portugal) will have no read-across to Ireland. It may be the view is: ‘you’ve got fiscal support and your banks have extraordinary liquidity support, now get on with it. We may ease the terms of the fiscal support, but we’ll need some meaningful concession first that we can wave before our voters. We’ll have a look at things again around the first anniversary.’

The ECB are forced to argue that PSI (haircuts for government bond holders) is unthinkable because that buttresses their own argument against haircuts for bank bondholders – ie them.

It is quite likely that if the ECB had not chosen to accept non-government bond bank assets – and had a balance sheet risk – they would amazingly enough be a bit more inclined to act like capitalist bankers. They would be less dependent on the unique logic of Lozza BS for public consumption.

Ireland’s position wrt sovereign bond holders and the ECB is rather like a punter who owes money both to the government and some heavies who know where he lives and have bought the debt he owes to a catalogue company for some frivolous purchases. The government has priority, theoretically, but somehow its always the catalogue debt that get paid off first.

There is a motley collection of half-baked rationales that are preventing a rational handling of the situation – both within Ireland and without.

“The ECB seems to be calling for a full guarantee by effectively ruling out defaults. This seems neither likely nor desirable”

The ECB strategy seems to be based on the notion that if everyone concentrates really hard the problem will disappear.

@ John McHale

In your scond paragraph you outline a list of risk factors.

When you talk about ‘this calculation’, to what extent are you talking about actual underlying mathematical or other modelling, and to what extent more generally ‘thinking about’ these things.

@ Paul Hunt

I am, as you know, in total agreement with this assessment and it is useful that it appears so early in the thread. No matter how much effort is put in by outsiders to persuade us that we are neither Greece nor Portugal, there seems to be great difficulty in persuading a domestic audience of that fact.

There is only one escape route for Ireland and that is to take the steps necessary domestically to convince the markets that we are capable of getting our own house in order to an extent that would allow us to return to borrowing from private investors. It is to be hoped that the MOU will be sufficient to bring this about as I see little possibility of additional action by the government. In a word, the economy through the actions of the ordinary people of Ireland, may win the day.

There is one qualification that I would add and that is, if the can in respect of Greece is kicked down the road past the decisions to be taken next month at the European Council, which I think it will be, attention will turn to the framework in which a soft restructuring of Greek debt might be organised. The “me too” syndrome may then be unstoppable.

What has yet to sink home is that any form of restructuring for Ireland will bring with it reputational damage and exclusion from the markets for years to come.

PSI is quite a good acronym as it equates also to “pounds per square inch” of pressure. Can the country take it?


I know you have made many positive suggestions about the way forward. As they are scattered across many threads, I am not smart enough to pull them all together to understand your overall proposal for getting out of the mess we are in. It would be good if you could give us a quick summary. What we don’t need is FT-style big pronoucements about the need for burden sharing, but then little consideration of issues such as the existence of guarantees, the dependence on the main banks for credit/payments system and the equal ranking of depositors and seniors in those banks, and the potential conditionality of ECB support. I know you have answers to all of these and many others, even if I might not always agree. In fairness to Morgan Kelly, he did provide a quite complete proposed solution, and all in a handful of short paragraphs.


I’m afraid it is closer to the latter given the complex nature of the question. I think we can draw on pieces of empirical evidence, historical case studies, and various models to try to get a better handle on the question, but ultimately it will be a matter of judgement and reaonsable people will disagree. I do believe, however, that it is useful to look at any different angles and with different lens. I know my posts can sometiimes be repetitious, at least in terms of the question addressed. My excuse is that I am trying to look at the problem in different ways.


Thank you. We’ve been around the block on this quite a few times, but it doesn’t seem to make a blind bit of difference. There are simply far too many deeeply entrenched vested interests which will fight tooth and nail to avoid taking any hit – and a hit that would be negligible in relation to the hit those who have lost jobs have taken (or the young people unable to find work are taking).

It would be wonderful if a proper bank resolution process had been in place at national or EU-level; but there wasn’t. It would be wonderful if the EU had had the institutonal equivalent of the IMF in place; but it didn’t. It would be wonderful if all national governments had enforced effective bank supervision and financial regulation – and rational fiscal policies – but they didn’t.

So who do we default on? The official lenders? The ECB? The non-official holders of sovereign bonds? It appears that those who might be called upon to make the smallest sacrifice in the public and national interest are shouting loudest for the visitation of catastrophe on everyone.

ECB is configured to give priority as per a weighted basis in economic activity as Germany and France have close to 50% of the Euro zone economy with both countries working very closely together in their countries self interests they have dictated to ECB on protecting the bank bondholders which effectivly protects German and French banks from taking the hit on bad investment loans that markets would usually insist they take in any free market the ECB is activly working against Ireland on this issue.

I think whats missing from this debate is the realisation of the complete absurdity of global finance and its divorce from the physical world.

When the oil runs out the Whitaker trade liberalisation era will be looked on with some derision – a completly pointless exercise in consumption for the sake of consumption.
The only thing we need to import into this country is Condoms.
Why do we need to engage in growth Daddy ?
Well my boy – the global finance church prevented me from living withen my means as they need interest income to faciltate the greater glory of Mammon

Complete and utter Bollocks

@John McHale
The issue you seek to address is

the implications for future market access of a weakening of the implicit guarantee given to private creditors.

Gone unnoticed it seems is fact the largest group of private creditors in European banks are ordinary depositors.
Taking some interpretations from comments on a previous thread (@tomc, @grumpy,@B.E. Bond), it seems to be case that banks depositors have been severely down-ranked in terms of their security as European and particularly Irish bank funding has gone from unsecured to secured.
So whereas there appears to be an implicit guarantee for one main type of creditor, ie bondholders, whether secured or unsecured, there has been effectively a very severe down-ranking of the other main creditor, the depositors.

The real irony is that the unsecured bondholders are getting to hell out of dodge, protected all the time by the ECB, while amazement is being expressed that the other type of creditor who is being down-ranked by the hour is starting to get very concerned and is starting to act like a bondholder.

This unfortunate depositor, should also know by now, because he has been reminded often enough by worthies like Bini Smaghi and others, that the ECB is not a lender of last resort and that he must look solely to his own State to protect his meagre deposit.
But that same State has already been loaded with the debts of the a better class of creditor by people who protect better classes of creditors.

So now lets consider the question again, in terms of the banks and the State: What are

the implications for future market access of a weakening of the implicit guarantee given to private creditors.

It is probably unfortunate for us that policy precedents are being set in this area based on the quite different Greek situation.

As time goes on the differences between Ireland and Greece will matter less and less. Historians will note that we stumbled into a debt-trap in quite different ways, but once you’re well and truly stuck it doesn’t much matter how you got there. As bank debt is paid off it will become government debt, bank assets will be disposed of, Nama will be no more and the only thing left will be the millstone around the taxpayer’s neck.

The rules which eventually emerge will probably look much like IMF rules and all highly-indebted countries will be treated much like IMF basket-cases. Most likely that means that chronic debtors will eventually be required to introduce their own currencies and settle for a loose association with the Eurozone. After all, there’s a reason why devaluation, with or without a debt write-down, is a standard IMF prescription. The EU can resist economic logic for years, but eventually it will be forced to accept that the notion of internal devaluation is as dubious as the notion of an expansionary fiscal contraction.

@ J. McHale,

I would consider that there are various EZ countries in distress.
The EZ has to be careful about nation specific rules, perhaps even to avoid such, lest it sow or add to discord in the Union.
Also, it can’t really evaluate the potential to correct of different nations until they’ve had a few years to try.
So, the immediate task would be to provide these countries with a life support for a few years.
Indeed, the other EZ members probably need a few years to consolidate and take stock of themselves.

So, the life support prescription:
The EZ should produce a mechanism (if it has not already done so) through which it would undertake to Guarantee (as GOLR) the debts of the distressed nations, interest free, for three years, with reassessment of the patients in 2014, plus a specified level to which the infusion of guarantee could rise over the next three years.

In this way the EZ would _not_ be loaning money, as the money- -debt is already made, it is just becoming guarantor of it, except in so far as the infusion increases during the three years. However, if the patient dies over the period then its level of debt at the point of death would become the ‘capital’- -loss of the EZ mechanism. How it would fund it? Perhaps it should monetise it..

Such a facility would be giving the nations a life support for three years, at which stage it would assess the patients and consider what to do.

It is probably reasonable that the Union as a whole should provide that support, if it accepts that other nations share some responsibility for the distress

Any of the debts being guaranteed that are not already drawn on the EZ – which are drawn on private investors – would continue to be owed to them (though now guaranteed by the EZ life support mechanism – the GOLR) and be serviced at least to the extent of making the interest payments, or structured to any alternative arrangements than could be made independent of the EZ.

Lads, it’s time to hand back the keys. I would advocate the Kelly solution, coupled with many, if not all, of the following.

Pass legislation that if you hold an Irish passport and you earn > 0 cent in Ireland then you must lodge your earnings in an Irish Bank. New bank, old bank, doesn’t matter as long as it’s run by the right people. (Easier said than done, granted.)

Re-evaluate the ‘days resident’ rule for non-resident passport holders, making it much more onerous.

For any individual earning > 80k in any financial year, then for the next 5 years you pay a deposit tax of 3% on all lodged earnings. This may be refunded at age 65, if not already 65.

For any individual earning > 80k in any financial year, no tax relief on pensions.

Fo any individual earning > 80k in any financial year, no child care benefits.

We could go further and legislate that if you try to sell a particular good or service above a certain price then you’ll be taxed at 100%. Cigarettes carry hugely punitive taxes, let’s tax the supplier rather than the buyer. If Tesco et al want to sell, they’ll reduce prices. Some profit is better than no profit.
Make it clear that Ireland is no longer the home of the rip-off.

If we force down the cost of living, we force down the cost of production in Ireland and we bring wages back into line with our European counterparts.
It’s the opposite of a vicious circle, if such things exists in Ireland.

Talk to the Brics, QUIETLY, about funding for the next few years. (This should probably be at the top, admittedly.)

If we hand back the keys and are seen to be doing something to resolve the income vs outgoing problems then someone will always be willing to invest.

Our exports aren’t going to be adversely affected, if we can deliver at the right price, someone will buy.

People will no doubt say that we’ll lose the best and the brightest, but if the best and the brightest aren’t willing to contribute, why do we want them anyway?

We’re all sick of hearing that things can’t be done because of the best legal advice, well I think it’s about time that that best legal advice told us what could be done.

I work in IT in the private sector but I would gladly take a job in the public sector within my field of expertise, with no pension entitlements, in order to knock some sense into some people and make some headway, out of a sense of civic duty.

Rant over.

(i) The reputational damage in a debt restructuring/default;

The overwhelming determining factor of what interest rate the market will demand from Ireland will be the consensus evaluation of Irelands health and its mechanical ability (Liquidity; Solvency; future growth prospects, etc..) to repay the debt, not how we treated our previous lovers.

The corporate debt market is evidence of this.

(iii) The risks associated with increased dependence on official creditors and their domestic politics;

We would have less dependence on official creditors and their domestic policies. We would be more likely to repay our debts if we had less of it. Currently the functioning off our banking sector, even in its current state, is effectively dependent on the ECB.

(iv) The risks of domestic and international contagion;

Refer to answer 1

(v) The implications for future market access of a weakening of the implicit guarantee given to private creditors.

Refer to answer 1

You are wildly delusional
The Kelly plan will not work while we remain in the euro.

And also with regards to your nua austerity plan – who can buy goods when there is no credit and yet now you want to reduce the money in the system.
Commerce requires money.
Unless you want to create a giant plantation where we export all our products for continental money.
In such a system we need to go back to a national system of governance where we have the ability to extract all our resourses for export.
Under the present system we have no call on all of our raw materials.

So in many ways we are in a inferior strategic postion relative to De Valera’s Ireland – all of the disadvantages and none of the advantages.

The comedy of errors just keeps on giving , eh I mean taking – it must be funny looking from the outside in.
Maybe we can charge tickets – oh yes thats called tourism.

As with overcoming most crisis in life, it is all about attitude. And, attitude is formed by thoughts, which in turn are expressed by words. The multilingual lexicographer, Jean-Claude Juncker, has recently come up with two new terms, “re-profiling” and, when that did not fly, ‘“soft” restructuring’, to describe the inevitable Greek DEFAULT.

After much thought, I have come up with my own solution for Ireland. We will replace all Irish bonds of any stripe with a new nomenclature, Juncker Bonds. Now, I know the cynical among you will likely attempt to tie these new bonds to the common term, Junk Bonds. Nothing could be further from the truth. We do not want to spook the bond market. Juncker Bonds bonds have several unique attributes: the non-incurring interest, lowered to 5% by the brilliant negotiating skills of the CBE, and principle are not due until 2075 as a big, fat balloon payment.

By then, with any luck, property prices will be back to 2006 levels.

@ Dork
I trust they have arranged for HRH to meet you when she is in Blarney. You are a rara avis. That first youtube clip was a cracker. 🙂

@Niall Dunne


Been there.

Get the hell out – there is nothing ‘they’ are doing that you can’t.

@ John McHale

‘I know my posts can sometiimes be repetitious, at least in terms of the question addressed. My excuse is that I am trying to look at the problem in different ways’

No excuses required. Bail o Dhia ar an obair and more power to your elbow.

@John McH

“I know you have answers to all of these and many others, even if I might not always agree”

Is that sarcasm, or do you mean “suggestions” rather than “answers” 😉

Yes she would probably recognize a Dork at 1000 yards – She represents the British State and God bless them they are ALL HERE TOGETHER.

I can accept a deal deal but this gormless vagueness withen the Irish institutions is beyond puzzling.
The Irish executive are not even asking themselves the most basic but fundamental of questions.
Which is what the hell is our Goal , indeed do we have or want one ?

If we are to eject from Europe and run to the BOE then we need lines in the bog that we can negotiate from.
I guess the BOE want the BOI boys in place to extract a surplus but we also need to get control back of at least some of our natural resourses again.
We cannot continue to swan around in a haze of monetory globalisation when soon we will not even be prepared to feed ourselfs.
The lack of focus and acceptance of responsibility/duty amongest the Euro centric feather bedded civil servent classes of this state is truly shocking.

Have they no shame or honour ? – (don’t answer that question) – they probably think its their duty to peserve BOI and thats it , job done.

Has it sunk in yet that this is another 1914 again and if we allow a new power structure to cement into the poltical foundations then its all over for another 100 years.
In the final analysis it appears Hibernia is a dirty old tramp and is prepared to go down on anyone with a few quid.
The attempt at virtue 90 years ago was a sick joke – back to whoring again I suppose.
But she at least should keep her skirt on in public – its a right spectacle.

@ John McHale

In theatre, when we’re going to do a show, we do a risk assessment. A list is made of everything that might cause a problem if it goes wrong. Usually this is done by the Production Manager.

The simplest version is to grade from (1) – (5) the likelihood of something going wrong from (1) Very Unlikely to (5) Highly Likely.

Then you multiply that by the impact of what could occur if that event happens also by (1) to (5) where (1) means not much damage done, to (5) Lifetime injury or death.

So, for example, if an actor abseils from the lighting rig, it’s actually (1) * (5), which is (5). The (1) being because abseiling requires a lot of training, supervision and well maintained kit.

The insurance needs of the production are calculated from this assessment – if something was very likely to go wrong (5) and would be very bad if it did (5), clearly, if you’re going to do it at all, it’s going to need a lot of expensive insurance.

That’s my simple knowledge of trying to put some shape on assessing risk.

Looking at your list with those glasses on, it seems to me that the weighting of risk is all over the place, so for example: ‘the risks of domestic and international contagion.’

What it looks like to me is that the EU/ECB probably think that the Irish Gov. defaulting on debt – such as even Anglo unguaranteed – is very unlikely to cause international ‘contagion’, but if it does the worst possible outcome is the entire destruction of the European financial architecture. Which I suppose, is why we’re being kept well away from the fuse.

Then there’s the further issue of ‘known, unkowns’. So you might add to your list the possibility of massive shocks of CDSs, which are said to have been bought, and will be paid out, on sovereign defaults – triggering an almighty crash. Elsehwere Eoin Bond refers to a ‘death star’ circling Spain. Actually, back to my abseiling, that’s an argument for much better regulation if CDSs and similar are to be allowed at all.

I expect there are ‘unkown, unkowns’ to worry about too.

Having said that, I wonder has anyone put any real work into the question of what is the probability/outcome of ‘contagion’ resulting from haircutting Anglo unguaranteed senior debt, or is it all just feel and guesswork?

Two items of news yesterday, one in Ireland, one in UK. Given that Her Noble and Gracious Majesty is visiting Ireland, it may be appropriate to look at them both together and try to spot the link.

In Ireland (link to Irish Times report below):

“70% growth in net financial wealth of Irish households.”

“IRISH HOUSEHOLDS saw their net financial wealth soar by 70 per cent between March 31st, 2009, and the end of 2010, according to the Irish Central Bank.”

“On average, an Irish person was worth €22,125 on December 31st last year. Two years earlier, that figure was €14,258. The strong recovery in financial wealth over 2009-10, however, was not sufficient to offset the larger deterioration in the previous two years.”

“Household financial wealth reached an all-time high at the end of 2006. Then, per capita net financial wealth stood at more than €30,000. Over 2007-08, households saw more than half of their net wealth evaporate.”

“These Central Bank numbers do not include property values, but do include borrowings used to buy property, so they understate the true wealth of Irish households.”

JTO again:

So, household wealth is recovering strongly, in line with the balance-of-payments surplus. Savings and assets are increasing, debts are falling. This trend has occurred every quarter since 2009 Q1, and is clearly accelerationg, with net financial wealth increasing by 6 per cent in the final quarter of 2010 alone. The trend looks very likely to continue, and, if it does, household wealth will surpass its pre-recession peak sometime next year and, by mid-decade, will be well above it. This is another outcome from a country running a balance-of-payments surplus. How exactly you go bankrupt when your net wealth is soaring is a little beyond me.

In UK (link to Yahoo report):

“Why saving is a mug’s game.”

“Inflation and low interest rates are slaughtering savers.”

“Around 90 years ago, Lenin declared: ‘The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.’ Remarkably, this anti-capitalist has almost perfectly described the problems facing British savers today.”

“Higher prices are killing savings”.

“Savers must have groaned on Monday (16 May), when the Office for National Statistics (ONS) revealed that the Consumer Prices Index measure of inflation rose to 4.5% in April. This is the CPI’s highest level for 30 months, since October 2008. This is particularly bad news for savers, especially those who rely on savings interest to supplement their incomes, such as pensioners.”

“Thanks to rising prices, low interest rates and tax rises, British savers are being slaughtered in their millions. Lenin would be pleased!”

JTO again:

So, while the public sector deficits are roughly similar in both countries, private sector savings are going in completely opposite directions. In one, inflation is very low, real interest rates are very high, savers are saving like mad, and net household wealth is growing at a staggering rate. In the other, inflation is rampant, real interest rates are also very high, but very high negative, and savers are being ‘screwed into the ground’ and ‘being slaughtered in their millions’.

The solution to both countries’ very different problems is rather obvious. Indeed, if Her Majesty’s financial advisers are reading this, the solution to Her Majesty’s financial problems is also rather obvious.

But, the idea that it is the one doing the saving that is heading for bankruptcy is grotesque, unbelievable, bizarre and unprecedented.

Gavin Kostick: Having said that, I wonder has anyone put any real work into the question of what is the probability/outcome of ‘contagion’ resulting from haircutting Anglo unguaranteed senior debt, or is it all just feel and guesswork?

If John McHale has time I’m sure he’ll address your question. But May can be a hectic month in academia, so you may have to settle for my effort.

The question you raise is a thorny one for economists because it goes to the heart of whether economics can ever really be a science. Efforts to make the subject scientific involve constructing mathematical models which can be tested against data. In principle that should be possible. Actuaries can construct life-tables which are reliable enough to enable life assurance companies to make a steady income. So why can’t econometricians construct reliable models for policy-makers to quantify contagion risks and suchlike? Sadly, while we have plenty of data to work with when it comes to asking what proportion of 65-year-olds will live to 80, predicting how long it will be before another Sean Fitzpatrick takes charge of a bank is quite impossible.

There’s a literature on this which starts, AFAIK, with Jan Tinbergen’s early work on econometrics and Keynes’s politely destructive response. (In private correspondence Keynes practically said the man was off his head). I’m with the pessimists. But despite Keynes’s efforts to strangle the subject at birth, financial econometrics is quite an industry now. You can be sure someone has written a paper modelling contagion risks. And you can bet the farm that it’s totally unreadable.

“on average, an Irish person was worth €22,125 on December 31st last year. Two years earlier, that figure was €14,258. The strong recovery in financial wealth over 2009-10, however, was not sufficient to offset the larger deterioration in the previous two years.”

Given the fact that the distribution of this large increase is massively skewed surely then this is a call for a substantial wealth tax?

For anyone doubting that the pain is not being shared fairly in the crisis take a look at the article about malahide in the Irish times today.
“For all that, she says the recession is not “in your face in Malahide. The pubs and restaurants are still full, people have a ‘got to carry on’ attitude. Confidence is returning. We haven’t had any restaurant closures, nor pubs. In fact two pubs are being renovated and adding beer gardens.”
Some places it seems are recession proof. wonder why?

@Eamonn Moran

It’s not just Malahide

“The banking system in the UK seems paralysed by the excesses of the past few years – which is not what you see in France and Germany,” says the Deutsche Bank economist. “In Germany, especially, banks are not problem-free but people and businesses have not had to correct for any kind of over-borrowing.”

No, there was no consumer binge in Deutschland. The banks expanded their balance sheets by lending to Ausländer. And they get all their money back.

The FT article was entitled “Banks power German revival ” in print but is now called “solid finances help power German revival” online.


I think that the answer to the conundrum you pose is to be found in the jaundiced view that the markets take of the governing establishment – broadly defined – in Ireland and its weakness for the soft option. That and the catastrophic mismanagement of the banks.

The evidence for the first is everywhere and is particularly evident from the shilly-shallying with regard to water and property tax – which drew some well-merited brickbats in a leader in today’s IT – and the failure to face up to the vested interests in the protected sectors of the economy. This raises doubts about the value of the sovereign guarantees to Irish banks and the two phenomena reinforce one another. The vicious circle will not be broken until the grounds for this jaundiced view are removed.

Unfortunately, the cacophony from Europe, and Berlin in particular, is not helping cf. the following from another article in FT today.

” In a further sign of European policy divisions, it emerged on Wednesday that the ECB and some eurozone countries are at odds with Germany’s determination to involve private creditors in any future debt restructuring, for fear of scaring investors.

Berlin is pushing for a legal commitment to be written into the treaty establishing the European stability mechanism – the €500bn (£441bn) permanent rescue fund to be set up in 2013.

The ECB, which has bought about €45bn of Greek bonds over the past year, believes that eurozone governments should provide further loans if Greece requires additional help”.

The obstinacy of Merkel knows no bounds, as far as I can see, and she insists in sticking to a path which has already been shown to be counterproductive.

However, there are some signs that the penny is finally beginning to drop in Ireland, at least with the younger generation of politicians. cf.

There is, of course, also the slight difficulty in saying the country is broke when the facts with each passing day demonstrate the opposite. The government and the banks are broke but that is another matter.


The Indo in its report sums up the situation perfectly.

“But the [Commission] report also found that while “important progress” had been made in cleaning up the banking sector, there were still market jitters over government borrowing, which is set to outstrip annual output this year and continue rising in the coming years.

“Given the sharp increase in public debt and the lingering market concerns about its dynamics, it is essential that Ireland meets — and, if possible, exceeds — the agreed fiscal consolidation objectives,” the report said”.

Now, imagine if we got a better report card next time noting a welcome increase in budgetary outcome against a rapidly improving economic performance!

Becoming a vassel state of Britain is becoming more and more attractive for some funny reason.
Their stretched empirum thought them to keep a distance from internal affairs once they were paid a suitable rent but our continental masters favour a more direct form of governance.
A punt tied to half the value of Sterling will deal quite adequately with the vested interests in the public sector me thinks.
No need for wasteful micro management.


The solution to both countries’ very different problems is rather obvious.

And? This is not a suduko puzzle, is it?

“Ireland” is getting wealthier since Qtr 1 2009. [I can vouch somewhat for that. My rather small pension fund had lost about 35% of all contributions at that stage. Now it is back to a loss of -6% of all contributions.]
But who is “Ireland”? Where is the household wealth held? Outside Ireland? In AIB ? In BOI? Under feathered beds?
I heard tell of man who sewed all his money into a horse’s collar and hid it in a barn. However, his jilted housekeeper burnt the barn when a match was made for him with a woman that would fit his station in life. The happy ending was that without the money he was of no use to the lady who would fit his station. Both he and the jilted housekeeper lived happily together in unmarried bliss ever after, minus the money in the horse’s collar. His name was Mick Con. She was known to all as the Joy.

The ‘country’ may not be bankrupt. The State is bankrupt. The ‘country’ wants State services. The ‘country’ wants low taxes. The ‘country’ wants to keep its freeloaders.
But the ‘country’ doesn’t want to bail out the State.

Knowing little of UK problems, I can agree with your comment at least as far as Ireland is concerned:

The solution to both countries’ very different problems is rather obvious.

Yes , no argument there but is it right for the domestic economy ?

I see Ireland as a kind of miniature US with a grossly overvalued currency obtained via geopolitical games but whose internal economy has been hollowed out to the point of absurdity.

This lack of activity outside of the Multi national sector which is our equivalent to the financial industry in the US and UK is clearly unsustainable for the society as a unit.

Somethings got to give.


I was even starting to feel optimistic myself when I read the Irish Times article you linked to, but although it has a great headline, the numbers don’t back up the optimism. This is a dangerous article as its attempts to stoke class warfare opinions, by misrepresenting the facts.

Firstly, the Central Bank bulletin that the Irish Times refers to draws the exact opposite conclusion about household net worth:

“Household net worth (the difference between total assets and liabilities) continued to decline in Q3 2010, albeit at a lower rate than previous quarters, as depicted in Chart 16. It stood at €439 billion or €98,227 per capita in Q3 2010, representing a 0.4 per cent decline over the quarter. Overall household net worth has fallen by 46 per cent since its peak in Q4 2006.

The reduction in household net worth during Q3 2010 was largely driven by the continued decline of housing asset values. It was, however, offset in part by both an increase in value of financial assets over the quarter, primarily insurance technical reserves and a reduction of household liabilities, as households continued to reduce the high debt levels incurred prior to the crisis.”

While the value of Irish property may not seem so relevant from your vantage point in Belfast, I can assure you that it is of great interest to the owners those properties in the free state, who do take negative equity into account when deciding whether to save or to spend their wages.

The second key point that the Central Bank makes is that the increase which you and the Irish Times note is chiefly caused by the increase in financial assets – namely the effect of increasing stock prices on pension and insurance funds. You can see this in Table A.1 in the appendices, where the value of securities held by pension/insurance funds increased from €45bn in Jan-10 to €73bn in Jan-11. As you say in your post, savings an assets have been increasing since Q1 2009… it is not a coincidence that Q1 2009 marked the bottom of the stock markets. Clearly if you have debt liabilities that are fixed and stock market assets that are variable you are making a leveraged bet on equities and will have occasions where there will be a +70% outperformance in net assets, but whenever stock markets take their next dive, pension funds will take a hit, the effect will reverse and the Irish Times will be writing articles about how household net wealth has fallen by 70%.

What’s more, it’s not even true that households have more savings as the article implies – household deposits fell from €99bn in Jan-10 to €94bn in Jan-11 (Table A.1 again) – presumably most of this going to pay down debt on their increasingly underwater mortgages (mortgage loans fell from €110bn to €99bn over the period).

So although your narrative is definitely optimistic, it is clearly wrong. What is actually happening is as follows: house prices are falling, which makes households poorer; they are responding to their increased debt/equity ratio by paying down mortgages out of their savings; separately, having seen the equities component of their pensions eviscerated by the credit crunch, the QE-backed equity rally has put finally some steam back into their pensions, though the size of their pensions is still much less than the expected to retire on and could reverse again at any time.


You write: How exactly you go bankrupt when your net wealth is soaring is a little beyond me.

Very easily, if everyone is saving “to increase their networth” then the economy will go bankrupt.



“Central Bank figures published today show that 49,609 home loans, which represents 6.3 per cent of all private residential mortgages, were in arrears for more than 90 days at the end of March. This compares to an arrears level of 5.7 per cent at the end of December.”

Using your logic, this indicates that mortgage arrears are “soaring” at an annualized rate of over 40%.


Statistics are malleable things. And most of those you quote are not central to economic well-being. We can all start to be optimistic when we have several successive quarters of GNP and GDP growth, there are significant falls in the numbers of unemployed, the general govt deficit is decisively reduced, and the markets accept that the banks are sufficiently reformed and capitalised.

I think there are green shoots, and that all talk of default and national bankruptcy is overblown, but there is clearly a long way to go yet.

Debating whether the Irish economic bottle is half full or half empty is an interesting exercise but it seems to me to miss the point. The only important question is whether Ireland can create the necessary primary surplus to enable the country to repay its sovereign debts, taking the position that to fail to do so is a worse outcome than to do so.

Our creditors clearly believe that we can and are not about to let us off the hook. As I pointed out earlier, this creates the paradoxical situation that those administering the medicine against which we are railing are actually doing us a major service.

Merkel is the ultimate loose cannon on the good ship Eurozone as her recent comments have revealed. It may be noted that Ireland is conspicuously absent from her remarks.,1518,763294,00.html

If no one else is beating us up why should we continue to indulge in self-flagellation?

There is now also the interesting situation that the text of a treaty is under negotiation to establish the ESM, not a line of which has emerged in public, the only important information being that, apart from Austria, Germany has no support whatsoever for writing an obligation into it for private investors to participate in bail-outs/bail-ins.

Interesting times!

For propoganda to be effective it needs substantial elements of truth sprinkled lightly over the financial cake.
You obviously need to work on that recipe again – if they are paying you anything for such stale rations its clearly too much.

An interesting piece in the Wall Street Journal.

They have revised down the amount of money that Ireland needs to raise between now and end 2013 from €48.9b to €19.3bn. Where does this leave Morgan Kelly’s IT rant of a couple of weeks ago? Looks like Armageddon has been postponed. I am surprised there hasn’t been more of this in the Irish media. When I say I’m surprised, I mean, of course, that I’m not in the least bit surprised.

I don’t think they are/were forecasting anything to revise they are just using the latest CB stress test results. And these numbers are already factored into the government projections to get us to circa €200bn by 2014.

Er, there’s nothing new there? This was known in April as a result of the stress tests. The actual numbers required from the state are dependent on asset sales and junior debt exchange so there is still some uncertainty as to whether the planned numbers will be hit.

@ Hogan
Something odd about those numbers with a 30b gap between what needs to be raised to 2013 and the previous estimate.

@Ceteris Paribus
I’d trust my own numbers before the table the WSJ has put up. They were wrong with their initial estimate and the reduction in what has to be raised is the difference between one of their estimates and another.

While they give some clues as to what is contained (see the notes) they don’t break it down for us.

By the way, their amount that needs to be raised is the amount that needs to be borrowed on the debt markets, i.e. the shortfall between projected revenue including the bailout and projected expenditure. It covers the ‘knowns’, but not the ‘unknowns’.

@Gary O’Callaghan

We could be done for.
Bini Smaghi is mentioned by the FT as a possible choice for Managing Director of the IMF.

Bring it on.

@Gary O’Callaghan.

re above:

The NPRF cash should be to the fore in the government’s mind right now.
The last money in the kitty is just about be be handed over.

I definitely would not part with that final reserve until a new head of the IMF and a new head of the ECB gave me pretty good assurances as to where we stand re support.

Most people in difficult situations etc try to have a fall back position.
With the pockets now empty, the Irish fall back position is now that of young Oliver Twist.
Bini Smaghi is unlikely to make a friendly Beadle.

@Dreadesd_Estate, Hoganmahew

The new good news is that the Wall St Journal is reporting the figures as good news. While people on this site may have been aware of them since April, many readers of the Wall St Journal weren’t, which, presumably, is why they printed the article. Also, Morgan Kelly doesn’t seem to be aware of them. I hope he reads the Wall St Journal and is now.


I prefer to keep my few bob in Dm, sorry, euros, if you do not mind.


You are perfectly entitled to put your money where you like. I trust you are enjoying your crummy below-inflation interest rate.

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