66 replies on “Anglo Debt: Nods, Winks and Blind Horses”
This is a mess, and the ‘nods and winks’ are proving tiresome. The unsecured debt in Anglo and INBS had a large (market) risk premium, is Trichet trying to deny that ? Whatever about whether we should repay unsecured senior debt…we certainly should deduct the excess interest. and as for the ECB ELA…this wouldn’t be needed if our financial position was credible…and Mr Trichet and LBS precipitated the run on the Irish banks, with the promise of ‘fixing us’. They are neither helpful, consistent nor clear – and it is time to publicly call them out on this
Throughout its negotiations with the EZ Ireland appears to have been equipped with tactical acumen that might as well have been garnered from the strategy team of the Marie Celeste.
Noonan: The Frankfurt gig has been cancelled
Jennings: What?
Noonan: I wouldn’t worry about it though, it’s not a big banking town.
I only note that Ireland traditionally performing poorly in international competitions.
@grumpy
I think you are being a bit tough here (and over at NWL). There are clearly different ways to proceed in such negotiations, and it hard to know the best course. What we do know is that there was an implicit threat to pull back on liquidity support. The question is what would we have gained by forcing the ECB to make that threat explicit. You see that as giving us a useful stick to beat them with. But it would have put their reputation on the line in terms of following through on the threat, making it more likely that it would be carried out if we pushed the issue later. More generally, it would also have made it more difficulty to roll back their position later if their position was firmly established.
I know there is a lot of support on the blog for tough line “bargaining” approach to such negotiations, where everything is viewed in win-lose terms. But in international diplomacy, just as in ordinary life, people who enter into all encounters will that approach rarely do all that well in the longer term — though undoubtedly there are times it is absolutely required, and an element of it can probably never be quite absent. The alternative might be viewed as aiming at a degree of reasonableness — or reciprocity — so long as your counterparty is willing to do the same. Each has to be able to look at it from the other sides’ vantage point, recognise what is important to them and why, and see what they are giving overall. We are receiving onging liquidity support from the ECB. Although they do not see themselves as being able to put this in writing as a medium term commitment, it does have a reasonably high degree of credibility, and did stop a bank run that was starting to gather steam. Clearly, the situation is extremely delicate — which is why last week’s Sunday Times quote was so unforgivable. But we have to play it smart from out side as well, not provoking such responses. A macho approach to these interactions might be satisfying, but I doubt the best way to pursue our interests at the moment.
Perhaps the ECB simply have a nervous twitch?
They must be under tremendous pressure.
@John McHale,
Whether Ireland adopts a calm, reasoned approach (as you suggest) or a more macho approach, these will still be just noises off-stage as the central power play progresses. (The main difference being that the noises will be considered, resp., as less or more annoying.)
Colm McCarthy summed it up succinctly in this Sindo piece:
“The destabilisation of sovereign bond markets elsewhere, including those of countries with a reasonable chance of solving their problems, is the price for purely domestic political manoeuvrings in France and Germany.”
Much as they might dislike it, Pres. Sarkozy and Chancellor Merkel are joined at the hip politically. The former has just over 10 months to secure his minimum objective – 2nd place in the first round of the presidential election. In Germany, the FDP has become the lightning rod for opposition to any sort of rational approach to the Euro mess. The Chancellor would like to be rid of them – and probably link with the Greens, but can’t do so until Sep/Oct 2013 – unless she can engineer an earlier Bundestag election.
At the very least, there is a political intent in France and Germany to keep kicking the can down the road for another year. It would certainly not make any sense for Ireland to create a little pothole that might cause it to veer off the road. Keep highlighting the perversity of it by all means, but we have more than enough to be doing for ourselves.
Axel Weber in the WSJ today slamming the EU’s efforts so far. It’s a shame he’s no longer in the ECB.
Google “Germany’s Weber Slams Rescue Efforts” if you’re not registered.
“and secondly they’re afraid that some banks in Europe are funded by unguaranteed senior bondholders and that funding would be cut off from certain European banks if we acted unilaterally in Ireland.”
There’s something about that that shifted the emphasis on what’s happening in my mind. Up to now the ‘contagion’ issue has been presented as a bit of a guess – unknowable (Juncker/Taylor), or knowable by the ECB looking at figures, but not by the general public. This sounds a bit more like current investors in bonds, more directly engaging with the ECB and rather more bluntly putting the case, ‘if you let the Irish do X, we will no longer be in a position to do Y’. Am I just stating the obvious here? The way forward with that might be to see which Anglo unguaranteed bondholders are left, and where else they’ve invested.
@John McHale
I would take strong issue with what you say because there seems to be a strong element of dismissing a challenge to the ECB as radical extremism.
On the basis of several one-to-one telephone conversations in March/April this year, Min Noonan agreed to a course which means we need repay some €20bn of unsecured unguaranteed senior bondholders; there was no talk apparently about guaranteed and secured snr bondholders which total another €37bn.
You might dismiss the macho stance as unhelpful and ultimately not constructive. That’s fair enough and for what it’s worth, I think you might be right in many respects.
But not to allow our parliament discuss the decision with all facts available is unforgivable. Sure you might have shouts of “Frankfurt’s way or our way” or “Leave the Euro” and “F*ck the ECB”. You might also have had an exploration of alternatives. Membership of the Eurosystem and preserving the euro and the cost/disruption of changes and possible loss of reputation ultimately have a €value. These costs don’t add up to €1tn in my view though they probably go into a few billion. But €20bn? And if we were going nuclear presumably the full €57bn might somehow be brought into play.
The above debate never happened so you end up with a society that regards the position of the ECB and repaying bondholders as grossly unfair, not to mention the actual fact that we are on course to repay most if not all of this debt which will have severe financial consequences for our society.
Minister Noonan might have given Jean-Claude Trichet a commitment not to, in future, discuss senior bondholders at AIB and Bank of Ireland. We didn’t give that commitment on here and neither did many in the Dail. It might be considered inconvenient or unhelpful, but that’s democracy for you.
I always felt as if it was a case of the blind leading the blind in these negotiations – how wrong I was – it is of course the blind leading the blind horse
@Jagdip
I hear what you are saying. I certainly don’t intend to silence anyone, and do understand why people are angry.
What I am reacting to is the tone of so much of the commentary, which so often to sneer and snarl. (I do not include you here. Your commentary reveals a genuine and constructive exasperation.)
It is no accident that the now parties of government have had to soften their rhetoric and adopt more nuanced understandings of the situation. That is the responible thing to do given the incredible vulnerability of our situation. I support ongoing vigourous commentary — and will try to do it myself. But it is no harm to try to put ourselves in the very difficult shoes of Michael Noonan as it trys to steer through this. He does not have our luxury of little responsibility.
@ John,
Its understandable John that there are calls for a more muscular negotiation style when you consider the impression various govts / leading opposition parties have given us – Europe does not consist of partners but of friends; we approach deals not with the intention of maximising the state’s gains but wanting to be seen to do right by europe, be good for europe and good for ireland etc.
Additionally the fantastical claim by FG that Enda was buddies with Merkel and friends with 15 PMs.
When the Govt. and leading political parties pushed such child like positions its not surprising that there are calls for such nonsense to be consigned to the past.
@Jagdip,
It is understandable that there is considerable anger in Ireland at the antics of the ECB, but, during this crisis, the ECB has been more sinned against than sinning. The legacy of a failure to secure democratic legitimacy for new and evolving EU instititions – and of a failure, partly due to the unwillingness to secure democratic legitimacy, to ensure these institutions were ‘fit-for-purpose’ – is bearing bitter fruit. This failure may be traced back to the Kohl-Mitterand-Delors axis. The failures were compounded by Chirac-Schroeder (with the accident-prone Santer and ineffectual Prodi) and they are now finally wreaking havoc for the Merkel-Sarkozy-Barroso axis.
The Dutch, Finns, Luxembourgers and Austrians are fully on board with the ‘project’ since they believe that their systems of governance are capable of dealing with any fall-out (once it’s largely kept under wraps). The new smaller members are also on board – as, to an extent, are the Danes and Swedes (though remaining on the outside but closely linked). Belgium and Italy have alsways been indulged and it appears this indulgence is being extended to Spain. In this brutal realpolitik the smaller peripherals are being sacrificed to save political skins in the core.
The moral of the story is: don’t put yourself in a position where you become a pawn in this game. The corollary is: if you find that you are becoming one, do everything you can yourself to reform the behaviour that put you at risk. Shouting at the game and the main players is counter-productive if it deflects attention from what needs to be done.
I am inclined to state that you can not show muscles, if you leave out the public opinion, referendum, in your negotiations. I would also say that I am with Axel Weber on the point of ECB’s involvement. They should not even sit at the table when it comes to negotiations with EU-Commission and IMF, it is plain wrong.
@ John McHale,
There’s a somewhat obscure quote from Roy Keane – “It chipped away at me. People say “Go with the flow” but you know what goes with the flow? Dead fish.” I might be missing some of the nuances in your arguments, but it strikes me as a ‘dead fish’ approach.
Even if our actions follow along the path you suggest, it doesn’t make much sense to do so in such a meek manner. It is important to lay down markers and clearly flag that certain actions (we are taking) are being forced on us for the benefit of the whole Eurozone. At the risk of sounding a bit like Sancho Panza in the overuse of proverbs – eaten bread is soon forgotten. Even if Ireland manages to avoid default, it will still need further revisions of the current bail-out. It would certainly help our case if our European partners entered these negotiations under the weight of ‘owing us one’ rather than Ireland out with the begging bowl once again.
@John
“But it is no harm to try to put ourselves in the very difficult shoes of Michael Noonan as it trys to steer through this. He does not have our luxury of little responsibility.”
Very true indeed.
It just seems that Ireland doesn’t have a backstop position and that we are allowing ourselves continue to be a rag doll tossed about by some of our partners.
Yes we are a small population, small economy, on the geographical periphery with a difficult economic past and restricted options today.
I deliberately refer to a €1tn cost above to exaggerate the point that there must be a backstop, and consequently, logically there must be a tipping point where the current course is better than (the risk of) alternatives.
But the decision makers including Minister Noonan give no indication that they accept that to be the case, or if they do, they have concluded that €16bn of unguaranteed debt (and potentially €40bn of other snr debt) is below the tipping point. I would love to see those calculations, wouldn’t you?
It’s not so long ago that the ‘indefinite’ extension of liquidity to the “Irish” banks was hailed as a “significant concession”. Indefinite is a lovely word and examples of usage are instructive: “As an execution date has not been set, the death row prisoner will continue to live indefinitely”.
We have threats by leaks to the financial stability of a member state by an institution of the Union!
I seriously doubt that the ECB would behave to a France or a Germany the way they have behaved to Ireland
We have no obligation to repay seniors – and we have no obligation to get ECB approval in order to do so.
The ECB is out of its depth and acting outside its remit – it has no idea how to handle the political pressures it is coming under and it is reacting badly.
@John McH
I don’t think you fully appreciate how embarrassing it would have been, or how much sustained criticism from not only the financial press but inside the financial industry would would have been forthcoming, if the EBC had simply been required to put the threat on the record. Over time the threat – and importantly the very questionable rationale for it, combined with the fact of forced payments from the Irish under that threat – would would have become untenable for the ECB to sustain.
As it is, people have made decisions that amount to sucking up to the ECB rather that regarding it as a business partner.
I don’t think the incrementalist tactics – if you can even cal them that – employed so far have been useful. I don’t think the attempt to paint those who criticise this and bother to point out alternative avenues, or point out dead-ends the state is driving down – like that mandate for renegotiation – as dangerous radicals is particularly helpful.
Ireland appears to have played its limited hand very badly – and that’s coming from someone who last summer would have had little time for Ireland’s position then.
@Bond Eoin Bond
WEBER : not caused by the common currency,” Mr. Weber said. “Instead it’s a deep-rooted, fiscal and structural problem that probably needs more a 30-year time horizon to solve rather than a three- to five-year horizon. The measures Europe needs to adopt to resolve this issue are much more profound than just short-term liquidity funds.”
Not caused by the common currency ? – come off the stage.
Can you not remember 1995 / 96 and the smell of EMU malinvestment as we were gearing up to the Euro Nirvana.
The 3% deficit rule was at best retarded.
Using debt metrics with respect to GDP simply does not work.
Its the ratio of Goverment vs private credit which much more accuretly charts malinvestment or otherwise.
Until the ECB recognizes this economic fact of life it will continue to persue its pump & dump operations.
Its all about leverage , this “its mostly fiscal ” mantra is getting tiresome.
Well, on one point The Minister is correct: the ECB is Afraid. €16.5 billion looks appetising to me; Call the ECB’s fearful bluff; were they to even contemplate cutting liquidity to Irish banks the collapse of the European Project would be on the table: Europeans are not that stupid. It’s the right call; time for Frankfurt to print a few trillion.
Axel Weber: ‘Mr. Weber says the ECB should limit its role to monetary policy and not become involved in fiscal policy, which he argues injects it too deeply into the political process.’
At times, ECB looks as if it is running the political process.
I think there would be some sense in trying to play this one cautiously and behind the scenes if there was a decent chance of teh ECB changing its position of its own volition and without external pressure.
However, from teh ECB’s perspective the few billion to be saved by the Irish taxpayer is chicken feed compared with the issues they perceive to be at stake and they won’t budge unless isolated and pushed or presented with a fait accompli.
It follows taht the best course of action is to get teh ECB on record suggesting that they will pull funding.
The way to do that is as follows – simply ignore any threat that isn’t made in public through official channels.
When confronted with ECB opposition simply say we haven’t received anything concrete from the ECB that says what they will do either way – and that speculation in the press from unnamed sources can’t be used to guide government policy.
Then announce that legislation is being drafted / considered to introduce losses on seniors at anglo & INBS.
The ball will then be in the ECB’s court and they will have to make it plain and public that they oppose these measures- they will also have to explain why (and that is key – we need to get the reason on record as well and not just individual board members reasons but the institution’s justification )
Once that happens the real debate can begin as to whether the ECB is correct and whether they have the power to behave as they are doing
@ Dork
whats the missing word from the quote you have referenced? Ah yeah, “Greece”, as in, “Greece’s problems were not caused by the common currency”. Which they weren’t. They ran deficits for almost the entire period of the Drachma’s, and they’re done the same during their time in the Eurozone.
@Bond Eoin Bond
Can you imagine Irish Goverment defecits if it ran defence budgets per ca pita equilivent to Greek defence expenditure ?
We would have 4 squadrons of Mirages in Baldonnel !!
This is a European structual problem alright – its crazy monetarist polices have led to a situation where it cannot defend its own borders or maintain energy independence.
This is a big game and Greece is close to the nexus of future instability that will travel all the way to Dublin. http://www.youtube.com/watch?v=JFMhOMMADEc
Greece is not a seperate unit from Europe – it gained its revenue from European core travellers spending their money on the islands.
When the crisis hit – travelers retrenched expenditure thus participating the collapse of a already precarious budget postion.
Its lost much of its export market.
I have the feeling it doesn’t matter what the government does. They are just following orders. The mess is now in the hands of the ECB and whatever plan they had to sort it out has failed . It is a bit like the 1700s with those wars between the Pope and the French or whoever that would have had a bearing on Ireland but where all the fighting was done elsewhere. Now the Pope is the ECB.
It is quite clear that nobody wants a Greek default and also that an Irish default is not desirable so it’s up to the adults to come up with a solution.
I was in the DoF the other day.
I told them I needed €5Billion for a new casino thingy idea I came up with.
I made sure I raised my eyebrows, threw in a few winks and made some clicking sounds as well – just to let them know like, that it was in their interest to go along with me, and I’d sweeten the deal later…
What do you know? Works like a charm!
Tickets to Acapulco booked… See ya suckers!!!
Paddy H’s GDP-linkers are finally coming to life…
RTRS-NEW GREEK BONDS COULD CARRY EUROPEAN INVESTMENT BANK (EIB) OR EFSF GUARANTEE UNDER FRENCH DEBT ROLLOVER PROPOSAL -SENIOR BANKING SOURCES
GOAL FOR NEW GREEK BONDS IS TO ACHIEVE AAA CREDIT RATING -SENIOR BANKING SOURCES
NEW BONDS WILL HAVE A 5.5 PCT COUPON PLUS AN ANNUAL SURCHARGE OF UP TO 0.25 PCT DEPENDING ON GREEK GDP -BANKING SOURCES
Christy,
Is that not what our MOF has done. He announdced “thar lear” that he was going to impose losses on Anglo and INBS in the Autumn. Moreover, he hinted that he had an ally in the IMF. The only response so far has been the OTR quote in the ST.
Eoin
So we seem to be at the predictable point where you incentivise banks to take a less tham market yield on the basis they are not likely to be defaulted on. These bonds replace alledgedly dodgy bonds that are in the HTM books at par because they can be assume risk free.
If my bonds were held at market, I could justify my actions to shareholders. If they are HTM, how do I explain that to my shareholders if I volunteer to not take the full redemption payment?
Even i’m getting confused now…”third party”? Zeus himself?
RTRS – EU IS WORKING ON CONTINGENCY PLAN FOR GREECE IN CASE AUSTERITY PLAN IS REJECTED
RTRS – ONE OPTION IN CONTINGENCY PLAN WOULD BE FOR A THIRD PARTY TO EXTEND NEW LOAN TO GREECE – SOURCE
It seems to me that one of the big problems is that all this negotiating was done by department officials and, lawyers, and economists. Now one would think that that would make for a very good team. However really we should have had a reciever doing our negotiating for us, after all that is what this was. They have far more experience in this type of dealings.
As for the ECB it is acting like a bully and as we all know the only way to deal with a bully is to stand up to it.
Now do not get me wrong, they may be right. Their plan may be the best we have, they may well be protecting us all from the collapse of civilisation, however that does not give them the right to bully the citizens of countries.
If they have a plan, come out, state it planely and clearly, let alternatives be discussed and then let us all move on.
At some stage somone will stand up to the bully.
@ Grumpy, John, Christy etc.
“the ECB… as a business partner.”
I agree with that. It’s better than using the language of friendship or emnity. Neither thanks nor ill will will last if both partners can manage to walk away successfully.
I generally agree with Christy’s position. At the moment M Noonan is being made to/chosing to undermine his own credibility.
There’s such a thing as being too clever too.
(a) The Irish sovereign wishes to remain solvent.
(b) The Irish sovereign puts forward the route by which it remains solvent.
(c) The Irish sovereign welcomes comment for discussion as to how this plan can be improved.
(d) This is so serious that the Irish sovereign is not in the business of playing messenger – all comment will be made public.
See here (3.43 ff) for suitable grace under pressure:
Munchau on the ineptitude of the EU boxwallas in charge of the Greece operation :
“There is no doubt that Greece needed a large fiscal adjustment. And, yes, the Greek government backtracked a little on the previously agreed programme to win support for last week’s vote of confidence. The latest slice of austerity was intended to plug this gap. But it would be a mistake to deprive Greece of all means of political manoeuvre.
Politically, the new austerity programme is backfiring already. It strengthens the position of Antonis Samaras, the Greek opposition leader, who opposes it. Fellow centre-right EU leaders last week put pressure on him. He resisted. His argument is that austerity is killing the economy and that Greece now needs a jolt to get it back to a growth path. By unwittingly strengthening Mr Samaras’s resolve and his public support, the EU destroys any chances of the national unity it so desperately seeks. “
@shaun b
“It seems to me that one of the big problems is that all this negotiating was done by department officials and, lawyers, and economists.”
Perhaps.
It is very interesting when very intelligent people make the transition from observer to participant in financial markets. The psychological aspects are ALWAYS underestimated.
I don’t know how people who are not used to making financially risky decisions based on limited information could reasonably have been expected not to fold under the pressure and opt for the easiest to defend, “nobody ever got sacked for…” type decisions.
One thing I’m curious about…what is the differential between ELA interest rate, and the current average open market rate ? How much money have the Irish banks made from this ?
@Eoin
Why would a French banker exchange a €1 bond that was maturing now, which he could then stick right back into the market for a 2-yr Greek bond yielding 30%, why would such a banker “voluntarily” exchange his €1 bond for a 30-year bond paying 5.5%. Surely such a banker would have to be mad. Or don’t rating agencies assess mental health when refereeing defaults?
@Jagdip
You are right. It simply makes no sense to buy 30yr Greek at 5.5% with a possible uplift of .25% depending on GDP. The rating agencies are bound to consider such exchanges as coercive…especially Fitch.
@ Jagdip
new Greek bonds will, allegedly, be AAA and fully collateralised by the Greek privatisation fund. Also, its a case of extend & pretend (very little is ‘maturing now’) vs hard haircuts next year. Thats the choice they have.
@ Ceterus
see my post above for “Plan B”!
@ Grumpy
senior haircuts in theory, not so sure in practice – think all their senior debt is government guaranteed. Trying to figure out if anyone will actually lose money in this whole thing (other than subdebt and subordinated).
@Eoin
You say there is very little maturing now. I located a JP Morgan graph yesterday of maturities and it seems to indicate there is €40bn approx maturing in 2011,2012, and 2014 and about €30bn maturing in 2013. It’s reproduced on the GreekWatch post yesterday on NWL.
Or by “now” do you mean the next few weeks?
@Eoin
Yes, if they are fully collateralised then we are back to the covered bonds problem for the banks – only now for sovs. No wonder the cds are up so much today.
The banks get reinvested in something defensible and the rest of their book gets undermined.
@ Jagdip
well you used the word “now” first! I suppose the banks realise that if they don’t roll it over, certainly everything from 2013 onwards (ESM n all that), and more probably everything from 2012 onwards (Capt Reality), is in danger of a hard haircut.
Not including t-bills (which everyone reckons will be ok/not included anyway), theres 13bn this year, and, more importantly, 22.5bn by end May next year. Its that 22.5bn that is under threat from a non-rollover.
@Eoin
You’re a font of rich knowledge, many thanks!
So to use the phrase du jour “a nod is as good as a wink to a French bank” that if they don’t roll-over with the programme offered now, they will face a hard haircut in the coming months
And that’s voluntary, is it?
@grumpy
Any idea as to what the latest published Core Tier 1 Ratio for Fjordbank was?
“this latest move underlines the determination of the Danish authorities to impose losses on senior creditors of failing banks. This is in contrast to the ongoing debate in Ireland, where the ECB has blocked haircuts for senior bondholderrs in Irish banks.”
I know its a bot pedantic but the ECB has not as yet actually blocked imposing losses on seniors in Ireland. They can’t block us imposing losses on seniors. They don’t have the power to do that. What they have done is through back channels and leaks threatened to bring teh country to its knees if we do.
Now, if teh ECB doesnt have the power to block imposing losses on seniors what business does it have making ominous threats about teh repercussions of doing so.
What other type of government action might the ECB block? Where does teh ECB draw the line? What policies are we allowed to implement? Does teh provision of emergency funding imply that all Irish policies in relation to our banking crisis need their approval? What if a democratic majority of Irish people feel otherwise? Are there other areas of our economic policy that the ECB can veto?
Is it the ECB that decides what actions of the Irish government it is entitled to review? Does it accept any clearly defined limits on its sphere of power or influence or is that limit simply determined by the ECB’s own view of what is an appropriate extent of its power?
@Yob
Oddly enough, no.
“Fjordbank Mors said the FSA raised its solvency requirement to 16 percent from 9.7 percent, which in combination with its demand for further writedowns, meant the bank lacked 700 million Danish crowns ($132.8 million) in capital.”
@Bond Eoin Bond
So it is a work in progress. A bit late in the day methinks. Another fine mess.
In the meantime all the nodding and winking is driving the yields higher and higher for little old Ire. 2yr at 14.04% and 10 year at 12.07%. Are we heading for a Greek solution?
The new French scheme seems like Brady Bonds but without the haircuts. Sort of like beer without the alcohol. Don’t get the whole SPV/off-balance-sheet thing though. Surely the money will end up funding Greek banks – won’t that money appear on their balance sheets?
How does teh ECB come to a view on imposing losses on seniors?
Does it discuss it among the board members and then vote?
Is it the executive council or the governing board that decides?
What is the legal status of such a decision? What are its ramifications?
How would the ECB decide to withdraw funding to the Irish banking system? Would it take a vote? Would it be the Governing council or the executive board?
@tullmacdoo
The Min of Fin has come out and said he will impose losses but he has also dignified leaks and back room messages as if they are ECB official policy – he should simply state that it is not clear what the ECB’s policy is in relation to the issue – or better yet – he should state that it is his understanding that the ECB have concerns in relation to the issue – that he has considered the ECB’s view – but that he disagrees and that he proposes to proceed in any event. When then questioned about what he thinks the ECB will do if he proceeds in that manner he should day the ECB have not made it clear what they intend to do and he cant make policy on teh back of anonymous leaks from staffers at the ECB.
Don’t get the whole SPV/off-balance-sheet thing though. Surely the money will end up funding Greek banks – won’t that money appear on their balance sheets?
My mistake – the rollovers are for sovereign debt not bank funding debt. Am still confused about the SPV and the role of the Privatization Fund though.
@Grumpy:
Re Danish Bank
Another Danish bank — Fjordbank Mors — has been taken over by Denmark’s Finansiel Stabilitet as part of of the so-called ‘Bank Package III’ bail-in rules passed last year. The bank wind-up rules mean investors in failed banks’ senior debt, and even depositors, will be exposed to losses.
Why has Ireland not put a ‘bail-in’ bank resulution into law?
@Ceteris
In the meantime all the nodding and winking is driving the yields higher and higher for little old Ire. 2yr at 14.04% and 10 year at 12.07%. Are we heading for a Greek solution?
The sheer nonsense of putting €20 billion in cash into bank capital is getting more insane by the day.
They banks should get a promissory note, no more. The cash will soon be all that is left between Ireland and the soup kitchen.
Jagdip, it is the kind of voluntary that comes with the equine skull in one’s sleeping quarters.
Christy, you would have to have been on another planet not to know the ECB policy on burden sharing.
Also,the least Ireland deserves, as a fig leaf to our sovereignty if nothing else, is to have our masters at the ECB come out and say it straight:
“we insist that Irish taxpayers repay private sector bank debt or we will increase the cost or restrict the availability of credit to the Irish financial system.”
Its important for the both the long term debate and current developments that everybody is clear what ECB policy was and is in relation to this issue. Moreover, it is important that the Irish government gets this position put in writing for its own credibility.
I suspect the ECB will be loath to put this into writing because it politicizes their role – or more accurately – reveals the politicized nature of their role – and if they won’t even put into writing then I think we can be quite confident they won’t actually do it either.
I think the Gov should push this hard at the next temporary respite from the Greek drama.
Tell the ECB to put up or shut up – no more winks and nods
@Christy
“I suspect the ECB will be loath to put this into writing because it politicizes their role – or more accurately – reveals the politicized nature of their role – and if they won’t even put into writing then I think we can be quite confident they won’t actually do it either.”
I think they have demonstrated ( the troika) in the case of Greece, that no matter how badly you perform they are not going to pull the plug. In fact they will give you more money and on preferential terms.
@ Gavin Kostick
Olafur Grimsson isn’t the first person I’d think of when seeking to show grace under pressure.
He’s the only Icelandic president to pull his “referendum-or-death” stunt – except he’s a bit selective about his objections.
Overall, not someone I would use for illustrative purposes.
@Johm McHale/Grumpy/Jadgip
As somebody who think we should at least try to burn bondholders, John McHale has a point.
If one is going to call the ECB out and ask them ‘to put up their Dukes’, one had better be prepared to accept the fallout, for good or ill.
Psychologically, Ireland is not at that point yet. There are still far too many far too comfortably off to roll that particular dice. And the decision is in gift of the comfortable ones.
Another debt mess for the Government to deal with :
“Irish Life and Permanent will be effectively nationalised with the injection of up to €3.8 billion in State funds by the end of next month, the company has confirmed.”
They couldn’t even sell Irish Life.
What a total shambles. And what a wonderful policy it has been to shift all the problems of the banks on the sovereign. And I look forward to the return to the bond markets in 2012.
@What Goes Up
I think you’re a bit out of date with that propertypin link. The suggestion there was that Iceland’s rejection of the referendum would keep it shut out of the bond markets. However a couple of weeks ago:
Iceland returned to international debt markets for the first time since its banking meltdown more than two years ago as investors offered to buy twice the amount the government offered in dollar-denominated bonds.
“Iceland doesn’t have a lot of private debt anymore and has done a lot on the fiscal side,” said Lars Christensen, chief analyst at Danske Bank in Copenhagen, in a phone interview yesterday. “The Icelandic fundamentals on the debt side now are actually quite strong. That’s a fact.”
Refusing to turn the private debts of the banks into public debt appears to have been a very good move…
@ Bryan G
Nah – if you read the rest of the thread you’ll see it continues to track the Iceland story.
The point of linking to that post was the fact that Iceland never got an Interest rate reduction, as was widely touted at the time, but had the term extended – and that voting No simply took the decision out of their hands and put it into an international court to decide the rate and the penalties.
The democratically elected government voted to pay the Icesave bill under terms that they could control, the President overruled them and simply opened them to unknown terms.
Nov 2005 – President Ólafur Grímsson likens himself to a boss of a private equity firm and says the Icelandic invasion of UK will continue.
@ seafoid
‘What a total shambles.’
If I were you, I’d save the superlatives for what is yet to come. It’s all about stamina from now on. 🙂
@What Goes Up
OK – I see your point. If the court does find against Iceland I don’t know what remedies it can order and how any such remedies would be enforced, though.
In practice it all seems a bit academic, however, since Iceland say that the bank assets will cover over 90% of the amount in dispute anyway. It is good work for all the international lawyers involved.
Also raises issues about the relationship between national law and the wider EU directives that spawn them. Someone could be in compliance with the national law but violate EU law because the national law did not adequately implement the EU directive.
@Tull
“Christy, you would have to have been on another planet not to know the ECB policy on burden sharing.”
I disagree.
That the ECB is opposed to burden sharing is and has been crystal clear.
What they will do in the event of it being implemented against their wishes is far from clear – in fact I would say that the ECB has left it deliberately vague
66 replies on “Anglo Debt: Nods, Winks and Blind Horses”
This is a mess, and the ‘nods and winks’ are proving tiresome. The unsecured debt in Anglo and INBS had a large (market) risk premium, is Trichet trying to deny that ? Whatever about whether we should repay unsecured senior debt…we certainly should deduct the excess interest. and as for the ECB ELA…this wouldn’t be needed if our financial position was credible…and Mr Trichet and LBS precipitated the run on the Irish banks, with the promise of ‘fixing us’. They are neither helpful, consistent nor clear – and it is time to publicly call them out on this
Throughout its negotiations with the EZ Ireland appears to have been equipped with tactical acumen that might as well have been garnered from the strategy team of the Marie Celeste.
Noonan: The Frankfurt gig has been cancelled
Jennings: What?
Noonan: I wouldn’t worry about it though, it’s not a big banking town.
I’m not actually sure what game the Minister is playing at this stage.
I only note that Ireland traditionally performing poorly in international competitions.
@grumpy
I think you are being a bit tough here (and over at NWL). There are clearly different ways to proceed in such negotiations, and it hard to know the best course. What we do know is that there was an implicit threat to pull back on liquidity support. The question is what would we have gained by forcing the ECB to make that threat explicit. You see that as giving us a useful stick to beat them with. But it would have put their reputation on the line in terms of following through on the threat, making it more likely that it would be carried out if we pushed the issue later. More generally, it would also have made it more difficulty to roll back their position later if their position was firmly established.
I know there is a lot of support on the blog for tough line “bargaining” approach to such negotiations, where everything is viewed in win-lose terms. But in international diplomacy, just as in ordinary life, people who enter into all encounters will that approach rarely do all that well in the longer term — though undoubtedly there are times it is absolutely required, and an element of it can probably never be quite absent. The alternative might be viewed as aiming at a degree of reasonableness — or reciprocity — so long as your counterparty is willing to do the same. Each has to be able to look at it from the other sides’ vantage point, recognise what is important to them and why, and see what they are giving overall. We are receiving onging liquidity support from the ECB. Although they do not see themselves as being able to put this in writing as a medium term commitment, it does have a reasonably high degree of credibility, and did stop a bank run that was starting to gather steam. Clearly, the situation is extremely delicate — which is why last week’s Sunday Times quote was so unforgivable. But we have to play it smart from out side as well, not provoking such responses. A macho approach to these interactions might be satisfying, but I doubt the best way to pursue our interests at the moment.
Perhaps the ECB simply have a nervous twitch?
They must be under tremendous pressure.
@John McHale,
Whether Ireland adopts a calm, reasoned approach (as you suggest) or a more macho approach, these will still be just noises off-stage as the central power play progresses. (The main difference being that the noises will be considered, resp., as less or more annoying.)
Colm McCarthy summed it up succinctly in this Sindo piece:
“The destabilisation of sovereign bond markets elsewhere, including those of countries with a reasonable chance of solving their problems, is the price for purely domestic political manoeuvrings in France and Germany.”
Much as they might dislike it, Pres. Sarkozy and Chancellor Merkel are joined at the hip politically. The former has just over 10 months to secure his minimum objective – 2nd place in the first round of the presidential election. In Germany, the FDP has become the lightning rod for opposition to any sort of rational approach to the Euro mess. The Chancellor would like to be rid of them – and probably link with the Greens, but can’t do so until Sep/Oct 2013 – unless she can engineer an earlier Bundestag election.
At the very least, there is a political intent in France and Germany to keep kicking the can down the road for another year. It would certainly not make any sense for Ireland to create a little pothole that might cause it to veer off the road. Keep highlighting the perversity of it by all means, but we have more than enough to be doing for ourselves.
Axel Weber in the WSJ today slamming the EU’s efforts so far. It’s a shame he’s no longer in the ECB.
Google “Germany’s Weber Slams Rescue Efforts” if you’re not registered.
http://online.wsj.com/article/SB10001424052702303627104576409604230719270.html
Further article on the subject in today’s Irish Times.
http://www.irisheconomy.ie/index.php/2011/06/27/anglo-debt-nods-winks-and-blind-horses/#comments
From the transcript:
“and secondly they’re afraid that some banks in Europe are funded by unguaranteed senior bondholders and that funding would be cut off from certain European banks if we acted unilaterally in Ireland.”
There’s something about that that shifted the emphasis on what’s happening in my mind. Up to now the ‘contagion’ issue has been presented as a bit of a guess – unknowable (Juncker/Taylor), or knowable by the ECB looking at figures, but not by the general public. This sounds a bit more like current investors in bonds, more directly engaging with the ECB and rather more bluntly putting the case, ‘if you let the Irish do X, we will no longer be in a position to do Y’. Am I just stating the obvious here? The way forward with that might be to see which Anglo unguaranteed bondholders are left, and where else they’ve invested.
@John McHale
I would take strong issue with what you say because there seems to be a strong element of dismissing a challenge to the ECB as radical extremism.
On the basis of several one-to-one telephone conversations in March/April this year, Min Noonan agreed to a course which means we need repay some €20bn of unsecured unguaranteed senior bondholders; there was no talk apparently about guaranteed and secured snr bondholders which total another €37bn.
You might dismiss the macho stance as unhelpful and ultimately not constructive. That’s fair enough and for what it’s worth, I think you might be right in many respects.
But not to allow our parliament discuss the decision with all facts available is unforgivable. Sure you might have shouts of “Frankfurt’s way or our way” or “Leave the Euro” and “F*ck the ECB”. You might also have had an exploration of alternatives. Membership of the Eurosystem and preserving the euro and the cost/disruption of changes and possible loss of reputation ultimately have a €value. These costs don’t add up to €1tn in my view though they probably go into a few billion. But €20bn? And if we were going nuclear presumably the full €57bn might somehow be brought into play.
The above debate never happened so you end up with a society that regards the position of the ECB and repaying bondholders as grossly unfair, not to mention the actual fact that we are on course to repay most if not all of this debt which will have severe financial consequences for our society.
Minister Noonan might have given Jean-Claude Trichet a commitment not to, in future, discuss senior bondholders at AIB and Bank of Ireland. We didn’t give that commitment on here and neither did many in the Dail. It might be considered inconvenient or unhelpful, but that’s democracy for you.
I always felt as if it was a case of the blind leading the blind in these negotiations – how wrong I was – it is of course the blind leading the blind horse
@Jagdip
I hear what you are saying. I certainly don’t intend to silence anyone, and do understand why people are angry.
What I am reacting to is the tone of so much of the commentary, which so often to sneer and snarl. (I do not include you here. Your commentary reveals a genuine and constructive exasperation.)
It is no accident that the now parties of government have had to soften their rhetoric and adopt more nuanced understandings of the situation. That is the responible thing to do given the incredible vulnerability of our situation. I support ongoing vigourous commentary — and will try to do it myself. But it is no harm to try to put ourselves in the very difficult shoes of Michael Noonan as it trys to steer through this. He does not have our luxury of little responsibility.
@ John,
Its understandable John that there are calls for a more muscular negotiation style when you consider the impression various govts / leading opposition parties have given us – Europe does not consist of partners but of friends; we approach deals not with the intention of maximising the state’s gains but wanting to be seen to do right by europe, be good for europe and good for ireland etc.
Additionally the fantastical claim by FG that Enda was buddies with Merkel and friends with 15 PMs.
When the Govt. and leading political parties pushed such child like positions its not surprising that there are calls for such nonsense to be consigned to the past.
@Jagdip,
It is understandable that there is considerable anger in Ireland at the antics of the ECB, but, during this crisis, the ECB has been more sinned against than sinning. The legacy of a failure to secure democratic legitimacy for new and evolving EU instititions – and of a failure, partly due to the unwillingness to secure democratic legitimacy, to ensure these institutions were ‘fit-for-purpose’ – is bearing bitter fruit. This failure may be traced back to the Kohl-Mitterand-Delors axis. The failures were compounded by Chirac-Schroeder (with the accident-prone Santer and ineffectual Prodi) and they are now finally wreaking havoc for the Merkel-Sarkozy-Barroso axis.
The Dutch, Finns, Luxembourgers and Austrians are fully on board with the ‘project’ since they believe that their systems of governance are capable of dealing with any fall-out (once it’s largely kept under wraps). The new smaller members are also on board – as, to an extent, are the Danes and Swedes (though remaining on the outside but closely linked). Belgium and Italy have alsways been indulged and it appears this indulgence is being extended to Spain. In this brutal realpolitik the smaller peripherals are being sacrificed to save political skins in the core.
The moral of the story is: don’t put yourself in a position where you become a pawn in this game. The corollary is: if you find that you are becoming one, do everything you can yourself to reform the behaviour that put you at risk. Shouting at the game and the main players is counter-productive if it deflects attention from what needs to be done.
I am inclined to state that you can not show muscles, if you leave out the public opinion, referendum, in your negotiations. I would also say that I am with Axel Weber on the point of ECB’s involvement. They should not even sit at the table when it comes to negotiations with EU-Commission and IMF, it is plain wrong.
@ John McHale,
There’s a somewhat obscure quote from Roy Keane – “It chipped away at me. People say “Go with the flow” but you know what goes with the flow? Dead fish.” I might be missing some of the nuances in your arguments, but it strikes me as a ‘dead fish’ approach.
Even if our actions follow along the path you suggest, it doesn’t make much sense to do so in such a meek manner. It is important to lay down markers and clearly flag that certain actions (we are taking) are being forced on us for the benefit of the whole Eurozone. At the risk of sounding a bit like Sancho Panza in the overuse of proverbs – eaten bread is soon forgotten. Even if Ireland manages to avoid default, it will still need further revisions of the current bail-out. It would certainly help our case if our European partners entered these negotiations under the weight of ‘owing us one’ rather than Ireland out with the begging bowl once again.
@John
“But it is no harm to try to put ourselves in the very difficult shoes of Michael Noonan as it trys to steer through this. He does not have our luxury of little responsibility.”
Very true indeed.
It just seems that Ireland doesn’t have a backstop position and that we are allowing ourselves continue to be a rag doll tossed about by some of our partners.
Yes we are a small population, small economy, on the geographical periphery with a difficult economic past and restricted options today.
I deliberately refer to a €1tn cost above to exaggerate the point that there must be a backstop, and consequently, logically there must be a tipping point where the current course is better than (the risk of) alternatives.
But the decision makers including Minister Noonan give no indication that they accept that to be the case, or if they do, they have concluded that €16bn of unguaranteed debt (and potentially €40bn of other snr debt) is below the tipping point. I would love to see those calculations, wouldn’t you?
It’s not so long ago that the ‘indefinite’ extension of liquidity to the “Irish” banks was hailed as a “significant concession”. Indefinite is a lovely word and examples of usage are instructive: “As an execution date has not been set, the death row prisoner will continue to live indefinitely”.
We have threats by leaks to the financial stability of a member state by an institution of the Union!
I seriously doubt that the ECB would behave to a France or a Germany the way they have behaved to Ireland
We have no obligation to repay seniors – and we have no obligation to get ECB approval in order to do so.
The ECB is out of its depth and acting outside its remit – it has no idea how to handle the political pressures it is coming under and it is reacting badly.
@John McH
I don’t think you fully appreciate how embarrassing it would have been, or how much sustained criticism from not only the financial press but inside the financial industry would would have been forthcoming, if the EBC had simply been required to put the threat on the record. Over time the threat – and importantly the very questionable rationale for it, combined with the fact of forced payments from the Irish under that threat – would would have become untenable for the ECB to sustain.
As it is, people have made decisions that amount to sucking up to the ECB rather that regarding it as a business partner.
I don’t think the incrementalist tactics – if you can even cal them that – employed so far have been useful. I don’t think the attempt to paint those who criticise this and bother to point out alternative avenues, or point out dead-ends the state is driving down – like that mandate for renegotiation – as dangerous radicals is particularly helpful.
Ireland appears to have played its limited hand very badly – and that’s coming from someone who last summer would have had little time for Ireland’s position then.
@Bond Eoin Bond
WEBER : not caused by the common currency,” Mr. Weber said. “Instead it’s a deep-rooted, fiscal and structural problem that probably needs more a 30-year time horizon to solve rather than a three- to five-year horizon. The measures Europe needs to adopt to resolve this issue are much more profound than just short-term liquidity funds.”
Not caused by the common currency ? – come off the stage.
Can you not remember 1995 / 96 and the smell of EMU malinvestment as we were gearing up to the Euro Nirvana.
The 3% deficit rule was at best retarded.
Using debt metrics with respect to GDP simply does not work.
Its the ratio of Goverment vs private credit which much more accuretly charts malinvestment or otherwise.
Until the ECB recognizes this economic fact of life it will continue to persue its pump & dump operations.
Its all about leverage , this “its mostly fiscal ” mantra is getting tiresome.
Well, on one point The Minister is correct: the ECB is Afraid. €16.5 billion looks appetising to me; Call the ECB’s fearful bluff; were they to even contemplate cutting liquidity to Irish banks the collapse of the European Project would be on the table: Europeans are not that stupid. It’s the right call; time for Frankfurt to print a few trillion.
Axel Weber: ‘Mr. Weber says the ECB should limit its role to monetary policy and not become involved in fiscal policy, which he argues injects it too deeply into the political process.’
At times, ECB looks as if it is running the political process.
I think there would be some sense in trying to play this one cautiously and behind the scenes if there was a decent chance of teh ECB changing its position of its own volition and without external pressure.
However, from teh ECB’s perspective the few billion to be saved by the Irish taxpayer is chicken feed compared with the issues they perceive to be at stake and they won’t budge unless isolated and pushed or presented with a fait accompli.
It follows taht the best course of action is to get teh ECB on record suggesting that they will pull funding.
The way to do that is as follows – simply ignore any threat that isn’t made in public through official channels.
When confronted with ECB opposition simply say we haven’t received anything concrete from the ECB that says what they will do either way – and that speculation in the press from unnamed sources can’t be used to guide government policy.
Then announce that legislation is being drafted / considered to introduce losses on seniors at anglo & INBS.
The ball will then be in the ECB’s court and they will have to make it plain and public that they oppose these measures- they will also have to explain why (and that is key – we need to get the reason on record as well and not just individual board members reasons but the institution’s justification )
Once that happens the real debate can begin as to whether the ECB is correct and whether they have the power to behave as they are doing
@ Dork
whats the missing word from the quote you have referenced? Ah yeah, “Greece”, as in, “Greece’s problems were not caused by the common currency”. Which they weren’t. They ran deficits for almost the entire period of the Drachma’s, and they’re done the same during their time in the Eurozone.
@Bond Eoin Bond
Can you imagine Irish Goverment defecits if it ran defence budgets per ca pita equilivent to Greek defence expenditure ?
We would have 4 squadrons of Mirages in Baldonnel !!
This is a European structual problem alright – its crazy monetarist polices have led to a situation where it cannot defend its own borders or maintain energy independence.
This is a big game and Greece is close to the nexus of future instability that will travel all the way to Dublin.
http://www.youtube.com/watch?v=JFMhOMMADEc
Greece is not a seperate unit from Europe – it gained its revenue from European core travellers spending their money on the islands.
When the crisis hit – travelers retrenched expenditure thus participating the collapse of a already precarious budget postion.
Its lost much of its export market.
I have the feeling it doesn’t matter what the government does. They are just following orders. The mess is now in the hands of the ECB and whatever plan they had to sort it out has failed . It is a bit like the 1700s with those wars between the Pope and the French or whoever that would have had a bearing on Ireland but where all the fighting was done elsewhere. Now the Pope is the ECB.
It is quite clear that nobody wants a Greek default and also that an Irish default is not desirable so it’s up to the adults to come up with a solution.
I was in the DoF the other day.
I told them I needed €5Billion for a new casino thingy idea I came up with.
I made sure I raised my eyebrows, threw in a few winks and made some clicking sounds as well – just to let them know like, that it was in their interest to go along with me, and I’d sweeten the deal later…
What do you know? Works like a charm!
Tickets to Acapulco booked… See ya suckers!!!
Paddy H’s GDP-linkers are finally coming to life…
RTRS-NEW GREEK BONDS COULD CARRY EUROPEAN INVESTMENT BANK (EIB) OR EFSF GUARANTEE UNDER FRENCH DEBT ROLLOVER PROPOSAL -SENIOR BANKING SOURCES
GOAL FOR NEW GREEK BONDS IS TO ACHIEVE AAA CREDIT RATING -SENIOR BANKING SOURCES
NEW BONDS WILL HAVE A 5.5 PCT COUPON PLUS AN ANNUAL SURCHARGE OF UP TO 0.25 PCT DEPENDING ON GREEK GDP -BANKING SOURCES
Christy,
Is that not what our MOF has done. He announdced “thar lear” that he was going to impose losses on Anglo and INBS in the Autumn. Moreover, he hinted that he had an ally in the IMF. The only response so far has been the OTR quote in the ST.
Eoin
So we seem to be at the predictable point where you incentivise banks to take a less tham market yield on the basis they are not likely to be defaulted on. These bonds replace alledgedly dodgy bonds that are in the HTM books at par because they can be assume risk free.
If my bonds were held at market, I could justify my actions to shareholders. If they are HTM, how do I explain that to my shareholders if I volunteer to not take the full redemption payment?
Even i’m getting confused now…”third party”? Zeus himself?
RTRS – EU IS WORKING ON CONTINGENCY PLAN FOR GREECE IN CASE AUSTERITY PLAN IS REJECTED
RTRS – ONE OPTION IN CONTINGENCY PLAN WOULD BE FOR A THIRD PARTY TO EXTEND NEW LOAN TO GREECE – SOURCE
It seems to me that one of the big problems is that all this negotiating was done by department officials and, lawyers, and economists. Now one would think that that would make for a very good team. However really we should have had a reciever doing our negotiating for us, after all that is what this was. They have far more experience in this type of dealings.
As for the ECB it is acting like a bully and as we all know the only way to deal with a bully is to stand up to it.
Now do not get me wrong, they may be right. Their plan may be the best we have, they may well be protecting us all from the collapse of civilisation, however that does not give them the right to bully the citizens of countries.
If they have a plan, come out, state it planely and clearly, let alternatives be discussed and then let us all move on.
At some stage somone will stand up to the bully.
@ Grumpy, John, Christy etc.
“the ECB… as a business partner.”
I agree with that. It’s better than using the language of friendship or emnity. Neither thanks nor ill will will last if both partners can manage to walk away successfully.
I generally agree with Christy’s position. At the moment M Noonan is being made to/chosing to undermine his own credibility.
There’s such a thing as being too clever too.
(a) The Irish sovereign wishes to remain solvent.
(b) The Irish sovereign puts forward the route by which it remains solvent.
(c) The Irish sovereign welcomes comment for discussion as to how this plan can be improved.
(d) This is so serious that the Irish sovereign is not in the business of playing messenger – all comment will be made public.
See here (3.43 ff) for suitable grace under pressure:
Munchau on the ineptitude of the EU boxwallas in charge of the Greece operation :
http://www.ft.com/cms/s/0/c3b3f5ae-a01b-11e0-a115-00144feabdc0.html#ixzz1QUBEatFW
“There is no doubt that Greece needed a large fiscal adjustment. And, yes, the Greek government backtracked a little on the previously agreed programme to win support for last week’s vote of confidence. The latest slice of austerity was intended to plug this gap. But it would be a mistake to deprive Greece of all means of political manoeuvre.
Politically, the new austerity programme is backfiring already. It strengthens the position of Antonis Samaras, the Greek opposition leader, who opposes it. Fellow centre-right EU leaders last week put pressure on him. He resisted. His argument is that austerity is killing the economy and that Greece now needs a jolt to get it back to a growth path. By unwittingly strengthening Mr Samaras’s resolve and his public support, the EU destroys any chances of the national unity it so desperately seeks. “
@shaun b
“It seems to me that one of the big problems is that all this negotiating was done by department officials and, lawyers, and economists.”
Perhaps.
It is very interesting when very intelligent people make the transition from observer to participant in financial markets. The psychological aspects are ALWAYS underestimated.
I don’t know how people who are not used to making financially risky decisions based on limited information could reasonably have been expected not to fold under the pressure and opt for the easiest to defend, “nobody ever got sacked for…” type decisions.
Looks like the Greek Government might be in trouble with a reported 4 defections..
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_27/06/2011_396063
Now what is plan B?
More senior bond haircuts in Denmark:
http://ftalphaville.ft.com/blog/2011/06/27/606556/another-danish-bank-falls-into-a-fjord-of-failure/
One thing I’m curious about…what is the differential between ELA interest rate, and the current average open market rate ? How much money have the Irish banks made from this ?
@Eoin
Why would a French banker exchange a €1 bond that was maturing now, which he could then stick right back into the market for a 2-yr Greek bond yielding 30%, why would such a banker “voluntarily” exchange his €1 bond for a 30-year bond paying 5.5%. Surely such a banker would have to be mad. Or don’t rating agencies assess mental health when refereeing defaults?
@Jagdip
You are right. It simply makes no sense to buy 30yr Greek at 5.5% with a possible uplift of .25% depending on GDP. The rating agencies are bound to consider such exchanges as coercive…especially Fitch.
@ Jagdip
new Greek bonds will, allegedly, be AAA and fully collateralised by the Greek privatisation fund. Also, its a case of extend & pretend (very little is ‘maturing now’) vs hard haircuts next year. Thats the choice they have.
@ Ceterus
see my post above for “Plan B”!
@ Grumpy
senior haircuts in theory, not so sure in practice – think all their senior debt is government guaranteed. Trying to figure out if anyone will actually lose money in this whole thing (other than subdebt and subordinated).
@Eoin
You say there is very little maturing now. I located a JP Morgan graph yesterday of maturities and it seems to indicate there is €40bn approx maturing in 2011,2012, and 2014 and about €30bn maturing in 2013. It’s reproduced on the GreekWatch post yesterday on NWL.
Or by “now” do you mean the next few weeks?
@Eoin
Yes, if they are fully collateralised then we are back to the covered bonds problem for the banks – only now for sovs. No wonder the cds are up so much today.
The banks get reinvested in something defensible and the rest of their book gets undermined.
@ Jagdip
well you used the word “now” first! I suppose the banks realise that if they don’t roll it over, certainly everything from 2013 onwards (ESM n all that), and more probably everything from 2012 onwards (Capt Reality), is in danger of a hard haircut.
Not including t-bills (which everyone reckons will be ok/not included anyway), theres 13bn this year, and, more importantly, 22.5bn by end May next year. Its that 22.5bn that is under threat from a non-rollover.
@Eoin
You’re a font of rich knowledge, many thanks!
So to use the phrase du jour “a nod is as good as a wink to a French bank” that if they don’t roll-over with the programme offered now, they will face a hard haircut in the coming months
And that’s voluntary, is it?
@grumpy
Any idea as to what the latest published Core Tier 1 Ratio for Fjordbank was?
“this latest move underlines the determination of the Danish authorities to impose losses on senior creditors of failing banks. This is in contrast to the ongoing debate in Ireland, where the ECB has blocked haircuts for senior bondholderrs in Irish banks.”
I know its a bot pedantic but the ECB has not as yet actually blocked imposing losses on seniors in Ireland. They can’t block us imposing losses on seniors. They don’t have the power to do that. What they have done is through back channels and leaks threatened to bring teh country to its knees if we do.
Now, if teh ECB doesnt have the power to block imposing losses on seniors what business does it have making ominous threats about teh repercussions of doing so.
What other type of government action might the ECB block? Where does teh ECB draw the line? What policies are we allowed to implement? Does teh provision of emergency funding imply that all Irish policies in relation to our banking crisis need their approval? What if a democratic majority of Irish people feel otherwise? Are there other areas of our economic policy that the ECB can veto?
Is it the ECB that decides what actions of the Irish government it is entitled to review? Does it accept any clearly defined limits on its sphere of power or influence or is that limit simply determined by the ECB’s own view of what is an appropriate extent of its power?
@Yob
Oddly enough, no.
“Fjordbank Mors said the FSA raised its solvency requirement to 16 percent from 9.7 percent, which in combination with its demand for further writedowns, meant the bank lacked 700 million Danish crowns ($132.8 million) in capital.”
@Bond Eoin Bond
So it is a work in progress. A bit late in the day methinks. Another fine mess.
In the meantime all the nodding and winking is driving the yields higher and higher for little old Ire. 2yr at 14.04% and 10 year at 12.07%. Are we heading for a Greek solution?
The new French scheme seems like Brady Bonds but without the haircuts. Sort of like beer without the alcohol. Don’t get the whole SPV/off-balance-sheet thing though. Surely the money will end up funding Greek banks – won’t that money appear on their balance sheets?
How does teh ECB come to a view on imposing losses on seniors?
Does it discuss it among the board members and then vote?
Is it the executive council or the governing board that decides?
What is the legal status of such a decision? What are its ramifications?
How would the ECB decide to withdraw funding to the Irish banking system? Would it take a vote? Would it be the Governing council or the executive board?
@tullmacdoo
The Min of Fin has come out and said he will impose losses but he has also dignified leaks and back room messages as if they are ECB official policy – he should simply state that it is not clear what the ECB’s policy is in relation to the issue – or better yet – he should state that it is his understanding that the ECB have concerns in relation to the issue – that he has considered the ECB’s view – but that he disagrees and that he proposes to proceed in any event. When then questioned about what he thinks the ECB will do if he proceeds in that manner he should day the ECB have not made it clear what they intend to do and he cant make policy on teh back of anonymous leaks from staffers at the ECB.
My mistake – the rollovers are for sovereign debt not bank funding debt. Am still confused about the SPV and the role of the Privatization Fund though.
@Grumpy:
Re Danish Bank
@Ceteris
Jagdip, it is the kind of voluntary that comes with the equine skull in one’s sleeping quarters.
Christy, you would have to have been on another planet not to know the ECB policy on burden sharing.
Also,the least Ireland deserves, as a fig leaf to our sovereignty if nothing else, is to have our masters at the ECB come out and say it straight:
“we insist that Irish taxpayers repay private sector bank debt or we will increase the cost or restrict the availability of credit to the Irish financial system.”
Its important for the both the long term debate and current developments that everybody is clear what ECB policy was and is in relation to this issue. Moreover, it is important that the Irish government gets this position put in writing for its own credibility.
I suspect the ECB will be loath to put this into writing because it politicizes their role – or more accurately – reveals the politicized nature of their role – and if they won’t even put into writing then I think we can be quite confident they won’t actually do it either.
I think the Gov should push this hard at the next temporary respite from the Greek drama.
Tell the ECB to put up or shut up – no more winks and nods
@Christy
“I suspect the ECB will be loath to put this into writing because it politicizes their role – or more accurately – reveals the politicized nature of their role – and if they won’t even put into writing then I think we can be quite confident they won’t actually do it either.”
I think they have demonstrated ( the troika) in the case of Greece, that no matter how badly you perform they are not going to pull the plug. In fact they will give you more money and on preferential terms.
@ Gavin Kostick
Olafur Grimsson isn’t the first person I’d think of when seeking to show grace under pressure.
He’s the only Icelandic president to pull his “referendum-or-death” stunt – except he’s a bit selective about his objections.
2004 – Media law – It shall not pass!
http://mg.co.za/article/2004-05-17-iceland-in-crisis-over-controversial-media-law
2011 – Media law – signed.
http://www.grapevine.is/Features/ReadArticle/Icelands-big-brother-in-law
The Baugur Group, who were major media players in 2004, had close ties with Olafur:
http://www.icelandreview.com/icelandreview/daily_news/?cat_id=16567&ew_0_a_id=142191
They went bankrupt in 2009:
http://en.wikipedia.org/wiki/Baugur_Group
His decision to put the Icesave law to a referendum was not without a financial implication also:
http://www.thepropertypin.com/viewtopic.php?p=494215#p494215
Overall, not someone I would use for illustrative purposes.
@Johm McHale/Grumpy/Jadgip
As somebody who think we should at least try to burn bondholders, John McHale has a point.
If one is going to call the ECB out and ask them ‘to put up their Dukes’, one had better be prepared to accept the fallout, for good or ill.
Psychologically, Ireland is not at that point yet. There are still far too many far too comfortably off to roll that particular dice. And the decision is in gift of the comfortable ones.
Another debt mess for the Government to deal with :
http://www.irishtimes.com/newspaper/breaking/2011/0627/breaking49.html
“Irish Life and Permanent will be effectively nationalised with the injection of up to €3.8 billion in State funds by the end of next month, the company has confirmed.”
They couldn’t even sell Irish Life.
What a total shambles. And what a wonderful policy it has been to shift all the problems of the banks on the sovereign. And I look forward to the return to the bond markets in 2012.
@What Goes Up
I think you’re a bit out of date with that propertypin link. The suggestion there was that Iceland’s rejection of the referendum would keep it shut out of the bond markets. However a couple of weeks ago:
Refusing to turn the private debts of the banks into public debt appears to have been a very good move…
@ Bryan G
Nah – if you read the rest of the thread you’ll see it continues to track the Iceland story.
The point of linking to that post was the fact that Iceland never got an Interest rate reduction, as was widely touted at the time, but had the term extended – and that voting No simply took the decision out of their hands and put it into an international court to decide the rate and the penalties.
The democratically elected government voted to pay the Icesave bill under terms that they could control, the President overruled them and simply opened them to unknown terms.
But I agree with you on the refusal to turn private debts of the banks into public debt – but again you’ll find that the President is a less than stellar cast member:
http://www.telegraph.co.uk/news/worldnews/europe/iceland/6047393/Iceland-the-boom-years.html
@ seafoid
‘What a total shambles.’
If I were you, I’d save the superlatives for what is yet to come. It’s all about stamina from now on. 🙂
@What Goes Up
OK – I see your point. If the court does find against Iceland I don’t know what remedies it can order and how any such remedies would be enforced, though.
In practice it all seems a bit academic, however, since Iceland say that the bank assets will cover over 90% of the amount in dispute anyway. It is good work for all the international lawyers involved.
Also raises issues about the relationship between national law and the wider EU directives that spawn them. Someone could be in compliance with the national law but violate EU law because the national law did not adequately implement the EU directive.
@Tull
“Christy, you would have to have been on another planet not to know the ECB policy on burden sharing.”
I disagree.
That the ECB is opposed to burden sharing is and has been crystal clear.
What they will do in the event of it being implemented against their wishes is far from clear – in fact I would say that the ECB has left it deliberately vague