The Institute for New Economic Thinking (INET) carries a video interview with Kevin – you can find it here.
Month: June 2011
These are really awful numbers (H/T Eurointelligence).
This WSJ article provides another critique of Sinn’s Target 2 analysis.
Ok, so it’s true. The headline in the Times piece says it all.
THE GOVERNMENT has conceded it is seeking a smaller reduction in the interest rate of the EU-International Monetary Fund bailout package than the 1 per cent originally sought, and only on the remaining money it has yet to draw down.
In what the Opposition portrayed as a U-turn and a tacit acceptance that a cut is no longer achievable, Taoiseach Enda Kenny yesterday said the maximum savings the Government could achieve from an interest rate cut were €150 million per annum, compared to €400 million if the rate on the whole loan was cut from 5.8 per cent to 4.8 per cent.
Mr Kenny, speaking in the Dáil, based the reduced figure on the fact the interest rate reduction would not apply to the €15 billion in European loans already drawn down, and only to the €24.6 billion remaining.
Let’s be clear about this. There is no reason whatsoever why the EU could not grant Ireland a one percent reduction on all its borrowings (not just those yet to be drawn down) as was previously granted to Greece. The EU has decided to add a particular margin on to its borrowing costs. The EU can decide to reduce it.
The lowered ambitions appear to be a combination of preparation for a deal barely worth accepting and (more relevantly) an attempt to use a fake argument (“can’t change the interest rate on funds already withdrawn”) to present the “feasible” rate reduction as not that big a deal.
I suspect “lowered ambitions” could prove to be the epitaph for this government.
One thought that I should have put in my, em, original Sinn post is the following.
Sinn and others believe that the Target 2 balances show that ECB operations have created a big risk for the German taxpayer, channelling lots of funds from Germany to Ireland. In fact, the truth is exactly the opposite.
The big change in Target 2 balances in recent years shows that German banks were huge beneficiaries of ECB operations. Without the intervention of the ECB, there is no way that the Irish banks or the government that backed them would have been able to pay back the huge amounts they owed German banks.
So the ECB operations allowed the German banks to turn hugely risky loans to Irish banks into completely safe deposits with the Bundesbank (the Bundesbank’s Target 2 balances are the mirror image of these deposits). Now, of course, Germany will share 28% of the credit risk stemming from these operations. But the rest of the Eurosystem has taken on 72% of the risk of operations that have hugely benefited German banks and the taxpayers that would have had to recapitalise them in the absence of the ECB operations.