NTMA on Ireland’s Funding

I had missed last week that NTMA had released an information note on Ireland’s financing situation. The note clarifies that funds from the EU and IMF that had been earmarked for bank recapitalisation can be used to fund fiscal deficits if, as the government is currently assuming, there are no further recapitalisation costs. Based on these assumptions, and projecting that fiscal deficits come in on target, they note that Ireland can get to the end of 2013 with minimal new funding.

Worth noting, however, is that there is an €11.8 billion bond maturing in January 2014. So, it would seem likely that if market funding is not accessed at some time before summer 2013 (or perhaps earlier), then the government will have to open negotiations on a new funding deal from the EU and IMF. I doubt if letting the clock tick all the way down to December 2013 would be a good strategy.

68 thoughts on “NTMA on Ireland’s Funding”

  1. The 2014 bond maturity does seem to be as far as we can stretch it.

    Is a net €1.5bn in retail debt a realistic target? What happens if there is a decline in retail savings if the “pillar banks” start to win back deposits.

  2. I wonder did their calculations on Ireland’s funding needs take into account the need to fund their own salaries as well. After all, over 105 of the 357 NTMA staff are paid bewteen €100,000-€200,00 a years; 3 earn between €200,000-250,000; and 14 are paid over €250,000. Looking a bit top heavy there gents!

    Not to worry. As the people–technically employed on contract–responsible for managing the states finances, the NTMA decide their own salaries and defined contribution pensions, so I’m sure they’ll be taking steps to rectify things in short order.

    Then again, there are over 7000 people in the department of finance earning over €100,000 per annum, so maybe the NTMA is the wrong place to start looking for savings.

    God be with the days when Michael Collins ran the entirety of the states finances from the back of his bicycle while on the run from the British forces. How many people where in the DoF/NTMA when T. K. Whitaker was running it again?

  3. I should mention in relation to the Michael Collins reference; He was cycling around looking for “bonds” to finance the state in the form of the national loan(He was the Minister for Finance at the time). Apparently he gave everyone a receipt as well.

    Something tell me that Minister Noonan and the lads at the NTMA wouldn’t get quite so warm a reception if they were seen cycling around to houses in Dublin looking for a dig out.

    http://www.generalmichaelcollins.com/National_Loan/National_Loan_p3.htm

  4. @Karl Whelan

    “I doubt if letting the clock tick all the way down to December 2013 would be a good strategy.”

    Were you being a bit tongue-in-cheek there?

    History seems to demonstrate that this is exactly what politicians all over Europe do in the hope that ‘something will turn up.’

    (or that the other side will blink first if we are talking in an American debt ceiling context)

    I think that Ireland putting out a message along the lines of we are ‘alright until the end of 2013 lads’ is dangerous and not a million miles away from Messrs Lenihan and Cowen telling us last year (ah, those heady/hedonistic pre-bailout days) that we were ‘fully funded up until July next year.’

    Perhaps it was just as well the bailout happened or the ATM’s would have stopped working this Friday. Looks like we’ve kicked that can down the road until the end of 2013 then? I somehow doubt it.

  5. I think that the key phrase is: “that fiscal deficits come in ON TARGET”

    I would apply this ‘ON TARGET’ to other things as well, like GDP growth and the balance-of-payments.

    These are the targets, as laid out in the April 2011 Stability programme:

    real GDP growth:

    2010 -1.0%
    2011 +0.8%
    2012 +2.5%
    2013 +3.0%
    2014 +3.0%
    2015 +3.0%

    general goverment deficit:

    2010 deficit of 12.0% of GDP
    2011 deficit of 10.0% of GDP
    2012 deficit of 8.6% of GDP
    2013 deficit of 7.2% of GDP
    2014 deficit of 4.7% of GDP
    2015 deficit of 2.8% of GDP

    balance-of-payments:

    2010 deficit of 0.7% of GDP
    2011 surplus of 1.2% of GDP
    2012 surplus of 2.1% of GDP
    2013 surplus of 3.0% of GDP
    2014 surplus of 3.7% of GDP
    2015 surplus of 4.1% of GDP

    By late 2013, it should be clear if these targets are being met. If it seems then, or earlier, that they aren’t being met, then it might indeed be proper to worry about the funding in 2014, as Professor Whelan says. But, if it seems then that they are being met, then Ireland should have no problem borrowing on the markets. If they are seen then seen to be being met, that would mean that by late 2013, Ireland’s economic growth was one of the highest in the OECD, its budget deficit would be falling very rapidly, and it would be in massive balance-of-budget surplus, with a very high level of savings. Add in the fact that, on the current trajectory, competitiveness would have improved even more by late 2013, and, if the targets are being met, then government debt as a percentage of GDP would allready have peaked by late 2013.

    There is a limit to how long snake oil salesmen can keep mob panic and hysteria going. they actually need something to occur, that is commensurate with the panic and hysteria being whipped up, otherwise panic and hysteria fatigue sets in, and the public start to see through the panic and hysteria whippers-up. The current mob panic and hysteria are based on the view, as articulated by McWilliams, Kelly, Gurgdiev, Moody et al, that the above targets are pie in the sky and will not be met. Only time will tell if they are correct. By late 2013, it should be clear whether or not this is the case. If the targets are seen by late 2013 as not being met, then all the above will claim vindication, and it will be difficult for the government to borrow on the markets. But, if the targets are seen by late 2013 as being met, then all the above will be discredited, and it should be easy for the government to borrow on the markets.

    As of now, it is too early to tell if the above targets will be met. All we know at this stage is that they are ahead of target. GDP for 2010 was revised up a few weeks ago, to show a fall of 0.3% in 2010, rather than the targetted -1.0%. GNP was revised up even more. The balance-of-payments came out in surplus in 2010, rather than the -0.7% deficit that was the target. Yesterday, IBEC revised up their forecast for GDP growth in 2011 to +1.5% and for 2012 to 2.8%, both well ahead of the targets in the April 2011 Stability Programme. One of the factors that they gave for revising up their forecasts was the census results, the first to take this into account. ESRI, please note. Of course, the future is, be definition, uncertain and unpredictable, as Darren Clarke would no doubt be the first to say, but right now all we can say is that Ireland is ‘ON TARGET’ and, if that continues, borrowing on the markets should not be a problem by late 2013.

  6. @Karl Whelan

    1. What happens if A. we are not in the euro in 2014 and B what happens if the Euro is destroyed in the next two years with all this foot dragging?.

    2. what happens if the UK is the next target after Italy from these Bondholder headbangers.

    3. what happens if David Cameroon steps down as PM in the next two weeks. Ladbrooks have reduced odds from 100/1 to 8/1. I think 2+3 are connected.
    Would appreciate your views on this.

  7. @JTO
    “There is a limit to how long snake oil salesmen can keep mob panic and hysteria going. they actually need something to occur, that is commensurate with the panic and hysteria being whipped up, otherwise panic and hysteria fatigue sets in, and the public start to see through the panic and hysteria whippers-up.”

    Or is there a limit to how long they can kick the can down the road and hope nothing happens.
    Banks; grand, nothing to see here
    unemployment; where, sure no problem

    as much as I distrust the bond markets at least they are voting with money, not just expressing opinion. And they are saying we are done for within two years.

  8. @JTO

    I think your looking at the wrong figures. Its GNP you need to be looking at. Get in your car and drive through any town at say 8pm and you will see ghost towns, all what is needed now is some tumble weed blowing down the town centre. I actually think things are getting worse not better. Maybe the ratified air of Tyrone is messing with your head. the power of observation is a handy tool.

  9. JTO
    “As of now, it is too early to tell if the above targets will be met. All we know at this stage is that they are ahead of target.”

    The Dept of finance have been consistent in these matters since 2007.
    Step 1 Set out a plan over 5 years.
    Step 2 Ensure that the targets of the plan are easy to achieve for the first 18 months but almost impossible for the last 42 months.
    Step 3 After 18 months instigate a new 5 year plan with targets that are easy to achieve over 18 months but almost impossible to achieve for the last 42 without forgetting inconvenient truths.
    Step 4 Repeat every 18 months till we default or the confidence fairy comes to the rescue.

    And you expect us to fall for it again?

    As early as last November the IMF gave Greece the thumbs up on their austerity efforts.

  10. @JohnTheOptimist
    You remind me of the man falling from the 50th floor and who says “so far so good!” while passing in front of the 40th floor.
    The economic situation of Europe has been getting much worse since April and you can hardly expect the balance-of-payments surplus to be unaffected by that and it will impact the rate of growth.
    If you believe in Keynesian economics, which I do (contrarily to the IMF and the ECB apparently),it is hard to reconcile the rate of growth objectives with the surplus reduction objectives.
    Lastly ,to be able to return to the sovereign fund bond market, supposes that there will be such a thing in 2013 . One thing banks and all the other financial institution will have learned in 2011 is that there no risk-free investment. All of them are trying to purge their balance sheet of sovereign debts right now and they will not touch Irish sovereign debt with a ten-foot pole for a long time.

  11. Does anyone know why in 2013 receipts for retail sales of govt securities is €3.3bn rather than €1.5bn – it has been suggested that €1.8bn is the NTMA seeking market funding but I thought the purpose of this information note was to show that such market funding was not required (until after 2013).

  12. @ Jagdip

    the information note actually says “Ireland has only a minimal funding need from the wholesale markets in 2013”, which i assume refers to that 1.8bn balance.

    @ David Burke

    “Get in your car and drive through any town at say 8pm and you will see ghost towns, all what is needed now is some tumble weed blowing down the town centre.”

    Whats actually interesting is that every single foreign person i’ve spoken to in Ireland in the last year has been astonished at how busy Dublin is. People coming from booming Scandinavian cities claim they are like ghost towns compared to Dublin.

  13. @Eoin, David B

    Echoing Eoin on this point. Dublin and other Irish cities may seem eerily quiet compared to 2005 – 2007 but compared to other European cities signs of “austerity” are far from obvious. What irritates visitors from the core creditor countries is Ireland’s concentration on comparisons with say 4 years ago rather than comparisons with other countries.

    In reality both are appropriate, but only one seems acceptable in Ireland.

  14. Prediction is one thing, prophecy is another. To qualify as the first, the exercise must be suitably qualified by “what ifs!” as JTO has done above. The thinking of practitioners of the second is linear and blind to the wider context, not least to what is going on in the EZ cf.

    http://www.irishtimes.com/newspaper/finance/2011/0719/1224300947220.html

    The ever excellent John McManus of the IT is also worth referring to on the issue of the role of credit rating agencies where the Tanaiste seems as confused as Merkel.

    http://www.irishtimes.com/newspaper/finance/2011/0718/1224300883686.html

    The following quote sums up not alone the contradiction in much of Irish thinking but also that of Berlin.

    “Ireland cannot have it both ways. We cannot hope to avail of measures such as debt rollovers and buy backs and retain an investment grade on our debt. The reason for this is because these are all forms of default and countries that need to default are not investment grade”.

    The unequivocal stance taken by Trichet on behalf of the interests of the EZ as a whole should, it is to be hoped, finally lay to rest the mistaken view that the destinies of Europe are guided by a monolithic set of institutions in Brussels. The game may be different but it is a democratic one as Merkel is finding out. Sulking and refusing to attend in a manner worthy of Margaret Thatcher is not a policy worthy of the leader of the nation with the decisive voice.

  15. I was under the impression that the Irish bailout is as likely to reach the end of the year as Prince Albert’s marriage.

  16. @Eoin

    Many thanks.

    Any ideas why there is an apparent discrepancy between the debt maturing as per this latest statement and the maturity profile provided under the national debt section of the NTMA website (http://www.ntma.ie/NationalDebt/maturityProfile_html.php) eg in 2012 per this latest statement, the maturities total 5.8bn, yet under the national debt profile they totals 6,852m.

    The difference appears to be maturing retail debt but why would that be excluded from the latest statement.

  17. All,
    600 plus sounds about right, or about 5% of the established CS. Moreover they are not on an average 100k per year.

    The least one would hope of a true OMF would be that you would get one’s numbers right.

    Grumpy,
    Maybe there are no signs of austerity in your rarefied bond trader/hedge fund world but out my way there are. Dublin has got a hell of a lot cheaper. 3 euros for the scone and coffee now compared to 9.50 in the Grand Place in Brussels and about 15-20 euros in Paris. Maybe Paddy G has not cut his prices that much.

  18. @ Jagdip,

    The retail debt figures used in the Maturity Profile are just indicative figures to ensure the totals correspond. The NTMA don’t actually expect the retail debt to be paid back as shown in the profile. Most of the retail debt (prize bonds, savings bonds etc.) doesn’t have a finite maturity date so the NTMA say that

    “For the purposes of constructing an overall maturity profile of the National Debt, it is assumed that 10 per cent of retail debt matures each year for the next five years and 50 per cent in the sixth year.”

  19. @ Tull, Grumpy, Eoin etc.

    On street use.

    Google street view took their ‘snap’ about two years ago on at specific dates and times (the one where you can see Bertie canvassing).

    I work on Dame Street. So I can take a virtual walk down Dame Street (or any Irish High Street) of approx two, two and half years ago, in enough detail to see the shops and the people and compare with what is happening now.

    I’ve sort of thought about it as a way of looking at what the turnover in business and activity is at a street level.

    I don’t suppose eny enterprising young economic student could think of a way of doing something like this.

  20. @Seamus,

    thanks but the NTMA has assumed nil maturity in 2012 or 2013. Whereas the national debt profile assumes 1,083m per annum.

    Surely the NTMA is being reckless with assuming nil maturity.

  21. @ Japdip,

    They are not necessarily assuming nil maturity. They are assuming that the level of retail debt will increase in these years. The note says retail funding will be €1.5 billion in 2012. This could be comprised of €2.5 billion of new retail debt minus €1 billion of maturing retail debt, to give the €1.5 billion of funding.

    The note does say that “in the first half of 2011 funding from this source amounted to €1 billion” which I assume to be the balance of maturing and new retail debt, otherwise the funding would not be available.

  22. @Seamus

    The note says”Funding from the sale of Government retail savings products in the domestic market (mainly through the post office network) is assumed to be €1.5 billion per year in the period 2011 – 2013; in the first half of 2011 funding from this source amounted to €1 billion”

    Maybe it’s pedantic and maybe the NTMA mean “funding from the sale (and maturity) of Government retail savings products…”

    Do we know the value of the “sale of Government retail savings products ” in 2010 and the first half of 2011? It’s hard to see people being too keen to put their money in the NTMA in present circumstances or at least not to the extent that new money would exceed maturing money by 1.5bn a year.

    This is the NTMA’s retail offering website but I can’t see what the value of new issues has been

    http://www.statesavings.ie/Pages/default.aspx

  23. Even to most casual observor of the NTMA data presented, the most critical decision is obvious. Why would any State in its right mind spend €19 billion, to recapitalise banks with hard cash in July 2011 knowing full well that it will not have enough funds to pay back its own debts in January 2014 (Approx €12B).

    One must remember that the raison d’etre of the agreement was to get Ireland back into the bond markets and therefore the logic of recapitalising the banks with hard cash may originally have made some sense.
    But the ‘back in the markets’ scenario is now pie in the sky. It simply will not happen before the State runs out of money.
    Therefore even to the most crazed of idealogues within the ECB a deferral of the bank recapitalization, in favour of State solvency should now make sense.
    To continue down the road of recapitalization is to place the banks ahead of the State solvency, to place the dictat of the ECB ahead of State solvency and to place the crazed ideology and already failed objectives of a European institution ahead of State solvency.
    It simply does not make any kind of national sense.

  24. Ireland’s Funding would make a great rugby song.

    Ireland Ireland
    Together we’ll stand tall
    Shoulder to shoulder
    We’ll spoof about Ireland’s funding.

  25. @JTO

    Whilst I respect many of your views/predictions (unlike many contributors to this site) the nasty problem of convincing the wider bond market when the time comes is all too easily forgotten in your commentary.

    When you refer to the fact that if the targets as laid out are actually achieved we should therefore be easily able to borrow again – I have to say I’m not necessarily convinced.

    Not because Ireland Inc. achievements won’t look impressive (or your predictions won’t be seen as accurate) on a relative basis to other Govts but because recent history I believe will likely dog our ability and Governments generally, to borrow for many years.

    I believe this to be the case because the idea/notion/assumption of ‘risk free’ Govt bond investing is as far as I can see largely dead in the water. Despite what ones opinion of Moody’s, S&P et al are, I believe the longer term effect of what we’re seeing on the market is a complete re-assessment of actual underlying credit risk and perhaps the ratings agencies (Moody’s particularly) are seeing this earlier than the Govts/EU would necessarily like.

    The recent moves in the cds market whereby many corporate issuers now command (and in certain cases for some time) lower cds spreads than equivalent supposedly stable Govts is I believe only the beginning of this process. In future I believe a bond portfolio comprising Wal Mart/Tesco/Exxon etc will in time replace the long held belief that ‘risk free’ is the preserve of Government issuers. In such an environment ‘risk free’ will be looked upon as quaint notion as something of yester year. The bond world is all changed – changed utterly…

    In that new bond world Ireland’s efforts may not look as impressive compared to a basket of issuers as noted above and yields in that environment may still seem prohibitive relative to expectations.

  26. @ Jagdip,

    I don’t know who is providing the money but must take the NTMA statement that funding from retail debt amount to €1 billion in the first half of 2011 at face value. If that were to continue assuming funding of €1.5 billion for 2012 and 2013 may not be wide of the mark. I cannot tell.

    I think we are only pulling at the edges here. The NTMA have come out and confirmed what Karl has been saying on this site since January – the Irish state will be out of money before the end of 2013. Completely exhausting our cash balances is not to be recommended and as this schedule is for illustrative purposes only I am sure the NTMA would like to keep them well above €5 billion. The question that this note projects is “where is the money going to come from?”.

  27. @Eoin

    Thanks, so it seems that new savings are down in 2011 but if they recover to 2010 levels, then even after an average 1.1bn “maturity” per annum, the net contribution should be 1.5bn in 2012 and 2013. Fingers crossed that the figures in Q2, 2011 were just a slow half.

  28. @ Joseph Ryan
    + 1

    The bailout had no more than 2 weeks to work – ie convince the markets and bring yields back in. They went the other way. Shock and awe it wasn’t.
    I wonder what the point is of paying anyone in the NTMA a 6 figure salary today. What do they do ? Powerpoint presentations about a world that has disappeared.

  29. when do we need to start paying back the ECB/IMFet al?
    and how much will it be per annum?

  30. We are assuming there will probably be official funding interest rate reductions (assuming Germany doesn’t continue to trade wider) and term extensions. None of that seems to alter the case for (not) buying gilts at anything close to official funding rates – for 2012, 13, 14…..

    Egro, Eurobonds linked to significant core EZ influence on Gilmore and Kenny’s protected constituencies – income tax and welfare rates, not to mention at least tokenism on Corp Tax. Alternatively, another bailout with renewed pressure on Irish costs etc compared to German costs.

    Also, you have the politically attractive option of refusing to budge much more and joining Greece in a default. You will then be trying to persuade people who share my analysis, that it is a sustainable proposition to invest in 10 yr gilts in a country which has made a clear choice to stick with a high cost economy – and that a low Corp Tax rate as the only unique feature will prop it up.

  31. @Seamus, absolutely €1bn here or €1.8bn there is “pulling at the edges” – was just interested in the detail.

    The big figures are the deficit, which as JtO above says is subject to revision depending on economic performance, which might be up one day with IBEC and ESRI whose latest forecasts for 2011 are 1.5% and 2% or down another day with Ernst and Young and the OECD whose latest forecasts are -2.3% and 0%.

    The other big number is the bank recapitalisation, shown at €19bn which is after €5bn of “mitigation actions”. That is more of a worry because the parameters used in the stress tests in March 2011 appear to have changed in such a way as to suggest the recap requirement might be more with the deterioration in sovereign bonds and commercial/residential property markets in Ireland.

    And yes Karl, and some others, have been warning about this for many, many months.

  32. If we accept that senior obligations at banks (or at least deposits) are sacrosanct – even in the event of a sovereign default – and even if these banks are insolvent as a result of a default – then sovereign debt is not even senior to bank debts.

    It looks like Greek depositors and all senior creditors will be made whole even if the banks in which the deposits are held are made insolvent by a sovereign default.

    The extent to which sovereigns are slaves to their financial systems is remarkable. As a result states need to carry far, far less net financial debt and/or banks need to become far, far better capitalized, and, moreover, they need to diversify their holding of government debt away from the sovereign that stands behind them.

    Marking government debt to market would be useful – this would imply that financial statements accurately reflect the financial position of banks and help reduce the need for dodgy “stress tests” that attempt to give the market guidance on who is exposed – that’s what financial statements should do.

    The idea of “risk free assets” on a bank’s balance sheet that do not require a bank to hold any capital against them needs to be reconsidered.
    One way would be to introduce strict leverage limits, i.e not based on risk weighted assets.

    The idea of risk weighted assets is premised on an assumed ability to recognise the level of risk in an asset – and further, on the premise that giving an asset or asset class a risk weighting will have no feed back effect on its riskiness – both of these assumptions are unjustified. The result is risk weighted asset measures, at least by themselves, are not enough to guarantee the security of state guaranteed liabilities (i.e. deposits).

    Making deposits senior to all bank funding seems an appropriate start combined with a cap on the % of funding that a bank can get from deposits and all other short term funding- say 50 -60%. All of this funding will likely be guaranteed in a crisis and therefore must be senior to all other funding.

    Funding junior to deposits could then take the form of long term debt and preferably equity. Only losses greater than 40% of assets would then then threaten the sovereign with losses on the implicitly or explicitly guaranteed liabilities of the bank.

  33. @JtO
    “But, if it seems then that they are being met, then Ireland should have no problem borrowing on the markets.”

    How does the current performance compare against the Nov 2010 targets or the 2009 or 2008 targets for that matter.

    You cannot calssify metting lowered targets as a victory.

  34. No shock and awe on Thursday according to Bloomberg reporting remarks by Merkel. Problem needs to be solved from the core. Hang on for a bumpy ride…Greek 2 year now 39%.

  35. @eoin Bond

    Dublin has the population to pull through. Outside the pale, its a wipeout. Naas, Mullingar, Tullamoreand Portlaoise are struggling. Everysecond shop is boarded up.

  36. @David Od

    In case you missed it, there was some talk today that an agreement on EFSF buying bonds (obviously nobody is forced to sell so it is voluntary) at “market”.

    What “market” turns out to be will depend on how heavy-handed the buying is – so you could make a lot of money out of pig bonds if this is agreed.

  37. @Grumpy

    This EFSF bond buying idea seems to be off the walls. Who is going to sell at the depressed levels…Greek 2 year finished at 39.02%….if they know a buyer in town has deep pockets. BTW Nouriel Roubini rubbished that idea in an Article yesterday.

  38. @ CP

    “Who is going to sell at depressed levels”

    Well, anyone worried about a 2013 ESM mandatory haircut is probably gonna sell, no? And if its at a 20% premium to todays price, ie 60 cents instead of 50, it mightn’t constitute the worst of situations, especially as the banks are now being more realistic than most government about the need for private sector losses. The real problem is what do you do with the Greek banks, who proportionately have a massive amount of Greek debt. They’re gonna need a big capital infusion immediately after.

  39. To clarify my earlier comment, I was misreading this Sunday Business Post article I sourced the information from.

    It turns out there were 7000 people currently employed by the state earning over €100,000 euros annually, not 7000 people in the DoF. I apologise to everyone if I caused any unintended confusion or heart problems.

    The Collins information is accurate though. There’s also the other story about how, when he was told by a bank manager during the War of Independence that the republic had no collateral to pay wages, Collins placed his revolver on the table and declared “There’s my collateral”. He returned in the afternoon and received his needed funds. Evidence suggests that Collins has been a hard act for most Irish Finance Ministers to follow.

  40. The german “SACHVERSTÄNDIGENRAT”(Council of economic advisers) says a debt restructuring for greece is necessary. They want a 50 percent haircut. If contagion set in, the geece banks must be recapitalised by the EFSF.”Denkbar wäre es, für Irland und Portugal vergleichbare Umschuldungsprogramme aufzulegen.”(It is conceivable, that Ireland and Portugal launch similar debt restructuring plans)
    LINK: http://www.faz.net/artikel/C30638/krise-der-waehrungsunion-wirtschaftsweise-fuer-plan-b-30468663.html

  41. @ JMG

    As Merkel is pouring cold water on the possibility of a breakthrough at the forthcoming EZ summit meeting, appropriately enough at a press conference with Medeyev on increased German-Russian cooperation, the possibility of her actually pulling the house down must be putting shivers up the spine of European leaders.

    Her cabinet ministers are, I believe, collectively being referred to as the “gurkentruppe” (cucumber troop) which recalls the famous Spitting Image skit on Margaret Thatcher at a dining table with her then cabinet being asked, after ordering her main course, “and the vegetables?”, only to reply that they would not be having anything.

    The German domestic political scene is becoming as ridiculous as the the close competition in Italy and the UK.

    However, Merkel and Sarkozy are meeting tomorrow. They have one last chance to get their violins in tune. But it is difficult to be optimistic. cf.

    http://www.spiegel.de/international/europe/0,1518,775267,00.html

    Merkel needs all the help she can get.

  42. @jmg

    Yes – many in Germany are on about the 50% for some time – and they calculate that German banks can survive it ………… without it many Greeks may not survive ….

    ‘Greece is tightening its belt — and the number of people living in poverty is surging as a result. Thousands line up in front of food banks and resort to rifling through rubbish bins. The country’s financial crisis is rapidly turning into a social one — while wealthy tax evaders manage to get off scot-free.’

    http://www.spiegel.de/international/europe/0,1518,775301,00.html#ref=nlint

    Many many Irish serfs could also do with the benefits of a substantial haircut on the vichy_banking set – which, of course, now includes the ECB!

  43. @DOCM

    There was a view following the reunification of Germany, the formation of the new independent European States and the stabilization of the Balkans, that the ‘centre of gravity’ of Europe had shifted to the East.
    Merkel’s cosying up to a new Russia has done nothing to dispel that view. Her constant reiteration of ‘we will do whatever it takes’, while continuing to do nothing, also adds to fears of a Germany semi detached from the Europe we have known.

    The unanswered question in Germany seems to be:
    Does Germany need Europe as much as Europe needs Germany?
    But equally, the unanswered question for much of Europe is:
    Does Europe need a semi detached Germany as much as semi detached Germany need Europe.

  44. @Bond Eoin Bond
    “The real problem is what do you do with the Greek banks, who proportionately have a massive amount of Greek debt. They’re gonna need a big capital infusion immediately after”

    Interesting article in WSJ today on the capital required to meet 7% core tier 1 ratio for banks in Europe if sovereign debt is marked to market.
    Greece is horrendous at 32.6b
    Ireland at 16.4b
    Spain 9.4b
    Germany 6.5b
    Portugal 6b
    UK 5.5b
    France 4.4b
    Italy 1.1b

    Greek banks are clearly basket cases and our own not much better….you would have to wonder what the fuss is about for Germany and France with such low levels of exposure.

    The question, of course, is the 16.4b for Irish banks additional to the dosh which MN is obviously reluctant to put into the native banks?

  45. Cet Par

    That is qute some haircut…16bn
    According to the disclosures
    BOI has 3-4bn
    AIB 5
    Permo 2

    So that is a 160% haircut…..must be some c**p

  46. @ Tull (and CP)

    i thought that too! I assume they’re including NAMA bonds. Figs still look odd though, Italian banks have 150bn in Italian govvies for starters.

  47. Is it possible, even in a ballpark sense, to estimate how much Ireland could stand to gain if it were provided the cash to buy back debt at a discount?

    Would the relatively higher yields on the EU/IMF (or EFSF specifically) compared to much of the stock of out national debt not offset the benefit to a degree?

  48. @ Rob

    average offered cash price on the 85bn in outstanding Irish bonds (i’m ignoring the short dated Nov 11’s) at the moment is around 70 cents, but given the coupons on them, if they traded flat to EFSF bonds, they’d probably trade more like 110 cents. So if you bought them back at 70, and replaced them at EFSF-flat, you’d generate 30 cents on 85bn (25bn), as well as lowering debt servicing costs by 160bps, so 1.35bn per year.

    In reality, you’d probably have to throw investors a bone, so maybe buy them back in the high 70’s, and get a 50% take up, so maybe more like 10bn nominal saving, plus 500mn annual cost saving.

  49. @ Joseph Ryan

    Answers to the questions that you pose may become evident by the end of the week. cf. a very good summary of the various options in the FT.

    http://www.ft.com/intl/cms/s/0/f297fb6a-b248-11e0-9d80-00144feabdc0.html#axzz1SdTmJMLg

    Merkel, and her Dutch side-kick, are running out of road. Their acceptance of the common sense solutions advocated by everybody from Obama downwards will, however, have to be appropriately camouflaged to make it saleable domestically. That the debt stand-off in the US is within sight of resolution also seems significant.

    The eclipse of France under Sarkozy – off playing in the sandbox on a minor issue with one of the small fry – when the country should be mixing it with the big boys, and the head girl in particular, is glaring.

  50. @Tull Eoin Bond
    The figures are as stated by WSJ. The Irish numbers must relate to achieving 7% core tier 1 before the recap.. Of 19b +5 which was supposed to give a super cap of 10% core tier 1. on the Italian figure, the only thing I can figure is that the mtm haircut was very low when the figures were compiled and their banks must be reasonably well capitalized.
    But that Greek number is scary.

  51. Cet PAr
    From the Murdoch owned WSJ. Must have hacked into the NTMA!!!
    They are consistent with the stress test data but do not tally with NTMA own figures for Irish ownership of Irish debt.

    Actually the 10bn exposure for the 3 banks was higher than I thought it would be. They must have been prevailed upon to wear the “Geansai Glas”

  52. Interesting comparison of Merkel and Thatcher. Many conservatives praise Thatcher for not giving more money to miners, now, many conservatives are saying what about giving more money to the financial industry?

    Who would like to be remembered as the one who capitulated to the financial industry?

    In the military I was told that not taking action is also an action. Is Merkels action the no action? If so, then the financial industry is really running out of road. The longer they wait to strike a deal the worse deal they’ll get 🙂

  53. Chatting to someone today who told me Merkel’s history – her family moved TO East Germany in the 50’s. Who moves to East Germany?
    Sleeper agents! Manchurian Candidates! Suddenly, her useless euro wrecking policies start to make sense…………

  54. @Sarah

    A move by her family to East Germany was in all probability a function of her parents/guardians don’t you think?

    Angela Merkel was born on 17th July 1954 so a move ‘in the 50’s’ would have her making an economic statement and political stance at the brave age of 5 – at the oldest – hmmm.

    Perhaps a rethink on the above comment?

  55. Oh check out the sense of humour failure.

    Anyway,

    Raised from childhood in the east, brought over by her parents (who d’oh- of course were the ones making the decisions), with some odd political views clearly (according to Wikipedia so it must be true, they had suspiciously good relations with the communists) who indoctrinated her!

    Someone else told me today that Brendan Behan used to threaten to defect to the east.

  56. @Sarah

    Don’t come on to this site with a sense of humour – it’s strictly forbidden don’t you know.

    Perhaps it’s me but I get the impression we’re just a bit too keen to bash Angela – from what I read and hear from the people I know in Germany she seems quite the opposite to what’s peddled in mainstream media in this part of the world. For a person in such an influential role she seems hell bent on ensuring her feet are very much on the ground and in touch with the folk at most levels of society, which is commendable – so despite the Wiki blurb I’m happy to take a contrarian view.

  57. @ S Coffey
    “I don’t know who is providing the money but must take the NTMA statement that funding from retail debt amount to €1 billion in the first half of 2011 at face value.”

    The money is being “provided” by ordinary hard working citizens of this state who have managed to save and keep a nest egg and now they are looking for a safe home for it. These people have decided that their money is safer with the PO/NTMA than in a bank.

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