Troika Statement on Conclusion of Review Mission

The statement is here.

The government’s statement is here and specifies some changes to the MOU:

There were a number of changes agreed to the Memorandum of Understanding, which include:
  • As already set out by Minister Noonan: “Initial resolution funding for Credit Unions of €250 million will be made available from the Exchequer in quarter 4 2011″ – which will be based on a principle of recoupment over the medium term via a levy under the Central Bank and Credit Institutions (Resolution)(No.2) Bill 2011 (when enacted).
  • Credit union legislation to be published by quarter 2 2012.
  • The fiscal responsibility bill to be published by quarter 1 2012.
  • 177 replies on “Troika Statement on Conclusion of Review Mission”

    “The restructuring of the banking sector has yielded significant savings on the capital to be invested by the taxpayer (from private sector investment and the liability management exercises) and it has also allowed Irish banks to access international money markets without the use of the guarantee”

    Lovely bit of spin there. Where is the kitchen sink gone ?

    @ Seafoid

    BOI have sold some covered bonds on the back of their UK mortgage book in recent months, around €4.4bn by all accounts.

    @ Seafoid
    Spin all right.
    Can anyone explain to me how the State paid 4.5 billion for 15% of Bank of Ireland when Wilbur and his pals got 35% for 1 billion.

    Looks like the commercials with the help of the higher order cardinals are about to bleed the credit union sector.
    I guess withen 10 to 20 years credit unions will be a rarity.

    GPs with Leeches come to mind – everything everything can be cured with leeches.
    I want to throw up now.


    Winston is roight impressed with the outcome of the negotiations with Oceania. Dashing home for a celebration with a feast of fresh october nettle soup with a dash of … er .. EFSF … er … thyme ….


    S’pose BoI can afford to hand back that building on College Green soon then …


    ‘Can anyone explain to me how the State paid 4.5 billion for 15% of Bank of Ireland when Wilbur and his pals got 35% for 1 billion.

    They hired Lorenzo as a special advisor – surely not true that he is in line for Bank of Italia!


    Come back soon – and bring the Real_IMF next time – we still have a good bit of that old burden-sharing to be getting on with – and now that the vichy_banking system is outed (and we did our bit keeping the bits IN) – it is near time to do the decent de_fault thingy etc and when in form, you are best in world class at that sort of default thingy thing.

    Reports suggest that Lorenzo is definite for BOI.

    With the State about to become involved in credit unions it appears that all financial institutions will be either under the control of,or influenced by,Mickey Noonan. Perhaps they should have let Lowry build the giant casino in godknowswhere as we are all gamblers now.

    And on the weekend summit…doomed, even if it goes ahead at all. See Telegraph and WSJ.

    That’s all fine then. See you when you’re next over. We must do lunch when you are.

    I also see that Ireland gets a top of the class mention in the leaked summit statement framework (the one with the gaps still to be filled in). That’s assuming this summit hasn’t already fallen apart (or ‘postponed while technical details are finalised’ is what I meant to say).

    A couple of weeks ago, I had thought they might cobble something together this weekend that would kick the can down the road to December. Maybe we really have run out of road this time – it’s hard to see Germany or France changing their positions on their current differences. In the olden days, they would have gone to war by now. Perhaps they have but by ‘other means’?


    Every time you get a covered bond away, yes, you raise funds without relying on the guarantee but don’t forget that you do so by pledging assets to the cover pool, but it makes the unsecured lenders’ position less secure, which makes them even more reliant on the state guarantee. That is generally true unless you are replacing equivalent funding via asset pledge, like covered with another covered after redemption.

    If you recall, a significant part of the argument for paying all unsecured unguaranteed bonds in full at maturity was that to do otherwise would make bank funding via unsecured issuance in the EZ almost impossible.

    The strategy has resulted in that consequence anyway as covereds are more or less the only thing banks can issue.

    It would be nice if people who were pushing that argument would at least put their hands up and admit the reality. It wouldn’t stop them using different arguments – like the rumoured ‘phone message’, ‘letter’ or ‘MoU side letter’ (interest in confirmation of the actual existance of which is lower than whale droppings). 😉

    Is it correct that the MOU states that if public service numbers had not been reduced sufficiently, and other savings had not been achieved, then pay cuts would have to be implemented?

    Why does it appear to be that pay cuts were the first resort in Greece (and Portugal?) but the last resort in Ireland and yet our PS would appear to be vastly better paid? I just wondered.


    Every time you get a covered bond away, …..but it makes the unsecured lenders’ position less secure, which makes them even more reliant on the state guarantee.

    In other words depositors (being unsecured) are downranked evey time a covered bond is issued.
    But does this apply in the case of Irish depositors in BOI, where the covered bond in the UK is covered by UK mortgages? i.e Would BOI UK losses (in extremis) be ringfenced to BOI UK? Tricky question, I know.

    @ BEB

    I’ll give you some marks for effort.

    A covered bond on UK assets. It’s hardly a triumph . Nama is selling UK assets too. Nobody seems to want the Irish stuff.
    Where are the bonds issued on Irish assets?

    And any sign of the NTMA Wonderly Wagon and Roadshow ?

    Not as off-topic as you might initially think:

    Both gold and copper off today, now sitting on last ditch potential technical support. My screen sez copper down over 6%.

    That can be interpreted as a move against both expectations of inlation / negative real interest rates, and global GDP rises.

    Or just noise.

    Italy – Germany spread now above 4%. Is the ECB still at the opera? Surely it’s not the fat lady.


    Do you think the gold is selling off to cover losses or just to take profits ?
    The theory that China will keep the growth machine ticking over seems to be in trouble as well.

    @PR Guy

    Both FF and FG are fans of Hegel – the former gives dosh, which they borrow recklessly, away to get elected; FG promises not to take away the dosh, which they have to borrow recklessly, gifted by the former when it is their turn to get elected. Labour are fans of the marxian bridesmaid theory of value – if they can’t get in with the former they’ll shack up with the latter and do what they are told by either. This is the history of the ‘Free’ State but the sefs don’t see much ‘free’ about it at the moment.

    Might it be time for a change? An Admin with none of this dastardly troika included.

    Confusion reigns:




    Something has been cancelled. Seems like Merkels speech to parliament, but CNBC originally claiming it was the Eurogroup summit tomorrow (which is preceding the leader summit on Sunday). Cites “lack of details on leverage”. As i said, high stakes poker going on between baby-daddy Sarko and Merkel.

    I read the Troika statement above.
    Much more vague than I thought it would be.
    How come our old friends the legal profession escape mention?


    Think it’s probably just usual market trade. Gold looking v interesting one way or the other. Might check out some sentiment metrics later.

    @Joseph R

    Unless something occurred very quickly, you would usually expect substitution assets to be added to the pool to compensate.

    @ Bond

    Following the judgement of the German constitutional court in the breach of the bailout rule complaint, Merkel must obtain the approval of the Finance Committee of the Bundestag – as set out in implementing legislation – on any major changes to the EFSF and/or decisions regarding expenditure. What she has cancelled, according to reports, is any attempt to gain a mandate for the summit from that committee this evening as it is unclear what that mandate should be.

    German sources are also briefing that there can be no agreement on the leverage issue in relation to the EFSF.

    In the latter context, the decision by Sarkozy to re-open the issue of a banking licence for the EFSF is quite extraordinary. In any negotiation, to seek from one’s opponent something that is obviously not in his/her gift means, in effect, that you are not negotiating but demanding. Whatever the tactic is, it is not working and who can blame Berlin!

    Le Monde in an unsigned leader this morning castigates Sarkozy for not doing what he promised to do i.e. to introduce reforms on the lines of those put in place in Germany over the past ten years. The French deficit is now over 5%.

    The markets tomorrow and Monday should have an interesting day.

    The Troika report could not come at a timelier moment as far as Ireland is concerned. Our tentative grasp on the “mercantilist core” of the EZ may just hold.

    The Bundestag has now become the executive as far as the major foreign policy issue affecting Germany is concerned. This is unheard of in any democracy that expects to function correctly.

    @ grumpy

    “It wouldn’t stop them using different arguments – like the rumoured ‘phone message’, ‘letter’ or ‘MoU side letter’”

    I took it from M Noonan’s comments recently that to go after the last of the Anglo unsecured seniors might cause a ‘credit event’ which I took to mean that as the government owns Anglo, a default on Anglo would be a state default, and the yields would go zooming back up. If I’m right, what do you make of that argument?

    @ Ceterisparibus

    “Can anyone explain to me how the State paid 4.5 billion for 15% of Bank of Ireland when Wilbur and his pals got 35% for 1 billion.”

    It is a lot of money to part with simply to be able to go forth and spin to the world “the fact” that, the whole of the Irish banking sector did not have to be nationalised. Along with the Anglo losses it must set another dubious world record for waste of tax payer money.

    A few of us on here realised how desperate the government were in this regard and obviously Wilbur figured it out too. The talk of twin pillars of the Irish banking system and bailout money available has them believing that the government will pump even more tax payer ‘free’ money into the operation to maintain the spin.

    So, now we have conflicting reports of postponement until next weekend on the one hand and a second summit next week on the other. No doubt this confusion and (German inspired) rumour mongering will give ‘the markets’ the confidence they have been looking for when they open tomorrow.

    The Greek PM is having kittens about a possible delay, demanding that they unify and make a definite decision (about his haircut) this weekend. He needs that haircut announced. His intention is to present it as some kind of ‘victory’ back home (his PR Guy tells me). The Germans are still telling me the figure is in the order of 40% – lower than most estimates kicking around. Who knows what to believe with this lot.

    @Robert Brown
    Agree…and it may be all for nought if the Euro imploded anyway.

    The latest I see is a second summit after the one this weekend when nothing will be agreed.

    The normal reasons for ‘being IMF-ed’ didn’t apply to Ireland. Our ‘current state’ economic fundamentals were as healthy as the best of them. The only problem was a bubble, which had caused a large debt overhang. As such the government was (broadly) pursuing the correct fiscal measures to close the post bubble gap.

    I can’t help but think that the IMF (and others) found us a tempting target , as they’d be able to issue ‘glowing’ reports such as the above ?

    @ Desmond Brennan

    I find the whole thing very strange or even sinister. Yields were 5% for a good chunk of 2010 then they went to 7% then the bailout then up to 14% and now they are back to 8% and nothing has really changed. Except that the bondwallahs got all their money back and the local financial industry has been decimated. Malfeasance isn’t the half of it.


    Not much. It would in principle make me more inclined to buy Irish gilts rather than less.

    Currently, expediency might suggest you focus your efforts on the Anglo por notes though.

    ” seafoid

    Your instincts are sharp.

    I wonder if we are in a sort of machine which washes and sorts our asset spuds. The marketable ones are being busily packaged for export. The funny sizes will will go the home market, whereit is known people will eat any kind of spud when there’s nowt else.
    I suppose there will be great pile of rocks, turnips, lumpy spuds, dead pigeons and God knows what else at the end. Maybe these will be made up into asset Lucky Bags and floged off the back of a lorry.

    As far as the main headings go, it was to be expected that the Troika would give us a gold star. The budget in December 2011 together with export-led growth this year and more-or-less neutral GNP, what appears to be stabilising unemployment (June 2010 to Sep 2011 is practically flat) mean that we’re likely to meet our fiscal targets this year. Budget 2012 will be tough and growth prospects next year are shaky because of external events.

    However the DoF says “the Government is pleased that the staff mission has assessed the Programme to be on track and all measures in the Programme have been fully implemented.” Maybe I missed it but the statement from the Troika says no such thing though again, in terms of the main headings we are on target.

    The legal reform bill was published in October which is Q4, not Q3 and it still has to be debated and as we have seen the legal sector is unhappy and is lobbying against it. Let’s see how watered down the bill gets. And frankly, there is not a great deal in the bill that will drive down costs.

    The Irish Times reports that a bill to reform the medical sector was published in September. Anyone know what that paper is talking about?

    Where were the measures to increase participation in the labour market?
    Where is the initiative to improve the quality of credit information available on individuals?
    Where is the reform of local authority expenditure?
    Where is the comprehensive spending review – Micheal Martin was told it wasn’t complete last week.

    The Memorandum of Understanding has a list of chores to be completed in Q3, 2011. How fecking difficult is it for the Troika to assess compliance with each chore and point out that some haven’t been complied with. Yes the budget is being more or less met this year but what about the other “stuff”.

    And where does the DoF get off saying “all measures in the Programme have been fully implemented”

    And are we all staying quiet about unsecured unguaranteed senior bonds, particularly those at IBRC (Anglo and INBS)

    I missed the presser this afternoon but has the IMF sat on its hands now as well?

    More then a tad uncomfortable with the priesthood making class warfare statements – the question is always who benefits ?
    The image of George Bailey not being there to save a drunken pharmacist from making a grave mistake comes to mind for some reason.
    Perhaps they need Conor McCabe up there to give them a intellectual gravitas.

    As for “stimulating the economy” to drive employment – may I suggest more salesman for their precious new privatised Utilities – I only got two visits from Switch Salesmen this week – thats a disgrace and way below my normal quota of absurdity.
    I am sure we can employ 100,000 door to door natural monopoly salesmen…….
    The fact that the final privatisation of the little bits that are left will reduce our redundency to outside shocks even more is neither here nor there as any efficiency dividends will be exported to London.
    No surplus will flow back to the state when this is over – just debt service purgatory or is it Limbo ? I am not quite sure anymore – I need to ask my local economist / priest for direction in this important spiritual matter.
    Its a sick joke – the most globalised kip in all of Christendom & they want to globalise it even more !!!!!!
    We should have remained Pagans.

    But anyway a bit of light relief
    A blast from the past.

    The real irony is that for the ‘textbook bailout’ , they didn’t use it to create sustainable principles (i.e. ones that would last, and scale to all the PIIGS)….and the deep irony is, our fortune has declined since the bailout…due to the chaotic uncertainty around bailout principles threatening/causing global recession.

    And the triple irony is…the ECB precipitated matters due to concern over ELA…with their _fundamental_ concern being that there was too much liquidity/money in the domestic economy. The supposed policy measure to address this, deleveraging,is allowed to include all sorts of bizarre tricks, which shrink domestic bank balance sheets…but don’t actually drain liquidity from the economy.

    Yet the ECB has quit huffing and puffing about it(recall the MOU wanted massive,rapid deleveraging)…and we get glowing reports.

    Greek Parliament has passed the bailout.
    Summit 11 on Wednesday.
    Interesting comment on current situation…

    19.27 Summing up the chaos, confusion and pessimism we’ve seen today very nicely, our man in Brussels, Bruno Waterfield, tweets:
    I’ve reported 9 years here in Brussels and never known such a palpable sense of despair, even doom, signing off…

    Is this time different?

    Back to the DOF statement above

    Over the course of the quarter the Government have undertaken several significant structural reforms including the publication of the Public Service Pensions (Single Scheme) and Remuneration Bill, the Legal Services Regulation Bill and the Competition (Amendment) Bill . The purpose of these Bills is to improve competition and reduce costs.

    It may reduce cost in 40 years time but hardly this year or next.
    So what will the legal bill do when implemented?
    Save the legals the cost of a €2000 wig. That will sure help everybody.

    several significant structural reforms

    The DOF and PS has as much committment to structural reform as the developers of Priory Hall had to construct sound buildings.

    Reuters report suggest Angela and Nicky had a chat on the phone today and agreed that the haircut people should meet urgently.????
    I thought they were already doing that.
    It now looks like Nicky has caved in. Beware French banks.

    @ ceteris

    ‘The folk in Brussels may be po faced but they are not completely thick. They know that this equaltion has too many unknowns. When the US Sec of State is reduced to ‘lecturing’ the Pakistanis you know the old order is dying .

    Its simple really – if you decapitalise a physical global economy by not spending on real wealth infrastructure over a period of a few decades that surplus credit created by not spending money must flow somewhere …… think of those Caribbean Islands or indeed the IFSC.
    But the problem is if the rich spent this money – the system will now inflate destroying their deposits so they are caught in a catch 22.
    They have not recycled the money so it must remain inside the bank accounts to retain value – its peverse I know but its clear to see.

    To get a local perspective refer to Figure 11 – Irish private sector debt /GDP in the recent excellent Irish leveraging report by O Leary & Walshe.
    You can clearly see the first post 1987 IMF pilot with a Irish hostess shock
    The post maastricht orbital phase in 1994 /95
    And the Euro trans lunar injection phase post 2002.

    You must understand that Private debt is all about bringing wealth back from the future to the present while public debt is all about spending money now for good or ill.

    In 2008 they could no longer bring anymore wealth from the future – the debt became unsustainable.
    But the deposits created from this 20+ years of “growth” still remain.
    To help sustain the value of this money you must try to starve if you can manage it.
    For the good of the collective of course.

    @ All

    This FT report seems to be the most accurate summary available on what is going on. It must be assumed that Sarkozy is insisting on going ahead with the meeting on Sunday in order to put further pressure on Merkel.

    One cannot but have admiration for the stance taken by Germany as it is rooted in a dispassionate assessment of the facts. Greece cannot repay its debts. France cannot retain its AAA status without taking the necessary domestic measures to reassure the markets. The ECB cannot be turned into a currency printing operation. Let the cards fall where they may!

    As to the markets, if the richest countries in the world are not a safe bet, where are these to be found? Which brings us back to the central conclusion of the paper by Philip Lane and his colleagues on the lack of safe assets in the international financial system.

    Whats really weird is this banking funding gap thingy – credit deposits should net to zero i.e. the assets & deposits should at the very least remain equal but there is a shortage of deposits relative to assets >>>>>>>>>
    Where are they ? under a coconut tree perhaps ?

    But still don’t ask any awkward questions – lets just blame the pharmacists who like the rest of us are living in a closed zoo so their wages / expenditures should at least in theory net to zero.

    I think there is a plan to fell run them over the Scottish highlands this season – to give them a sporting chance of course…….. but no tranquilizers ….. its best to cull them in the interests of ecological stability.

    Good assessment.
    It’s peculiar that gold is dropping when it’s becoming increasingly obvious that there are no safe sovereign assets. Italy distinctly dodgy today going over 6% and French now at 3.14%.
    I suppose the only thing to do is hope for the best and prepare for the worst.

    The Dollar………..there can only be one.
    My bets are on Gold – but it looks increasingly like a head fake.
    I have always said its just Dollar Vs Gold Bitches.
    Shame the Dork could have done with a holiday in the Caribbean
    If the French lose to the Germans its got to be the Dollar for another 40 years of pointless waste.
    Still at least the Americans can buy Mercs again.


    One cannot but have admiration for the stance taken by Germany as it is rooted in a dispassionate assessment of the facts.

    That is rather benign view of the German position.
    One has to wonder if the overdue Greek default was three years ago, when German bank exposure to the peripherals was much much higher, what would the German calculation be.

    The fact is that the last three years have been used by Germany to pull its money back from the peripherals while the peripherals continued to purchase German exports.

    A bit of a one-sided arrangement, if I may say so.

    PS I am not a fan of the French position either. They were so eager to stuff the banks debts down the throats of the Irish, that Sarkozy proposed an increase in corporation tax as an apertif.
    Now less than three years later, with the unplucked bank goose the only item on their menu, the French are being very protective of their palettes.

    Plus la change.

    @Joseph Ryan

    “The fact is that the last three years have been used by Germany to pull its money back from the peripherals ”

    Yes, I wrote a while back about the systematic ditching of anything peripheral by the German banks over the past couple of years. Somebody read out the writing on the wall to them before anyone else was given that bit of inside info.

    The Google version of the Franco – German press release

    The President and German Chancellor spoke today by telephone to prepare the European dates in the coming days. The President and the Chancellor have agreed to provide a comprehensive and ambitious global response to the current crisis in the euro area. This response will include the following: – The operational implementation of new forms of intervention EFSF. – A plan to strengthen the capital of European banks. – The implementation of the economic governance of the euro area and the strengthening of economic integration. For a lasting solution to the situation in Greece, the Greek authorities will have to make ambitious commitments to address the situation of their economies as part of a new program. Based on the report of the troika and the analysis of debt sustainability Greece, France and Germany call for immediately undertake negotiations with the private sector to reach an agreement for strengthening sustainability. The President and the Chancellor will meet Saturday night in Brussels ahead of the European Council summit in the euro area on Sunday. France and Germany have agreed that all elements of this ambitious and comprehensive response will be discussed in depth at the summit on Sunday in order to be finally adopted by the Heads of State and Government at a second meeting later than Wednesday.

    Later than Wednesday ????? Mistranslation perhaps.

    @ Joseph Ryan

    The facts that I am referring to are those as they stand now. As to how we got to where we are, there is more than enough blame to go around.

    @ Ceterisparibus

    Yes. “At the latest Wednesday”. Otherwise, the translation is pretty accurate.

    Back in May the FT quoted some Commerzbank walla who said Deutschland was looking at 10 years of another Wirtschaftswunder . 2011 growth was predicted at 3.8%.

    What a climbdown.

    Let’s just turn on the presses and have 5% inflation all around for a few years til the financial sector is reformed.

    Crikey Bolshy, how are we going to explain this to David OD?

    “The surprise nomination of Mr Visco, currently number three at the central bank, was confirmed by senior government sources on Thursday night and followed 24 hours of intense drama, with Italy’s prime minister twice changing his mind under pressure from the Bank of Italy and cabinet ministers.

    A day earlier Mr Berlusconi had fixed on Lorenzo Bini-Smaghi, currently an executive board member of the European Central Bank. But after intense pressure from the Bank of Italy which had insisted on an insider, Mr Berlusconi gave the nod to Fabrizio Saccomanni, 68-year-old director general of the bank.

    But only hours later, Mr Berlusconi – possibly acting under pressure from Giulio Tremonti, finance minister – told Giorgio Napolitano, the president who has the final say in the matter, that he would nominate Mr Visco, deputy director general, instead.

    This leaves Mr Berlusconi contemplating a seriously uncomfortable showdown this weekend with Nicolas Sarkozy, president of France, who has publicly demanded the departure of Mr Bini-Smaghi from the ECB board to make way for a French candidate.”

    Yes well its a naive statement with respect to Central bankers – as Jean Claude said in his most recent statement ” what is Germans what is French ” or something along those lines.
    But I always thought there was minor differences between CB cultures – with the Banque de France being a tad more Gold friendly then the Bundesbank which at least outwardly displays very strange opinions of both debt & money both private & public.

    That won’t change anything I am afraid.
    At least the private debt cannot be paid because unlike the 70s there is no growth in western production – inflation means nothing now.
    The solution is simple : transfer peoples deposits to goverment – declare all private debt contracts null & void and start again.
    This will stunt the parasitic tape worm at least for a generation and restore real production until credit / debt does its thing again
    But alas the private bankers run this world and they consider debt contracts sacrosanct – thats where Gold comes in , it has a certain properties both to neutralize private debt and clear final foregin transactions – thats why its on the CBs balance sheet.

    But they also might want to deflate the world on the alter of the US dollar – who really knows.
    Never has goverment executives so little power – they are funny little creatures when compared to the awesome money power of CBs

    I sense a fracture and it doesn’t help that behind the scenes the Americans are putting pressure on the Germans to go with the French flow (so I have been reliably told) and the Germans aren’t taking too kindly to this intervention. The PR machine will rev up again today with more comment to come from banks and possibly more public American interference.

    Will be interesting to see where Italian bond yields go today – that’s the indicator to watch I think.

    If this is “a comprehensive and ambitious global response to the current crisis in the euro area” I would hate to see them dither.

    Anyway, I’m back to shorting French banks on my meagre spread betting stakes.

    Sarko isn’t the only one doing his crust. Mr Papandreou is having kittens about the possible delay in announcing the (40% ?) haircut for Greece but of course, they can’t do that until the bank protection ducks are all flying in a row and right now, those ducks are just waddling about.

    @ PR Guy

    Nice link. I was at a big arts debate where a speaker from the platform went into the seeing-the-crisis-as-an-opportunity speech. She used the word ‘crisitunity’ with a straight face.

    That’s now up their with other new favourite words: ‘flexicurity’ and ‘beaconicity’.

    @Bolshevik, Grumpy, CeterisParibus

    The monks in the Trappist Monastery in Bobbio are devastated – now they will have to put up with Lorenzo as Abbott ….. his memoirs will still be published by the Dinny O’Brien Press and sponsored by the Saintly Columbanus Bank AG for services rendered to dodgy capital in the EZ.

    7_of_Nine informs me that Lorenzo had it in the bag – but that 17 Lorenzos showed up to meet and greet Silvio – it appear that the borgia_cloner ran a bit riot end of last year. Unconfirmed rumours that one Lorenzo is now on the Fiscal Advisory Council & blog collegiality prevents me from commenting on the status of DOCM.


    Meanwhile back in the real world …………….

    Ivan Yates in fine form – and has a little reminder for Ajai and the IMF – Ivan knows that it is pointless to talk to EZ leaders at the mo ….

    “Obfuscation, denial and delay are core official tactics deployed to reject meaningful assistance for those trapped in unsustainable situations. These problems will not go away. Layers of debts make this recession different to those of the 1930s, 1950s and 1980s. Ireland is more indebted cumulatively at every level, than any other state in the advanced world. Our sovereign debt represents 137% of GNP. Household debt amounts to 147% of GNP. Personal and corporate debt is greatest at 210% of GNP. Even with miraculous economic recovery and exponential growth, repayment on all these loans will suck years of cash out of 1.8m workers and 1.6m households. Combined total of debt at 494% of GNP contrasts with Greece at 273%. ”

    Read more:

    Greece 273: Ireland 494 Not really cricket – is it?

    @Gavin Kostick

    Crisitunity? I’ve not come across that one before. I will put it up there with ” comprehensive and ambitious global response ” and “got caught in the crossfire” as I can’t believe anyone can say those with a straight face either!

    @David O’Donnell

    “Greece 273: Ireland 494 Not really cricket – is it?”

    But aren’t we ‘declared’ and they are ‘all out’?


    Did anyone understand the maths that Brian Hayes was trying to explain last night on VB on the ‘merits’ of paying €3.5bn of Anglo unguaranteed bond holder cash now and maybe renegotiating the €31bn promisory notes over a longer time frame – if I’ve got this wrong my apologies but I was sitting there trying to to do the PV calculations in my head and it wasn’t computing.

    Where am I or Mr Hayes et al missing the point?

    Give us a break! Using Ivan Yates to support one’s argument is really scraping the bottom of the barrel. Yates belongs to the smallest minority on the planet; bookies who went bankrupt. Given the average IQ of most people to be found in a bookies on a typical afternoon, it requires mind-boggling incompetence for a bookie to go bankrupt. Perfectly competent statisticians like Seamus Coffey have demolished the figures Yates puts forward. It is really a question of who one chooses to believe; a clearly competent statistician or a bankrupt bookie.

    @ All

    Le Monde headlines Ireland as the “model pupil”.

    There is an aspect to the Franco-German communique that will come into focus in the coming days and that is the institutional changes that will be demanded by Germany as a quid pro quo for movement on the substantive issues to both guard against moral hazard and to reassure a sceptical German population.

    What the “rolling euro crisis” as it is now described has demonstrated irrefutably is the fact that it was a fundamental error on the part of Merkel to insist on acting outside the treaties and to make decisions by the ESFSF subject to unanimity. The net result is a decision by the constitutional court on the powers of the Bundestag that hobbles Germany’s capacity to act internationally as it is not possible to negotiate when one’s parliament decides a mandate beforehand i.e. if there is to be an outcome fixed in advance to a discussion it can hardly be qualified as a negotiation.

    The source of these difficulties lies in the one quality that both Merkel and Sarkozy have in common: both are domestic politicians incapable of seeing issues in terms going beyond their own borders.

    Thoma Klau in his article in the FT outlined what a profound sea change is taking place in thinking in Germany as a result.

    The relevant sentence in the communique is the following.

    “The implementation of the economic governance of the euro area and the strengthening of economic integration”.

    There is to be a return to the institutional framework of the founding fathers of the EU in the so-called “six-pack” (and this is already the case with the legislative package agreed on financial supervision) and it seems that it can be fairly safely assumed that this is also the intention with regard to treaty changes in relation to economic governance. In other words, there would be no move to alter the “essential scope or objective” of existing treaties but to intensify their use.

    In sum, the more often the Heads of State and Government of the EZ meet, the worse they make the crisis of confidence in the very capacity of the EU to endure. The German body politic appears to have woken up – as that in all the medium and smaller member states should already have – to this fact. It remains to be seen if this is also the view taken by the French.

    Curiously, it would seem that the Irish administration may be trying to adapt administratively to an institutional situation that will not now present itself.

    @ All

    For ease of reference, the link to the Thomas Klau article.

    The most interesting idea, and which is likely to be the most controversial, is in the following sentence.

    “He must prepare for a day when he shares important parts of fiscal and budgetary power with revamped eurozone authorities – likely to include a parliamentary assembly which could be embedded in the European Parliament”.

    The idea of a European Parliament made up solely of directly elected members seemd like a good idea at the time but it has caused a rift to grow between the institution and national parliaments. This has to be bridged, especially in the light of the constitutional developments in Germany.

    Notes from a previous bailout regime

    The harsh Victorian workhouse system was based on the idea that people were poor through their own fault and therefore deserved punishment. Workhouses for the poor were introduced in Ireland in 1838, says Geber. Their purpose was to provide a place of final retreat for the destitute, but in fact the real goal was to deter people from seeking relief by making sure conditions inside were always more wretched than conditions outside.

    @Dear Lorenzo

    A distinguished academic and former chief economist of the Paris-based Organisation for Economic Cooperation and Development, [Ignazio] Visco won out over Fabrizio Saccomanni, Draghi’s deputy at the BOI, Treasury Director General Vittorio Grilli and Lorenzo Bini Smaghi, Italy’s member of the European Central Bank’s executive board.

    The government now faces the difficult task of finding a job which is acceptable to Bini Smaghi, who has refused so far to leave the ECB. Visco and Saccomanni had been expected to resign from the BOI’s executive board if Bini Smaghi had been given the job.

    Le Monde headlines Ireland as the “model pupil”.

    Le Monde appear to pushing the CIRA line on the Flag

    JTO again:

    The French new-found enthusiasm for Ireland is probably related to the France v Wales rugby semi-final last Saturday. Indeed, I hear that there is a growing movement in France for Monsieur Alain Pierre Louis Napoleon DeGaulle Rolland to be drafted in as Presidential candidate. A true French patriot, if ever there was one. Polls show him on 96% since he gave Warburton Le Card Rouge.


    “..Yates belongs to the smallest minority on the planet; bookies who went bankrupt..”

    Just to educate you on the dynamics of a bookies business in Ireland today. Paddy Powers (as one of Yates’ biggests competitors) net profit margins – are how much do you think?

    You might be surprised to know that Paddy Powers 2011 net profit margin is expected to be 2.1% and for 2012 the expected number is 2.2%.

    Bearing in mind Paddy Powers share price hit new all times highs this week the market obviously believes these wafer thin margins are repeatable into the future. Yates made a similar bet – sadly he got it wrong.

    Similar numbers for UK operators are c14% to c15% primarily on the back of operating out of much older establishments with significantly less in the way of rental costs which new Irish market entrants had to bear over the past 10 years, like Yates.

    A business with a c2% net profit margin is less than your average food retailer – whose buisness model is very low on the risk table (people generally have to eat).

    So a business whose net margins are lower than the supposed very low risk operator simply has to be super low risk – right?

    Wrong I’m afraid – get the financing and the reveune expectations wrong and throw into the mix high fixed rental costs and 14.5% unemployment then the 2% margins can very quickly become 20% losses and then 40% losses.

    Please don’t be so naive so as to believe everything your forefathers told you such as ‘you’ll never see a bookie with holes in his shoes’. I’m an avid horse racing punter and believe you me I’ve seen manys a bankrupt bookie around the race tracks of this country – they’re far from a small minority relatively speaking.

    Yates argument in the article is correct – but he doesn’t go nearly far enough. I’ve stated here time and time again the issue with the mortgage disaster rests almost completely with the asset pricing problem. Property is a leverage driven maket -98% of transactions that happen in it simply would not do so aside from the actions of the banks. In a leverage driven market those in control of the leverage control the underlying asset prices. All the fundamentals suggest the banks mis priced the asset class for the best part of a decade as rental yield analysis was screaming this from about 2000 onwards – but the banks bulled on – contrary to mis selling Regulations.

    The presentations at the most recent CBI conference in relation to mortgage distress now confirm this mis pricing to be the case – unfortunately 10 years after the event.

    Additionaly Yates makes a small reference to the legal problems associated with mortgage contracts which again I’ve noted here it seems ad nausem.

    The contract signed by the borrower and the lender is legally blind to the wider actions of the lender in the market. It makes no sense legally, economcially or socially that the lender can go out of their way at the individual bank level and collectively as a industry in compromising the market for all participants in stupidly financing the over supply in many parts of the country to an extreme level and by so doing ensuring the normal ‘out’ for the distressed average borrower in selling his/her property is denied.

    The blame for this turn of events rests with the lenders and yet they come back with their grubby hand out looking for 100% of the loan to be repaid as if their actions in the wider market and a matter of indifference to the individual borrowers – a 10 year old would recognise that the banks have to bear a significant percentage of the blame for this turn of events but the law is blind to it. This is wrong.


    47 mins since the good news about exports from the CSO and not a peep from you. Standards are slipping.

    Only sour note is that exports from Ireland to the UK are down, and imports from the UK to Ireland up. Looks like the UK taxpayer was right to help with our bailout: it keeps our economy alive to help theirs. As a citizen of the Republic I’d like to offer my sincere thanks to all UK subjects north of the border for this generous assistance.


    Think Willie-John would have done a better job with Christine – and, being the sound no bullsh1t norn_er that he is, he would not have bought the French bullsh1t peddled to FF late 2008 and early 2009. He’d have booming laughed them out the door ….

    Alain has a flag, not a CIRA flag, and is set to judge the line on Sunday – we’ll see how the French respond after that …. when an All Black Depression will settle in over gay Paris.

    That said, I’m a fan of French Rugby – but I’m All Black on Sunday. Best to Wales – pity about the boots this morning.


    Perhaps Bini Smaghi is about to experience an asymetric shock.
    Lets see if he reacts with same flexibility that he proposes for lesser mortals.


    I liked this tweet..
    09.20 William James, who covers the eurozone bond market for Reuters, tweets:
    #Eurozone reminds me of a student with an essay due. Intention to ‘do it better this time’ inevitably dissolve into a half-arsed all nighter


    re Thomas Klau article

    As instability threatens its immediate neighbourghood, the re-united nation is ending its flirtation with soft nationalism and reviving the euro-federalist thinking that formed the ideological basis of West Germany’s post-war success. A new generation of German politicians is coming to realise that even after 1989, the old axiom holds: politically and financially, no investment offers Germans a better return than investing in a stable European order.

    Is there genuine evidence for the change that Thomas Klau refers to?
    It has hardly manifested itself in this ‘euro rolling crisis’.

    @Joseph Ryan

    Yes – manifest in SPD and Green support for EuroBonds, in Confederation of German Industry, in German Finance Dept, and – in a few banks.

    Angela should have dropped her wacky PeeDee coalition partners some time back – The Grand Coalition would have done a better job.

    Of course Issing, Sinn, some FDP, the inflation hawks, and the little deutschlanders are opposed and spinning to return to the illusion of an independent DMark.

    As for Bini-Smaghi – sooner that idiot is moved to some position where he can do no harm the better.


    Looks like the Troika are backing big haircuts for Greece.

    “The assessment by the European Central Bank, the International Monetary Fund and the European Commission, obtained by Bloomberg News, said more government aid will be needed and deeper private-sector involvement, or PSI, as is now being considered by European leaders, “also has a vital role in establishing the sustainability of Greece’s debt,” it said.

    Giving scenarios using discount bonds with an assumed yield of 6 percent and no collateral, Greek debt can be brought to just above 120 percent of gross domestic product by the end of 2020 if 50 percent discounts are applied.

    “Given still-delayed market access, large scale additional official financing requirements would remain, estimated at some 114 billion euros ($158 billion),” it said. “To get the debt down further would require a larger private sector contribution” of at least 60 percent to reduce debt below 110 percent of GDP by 2020.”…..from Bloomberg

    Now why did all markets rise substantially today…especially DAX?

    The Charge of the Euro Brigade.

    Half a year, half a year ,
      Half a year onward,
    All in the valley of Debt
      Rode the unfunded
    ‘Forward, the Euro Brigade!
    Charge for the loans they said:
    Into the valley of Debt
      Rode the unfunded

    ‘Forward, the Euro Brigade!’
    Was there a bond unpayed?
    Not tho’ the Eurocrats knew
      Some one had blunder’d:
    Theirs not to make reply,
    Theirs not to reason why,
    Theirs but to do or die:
    Into the valley of Debt
      Rode the unfunded

    Spending to the right of them,
    Spending to the left of them,
    Spending in front of them
      Follied and blunder’d;
    Storm’d at, all rushing to sell,
    Boldly they bought and well,
    Into the jaws of Debt,
    Into the mouth of Hell
      Rode the unfunded

    Flash’d all their policies bare,
    Flash’d as they turned into air
    Shattering the investors there,
    Meetings and summits while
      All the world wonder’d:
    With policy of mirrors and smoke
    the global economy they broke;
    Chinese and Russian
    Reel’d from a rate cutting-stroke
    Shatter’d and sunder’d.
    Then they rode back, but not
    Not the unfunded

    Selling to right of them,
    Selling to left of them,
    Selling behind them
      Follied and Blundered
    Storm’d at, all shot up to hell,
    While investors continued to sell,
    They that had bought so well
    Came thro’ the jaws of Debt
    Back from the mouth of Hell,
    All that was left of them,
      Left and unfunded

    When can their story fade?
    O the wild charges they made!
      All the world wonder’d.
    Honour the blunders they made?
    Honour the Euro Brigade?
      Forever unfunded!

    Lifted from Macro Man

    @ Joseph Ryan

    The frank answer is that for the moment the case is unproven. But the indicators are that Klau is correct. When Jacques Delors in an interview uses the disparaging term “Merkozy”, and one assumes that he is not out of touch with political sentiment either in France or Germany, something seems ready to give. Maybe we will have a better idea by Sunday evening.

    The driving political force in Germany is, in my view, the realisation that “chaos in Berlin” as the routine headline in the German press is not a good augury for the future of “alleingang”, still less the pretence of proceeding hand in hand with Sarkozy.

    @ Ceterisparibus

    This article in the FT may provide the answer to your question. The scenario that it outlines has been there from the outset, especially the involvement of the IMF or, rather, the EZ throught the membership of its member countries of the IMF.

    I liked this comment in particular.

    “For a continent as wealthy as Europe, on the surface the answer would seem an easy yes. But the way the eurozone has set up its rescue system has made the answer far less obvious”.

    This again brings us full circle to the initial insistence of Germany on involving the IMF. The assessment was that the burden would otherwise be too big for Germany and the EZ, in any case, did not have the necessary tough guy reputation. The first assumption was correct, the second not. Chopra is a surprisingly popular guy!

    re When Jacques Delors in an interview uses the disparaging term “Merkozy”,..

    Thanks for that. I was not aware of it. Very disparaging even in cartoons but coming from Delors!

    Just when we thought it couldn’t get worse…
    “Greece’s economy has deteriorated so severely in the last three months that international lenders would have to find €252bn in bail-out loans through the end of the decade unless Greek bondholders are forced to accept severe cuts in their debt repayments.
    The dire analysis, contained in a “strictly confidential” report by international lenders and obtained by the Financial Times, is more than double the €109bn in European Union and International Monetary Fund aid agreed just three months ago.

    China joins calls for Europe to act
    In depth Eurozone in crisis
    French banks urged to raise Greek debt haircut
    Long View Hope springs eternal
    Opinion Forcing a Greek restructuring is not the answer
    Under a more severe test run by economists for the so-called “troika” of lenders – the IMF, European Central Bank and European Commission – Greece’s bail-out needs could balloon to €444bn, the study said.
    The report also made clear European leaders are considering “haircuts” on Greek bonds far higher than previously known. The study determined that in order to bring a second Greek bail-out back to the €109bn agreed in July, bondholders would have to take a 60 per cent loss on their current holding.

    No wonder Nicky is shuffling back and forth to Berlin.

    Interesting tweet from Papandreou …
    In a message on Twitter on Friday, Papandreou said there were “serious doubts” about a deal being reached tomorrow. “It is our strategic priority to remain in the eurozone,” Papandreou said. The second goal, the premier said, is the implementation of decisions made on July 21, when EU leaders hammered out a second bailout package for Greece.

    At home, Papandreou remains under pressure from some PASOK MPs to find a way of getting other parties to share the burden of carrying out structural reforms and enforcing unpopular measures. The Socialists are concerned that their party is suffering irreparable damage in terms of its public support because it is shouldering a disproportionate amount of responsibility for Greece’s effort to get out of the debt crisis. Among the suggestions made by lawmakers are for Papandreou to find a way to bring other parties into a coalition government.

    However, a group of 28 PASOK deputies issued a statement supporting Papandreou in which they called for him to form a “national plan to exit the crisis” when he has completed talks with European leaders.

    The move reflects the growing divergence in views within PASOK about how the government should move forward.

    Strategic priority????? Are they planning an exit????

    Where do they flippin’ put it all? Honestly?! They are blessed with a warm climate, lovely home grown food and a sort of wine. How on earth can they possibly ‘overspend’ that much?


    “Greece’s economy has deteriorated so severely in the last three months…….

    Quelle surprise!

    What did the austerity mullahs think would happen as they continued to bleed the camel.
    Did they honestly expect more milk.

    Should be an interesting few days. The disagreements between the IMF and ECB are now fully out in the open. The IMF are basically calling for real haircuts for bondholders, while the ECB are left to complain:

    The ECB does not agree with the inclusion of these illustrative scenarios concerning a deeper PSI in this report.

    Much of the media reporting on the Greek deal has been weak, but that on the PSI element even weaker. It is commonly stated that Greece has already obtained a 21% haircut due to the July deal. This is not true, not least because of the collateral it is forced to buy in the form of zero-coupon bonds. The 21% NPV loss is relevant to the banks, from an accounting perspective, but not for Greece where its annual interest and principal repayments are what matter. The July deal has a set schedule of payments for the newly issued bonds, and this schedule of payments is independent of the discount rate used to calculate NPV, for example. The PSI deal has become even more expensive for Greece since July as the cost of the zero-coupons has gone up by about €10bn (from €42bn to €52bn) due to falling interest rates. Also, not surprisingly, the banks mainly want to use the Par Bond option, rather than the Discount Bond option in the PSI deal, since the principal is guaranteed, and this further increases the cost for Greece, unless the banks “voluntarily” rebalance among all the 4 options proposed.

    So given that the recession in Greece is worse than expected (by the EU, not by most observers), and that future growth is expected to be lower, and privatization revenue lower, and achievable fiscal consolidation lower, and cost of zero-coupons higher etc. etc. the obvious is being stated by the IMF that some real debt write-off is needed. It is important to note that in the scenario outlined by the IMF there is no collateral involved. This is huge change and would immediately make any such involvement by the banks non-voluntary. Others have drawn scenarios (e.g. UBS) which indicated that the newly issued bonds would need to be for 40 years (not 30) and at an interest rate of 1.5% (not the 4% to 6% range in the July deal) to get a debt reduction of a size that would matter to the markets.

    There’s really a range of outcomes that could happen. At one extreme is some tweaking of the discount rate which would be for optics only and would only have an impact on bank accounting, not Greek liabilities, but would get a few headlines (“Haircut increased to 35%” etc.). At the other extreme is a deal where all newly issued replacement bonds are 40 yr 1% bonds, with no collateral/zero-coupons needed. Then there’s everything in the middle.

    Throw in huge disagreements on how to leverage the EFSF, and on who should pay for bank recapitalizations, and you can see how a busy few days are in store for all involved. My guess is that the IMF will dangle a carrot of increasing their own credit-line facilities for Italy and Spain (to be announced at G20 meeting in a couple of weeks), but want to see real, not fake, PSI before that happens. At some point the French and the ECB are going to be forced to back down and yield to the laws of arithmetic.

    @ Bryan G

    I enjoyed your post especially the bit about real PSI in Greece.

    Somewhere in all this, am I right in thinking there’s a massive fear of anything that looks like a Greek credit event and an unknown (or perhaps known by a few?) but potentially huge set of liabilities being triggered in the event of one?

    Am I also right in thinking that the American banks (as well as French, UK and German) also stand to lose big time – not just from their direct exposure to Greek sovereign debt – if various derivative/CDS contracts all go belly up (and that the amount of this exposure has been seriously piling up this year as more and more speculators have been diving in)?

    It would be of great interest to me if anyone out there could articulate the potential consequences of a Greek ‘credit event’… in words that we mere mortals can understand 🙂

    Meanwhile, there are certainly distressing noises coming out of senior Greek politicians. Other than getting the next tranche, which has now been approved, I think they fear the other potential outcomes from this weekend.

    … and what are the possibilities of balancing/sweetening PSI with some OSI in Greece as well? I wonder if anyone has put that to the IMF or ECB? The ECB stance this weekend is going to be interesting given their evangelical crusade to protect bondholders at all costs.


    Mornin all ….

    By the way, odious Irish vichy_banking Debt renders the Sovereign debt unsustainable …

    Just a pleasant reminder – down falls the rain – and into the deep valley of unsustainable debt limped the lumpen ragged proletarian hordes … down, down, down falls the rain ….

    … and NO_ONE is held accountable around here; NO_ONE has been before a proletarian jury; NO-ONE is responsible; WHITE COLLAR CRIME does not, apparently, exist in Ireland; & the local upper_echelon spinners spin successfully away & hoard what they can of the proceeds of the FINANCIAL RAPE of a SUPINE Irish CITIZENRY.

    Interesting situation developing about Greece.
    I’d love to know what people think about this leak during the crisis talks. It’s one of a few things:
    1: Trying to impress on Germany the extent of the problem so that they’ll beef up the EFSF
    2: Trying to prepare banks for the haircut they’ll have to take or
    3: Something else

    I think it’s probably No. 1 given that it’s leaked on a Saturday etc.
    There is a high probability that it will prod the Germans into some kind of compromise but there is a downside to all this. There comes a point where the message “the problem is so bad the Germans must just stump up more cash to fix it” becomes “the problem is so bad that there’s no real way of fixing it….”

    I don’t believe the problem is Germany, I think the problem is France and the ECB – the Germans want large PSI and, I supect, institutional losses too. They don’t want the German state to pay for keeping Greece on a never-ending bailout (through the ESFS). The French, it appears, do (want the Germans to pay for it 🙂 ).

    @PR Guy

    Total Greek govt debt at the end of 2010 was €329 billion.
    So a straightforward writedown of 60% would be approx €200 billion.
    This should be perfectly manageable.

    The ‘devil’ as you suspect may be in untold billions of naked CDS gambling chits that may need to be paid.
    It would have been very simple to invalidate all naked CDS on EU govt debt during the past few years. Why was it not done!

    To me it looks like the ECB is more worried about its own piece of the Greek debt write off than sorting the problem. So it has thrown its lot in with the big banks and the ‘I want my my money back brigade’.
    Wakey, wakey time. The money is not coming back.

    @Bryan G above is correct and was on of the first to spot the slight of hand in the so called 21% haircut in the last deal. Others, Krugman and Eichengreen have subsequently confirmed that the 21% ‘haircut’ was a mirage. It was just spin. There was no haircut.

    “It is our strategic priority to remain in the eurozone,” Papandreou said.

    Does this mean that they will burn bondholders to zero, if they are being forced out of the euro.
    Leave us in and you get something. Throw us out and you get zero.
    The Greeks have liathroidi.

    @ All

    The post by Brian G sums up, in my opinion, the situation and underlines the unwillingness of other countries of the EU, and especially those in the EZ, to actually stump up any cash to aid Greece.

    Even to non-economists, the contours of the conundrum facing the leaders of not only the EZ but the entire international financial community are by now quite clear. The overhang of sovereign debt is such they are confronted with a vista too terrible to contemplate, in political terms at least, the need to introduce drastic budgetary cuts to bring the standard of living – of cosseted Europeans in particular – into line with what they are actually earning, the only countries where this is not required being the AAA rated – excluding France whose rating is not now, nor has been for some time, justified – within the EZ. (That ideology is taking over from rational thinking can be gauged from the fact that the head of the CSU shot down publicly an agreement made by his own finance minister with the junior partner in the coalition to reduce income taxes from 2013 in Germany).

    The Greek situation is dramatic not because of the level of the country’s indebtedness but the fact that it is a member of the euro. The various economic analyses suggest that countries with weaker economies in a currency union need to run a more or less constant primary surplus and limit the level of government borrowing to about 30% to 35% of GNP! Seen against this background, the enthusiasm for being able to “return to the markets” needs to be tempered considerably.

    Major countries that have the capacity to issue debt in their own currency (the notable examples being the US and the UK) do not face the same constraints. Investors know that there are market mechanisms which enable them to hedge their risks and to be assured that they will not face a total wipe out.

    Another point being lost sight of is the impact of dramatic haircuts on Greek debt on holders – especially pension funds – of it by their own citizenry. cf.

    The immovable object and the irresistible force! It seems that Germany may have a two-way bet on the outcome; if the statements by some influential leaders, e.g. Issing, are any guide.

    @ Hoganmahew
    That’s interesting – it looks like the ploy might be to indicate to the Germans that the extent of the PSI is so great that it will bring everything down and that the only option is that they get taxpayers to stump up the cash.

    Agree re France. The French are the bailout masters of Europe.
    1914 first French bailout –
    1939 Second French bailout
    2008-2011 Third French bailout

    @Joseph Ryan
    Say Greece’s debt is 329 bn and about 200 bn of this is super senior (troika), so about 129 bn of PS debt. Say you want to write down to 80% of Greek GDP (about 240 bn). That means you need to write down Greek PS held debt by 106%…

    It clearly doesn’t work (even allowing for NPV, you need to get to a situation where the total stock of debt is 80% of GDP). If you want to get to 60% of GDP (the Maastricht limit), the figures are even more stark.

    Personally, I don’t see a solution that involves only PSI, a fixed exchange rate, growth policies for Greece (the cost of growth policies is more than Greece can afford, it seems to me, within a fixed exchange rate).

    CDS are, I believe, a sideshow as they were for the Icelandic banks, Lehmanns etc.

    @ DOCM

    ‘The Greek situation is dramatic not because of the level of the country’s indebtedness but the fact that it is a member of the euro’

    It is dramatic because Greece is the canary in the EZ mine, and the efforts to mnimise default fallout have exposed deep structural flaws in the EZ.

    As Philip Lane said in a recent Vox interview (carried here), it is in the sphere of financial integration where most progress has been made.
    As noted in my previous ZH link above, however, soverign stress is inextricable from issues of core bank solvency and core bank funding.
    Much of the touted ‘financial integration’ has been regulatory arbitrage, CDS-style speculation and outright looting. Or wealth extraction, as the Dork likes to call it.

    You post tends to present the crisis as a sovereign fiscal crisis. That is how the bankers and the financial sector players wish the crisis to be seen, in order to avoid being held accountable for own their part in it. Abe Lincoln’s conmment about fooling all the people come to mind.

    Greece is only the breeze before the real storm. The EZ political leadership are in much deeper waters than even they understand.

    ‘Italian debt is the bone that is stuck in the Eurozone throat at the moment, it can’t be swallowed, and it won’t be spat out. Really it is a sort of nightmare scenario and while some sort of fix may be agreed next Wednesday, my feeling is it won’t be too long before we are back exactly where we are now, only with a little less fire-power left. Latest solution ask the IMF to chip in something to help “bulk up” the numbers’


    “It clearly doesn’t work (even allowing for NPV, you need to get to a situation where the total stock of debt is 80% of GDP). If you want to get to 60% of GDP (the Maastricht limit), the figures are even more stark.”

    That’s Greece.

    Our local wallahs would have us believe that 115% debt/GDP is going to work. Insane?

    @DOCM LBS_3

    ‘The overhang of sovereign debt is such they are confronted with a vista too terrible to contemplate, in political terms at least, the need to introduce drastic budgetary cuts to bring the standard of living – of cosseted Europeans in particular – into line with what they are actually earning,…’

    Fictitious Capital dear boy – purely fictitious ….. the limits of the Kon are nigh …

    There has certainly been an excess of “fictitious” capital created over the last two decades, far more than Marx, or anyone else, could have anticipated. Money made out of the money made out of money. $600 trillion of derivatives. High frequency trading insanity with trades reduced to micro-seconds. As Adam Curtis observes in his excellent documentary “All Watched Over by Machines of Loving Grace”, the heart of the insanity has been the belief that systems run by machines are inherently more stable than systems with humans at the centre. This has greatly skewed the system towards the egregious self interests of capital, as against labour. Curtis lays much of this greed at the feet of Ayn Rand and Alan Greenspan.

    $600 trillion of useless derivatives! And EZ quibbling over a half trillion or so … get a grip!

    @The IMF

    Keeping somwhat ‘mum’ at the mo – but The Irish Arab Spring is nigh – and as vichy banking debt dumped on the Irish Citizenry is essentially ‘fictitious’ – we intend to have a ‘quiet’ little default_party in the Spring – you are, ca va sans dire, invited.

    @ David O’Donnell

    I read the article with great interest.

    I note that Aviva are able simply to declare they are moving 950 jobs over to the UK. The Irish trade union UNITE, of course, opposes this, but I’ve yet to see any UK union object to taking these jobs. Capital is acting globally and workers movements seem to be struggling to keep up.

    Time for a return of the Wobblies?

    re above

    How Much Is Too Much? Benjamin Kunkel’s review of some of David Harvey’s recent work in London Review of Books is worth a careful read – especially for those poorly educated neo-classical economists who wish to upgrade and for those upper_echelon spinners of the financial system who may be feeling a little constipated at the mo ….

    @Gavin Kostick

    And this one for The Great Squid – and in particular for its Top Hibernian Blue Ridge Spinner – echoes of 1929 Shenandoah and Blue Ridge .. Height of Fictitious Goldie Sacks Capital – and they still at it …


    “Say Greece’s debt is 329 bn and about 200 bn of this is super senior (troika), so about 129 bn of PS debt. Say you want to write down to 80% of Greek GDP (about 240 bn). That means you need to write down Greek PS held debt by 106%…”

    Why are you making a distinction in the write down between super senior (Troika) debt and ”normal’ PS debt. I would have thought that the write down would be across the board? No? Just a question.

    If as you infer the write down will exclude ‘super senior’ debt (amount?) clearly the 50% / 60% haircut numbers being talked are far too small to make any impact on the situation.

    You may well be right on CDS being a sideshow and I would not disagree with you that the ‘solution for Greece’ as distinct from a ‘solution to Greece’ seems virtually impossible without the three elements you mention.
    PSI, devaluation and growth.


    Any chance of just nationalising the entire European banking system?

    It seems that is now a real possibility but nobody wants to mention it. In some ways that would be logic of the German solution. Each country must sort out its own banks. The counties with bust banks therefore end up nationalized just as in Ireland, and proceed to bust the host State.

    Except the bankers don’t get to live on civil servant’s pay. They stay on the gravy train. Still ,if you want real talent you have the ‘going’? rate!!

    @ gavin

    Another interesting report from wikigreeks. Really it is apparent that many banks in struggling European countries are rolling over far more loans than they should, and that the regulators (in this case the national central banks) are well aware of this state of affairs.

    Given the low prevailing market valuations, any government financed recapitalisation means de facto nationalisation. The question then is what to do with the true level of NPLs? Writing them down immediately means the acceptance of large losses by the new owner (the state). The most popular alternative to this is putting in place some kind of asset guarantee scheme and then privatising. The new owners then get a cheap asset, with automatic coverage over part of the balance sheet.

    @ All

    Der Spiegel again provides an excellent overview of an aspect of the difficulties in Europe that tends to be overlooked; the increasing exasperation of the US with Europe’s leaders and Germany’s in particular. Of course, there are many that would argue with some justification that it is a case of the pot calling the kettle black. But the blame game as to how the international financial community got us into this mess is best left until it the mess is sorted out. It does not, to coin a phrase, move the process forward.,1518,793289,00.html

    P.S. The link to the piece by Ulrike Guérot is of particular interest.

    Interesting that the Troika issue two kinds of reports. I wonder what the “highly confidential” report on Ireland actually says.
    Labour must be nervous – they’ll be associated with all the pain but come 2013 there’s a real chance the rescue fund will be kaput


    It seems Angela is not for turning and the following seems in line with that given to her parliamentary colleagues yesterday…

    “But, says Guérot, the debate has been instructive regarding Germany’s current role in the new Europe and frustration with which the US has viewed that role. Germany is insisting on a solution to the debt crisis which does not involve positioning the European Central Bank as the funder of last resort. That means no euro bonds. And it means no banking license for the EFSF.”

    Your link

    The attitude of the ‘former European Central Bank vice-president Lucas Papademos ‘ astounds me. It is an extraordinary statement.

    For institutional, political and legal reasons, there can be no debt restructuring resulting in losses that would burden official debt holders,” that at the end of July accounted for almost a third of Greek government debt.

    At the end of 2010 Greek Govt debt was debt was €329B. Lets say it is approx €360 at present.
    This means that ‘official’ funding of approx €120 billion.
    Why do ‘official’ funders not get hit like everybody else?
    ‘For institutional, political and legal reasons’ read to hell with everybody else, we want our money back!!!. All 120 billion of it.

    Meanwhile about €3,000? billion has been wiped off European stockmarkets this year.

    from the Irish Gov Press Statement

    ‘This Government has been very clear at all times that we are determined to take all the necessary steps to restore our sovereignty.’ [neu Minister Noonan]

    #Patricia the Irish Sovereign_in_Exile (via black_hole_berry)

    “I want to go home.”

    @ Joseph Ryan

    Therein lies the crux of the matter. A 60% write-off for the ECB would amount to 72b so their capital base would be seriously damaged (if not wiped out) forcing the e27 to part with more money.

    @ceterisparibus Joseph Ryan

    ECB can simply print it – a three year old child could figure it out. see recent from EuroIntelligence below ….

    ‘The alternative for the EU authorities is to restructure Greek and possibly Portuguese debt, giving these economies the option to start growing again if they make the right adjustments. [IRELAND added]

    We suspect the benefits of a default would be substantial for the entire European economy, including those of the defaulting countries. The political risk created by procrastination, and the general uncertainty about the amount of exposures and how these will be resolved has created an expectation of a worst-case scenario. A vicious cycle between a lack of confidence, banking crisis, increasing borrowing costs and fall in liquidity has been created. Muddling through will maintain this vicious cycle. Defaulting will break the cycle.

    We take the average growth in the euro zone over the past 20 years – 1.67% – as a growth estimate for the reality scenario. This is to be contrasted to the 0.67% growth rate under the ostrich scenario. With a growth rate of close to 2%, the euro area GDP would be 22% higher after 20 years, adding €3.5 trillion to current GDP, while the muddling through would in 20 years only add €1.3 trillion.

    @Ceterisparibus & Joseph Ryan
    The link from ceteris pretty much covers it.

    The capital base of the ECB is, IIRC, about 4 bn euro. Supporting a massive amount of covered bonds and bought sovereign debt already. Guess who is in line to recapitalise the ECB?

    Whatever level of debt they decide is appropriate for Greece is going to be seen as a ceiling.

    Sometimes you can get too close to a situation. It’s important to take one step back and realize – we are quite simply f***ed.
    Scenario 1: Greece is allowed haircuts – bring on the massive contagion and all indebted peripherals shut out from debt markets
    Scenario 2: Greece is not allowed haircuts – bring on the massive resistance in Germany to having to pay for somebody else’s mistake.

    And…where is Goldman Sachs in this – the people that cooked Greece’s books in the first place. Betting on a Euro Collapse, a devaluation of the Dollar and the world becoming dependent on Gold.

    The financial industry is a dirty rotten parasite. Oh yes they may get their return to Gold as FIAT currencies temporarily collapse but they will also get rage

    @ CP/Hogan/Joseph

    Just so we’re clear on the numbers, the ECB has around 50bn in Greek government bonds, all of them bought at a significant discount to par as is, probably at around an average cash price of 65-70 cents (ie they actually should redeem at around 75bn). So a 60% haircut would probably generate losses at the ECB of around 20bn.

    From breaking news on IT website….
    “EU officials have said that almost €100 billion is required to reinforce the region’s banking system. European banks would be required to increase their core tier one capital ratio to 9 per cent to help them withstand losses on sovereign debt, officials have said.

    Banks that cannot raise money on the markets will have to turn to national governments or the European Financial Stability Facility (EFSF).

    While there was basic agreement this afternoon over the size of recapitalisation, finance ministers were still wrangling over how long banks had to recapitalise. They had also not yet agreed on the order in which banks would tap the private sector, government money and the euro zone’s rescue scheme – the European Financial Stability Facility, or EFSF.

    In particular, Italy and Spain did not want to have to take a programme of aid from the euro zone in order to help their weak lenders, said one diplomat.

    “There are 24 against three – Italy, Spain and Portugal,” said one euro zone diplomat. “They think it’s too expensive. They don’t want to pay it.”

    It seems that the banks recaps is a fudge before it is even agreed or else the IMF cannot count. It is only a few weeks since Madam Lagarde said they needed 200b. Now the EU says they need 100b. Who is right?
    It is likely that the lower figure will be regarded by the markets with skepticism particularly with the WSJ reporting yesterday a huge exposure to dodgy bonds. I think the figure for BNP was 169Billion alone.

    @Bond Eoin Bond
    Of course. Thanks.

    Still a rather large hole in the ECB balance sheet. Though they might make a few bob on IRL. (in theory anyway.

    Correction on the BNP figure quoted above. Correct figures

    BNP ….198 b.
    Credit Agricole…136 billion
    SOC Gen… 47 billion
    BPCE…38 billion

    Total 419 billion.

    @Joseph Ryan

    Sounds half arsed to me. Do they really think the Norwegians would subscribe to this or indeed the Arabs. It smacks of desperation.

    “To protect France’s rating, the bolstered EFSF may be restricted to buying just Spanish and Italian debt. Even after recent downgrades, Italy’s rating is A2, Spain’s is A1, while Greeceis rated as junk.”

    Now this is just simply nonsensical


    The ECB however are not the only ‘official’ funders. Per the FT article (Papademos), the Greek debt of €366 at the end of July breaks down:
    30% ~100B Greeks banks/Institutions/Pension funds/citizens
    30% ~100B Official funders
    40% ~146B Les Aurtes.
    The ECB loss might be only €20 but (if one is to believe the FT article) there are others.

    @PR Guy

    The proposal to leverage Sovereign wealth funds, if one ignores the wealth fund part, sounds very similar to the ESBies proposal that Philip Lane and others proposed.

    It says a lot about European solidarity (one of the first Treaty articles if my memory serves me), that a relatively Europe has to put out the begging bowl to keep itself afloat.

    May I also say that I think Italy, Spain and Portugal are correct in refusing to take on ‘euro aid’ to help out their weaker banks. That is what was forced on Ireland. Europe needs PSI-debt writedown. It is that simple.

    Meantime Germany in particular in continuing to gather in its crops from the periphery.

    But the mechanism

    “Sounds half arsed to me.”
    Indeed and we heard the same appeals to Asian/Arab/Chinese/anyone please! funds from our own statelet not that long ago. What did they come to?

    True, I forgot that. It would seem to make sense to get the ECB to at least write down to purchase value. One wrinkle – we have assumed that the ECB were buying at market price to make a market. What if they were not?

    Also as Joseph Ryan gives us the breakdown, my finger in the air figure of 200 bn seems correct – bankrupting Greek banks or pension funds (among them, I believe the social security fund?) is not really going to help the longer term Greek debt position (or even the short-term one).

    @ DOCM

    ‘But the blame game as to how the international financial community got us into this mess is best left until it the mess is sorted out. It does not, to coin a phrase, move the process forward’

    That is, of course, the message which the plutocrats are putting out. They would like us to keep trusting their figures, their paid analysts, and their captured politicos and civil servants. They would like us to keep believing that their central banks are ‘sober and responsible’, when all the evidence is that the CBs themselves were the first to be captured.

    What the general public is beginning to perceive is that there is a vaccuum where democracy should be, and that behind the glossy 21c spin are the same old parlour games of the wealthy.

    Sarko is now in a rather similar place to where the late MoF was this time last year. He can jet about as much as he likes, but the French banks are getting found out, and there is SFA he can do other than to kick the can a bt more.

    Eureka is not far off the mark. I don’t think bankers will get the same treatment as the late dictator of Libya, but this shambles is not going to be easily or politely contained.

    @ Hogan

    “we have assumed that the ECB were buying at market price to make a market. What if they were not?”

    They’re buying at market prices. I ain’t guessing.

    @ All

    French TV has just announced a “conseil de guerre” post the Merkel-Sarkozy bilateral meeting with Trichet, Lagarde and Barroso (and, presumably Van Rompuy but they forgot to mention him).

    One assumes that, against the background of a draconian Greeke haircut, the outcome will impinge on what exactly – apart from turning itself into a printing press – the ECB can do to offer its “continuing support”.

    My guess is that Merkel got her way over the size of the Greek haircut and over what the EFSF will provide. They all know it won’t be enough cash and so the ECB is going to have to provide unlimited liquidity support in anticipation un crunch enorme.

    @Hogan, Eoin

    “we have assumed that the ECB were buying at market price to make a market. What if they were not?”

    The ECB has not been buying at “market prices”. They have been providing artificial demand so there is always a bid at a new distorted, or rigged if you like, ‘market price’ which is above what the market price would be without their intervention. They are no more buying at market prices than butter would be bought at ‘market prices’ if it were destined for a European butter mountain. The ECB is via the SMP paying higher than ‘real’ market price in order to become custodian of a European bond mountain – some of wich might go rancid.

    Also don’t forget the book profit on gold holdings if you want everything marked to market.

    @ hoganmayhew

    I would agree. However, I think that other bells and whistles will be added both by the IMF and throught the proposed SPV for attracting outside investors cf. the latest FT report.

    As Jospeh Ryan remarks above, the idea of opening some kind of window to private – in particular sovereign fund – investors that unblocks the fundamental creditworthiness of the core economies of the EU is very close to the idea for ESBies propounded by Philip Lane and his colleagues. The other leg of the proposal, that the fiction that sovereign bonds can be held by banks as zero risk not requiring capital provision be brought to an end, is also actually coming to pass before our very eyes.

    “The other leg of the proposal, that the fiction that sovereign bonds can be held by banks as zero risk not requiring capital provision be brought to an end, is also actually coming to pass before our very eyes.”
    The problem with this is that it renders a number of fully funded social welfare systems insolvent and so requiring a top-up from their funder.

    @ hogan

    ‘My guess is that Merkel got her way over the size of the Greek haircut and over what the EFSF will provide. They all know it won’t be enough cash and so the ECB is going to have to provide unlimited liquidity support in anticipation un crunch enorme’

    So you think Draghi is going to have to embark on massive QE. The only way the Germans will let him go down that slippery slope is if they are already on their way to the exit.

    @ DOCM

    ‘As Jospeh Ryan remarks above, the idea of opening some kind of window to private – in particular sovereign fund – investors that unblocks the fundamental creditworthiness of the core economies of the EU is very close to the idea for ESBies propounded by Philip Lane and his colleagues. The other leg of the proposal, that the fiction that sovereign bonds can be held by banks as zero risk not requiring capital provision be brought to an end, is also actually coming to pass before our very eyes’

    Creditworthiness apllies to individuals and corporate entities. Sovereign creditworthiness is critical, unless we re talking about some banana republic.

    The creditworthiness of many EZ sovereigns has been threatened by the activities of their globalised financial sector. Despite the great technocratic show of Basel 2 etc, the reality is that the EZ states failed to regulate financial activity, and are now paying the price.

    @ hogan

    ‘The problem with this is that it renders a number of fully funded social welfare systems insolvent and so requiring a top-up from their funder’

    Precisely. So le credit crunch will be accompanied by le inflation and le social security crisis. I see on the 9 o’c news our prisons are already full to bursting.


    “The problem with this is that it renders a number of fully funded social welfare systems insolvent and so requiring a top-up from their funder.”

    Is an insolvent, previously thought of as fully funded, social welfare system the same thing as an unfunded one?

    Well, they would be okay if they didn’t have to spend packets on banks or on the EFSF. So no. The situation we’ve been in with massive unfunded liabilities just waiting to happen is a little different.

    @paul quigley
    “So you think Draghi is going to have to embark on massive QE. ”
    Erm, no. I think that is what he *should* do, but I doubt if he thinks that is what he should do or is going to do.

    Indeed, I think he should outright print at this stage. The euro is 30% overvalued versus the dollar and therefore against most Asian currencies pegged against it. A lower euro would increase wage demands in Germany which would go some way to rebalancing intra-euro competitiveness.

    PS liquidity provision is not printing, it is not even QE, though it might be argued that the ECBs collateral requirements allow it to be so (by valuing assets above market prices). Then again, there’s not much point in providing liquidity at market prices – by the time you provide the liquidity, the ‘borrower’ is already bust (you mark him to market). The ECB should be maintaining the fiction that toxic is worth more than it really is. It is, after all, the banker’s bank.


    “Well, they would be okay if they didn’t have to spend packets on banks or on the EFSF. So no. The situation we’ve been in with massive unfunded liabilities just waiting to happen is a little different”

    Isn’t it totally inconsistant to ignore unfunded liabilities in one country and not in another?

    I won’t say the Emperor has no clothes yet, but he’s looking a bit dishevelled.
    It’s all about confidence.

    The educated classes know the EZ is in deep doo doo, and try as they may, the PTB will not succeed in putting Humpty Dumpty back together again.

    “Isn’t it totally inconsistant to ignore unfunded liabilities in one country and not in another?”
    I’m not sure I get you.

    We aren’t all in this together, that’s why it’s the cheapest solution for Germany… so far…

    The liabilities aren’t ignored, per se, they are assumed to relate to benefits that will not be delivered. We’ve already seen some evidence of this with the state pension age being raised to 68 for most of us and it’ll hit at least 70 before I retire (I’m in my early forties), even assuming no increase in male lifespans.

    Nicolas Sarkozy’s ”two faced” personality has been cited as a major factor in his dysfunctional relationship with Angela Merkel Photo: REUTERS

    Great article on the meeting with all the inside didly. Despair and backbiting in the corridors of power.

    Von grumpy wouldn’t let Junker have a smoke…how petty can you get.

    @ Hogan
    When you say “open a window” does this mean that traders go up to the ECB and borrow money from them to lend to Greece (in the form of buying their bonds)? Sorry if it’s a dumb question.

    @Paul Quigley

    Holy suffering god…that would frighten the whatever out of you. And it’s in trillions.

    @ Ceterisparibus
    Great link
    “She says she is on a diet and then helps herself to a second helping of cheese,” the French president allegedly said after a dinner meeting with Mrs Merkel.

    You just gotta love it. The comment that cold bring down the Euro.

    So – taking a step back here’s what we’re looking at. The Euro is fu***d. There won’t be any more bailout money after 2013 for us I think. (Not sure if it will run out before then).

    We’ll have our Greek moment in 2012. Interesting times!

    You should have been reading Reggie Middleton’s blog before Lehmans/Iceland/Ireland/Greece…

    If the following report is correct then Barrosso really is as he was recently described in Der Spiegal

    “”That’s why the challenge we have is a European challenge and not simply a Greek one, and is a challenge which is not just for the future of Europe but for the existence of Europe,» he said.

    “In the next few days our decisions are historical. They have to be decisive, and they have to create a Europe of cohesion and move beyond the prejudices to a Europe where we work together in solidarity.”

    Government spokesman Ilias Mossialos stated that the Prime Minister’s meeting was conducted in a very positive atmosphere, in the presence of Mossialos and of Alternate Finance Minister Filippos Sachinidis.

    Mossialos stated that Barroso told Papandreou he supports Greece’s effort and that Greece is an indispensable part of the eurozone.”

    And Papandreou has some neck. Solidarity means Angela writing unlimited cheques for the remainder of the decade. I suppose you cannot blame him for trying but he must realize that the game is up. He would be wise to have cognizance of events in the Arab world this week.

    …but then the Germans were the reason we needed the Eurozone in the first place…..
    Even if this breaks up we have come a very long way. Sometimes a thing has to fall apart first before coming together again in a better more stable way.

    The line it is drawn
    The curse it is cast
    The slow one now
    Will later be fast
    As the present now
    Will later be past
    The order is
    Rapidly fadin’
    And the first one now
    Will later be last
    For the times they are a-changin’.

    When Bob Dylan penned that ballad, who in Ireland would have thought that within a few decades, the typical American worker would be worse off than an Irish counterpart?

    For the times they are a-changin’ again…

    “Uncommon valor was a common virtue, ” Admiral Nimitz had said of the US Marines’ victory on Iwo Jima in 1945 but today in the political arena when courage is sorely needed, it’s as scarce as voters’ appreciation or willingness to reward it.

    There is no shortage of voices on the sidelines calling for radicalism but usually with fingers crossed that their comfortable status quo can continue.

    In the 1950s Senator John F. Kennedy, wrote (lets ignore the argument about it being mainly penned by an aide) in one of his profiles on courage, of a Senator Edmund Ross who had cast the key vote against the impeachment of President Johnson in 1868:

    “I almost literally looked down into my open grave. Friendships, position, fortune, everything that makes life desirable to an ambitious man were about to be swept away by the breath of my mouth…” Wild rumors spread about Ross throughout the country and Ross’ political career was over. He was referred to as “a miserable poltroon and traitor” by The New York Tribune.

    The interesting point about political courage is that it’s claimed that when the book ‘Profiles in Courage’ was being prepared, Kennedy had used the excuse of recovering from a back operation , to miss the key Senate censure vote on his Irish-American colleague, Joseph McCarthy.


    The Telegraph are in their element – that’s a great link!

    Further evidence that the IMF have put their foot down and demanded real haircuts. This changes the dynamic that has pervaded till now, whereby Schauble (and Dutch and Finn buddies) would talk tough on PSI at the FinMin level, only for Merkel to give way and agree with Sarkozy & Trichet (who would trot out the “destroy the Euro” & “nuclear meltdown from contagion” arguments) at the Heads of State level. Now that Lagarde is batting for the opposite side she seems to be doing quite a good job.

    @PR Guy

    For Greek CDSs, the figures I’ve read show about €80bn in gross CDS contracts outstanding, with a €5bn net payout needed if Greece defaults. Thus from a system-wide perspective after everything is netted out the €5bn loss is not significant. On an individual bank/insurance company basis, losses could be higher, though.

    Also the private bank with the biggest exposure to Greece (as of last July) was BNP, which had €5bn outstanding. It has capital reserves of nearly €60bn however. Some French banks either fully or partially own Greek banks, so their aggregate exposure is higher that the raw exposure to the Greek sovereign, which for banks other than BNP is €2bn or less.

    It is important to put things in context however. Irish taxpayers pumped about 40% of GDP into failed Irish banks. The equivalent amount for the EZ as a whole (with a GDP of about €9.4tn) would be about €3.8tn. So it’s all small beer really, when scaled against Irish taxpayer support.

    @Joseph Ryan

    One of the better recent articles about Greek PSI is the WSJ one “How far can eurozone push Greek bondholders” by Richard Barley. Should be accessible if reached via Google (though a selective cookie delete browser plugin is always useful).


    I think they wheeled out that former ECB guy (Papademos) to do a PR job for the ECB with his opinion piece in the FT. It wasn’t very convincing. It would save a lot of time/ink/pixels if the ECB just said “We want the taxpayer to make all public and private bondholders whole, no matter what happens”, and left it at that. At least the bit where they argue that doing this is all in the taxpayers’ best interest should be preceded by en editorial comment like “Warning – some readers may find the following statements disturbing”…

    @Bryan G

    ‘It is important to put things in context however. Irish taxpayers pumped about 40% of GDP into failed Irish banks. The equivalent amount for the EZ as a whole (with a GDP of about €9.4tn) would be about €3.8tn. So it’s all small beer really, when scaled against Irish taxpayer support.’

    Key point; and relevant to the origin of this thread on IMF/ECB/EC (troika) & Irish Gov. statement … Ireland is the ‘lab rat outlier’ … the disposable little neo_lib_kon experiment on how far a supine citizenry can be squeezed to satisfy the imperative of the all powerful expropriating financial system; this experiment is both immoral and unethical as its end point demands that the subject arrives at an inhumane end – being kept alive in the interim merely for stage-2 of the final experiment in the ESM. Lord Salisbury in the 19th Century could not have designed it better; and the local headmen implement the great clearance solution ‘decisively’ …

    And it ain’t small beer – ain’t even alcohol – the subject will be preserved, albeit dead, in formaldehyde as a text book case study – an ironic immortal end.

    @IMF … n/b.

    @Michael Hennigan

    ‘For the times they are a-changin’’

    Methinks Bob was misinformed.

    @LorenzoS Bini-Smaghi

    @Rugby Heads

    Now – off down the road to Blind Biddy’s – big fry and a half bag of turf on for The Match ….

    @Katie Taylor

    You are one of the few remaining shining lights of the so-called Fighting Irish. IMHO – Irish athlete of the Century.

    Dr Merkel on a diet eh? That comment from Silivio obviously hit a nerve.

    If she wants to just lose some weight though she could continue supporting Greece etc. as is and lose and arm and a leg.

    It’s going to be an interesting week. I sold French banks on Friday afternoon – let’s hope I can buy them back cheaper at some point this week.

    @ Bryan G

    “For Greek CDSs, the figures I’ve read show about €80bn in gross CDS contracts outstanding, with a €5bn net payout needed if Greece defaults.”

    Isn’t the problem with CDS not kinda like the American mortgage market, i.e. that no-one knows nada about who holds what, leveraged, squared?

    “However over at ZeroHedge they pick up on a €460 million loss on a total of €2.8 billion in sovereign CDS business. As the article says, this is a surprise because according to the recent European Bank Stress Test, Erste didn’t have any sovereign CDS exposure at all. How could this be? Seems the bank had not been holding them in its trading book where they would be seen as a risk but outside that book where the bank held them at mark to myth, sorry model prices and counted them as ‘Credit Surrogate”. And in banker/accountancy world changing the name and moving the numbers in a ledger is all it takes to make it all go away.

    Imagine if the army simply wrote down unexploded mines in a different book called ‘Stored’ rather than ‘unexploded’ and then said they were now not dangerous because they were no longer going to be used for stepping on and thus there were not ‘unexploded’ mines but ‘stored’ and there was therefore no danger! Excellent. Job done! Makes me think we should send the bankers and their accountants to Helmand to a mine field and leave them there. See if they can make it out alive, simply by writing things down in different columns.”

    @ Paul Quigley

    Bank of America really does seem to be in it’s death throes. Yves Smith has been covering this. It appears that it may be impossible to determine who owns what in the American mortgage market, due to the clusterf**k that is MERs. Seems this really is perfect storm conditions.

    @An Taoiseach

    How about a bit of ‘DECISIVENESS’ on this one?

    ‘In the Irish case, it has long been clear that the IMF does not think senior bondholders in the banks should be repaid. This was made evident again yesterday when a bemused Mr Chopra passed a question from the press concerning bond holders to his ECB colleague. At the Dublin Economics Workshop in Kenmare last week, Mr Chopra suggested that bank losses should borne “first, by shareholders and holders of equity-like instruments, and second by uninsured creditors, including senior creditors”. He raised his voice on the last three words to send his thinly-disguised message home.’

    @Joseph Ryan – very appropiate poem.

    @Eureka – I was referring to the ‘lardy – ***’ comment made previously by Silvio (and apparently she had him in a private meeting this morning prior to lecturing him about Italy’s debt with Sarko – wouldn’t you just love to be a fly on the wall in some of these meetings).

    @All – Van Rompuy this morning: “Our meetings of today and Wednesday are important steps, perhaps the most important ones in the series to overcome the financial crisis, even if further steps will be needed”

    This is PR-speak for “it won’t be sorted by Wednesday and we will need even more meetings to try and sort it out but we’ll try and kick the can down the road again for now (probably until Christmas)”

    Did I see/hear something over the past couple of days suggesting Bank of America had somehow moved a very large CDS exposure from one area of the bank to some retail banking part?

    I notice that, various EU leaders speaking, the word of the day in their summit briefing is “decisive”. Listen out for it. They really are a bunch of parrots…. probably dead parrots at that. Do you suppose that when they start talking about SPV’s, wealth funds, leveraging, etc. that Kenny actually has a clue what they’re on about or does he have someone from the MoF giving him a running explanation?

    @ Eureka

    I believe PR guy is referring to prior unkind remark by Berlosconi which, he is taking it, caused Dr Merkel to go on a diet in the first place. You may wish to take “safe search” off to look up that remark.

    The laddishness of the lads isn’t helping.

    @Gavin Kostick

    I wish I could put Silvio down to ‘laddishness’ rather than ‘effing idiot’ 🙂

    @David O’Donnell

    I obviously don’t know all the in jokes on this blog. Who is Blind Biddy? She sounds like an aunt of mine who has a nasty habit of playing with weapons that she shouldn’t really be touching. Bazookas in the main.

    I’m still struggling to believe this €108 billion figure to recap all the European banks. Surely it’s higher than that…. or are they only planning on recap for some of the banks. Which ones will get what? Surely they aren’t just going to leave the markets guessing tomorrow? That might cause a bit of mayhem…

    @ PR Guy, etc

    Speaking of ill-fated intakes of cheese, I was at the launch of the splendid Lir Academy in Grand Canal Dock, on Friday night, and had just given in to temptation and taken a mini-croissant stuffed with melted cheese, when I was introduced to jolly gentleman by the name of ‘Harry Crosbie’.

    The difficulty of remembering the exact issues arising from previous discusions here and the very reasonable remarks made by Mr Bond in reply plus the social nicety of whether a social gathering was the time and place to ask him had he heard from NAMA recently, were all made nothing anyway as I feared spraying him with a mouthful of croissant-and-cheese mix, and so I sadly nodded at him like a village idiot (sorry Dork).

    On such things do empires fall?

    I later cheered myself up by shaking Michael D firmly by the hand and wishing him all good fortune.

    @ PR guy
    No wonder she’s reportedly fond of Enda. You can say what you like about him but he has standards of decency. European politics suck

    @Gavin Kostick

    Looks like Micheal D. needs the hand – especially as the supine citizenry, probably suffering from a bout of short-term memory loss, may be poised to elect a very recent member of the FF National Executive as its Il Duce. Despair at times on this blog appears very appealing … and I have yet to figure out how to scream on it …

    @PR Guy

    Blind Biddy down the road, a quiet very genteel and sophisticated lady, was radicalised by having her blind disability allowance cut twice by FF Minister Hannifin …. to er pay back unsecured bank bondholders…. I mean, who would take a half bag of coal from a blind woman in the middle of an Irish winter? … and you are correct – her weapon of choice is the bazooka, and she also likes riding shotgun on tanks – but she is presently in North Africa picking up a few more little toys – the place is awash with them apparently after Nikky had his Malvinas Moment …. Angie had more sense on this one. I hear she gave Silvio one thunderous kick up the arriere last nite …. good on you girl.

    @PR Guy
    “Did I see/hear something over the past couple of days suggesting Bank of America had somehow moved a very large CDS exposure from one area of the bank to some retail banking part? ”
    Yes, from the former Merrill Lynch (still being run as a standalone to some degree) to BoA proper. This has a couple of interesting effects if BoA has a higher rating than ML – it reduces the amount of cash collateral that has to be put up and it means that losing trades (from the BoA POV) become senior to other creditors of BoA in the event of a wind-up of BoA.

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