Sovereign Risk and Banking Crises

Ashoka Mody and Damiano Sandri summarise their recent paper for the Economic Policy panel in this VOXEU article.

137 replies on “Sovereign Risk and Banking Crises”

Here’s a practical example of the link between banking crisis and sovereign overload

Great-West Lifeco Inc., the Canadian
owner of Boston-based Putnam Investments, is the leading
candidate to acquire Irish Life & Permanent Plc.’s life
assurance unit, according to two people familiar with the
The Winnipeg, Manitoba-based company’s Irish unit, Canada
Life, bid in excess of 1 billion euros ($1.35 billion) for the
largest insurer of its kind in Ireland, said people, who
declined to be identified, as the process is private. Irish
Finance Ministry officials have identified Canada Life to enter
exclusive talks on the Irish Life unit, though the government
has yet to ratify this, they said.
Prime Minister Enda Kenny’s government is splitting up
Irish Life to lower the cost of bailing out the Dublin-based
group’s unprofitable bank unit. A joint bid from U.S. leveraged
buyout firms JC Flowers & Co. and Apollo Global Management LLC
and an offer from CVC Capital Partners Ltd. had also been
shortlisted for the life assurer, three people said on Aug. 19.
Irish Life is 99.5 percent state owned, after taxpayers put
2.7 billion euros into the company in July. The central bank
ordered the company to raise a total of 4 billion euros
following stress tests by the central bank in March.
Finance Ministry spokesman Eoin Dorgan and Irish Life
spokesman Ray Gordon declined to comment on the process. Marlene
Klassen, a spokeswoman for Canada’s second-largest life insurer,
said the company doesn’t comment on rumors or speculation.

International Bailout

Ireland has injected a total of 62 billion euros into its
banking system since it came close to collapse three years ago.
The country sought an international bailout last year, partly to
cover the mounting cost of the country’s bank rescue.
The government is seeking to attract overseas investors for
its financial sector. The state sold a combined 35 percent stake
in Bank of Ireland Plc, the country’s largest bank by assets,
last month to a group of investors including Fairfax Financial
Holdings Ltd, WL Ross & Co., and Fidelity Investments.

Not one word regarding the financial markets, the deregulated speculation of toxic investment banks, such as Morgan Stanley and Goldman, armed with financial missiles of destruction, such as naked shorting, toxic derivative speculation, OTC’s unregulated and markets growing into financial casinos valued in the trillions in recent years.

At the heart of this, ignored by Modi and Sandray, is the mess of the financial markets built on unregulated OTC’s, complex derivatives, forex naked shorting, and casino fun fed by the the dollar’s decoupling from gold under Nixon in the 1971 with printing of money by the FED.

Bubble burst in 2008 and the tsunami on the Bell shaped curve arguably is still heading for its apex.

Instead of pointing their fingers at governments, Mody and Damiano Sandri should take their Alice in Wonderland economic theories, dump them, and go down into the festering world of the unpoliced financial markets, and do some real cleaning!

Let’s look at the scenanigans at large in the IFSC, for example, and the contribution it makes to our economy, as part of that analytic critique!


“Germany saw one of its poorest debt sales on Wednesday in what was seen as a failed auction by many market participants amid fears the eurozone’s debt crisis is spreading all the way to Berlin.
Marc Ostwald, at Monument, said “I cannot recall a worse auction … If Germany can only manage this sort of participation, what hope for the rest. Yields are at completely the wrong level.”
Yes, quiet…

@Philip Lane

Read the paper posted by IMF and tossed in to his blog – no real response.

IMHO, Useful in understanding how, due to poor understanding of Time and inability to let banks fail due to fear, the Conflationist Fallacy has now become a bleed1n FACT throughout Europe, but noone near the level that it has reached in Ireland @50%GDP – the exemplar of this Great Kon Experiment (how Irish economists can face the mirror in the mornings is beyond me)

The System of Money, exemplar being the MatrixsQuid, how has its tentacles firmly ensconced around the System of Democratic Power – and it has no intention of letting go as this enables it to set the Agenda – which is to use the System of Democratic Power as a free-flowing bridge to suck the lifeblood to its maximum extent from the Citizenry in the Captured Lifeworlds of the EuroZone.


And locally ………..
The Neu Servants of the Conflated World first attack the weakest regions of the Zone of Citizenry, and as has happened throughout Irish history, the upper-echelon tribe gratefully take the intruder’s schilling in its own interests, and flogs the serfs in the interests of the intruder.

Some empirical evidence – from an economist? Nein – from a journalist of all people, but with FACTS from the most savvy of Irish Institutions – The Irish Revenue

There are fair ways of making the fiscal adjustment required – indeed there are fair and effective ways of getting the EU, European Central Bank (ECB) and International Monetary Fund (IMF) off our backs. The principle of the strategy is simple: that those of us most able to pay, do pay, and that those less able to do so are spared.

First off, cuts in public sector pay. More than half of all 431,827 public servants are paid incomes of less than €40,000. They should experience no cuts. About 140,000 are paid between €40,000 and €80,000. They are paid probably €50,000 on average. Were they to take a 10 per cent cut in pay, the savings would be around €0.7 billion. There are more than 40,000 public servants earning €80,000 and over. Were they, on average, to take a pay cut of one-third, the saving would be about €1.3 billion. (This could be gradated, so that those in the €80,000 to €100,000 bracket would take a cut of perhaps 20 per cent, with those on higher levels taking a higher cut.) These calculations are based on data supplied in answer to a Dáil question on January 18th last.

Data compiled by the Revenue Commissioners shows individuals and couples who file their tax returns jointly and who are paid €80,000 and more, comprise just 9 per cent of all income tax payers (193,495 out of 2,224,798 income tax payers) and are paid 33 per cent of all income paid to everyone in the State. These 193,495 individuals and couples are paid on average €143,390 and they pay just 33 per cent of this on average in income tax and the Universal Social Charge (USC). If this group were to pay 10 percentage points more of their income in tax, (ie 43 per cent, including the USC), the additional revenue to the State would be €2.7 billion.

If, in addition to this, those taxpayers earning more than €140,000 – there are 49,195 of these, and they are paid €13 billion in total, an average of €268,199 each – were required to pay a total of 52 per cent of their income in income tax, there would be a further yield of €0.8 billion.

Also, a household charge would yield €1 billion. Then, with some of the projected cuts to yield €1 billion, the total adjustment would be €7.5 billion.

Then we could use certain surgical techniques to remove the Tentacles and reclaim, however dodgy and imperfect, what used to be known as a fledgling democracy. It has never been a Republic in any substantive sense – and if present policy is maintained – it probably never will be.

@Paul Hunt

Reaction to the feeble effort…

Bild Headline..
Britain, America, the whole eurozone – they all want our cash!


Angela Merkel has also said another emphatic NO to eurobonds this morning, saying the Commission’s focus on the securities is “inappropriate” because it gives the impression the debt burden can be shared.

@ D O’D

Those cuts would throw more onto the arrears group of one out of five mortgage holders and the ‘savings’ would turn into more ‘losses’ by the banks as more go into default. Guess who would have to put more into the banks then, taxpayers. Or perhaps another bailout similar to Hungary’s over the past few days. This is more debt for taxpayers and more austerity leading to the need for further bailouts.

So, the saving is a lot less than €1.3 billion in that scenario.

This whole austerity business is useless anyway. It will drive us even quicker into more bailouts and eventual default , not a bad thing compared to the mess of the current disastrous economic model which is getting messier both in Ireland and across the EMU by the minute.

Anyone out there get the feeling that the failed bond auction by Germany is a real game changer.
10 year now out to 2.12% at 98.95… Someone losing money today.

Where is Eoin Bond when you need him?

Thanks Ahura..our posts crossed.

This bit is fascinating…and scary…

“The rate is important to suppress because almost all interbank funding is now done on a secured basis against the best quality collateral. Which implies two important points: 1) that the ECB itself has lost control and depends almost entirely on the Bundesbank to enforce its low rate policy target and 2) that the Bundesbank is having to retain more bunds from the market than ever before just to ensure the last functioning repo rate in Europe doesn’t spiral out of control.

That, we would say, is a big deal.

Whatever the case, Wednesday’s auction suggests the Bundesbank’s stealth operation has finally been outed. The question is, will the Bundesbank now be broken too?”

@ceteris ahura

The Big BIG Black Hole in Deutsche Banking System cannot remain ‘hidden’ forever ………… by the BundesBanke

DeutscheBanke a potential catastrophic risk to Deutsche Sovereign ….

… as I’ve noted before, from a vulgar serf_observer perspective, Germany needs a functioning ECB as much as the rest of the EZ – once this is acknowledged – the vulture shooting season will open and the pheasants and the grouse will multiply.

@ CP/Ahura

odd day. Ireland blowing out big time at the short end. Volumes seem low, everyone seems confused about a lot of moves over the last couple of days. Think there’s a lot of position squaring going on in a lot of different asset classes and which doesn’t necessarily reflect market ‘views’.

@Mr. Bond,

Even in a slow motion car crash the car has to hit the wall sometime…

Hours..days…before everything seizes up? The banks are lining up their emergency teams and the vultures are circling..

@Bond Eoin Bond

Odd. Ire 2 yr now 9.99%. German 3 month at 0.7 and 6 month at 0.28 and the Dow taking a hammering again today..down 178 points.
Is it the Bund situation or the credit squeeze flagged by Paul Hunt above?

@Cet. Par.,

The two could be linked. Various reasons being advanced, but one that is passing plausible is that Germany might have to confront finally the state of its crappy banks.

@Paul Hunt
Just thinking the same . Commercebank down 75% ytd at 1.19. Are they heading the way of the Irish banks? And Italian banks look very Irish…banco Milano 0.27 euro!!!

But the bigger picture..

Euro-zone leaders say they are determined to save the single currency. But the smart money is voting with its feet. First, short-term U.S. dollar-funding markets effectively closed, then the senior unsecured-bond markets shut down, then the interbank market. Now, corporate customers appear to be withdrawing their deposits from some countries’ banks. With an estimated €1.7 trillion ($2.29 trillion) of funding to roll over in the next three years, the stresses in the euro-zone banking system look doomed to get worse.

In some cases, the drop in corporate deposits has been startling. In Italy, nonretail …”

@ CP via PH

as Paul Hunt suggests, i think its just a bit of everything. You have a generally crappy economy (this mornings EZ PMI’s, China’s PMI, US Q3 GDP), you have a worried central banking fraternity (Fed dovish last night, BoE dovish this morning, ECB probably contemplating an emergency rate cut), you have lots of idle chatter about austerity but very little follow through (SuperCommittee fail), you have systemic deleveraging now starting to take place (new bank capital rules, Austrian CB telling its banks to stop lending in E.Europe), and now you have people realising that in either the Eurobond or Italy-leaves-the-Eurozone situations, Germany will ultimately be the big loser (it either guarantees all our debts, or its bank take a well deserved bath).

@Bond Eoin Bond

Good summary.
I suppose you could addin the news that they are going to stress test the big 6 again in the USA for exposure to Euro implosion. Dow still going south.

Time to smell the roses…in Switzerland.

@ Cet Par / BEB / PH,

There seems to be a wide array of explanations floating about. It’s a bit surprising that the flight to safety within the euro didn’t provide enough demand. I can see why a 2% coupon on 10yr isn’t attractive, but equally I thought there should be enough blind panic money to buy up this debt.

Doing the google to find answers, I came across this article.
No revelations per se, but reading it really gives a good sense of the current chaos.


Well-sourced. Sh1t or get off the pot time is rapidly approaching for the EU’s Grand Panjandrums – both political and appointed.

Guardian profile of Angela Merkel.

Includes the following:

“There’s an ideological gulf, too, on the key question of economics. It doesn’t help, concedes a German banker in Frankfurt who would rather not be identified, that few Germans, hardly anyone in the German government, and certainly none of Merkel’s economic advisers “have ever read Keynes, or even begin to get market economics. To some extent, they’re entitled not to, of course: they have the most successful economy in Europe. The trouble is, this thing is a hell of a lot bigger than Germany.”

“So it remains the Bundesbank’s, Merkel’s and Germany’s deeply held conviction that discipline and austerity are the only ways out of the current crisis, and that any more generous solutions – collective Eurobonds, for example, or allowing the European Central Bank to act as a lender of last resort, both ideas touted in London and several other capitals – will only encourage more profligacy in Europe’s irresponsible southern periphery.”

US markets closed for the rest of this week and could be some stuff hitting the fan while it is? I wonder if we will look back on this week and label it ‘Black Thanksgiving’?


and certainly none of Merkel’s economic advisers “have ever read Keynes, or even begin to get market economics. To some extent, they’re entitled not to, of course:

Extraordinary, if true.
So what expertise does a BUBU or ECB staff member have or need to have?

To some extent, they’re entitled not to, of course:

No, they are not.
It looks like they don’t do history either.
Where did they think the marshall Plan money/goods came from. Thin air.


That was some slap in the face for Borroso when Dr Merkel said that the Eurobond scheme was “extraordinarily inappropriate” during an address to her lower house. Per your Reuters link.

The lady is not for turning.

What appears to be happening is that “they” appear to be dismantling what is left of Europe’s shrunken post Maastricht productive economy to feed the States /Dollar junkies ……… and its working!!!!!

The Euros 420 billion Euro base is just too small to be stable & contrasts dramatically against the now gigantic 15 trillion Dollar US Base.
Europe is a lie – we are a colony of the FED / BoE
If you are going to Build a Pyramid you better make sure the Base is large enough.


Nor do they appear to have taken much notice of Marx! Usually a prerequisite, with Weber, for an entry to Keynes … surprising because German philosophy, sociology, and social theory are, simply, global intellectual leaders …. and have been, notwithstanding the odd aberrant period, for a good few hundred years at this stage.

Spose one could sum it up as: No we Kant! Now what was that Categorical Imperative again ….?

@ Ceterisparibus,

I’m not a fan of the eurobond idea. At least not in the short term.

I have a niggling fear that Germany may promote a Core(euro)bond as the crisis develops (i.e. they’ll be in the minority on the ECB board and a ‘core’ bond would be a ‘divide and conquer’ win for them). The French, thankfully, seem to have moved to the ECB as LOLR as their favoured solution. At a guess, they may be lining up the ECB to pick up the bill for their banks. Otherwise a Core(euro)bond should appeal to the French.

Humiliating for Cardiff. Should have withdrawn after losing all that money ( on paper).

Wouldn’t be so sure she will “break”. Not after that auction today and the Bild headline.

She might break Nicky’s heart by leaving him in charge of the Euro rump. You can be sure that Weidmann knows where the exits are.

I see Mickey Noonan is thinking of wiping out the subs in that pillar of Irish banking BOI.
Extraordinary stuff.

Jeremy Warner is not impressed…
“Eurobonds don’t provide any kind of a short term solution. ECB bond buying might, but is it really the ECB’s job to act as the conduit for monetary transfers? That’s surely something the politicians have to decide.
For now, Germany remains implacably opposed. Merkel again – the ECB’s mandate “cannot, absolutely cannot, be changed”. Meanwhile in Paris, the French finance minister, Francois Baroin, was saying the polar opposite. It’s anarchy out there.”

just read in The Economist that the German bond sale failed today and the Bundesbank had to buy loads.

So, those this mean that the ECB cannot buy bonds to solve this crisis but the individual central banks can?

Can the Irish, Italian etc, central banks buy all the government bonds they like and so the ECB becomes LOLR without having to break any rules (well the ones they haven’t broken already)?


Yes – poor judgment again from an Irish Admin – a diplomatic disaster for Ireland – KC in the room would have been enough for me to veto – but an accounting error of 3.6 billion …. it appears that FG/Lab are as liable to the ‘Sthroke’ as PD/FF ever were – and, personally I’m happy that EC didn’t buy it. I hold no personal ill-will towards KC, but in my ideal world, he would have resigned long ago. FG EU MEP partners on committee voted en block against KC … and must be one of de Rossa’s, a hardworking MEP, worst days ever in Europe.

On the lady in question – Kohl is preparing a roight spanking (metaphorically speaking of course) – and she will break or go. After Deauville, where she placed local Deutsche 2013 again of EU interests – and effectively destroyed the EZ sovbond market – she has been losing ever since …. no way does she make it to 2013. What’s the vernacular – go short on angela?

Blind Biddy: “I love a bit of anarchy in the autumn of me years!”


Deputy Arthur Morgan has done the state some service with that question alone. Maith agat!

Blind Biddy: “I love a bit of anarchy in the autumn of me years!”

Der Spiegel International

‘A Complete Disaster’
Sovereign Bond Auction Fizzles in Germany

Investors seem to have lost their taste for Germany’s once much sought-after government bonds. At an auction on Wednesday of the country’s 10-year bonds, one-third went unsold according to the German Finance Agency, which manages the nation’s debts. The federal government had initially intended to sell bond issues worth some €6 billion (around $8 billion), but managed to garner just €3.89 billion.

The leftover issuing volume of some €2.35 billion will now be offered on the so-called secondary market, where bonds already in the process of maturing are sold. Disquiet on the markets likely led to the drop in demand, the German Finance Agency said Wednesday. “The result of today’s auction reflects the exceedingly nervous market environment,” a spokesman said, adding that Germany still does not face a financial shortfall.

Analysts, on the other hand, weren’t quite as relaxed about the situation. “This is a complete disaster,” said Marc Ostwald, an analyst at Monument Strategies. Another industry expert, Ralf Umlauf from Helaba, a government bank in the states of Hesse and Thuringia, called the auction a “vote of no confidence against the entire euro zone.” The event should be seen as a warning signal that shouldn’t be minimized, the analyst said. “A change in sentiment has taken place,” Umlauf told SPIEGEL ONLINE. In particular, foreign investors have become distrustful, he added. “They associate the investment in sovereign bonds with the risk of the euro zone,” he said.,1518,799550,00.html#ref=nlint

European Union A revolution from above 23 November 2011

Libération Paris [h.t blind biddy] Bit of French Philosophy

Political changes in Greece, Italy and Spain have highlighted how European leaders have upset the balance of power between society and the state and politics and the economy. French philospher Etienne Balibar points out that these developments have overlooked the role of citizens.

But the most difficult obstacle to surmount will be that of public opinion. Without doubt, blackmail in the form of warnings of chaos and the constant threat of “ratings downgrades” can temporarily paralyse democratic reflexes. But they cannot indefinitely postpone the need to obtain popular approval for the changes, however limited, that will need to be included in revised EU treaties. And any consultation on this question is likely to backfire, as was the case in 2004. So the crisis of strategy is then accompanied by a crisis of representation, also itself well advanced.

We should not be surprised then, given such conditions, that critical voices are now being heard. However, these have tended to contradict each other. On the one hand, we have those (like Jürgen Habermas) who argue for a reinforcement of European integration, while affirming that this will only be viable in the event of a triple “re-democratisation:” a rehabilitation of politics to the detriment of finance, which places control of central decisions in the hands of a reinforced parliament, and re-establishes the goal of solidarity and the reduction of inequalities between European countries.

Traditional state devoured by the debt economy
On the other, we have those (in particular French deglobalisation theorists) who see the emergence of new governance as the culmination of a process to force “sovereign” peoples to submit to a supra-national structure, which can only serve the interests of neo-liberalism and its strategy of “accumulation by dispossession.” The former are clearly insufficient while the latter are dangerously close to merging with potentially xenophobic nationalisms.

The big question is what will be the direction of the “citizens’ revolt” against the “dictatorship of markets” that instrumentalise governments, which has recently been announced by Jean-Pierre Jouyet. Will it turn “against the instrumentalisation of debt” that crosses borders, or will it turn on “the European project” as a cure that is worse than the disease?

This, at the mo, remains an open question.


Zero hedge is reporting that the BUBU bought up some of today’s German bond issue.

Did they ‘print’ money to do this.
Could it be true.
Is this our money they are printing to buy their own bonds.

The sale “prompted concerns the debt crisis was even beginning to threaten Berlin on Wednesday, with the Bundesbank forced to buy large amounts of the bonds to ensure the auction did not fail. The low yields offered on the 10-year paper deterred investors from the auction, especially because of growing concerns over the cost to Germany of the escalating crisis.” So what was otherwise formerly sacrosanct has just become reviled: welcome to fiat’s greatest hits. The resulting 10 Year yield chart should surprise nobody


The leftover issuing volume of some €2.35 billion will now be offered on the so-called secondary market,

So who bought them on the primary market, so that they can now be ‘offered’ on the secondary market.
Did I buy some German bonds today?

@ Joseph/Shaun

Re BUBA holding back bonds. No, they are not printing money, and they are not ‘buying’ this 2.3bn or so. They are ‘retaining’ them, essentially ‘creating’ them but not releasing them. If they were printing money to buy them, the German treasury would receive a credit into its account, ala the Fed/US Treasury and the BOE/UK Treasury. In this situation, the German treasury does not receive a credit. The bonds are simply available for the BUBA to use in the market at a later point, at which point a private investor will credit the BUBA/German treasury with funds.


Does anyone think the political will still exists to save the euro (retaining all of its current members)?

German public opinion seems set against the idea of Germany continuing to “bail out” the periphery and Merkel is apparently determined to hold the line on this. As Eoin Bond points out: “in either the Eurobond or Italy-leaves-the-Eurozone situations, Germany will ultimately be the big loser (it either guarantees all our debts, or its bank take a well deserved bath)”. So in the absence of ECB becoming a LOLR – and without further defaults – we’re left with severe austerity in the periphery for the foreseeable future. How much of this austerity can/will people put up with? The technocratic governments in Italy and Greece will presumably have to seek democratic legitimacy at some point. Also, if Germany wants treaty changes to prevent the next crisis, that will mean referendums …

And what about all the Eurozone debt that needs to be “rolled over” next year? (as pointed out by the first commenter “transitionman” over on David McWilliams’ site: Where will the funding for this come from?

Should we start stocking up on gold bullion and canned goods?!

I happen to think if the Euro goes Gold will collapse in $ value given the nature of Quarterly Free floating Gold withen the ECBs balance sheet.
The Dollar will win again under this scenario……….. PS these are only a Dorks views.
Gordan Brown sold half the UK treasuary Gold in 1999 for a very good reason………………….the guys running the shop needed the stuff at the time.

Makker hasn’t banked on the age old solution to all failed economies = war
First US backed strike on Syria
Then on Iran
And then you have the oil price shock that tips the west into mayhem
Welcome to the next 10 years – as brought to you by Lloyd Blankfein and the other guys like him

Headline from PRAGCAP
This is politically explosive


Very good question and even better analogy.

Reminds me of my first 12 year old car which I bought in 1989 after I decided to stop trying to keep up with the “big shots” of motoring because my “Mutti and Papa” stopped “lending” me their car at very attractive unlimited rates

It was a banger and not very sexy but at least I could use it when how and where I wanted to instead of relying on the erratic whims of “Mutti and Papa”. 🙂

Ambrose is in Dublin and seems to have interviewed Mickey Noonan…

“Mr Noonan said Ireland is sheltered from the storm blowing through the eurozone since it does not need market funding until 2013, but the crisis cannot be allowed to drag on. “Some way will have to be found to create a firewall. The role of the ECB is a matter of debate. There may be legal difficulties in it operating in the same way as the Federal Reserve.Whether the ECB has a role in working with the IMF or EFSF (bail-out fund) is under discussion,” he said.
Ireland has no “detailed contingency plans” for a eurozone break-up. “Obviously, we have thought about it, but it’s a very remote possibility,” he said.”

A very remote possibility? What planet is he on.
Just reading an article about banks preparing for a euro breakup.


Thanks for that explanation. Not 100% convinced but cannot argue.

Anyway the fact that Germany was not able to offload €6billion in bonds is more than just financial. I think governments including US, UK, EZ etc are telling their ‘national’ banks to make a point. If you have spare funds, we want them at home, not reducing funding costs for Germany.
The ‘Big Bazooka’ is not the ECB , it is nationalism and self defence.
The point will not be lost on Germany.
But I suspect they may still choose breakup.

@ Joseph

From the link that the Dork provided:

““The issuer is not credited with the amount set aside for secondary market operations until the securities have actually been sold on Eurex Bonds or the stock exchanges.”

So it is definitely not printing of money or monetization of debt. However, there are a lot of questions as to just why they are doing this the way they are.


“Obviously, we have thought about it, but it’s a very remote possibility,” he said.”

I wonder if that is code for “we have thought very deeply about it and have been taking steps in the last five months to prepare for that eventuality”.

@Tom McDermot@all

“Does anyone think the political will still exists to save the euro (retaining all of its current members)?”

What is worrying me more is not the whether the “political will” exists to save the Euro (I don´t think it does) but whether the political ABILITY exists to save the European Union.

IMHO we can always go back to the “drawing board” and establish some form of exchange range mechanism in the interim provided the EU stays democratic and intact.

Thats not spare funds , CBs don’t need no spare funds – thats High powered Money Baby – all Central banks can do what the Bundesbank just did.
Is this not a form of excess reserves Bond ?
If the Irish CB did this in 2009 we would be able to keep / target rates interest rates at the Post office 3 year…………………


I have a feeling this is coming to a real crunch. The Irish CB will get their chance at printing shortly. Mind you, in the past they never excelled at keeping interest rates down.
I hope they can still run the Heidelberg presses or whatever it is they use.

Chillax about the old German Bunds. Why would you buy German bunds anyway? There are much higher returns on peripheral bonds that the Germans are guaranteeing and much safer returns on US Treasuries.
Simple as..

“If the ECB bought some Greek bonds at a suppressed yield at auction and said they were going to “save” them for sale on a secondary market later (before paying Greece) then what would we call that? Monetization, no? But Germany can do this under the guise of “saving” their bonds while they decry buying sov debt at the ECB?”

@ CP

Noonan’s job is to prevent the run on the banks by the plain people that has been staved off for 3 years plus now. I wouldn’t expect him to say ‘yes, and it’s going to collapse next Monday”.

@ Joseph

Coordinated? No. Banks actually aren’t typically the main buyers of long term debt like that, it’d be more like insurance companies and pension funds, central banks as well. I think today was just a bad day to be trying to hit the market in a big issue like this – the Eurobond paper from the EU Commission, general position unwinding going on in the market, and generally weak trading of the Bund in recent days as people try to figure which would be worse for Germany – Italy leaving the EZ, or Germany guaranteeing Eurobonds. It’s not a conspiracy, I think it’s just the market questioning how much of a safe haven Germany really is, and also everyone’s probably already ridiculously overweight bunds anyway.

@ Dork

Germany is not getting physical cash to spend from this operation, that’s why it’s not monetization. They can surpress yields doing this, but eventually they’ll run out of cash, that’s the difference.

How can a normal non Euro central bank run out of cash ? – although the Bundesbank may have used existing cash liabilities.
If they indeed created new cash what happened to their assets ?
The central point is they are driving down the yields on the existing state debt debt – other Euro CBs cannot legally do this…………. about Maastricht or something.


He may be trying to prevent a run on deposits but his answer is not credible. If no preparations have been made by the DoF then we are seeing a repeat of reckless behaviour leading to the guarantee, when such momentous decisions had to be made in the middle of the night.
Osborne has publicly stated that they have preparations in place and you can be sure that Herr Weidmann has a team working on a possible German exit.

@Bond Eoin Bond
I have a suspicion that you may be right on people being ridiculously overweight on bunds. Can we expect further fallout in the coming days if that is the case?

If Mickey Noonan believes a euro breakup is remote then he should read the Guardian where even Barosso is admitting it may go….
“Global financial markets prepared for the euro’s endgame after the sovereign debt crisis spread to Germany, the “stability anchor” of the single currency, and investors shunned its government bonds.

Europe’s biggest economy suffered what analysts called a “complete and utter disaster” as it managed to sell only two-thirds of its 10-year bonds at auction. “It’s a vote of no confidence in the entire eurozone,” one said.

Stock markets slumped, the euro fell to a recent low and France came under renewed pressure after it emerged it could be forced by Belgium to pump more emergency aid into rescued lender Dexia. Both countries were forced to deny reports that a €90bn restructuring plan for Dexia was being renegotiated.

Fears of a new credit crunch were heightened by reported problems at Belgian lender KBC and a €10bn (£8.6bn) requirement for fresh capital at Germany’s bigger banks.

Paris was again warned – by the Fitch agency – that the country could soon lose its triple A credit rating if the debt crisis and economic downturn deepened. Yields on key eurozone sovereign bonds, including Germany’s, rose in tandem, with Italy’s back above 7% in late afternoon trading.

Amid widespread investor anxiety about the future, the European commission president, José Manuel Barroso, admitted that it would be impossible to save the euro unless eurozone countries agreed to strict controls from Brussels and the European Central Bank in their tax-and-spend policies.”


If the currency union is too remain intact in its current form the CBs can “Target” the Gold price not unlike their Bond prices to sort out their inter “Sovereign” claims.
Bidding it up to the M1 Perhaps.
It is doable given all Euro debt appears internal and so therefore the wealth would not just disappear.
Would be a interesting weekend I imagine.

@D O’D
Your proposal for cutting the cost of the PS is in line with what happens in normal countries. Now Ireland with its age old history and culture approaches these things with a very finely tuned sense of fairness and propriety. The people making the decisions valuing fairness above all else and not wishing to be accused of discrimination will reduce the income of every PS by a flat fixed amount.

I can hear the voice of my dear departed mother in response to the German bond sale failure today “If this can happen to the Germans sure there is no hope for the rest of us. Tis past the power of novenas now Mickey bi.” I hope this is a blip, an aberration and we will be back to normal by Monday. To me it appears that the market is anticipating a failure of more than one German bank and has doubts about the German Governments ability to bail them out. Is there a combination of two German banks with liabilities as large proportionally as Anglo was in Ireland. This is a game changer in the truest sense of the word.

I see comments on the WSJ that mention the transition will be PIIGGS followed by USPIIGGS followed by USPIIGGSGB.

The Germans are made of sterner stuff and will put a damper on this tout de suite or as they say in German sofort.

On the subject of German bonds here is a CNBC chart on the 16 groups which buy US debt and how much they hold. The Fed is top with over 5tril over 30%.
The Euro is not the global reserve currency so it maybe that Europe cannot get away with that amount of soveirgn debt on the ECBs balance sheet – currently it holds 20% of PIIGS debt.
The following is now needed.
1. A EU wide bank restructuting mechanism. Major global banks dealing across borders are not easily closed down. This requires much thought and co-operation from the G20. Banks face reality and start writing down debts which are never going to be repaid, including mortage, failed companies debts and some soverign debts. If they are broke they are broke hence restructuring mechanism.
2. The EU sets up a fiscal union with common treasury. Having the power to tax would is key to issuing bonds and that is why fiscal union is needed for these bonds to work.
3. The ECB eases monetary policy by buying up 20% of new bonds and lowering interest rates.

If things go the other way around as some comentators suggest, it is only delaying the point 1, which will happen anyway. Then after point 1 happens there will be evn less instruments left.

Noonan – “remote possibility”

= I certainly haven’t ruled it out but I’m not going to say it is a possibility because then I would be accused of being the one who provoked the collapse. Erm, and that’s what my masters told me to say in the briefing note.

Foaming about burning senior bondholders can whip up a lot of outrage but governments depend on these private investors for funding.

Germany has a low budget deficit but a relatively high debt.

There are not too many safe havens left and while the likes of RTE’s Joe Duffy may protest that they have taken a 30% drop in earnings, the adjusted outgoings for many countries include bubble gains.

Once again it’s clear that even though Ireland hasn’t surrendered all its sovereignty, it’s the foreign travails that elicit most excitement.

The Government has opted for the easier option of stealth taxes and has there ever been a bust, panic, depression or recession where the trade unions have been so silent, in common with other insiders?

It’s as if they’re all scared that their status quo applecart may be upended.

Big losses by bondholders would put the kaibosh on private sector pension schemes. Who with a personal sovereign guarantee cares about such things?

@ CP

Maybe nothing has changed since last year
BBC News
We interrupt our report on wheelchair access at job centres to bring you some breaking news. Astronomers at Britain’s Jodrell Bank observatory have detected an asteroid on a collision course with Earth. Initial projections suggest it will strike the Republic of Ireland in approximately 15 minutes.
RTÉ News
We interrupt our report on a cat stuck up a tree in Cabinteely to bring you some breaking news. The BBC is reporting a serious problem with wheelchair access at job centres. More on Six-One, but, meanwhile, back to Cabinteely.
BBC News
We have an update on that developing asteroid story, by which we mean the story is developing, not the asteroid. Astronomers confirm it will strike the Republic of Ireland in 13 minutes, causing widespread devastation. Shock waves are expected across Europe and EU leaders are meeting now in emergency session.
RTÉ News
And I’m sure we’re all delighted to see Tiddles safely back on the ground. In other news, Government sources have reacted angrily to reports in London of an “astronomical problem” threatening Ireland.
The British media has a long history of anti-Irish reporting, as you can see from this 1865 cartoon of Mr Punch dropping a rock on “Poor Paddy”.
BBC News
Further details on that asteroid. Jodrell Bank says it is five miles wide, travelling at 20,000mph and will hit Dublin in 10 minutes.
Scientists warn this is an “existential threat” to the Republic of Ireland, while linguists warn that “existential” should not be used as an adjective for “existence”.
RTÉ News
The Government is denying reports of an existential threat to Ireland or a threat to the existence of Ireland. RTÉ understands that several alarming statistics circulating in London have come from a British bank, which may well have its own reasons for speculating on Dublin’s future.
BBC News
As the so-called “Paddy’s Rock” passes lunar orbit, EU leaders have urged the Irish Government to recognise the gravity of the situation and seek urgent help.
RTÉ News
Government sources confirm they have spoken to EU leaders about an urgent situation, but only to complain that talk of “gravity” is not helping.
BBC News
With impact now minutes away, survival experts advise people to dig a hole in the softest ground available. Fortunately the Irish are good at digging holes in soft ground, as you can see from this 1865 cartoon of Mr Punch “watching Paddy stick his head in the bog”.
RTÉ News
We interrupt these scurrilous rumours to bring you truly earth-shattering news. A man with a beard is moving from Belfast to Dundalk to look for work. Central Bank sources say this proves the recession is over.
BBC News
Our correspondent in Ireland reports that a shadow has now fallen over the whole country and people are fleeing the affected area, except for one man with a beard who appears to be fleeing in the opposite direction.
RTÉ News
In an exclusive angry phone call to our newsroom, a Government press officer has confirmed that he can see the light at the end of the tunnel. The light has appeared in the sky directly over Dublin, where it is glowing bright red and getting larger and larger by the . . .

Thanks for the replies. I particularly enjoyed Angela Merkal’s twitter account.

A couple of weeks back I went off to see what had happened to the EU bank recovery and resolution process: the ESCB contribution to which was was posted here in May:


I exchanged emails with the ECB, who confirmed it was a matter for the EU Commission. So item 1.

* EU bank recovery and resolution framework is a matter for the EU Commission.

I then followed up with the EU Commission and according to commission sources:

“The legislative proposal you refer to is being finalised. We expect
that the Commission will formally adopt it before the end of the year.”

So item 2.

* EU bank recovery and resolution framework to be in place by end of year.

I mention this now for general interest’s sake, but also I wonder – and I’m speculating here – whether the Commission hasn’t in fact got this ready already and is sitting on it, for fear that simply announcing that there is a bank resolution process might not trigger alarm.

Does anyone believe politicians will be able to find a solution to the present crisis?

Take the extraordinary case of Kevin Cardiff’s proposed appointment to the European Court of Auditors:

Proinsias De Rossa MEP has come out in support of his nomination?

Its possible the government Its possible his nomination can be rammed through by the government through the back door in spite of a claim made by Cardiff he would withdraw his nomination if the vote went against him.

Cardiff was there on the day of the guarantee when a phone call to Christine Lagarde, the French Finance minister of the time, could have drummed up support against Ireland taking the banks onto its sovereign shoulder. Alistair Darling, British Chancellor of the Exchequer should have been consulted given the exposure of British banks to the decision. Jean Claude Trichet, head of the ECB, was left off the hook.

This was more an EMU problem of the ECB than an Irish one though the outfall from this fell disproportionately on our shoulders. We were later humiliated to discover the EMU solution for us was made even more difficult because of our guarantee.

We were left with the spectacle of our Finance Lenihan reporting losses in our banks rising by the tens of billions by the month.

Cardiff I presume lent his support to NAMA predicated on Irish growth rates returning to 3% in the short term, perhaps the commercial and residential property base upon which this is predicated will have the endurance of the Egyptian pyramids to benefit in kind from return to these growth levels.

Cardiff of course was ‘the buck stops here’ when the “3.6 bn” was double counted and oversaw the Department of Finance when under critique from our weak inquiries into the banking sector showed glaring weakness in the number of professional economists assisting with development of macro economic policy, a weakness I believe being currently redressed in changes being made within the ESRI.

No chance Proinsias De Rossa MEP can resign under consideration of his support for Cardiff under the above scenario?

I’m sure the majority of people who fail their driving test are great people as I’m sure Kevin Cardiff is.

But I wouldn’t give any of them the freedom of the roads if they failed their driving test!

The fumbling, contradictory and baffling mess of the Cardiff appointment debacle is but a glimpse of the mess at the larger macro economic level in the EMU and in the Dåil. There again in a world where black is white, we are an example of European success in dealing with our currency crisis. Has someone been switching around the road signs again:)


interesting to see who biggest holders of US debt , but it would be even more interesting to get charts of whats happening in the credit default swaps market, to see eg Morgan Stanley and Goldman exposure to EMU meltdown and the influence these markets have on unfolding events. Its the OTC and CDS markets that tie in the dollar with the EMU and determine how stable the global financial pyramid is. These markets should be as publicly declared as the bond markets.

@ All

A really outstanding piece in the online German version of Der Spiegel by Munchau. (Google Translate does quite a good job, the only major correction required being to change the word ‘policy’ to ‘politics’. The title reads; “It’s the politics, stupid”).,1518,799429,00.html

The anlysis comforts entirely that of Colm McCarthy as presented on RTE this morning but, unfortunately, also underlines the near imposibility for Merkel now to reverse engines as she has helped to create a public mood in Germany that she no longer controls.

Starting from this base-line, any solution will have to be a muddied one in terms of its public, i.e. political presentation, but credible as far as the markets are concerned.

To the two “big lies” identified by Munchau (that fiscal irresponsibility caused the crisis and that Weimar inflation – rather than the reaction to it – gave rise to Hitler) can be added a third viz. that Merkel’s crusade to “tame the markets” through PSI is anything other than misguided. It may be noted that the letter from Samaras which is to provide the trigger for the release of the €8 billion to Greece is seeking changes and is silent on the issue of PSI. Rehn has also come out again arguing that the ESM should be up and running by mid-2012. As it is in the form of a standard international treaty, there are no constitutional hurdles to its adoption, it seems that delay in proceeding to its adoption may be attributed to continued differences about the PSI provisions.

Of course, the other explanation for the delay is a simpler one. The AAA countries, and especially Germany, simply do not want to put up the money a moment earlier than they have to.

We may need to open up a new ELA thread – “market sources” say Dexia is now using ELA facility at Belgian Central Bank…

CR seems to have backtracked on the monetization meme and used the “retention” term.
Eoin you clearly have a deep understanding of the mechanics of the Sov Bond Market but do you agree this points to much lower price Bunds (higher Yields) and a Deep Deep Euro crisis.
On a positive note will this manic 3 year market amount to the first signs of a reversal in German Capital inflows withen the Eurozone ?

@ All

Correction. I omitted to mention the not unimportant point that all 27 member states have first to ratify the amendment to Article 136 – introduced on German insistence – to enable that country to ratify the ESM.

For the aficionados, the ECB commentary from July on the ESM is worth a read, especially page 9 containing an extract from the IMF Guidelines which rather undermines the case oftem made that it insists on PSI.

Cartoon of the Day: Hopeless but not serious (h/t baseline scenario

Europe is not the USA! Yet both appear to be in bondage to the MatrixsQuid. The Dodgy Derivatives Rule the World OK. How does one untangle a derivative? One integrates it. Ahhh EuroBonds and Bank Resolution ….


Pls refrain from plagiarizing Rick Perry – this is a respectable blog.


I’m waiting for DeutscheBanke …. waiting for Godot … and this time she will come!

@ Dork

assuming this isn’t a one off situation (and there is a lot of odd details in the market this week), i agree, Bunds should see a pretty significant sell off in the coming weeks.


Hats off on your explanation of the incorrect “BUBU buying bonds” headline. The incorrect version made it into a lot of media, including RTE news!

@Michael Hennigan

Its a little unfair to pick out Joe Duffy but the point is correct. Salaries should return to pre-bubble differentials i.e. if in 1997 the ‘talent’ in RTE was getting 3 times average RTE earnings they should return to that ratio ( is it about 10-20 times now?) .

Likewise if the top civil servants are now getting say 8 times C.O. entry salary, instead of maybe 4 times in 1997 , they should return to that. When the great were paid peanuts they were competent, now they are paid in gold bars they look more and more like monkeys.

Likewise the pay of a bank CEO should return to the same ratio it had with a teller back before BertieWorld.

Talk about flat % cuts in wage rates are meaningless when an incompetent elite has been paying itself obscene money for the last 15 years.


Kindness of strangers comes to mind, and note nb ” Votes will be
weighted in proportion to the countries’ shares
in the capital of the ESM. ”

The ESM is a recipe for the detroitification of Ireland or we’re turkeys for Xmas:

Look at the voting:

The Board of Governors will be made up of the
finance ministers of the euro area countries, i.e.
the members of the Eurogroup. The European
Commissioner for Economic and Monetary
Affairs and the President of the ECB will be
observers. Decisions on, among others, four key
issues will be taken by mutual agreement: the
granting of financial assistance; the terms and
conditions of financial assistance; the lending
capacity of the ESM; and changes to the menu
of instruments. “Mutual agreement” is defined
as a decision taken unanimously by those
countries participating in the vote, meaning
that abstentions do not prevent the decision
from being adopted. This will contribute to the
decision-making efficiency of the ESM. All
other decisions of the Board of Governors will
be taken by qualified majority, which is defined
as 80% of the weighted vote. Votes will be
weighted in proportion to the countries’ shares
in the capital of the ESM.

Thought we voted for European Union not annexation by the ESM?

@ Joseph

people are freaking out so much at the moment that all sorts of misunderstood events are being reported, both under- and over- reported.

@ All

Moodys already had them at junk, but another nail in the coffin.


Fitch Ratings-London-24 November 2011: Fitch Ratings has downgraded Portugal’s Long term foreign and local currency Issuer Default Ratings (IDR) to ‘BB+’ from ‘BBB-‘ and Short-term IDR to ‘B’ from ‘F3’. The Rating Watch Negative (RWN) on the long-and short-term ratings has been removed. The Outlook is Negative. The agency has also affirmed its Country Ceiling at ‘AAA’. Fitch has also downgraded Portugal’s senior unsecured debt to ‘BB+’ and commercial paper to ‘B’, and removed both from RWN.

@Bond Eoin Bond

“…Dexia is now using ELA facility at Belgian Central Bank…”

What’s the potential downside of that? If there is a big downside, does the buck stop with the Belgain Central Bank, being ELA?

@Mr Dork

If we are heading for a ‘deep’ deep crisis as you suggest, it must be time to dig out the “You are all going to die – and pdq at that” stories to distract the media/public.

Now, where’s that press release on a new strain of avian/swine/Spanish Bonds flu I drafted earlier this month. The one saying it will wipe out the population of the EZ before Christmas. I need to get a quote from a Minister: “We only closed the ATM’s due to the fear of contagion. Er, it is, umm, entirely unrelated to the fact that the Euro has just fallen off a cliff.”

I’m sure that will be fine for most of Europe but we had better run a headline saying house prices are going to fall and immigrants now outnumber native speakers if we want to distract the UK public.

@ All

On the theme of “It’s the politics, stupid”, which will inevitably dominate from now on, this piece from today’s FT is of great interest.

It is part of the accepted wisdom to say that Europe depends on the functioning of the Franco-German motor but little attention is given to the basic principle underpinning its design viz. a partnership between equals. This was always something of a fiction but the price that Germany was willing to pay for political stability in Europe.

Unfortunately, with Schroeder came a change of direction, eaten bread (German reunification) being soon forgotten. This was epitomised both in terms of principle and reality by the insistence of Germany on changing to a system of voting weights based on population which, despite initial resistance by Chirac, was eventually conceded and will come into force, with some emergency brakes, in 2014. The other larger countries that expected to benefit have discovered that they bought a pig in a poke, notably the UK as it is now likely to be in a minority position on a variety of issues, the proposed changes in the financial sector being a particular concern.

What the politicians of every hue, and in most EU countries, appear to be forgetting is that qualified majority voting is intended not to overrule the vital interests of any country – and the procedural rules are in place under the Community method to avoid this – but to prevent the vetoing under unanimity rules of decisions in the general interest. It has taken the experience of the EFSF and, indeed, the ESM, to remind them.

I’ve been wondering about this: Is not a monetary union with diverging sovereign bond yields an absurdity? Would it not imply that a. the spread between prices is in fact a bubble that is in the process of bursting, and b. they’ve lost control of the policy rate?

Is it possible as suggested by FT alphaville that: “It is the Bundesbank which may be cornering the bund market on purpose. And it’s doing so to ensure that the one last repo rate in Europe that can be controlled remains suppressed.

The rate is important because almost all interbank funding is now done on a secured basis against the best quality collateral. This implies two important points: 1) that the ECB itself has lost control and depends almost entirely on the Bundesbank to enforce its low rate policy target and 2) that the Bundesbank is having to retain more bunds from the market than ever before just to ensure the last functioning repo rate in Europe doesn’t spiral out of control.”

hat tip to Ahura Mazda

@ Colm Brazel

I had not read your comment when I posted the above. To misquote Churchill, the only thing worse than QMV is unanimity. What matters are the rules and context within which decisions are taken by QMV. Nobody speaks of annexation by the IMF – despite criticisms – for this reason.The IMF is, in fact, the example that the larger EZ member countries are attempting to follow and one can understand the reasoning behind it. Indeed, there is a formal agreement that, once the membership of the EZ reaches 18, the voting rules in respect of the ECB will also change on similar lines. Germany and the other triple A countries have, according to reports, become less enthusiastic, as the realisation has dawned that they would be in a permanent minority on the basic policy issue of the extent of the role of the ECB.

@ PR Guy

re Dexia. Its an odd one, and again could be a poorly worded headline. Per Reuters:

“The source said the bank was making use of the emergency assistance facility of the Belgian central bank as well as “national central banks in France, in Spain, in Italy”, where it has units.”

Now, it being a Belgian/French bank, i could understand them using ELA access at the Belgian and French Central Banks, but i have no idea why it would be accessing Spanish and Italian ELA facilities, why should they get involved? Is this just standard ECB repo window facilities, being poorly described as “emergency”?

We were told to save Anglo to avoid a Lehman’s type event in Europe.

Is it fair to say that three years later we now have a full blown Lehmans event in Europe with frozen interbank markets and freezing sovereign debt markets?

The tragedy of this is that we signed up to the rescue plan devised by these geniuses. At least we made our banks take a proper bath earlier than the others.

The last line in the sand is the giverning law of our sovereign bonds. The bondholders are trying to screw the Greeks on that at the moment by making the new reduced bonds subject to English law. My view is we should opt for a messy default rather than accept such a fate of hopeless subjugation.

On the plus side, apart form tlla the warnings to the contrary, the world didn’t stop turning when Roosevelt abandoned the gold standard. People will keep on working with whatever solution is put in place be it EU wide bank resolution, sovereign default, eurobonds, ECB intervention or whatever you are having yourself. The real danger is if no solution is adopted. Presumably the DoF are ready on the domestic front.

@Bond. Eoin Bond

What had popped up on my radar was ‘talk’ of the Dexia restructuring plan having to be renegotiated. Belgium thinks it’s costing them more than originally thought/France got too good a deal and wants some help from France or the ECB? Nothing like re-opening cans of worms.

@ PR

few comments out in the last hour saying that they’re sticking with the October deal for Dexia. Belgium smacked down quick sharp.

@all from macrobusiness

Yesterday I asked if the collapsing Dexia deal would be the straw that breaks the camel’s back for France’s AAA. We may not be quite there yet, although I am personally not sure why, but there are growing rumblings that a downgrade is coming:

France would have limited room to absorb any new shocks to its public finances without endangering its AAA status, Fitch Ratings said on Wednesday, in the latest sign that the euro crisis could rob France of its cherished top-tier rating.

In a special report on French public finances, Fitch said France’s debt and deficit were consistent with a AAA rating but said shocks such as a further economic slowing or provisions for banking sector support could put the rating in peril.

The report kept upward pressure on French borrowing costs after Moody’s warned on Monday that a sustained rise in yields coupled with weaker growth could harm France’s ratings outlook.

“Similar to the situation of other major ‘AAA’ sovereigns, the increase in government debt has largely exhausted the fiscal space to absorb further adverse shocks without undermining their ‘AAA’ status,” Fitch said.

Just checking the status of McCarthy’s Sunday Op-Ed if me small bet on France for Friday afternoon comes off …. Blind Biddy considering setting up her own Hedge Fund ….


‘My view is we should opt for a messy default rather than accept such a fate of hopeless subjugation.

NO. If and quite probably when Capital_D is unavoidable, which I hope can be avoided, we do it Instantaneously, Ruthlessly, and Pristine Cleanly.


Thanks for the Spiegel link – I note that in Germany, Wolfgang has a beard and carries a little paunch (see photo,1518,799429,00.html ), while in the UK he is thin and clean-shaven (see photo ).

Changing one’s appearance so that the local audience will find you more trustworthy is a level of dedication you normally only see in war correspondents.

@ Zhou

Kevin Cardiff

“So I think we at least need to reflect on the possibility that the decisions made created some time and some space for further work and also protected our citizens, and indeed citizens of other parts of Europe, from the contagion effects that would have happened from an immediate catastrophe.”

That was the line. But the sickness has reached the core regardless.

“Asked what lessons he had learned from the financial turmoil, Mr Cardiff said there was a case to act more quickly in the face of crisis.”

Well said

This from the rolling Guardian business blog.

“12.15pm: Reuters is reporting that the European Central Bank is so worried about the risk of a new credit crunch that it is considering offering much longer loans to banks, to avoid them running out of liquidity.

“Under the “unprecedented” idea, the ECB would allow banks to borrow for up to three years (from a current limit of 12 months). This would be a relief to any banks who are struggling to get access to funding in the current climate, and might encourage them to buy more sovereign debt.

“Although the ECB is restricted from offering significant long-term help to eurozone countries, it has the power to offer very large sums of money to European banks. So it could be a way of indirectly supporting peripheral countries and pushing down their yields without breaking the rules.

“However, there is the risk that any bank who took up this offer might appear to be in serious trouble. Reuters quoted a source who said:

“The question (for the ECB) is whether banks would be interested in it. It could be seen as a stigma if a bank was using 2 or 3-year financing with the ECB. It might not get enough take-up to make a difference.”

Sovereign Risk and Banking Crises.

Are these problems?
Looks to me like the biggest issue for the Government, Prionsias DeRossa, Noonan etc is making sure that Mr Cardiff is landed with the ‘doodle’ job at 160,000PA plus plus plus expenses plus plus plus pension.

Why is this a big issue for government.
He should never have been put forward. He was voted out.
Why is protecting Croke Park a big issue. How about the 1.5million workers and the 450,000 that never got a smell of Croke Park.

What is the matter with these people.
For whose benefit is this country being ‘run’ for anyway?


Extended ‘liquidity support’ in an attempt to conceal bank insolvency or threatened insolvency. Well, it ‘worked’ for Ireland, didn’t it? Just watch the share price of any bank who opts for it plummet. Then the sovereign has to recap or let some banks fold. I thought they’d run out of road for can-kicking but apparently not. Maybe MerMontozy will cook up something in their meeting.

@Joseph Ryan,

It’s all the late BL’s fault. If he hadn’t picked Prof. Honohan for the ICB, Mr. Cardiff would have slid across as so many of his predecessors did. In any event a minister and his department is legally defined as a ‘corporate sole’. Some may see this as officials hding behind miniters, but the other side is that officials protect ministers – and there is a long-standing arrangements that senior officials are rewarded appropriately on departure – even if things go pear-shaped on their watch.

Governor of the CB was the usual reward for the top DoF mandarin. This EU job is the best available alternative. It doesn’t matter if the economy is going down the Swannee; these long-standing arrangements must be honoured. If they were not, it would be the end of civilisation as we know it.

@Bond Eoin Bond

Not surprised if Belgium gets a slap – loose talk costs AAA status and all that. So Dexia is just getting short term funding then until all parties actually deliver on the deal I guess. Although as I think you said, not sure why they would be getting any from Spain (assuming they actually are).

What odds are currently being given by the Bond dealing world on France losing that AAA status by the end of this month?


Is the sub-headline on ft dot com (Brussels sues Germany over VW ‘Golden Share’) a case of the Empire striking back? Can we expect Germany to get picked on a bit more by Brussels over the coming weeks (assuming the Euro lasts that long)?

@Edward v2.0

“Changing one’s appearance so that the local audience will find you more trustworthy is a level of dedication you normally only see in war correspondents.”

Surely you mean ‘war criminals’? As we know from current investigations by the UK’s Inspector Knacker of the Yard, journalists maintain nothing but the highest standard of ethics… OK, OK, so some of them think ‘Ethics’ is a county in southern England granted…..

@ zhou_enlai

My view is we should opt for a messy default rather than accept such a fate of hopeless subjugation.

Usually ‘brave’ statements of defiance like this are made far behind the frontlines.

So what’s your line of work that you can casually contemplate tens of thousands more on the unemployment pyre?

Tell us that you are struggling to open new export markets that PwC delusionally suggested this week are for a taking – – because of a fall in unit labour costs thanks to a jump in pharma output without any additional labour input.

The subjugation narrative has some fans of course. It’s the type of a reaction that can be expected from onetime Fianna Fáil loyalists.

@Michael Hennigan

One of the points of using a pseudonym is the hope people will play the ball and not the man….

The eurozone is in the middle of a car crash. If the EU isn’t sending an ambulance we had better start patching ourselves up.

It is a great pity that you choose to spew venom at me rather than address the reality staring you in the face. The issue about the jurisdiction of bonds is that it removes the most important mechanism for our country taking its fate into its own hands. To give up such a mechanism would be utter madness in light of the failure of the EU to deal with the situation over the last three years.

Your assumption that unilateral default will necessarily lead to the worst outcome for Ireland is very questionable. One of the major ills we were seeking to avoid by not allowing our banks to default, i.e., contagion to the core, now appears to have come to pass.

You are like a broken record asking what everybody does for a living. It has some validity, as everyone should question their own prejudices and the costs for others, but it is not an answer for everything. For what it’s worth, and in the hope it might cure your obsession, I confirm that I work in the private sector, in a business that has seen substantial redundancies and I have seen substantial pay-cuts. The nature of the business is that it is dependent on the health of the overall economy. If the business folds I could find it difficult to find a job as many in my line of work who are unemployed are finding it difficult.

@zhou_enlai +1

Meanwhile headlines on are in order:

(i) Cardiff nonsense
(ii) Killer jailed
(iii) Anti gang raids
(iv) Quinn bankruptcy

It is absolutely crazy how detached the average person is from the crisis and our major news organisations are doing nothing to inform or prepare people for the stark choices which are going to face this country in a few weeks / months.

Presumably the elites can decide what suits them best when the choice comes as long as electorates remain uninformed.

And the band played Waltzing Matilda……..

“Nov. 24 (Bloomberg) — German Chancellor Angela Merkel said that joint euro bonds would send a “completely wrong signal” in part because they would immediately lead to a convergence of interest rates in the euro region.

“This would take us back to where we were before the crisis,” Merkel said in comments today at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France.”

I see we are down 22b on our stake in AIB. It’s only worth 28b now. Oh well,
Easy come easy go. All in the space of three weeks.

I can’t believe Ollie Renn just said that the contagion process “has now spread and touched the euro’s hard core area”. He’s obviously been taking a walk on the wild side, past Hamburg’s Reeperbahn.



Hopefully we can just go back to to 1998 and not forward to 1932.

@Ceteris (re Mickey and Ambrose)

Maybe I am desperately trying to be optimistic and I am am most certainly not an apoogist for Fine Gaels/Labour however we must realise they have a democratic mandate for the next thre or four years.

However it recently struck me that Enda Kenny and Michael Noonan have been in politics long enough to witness the only two currency “divorces” in modern Irish history. The first was in 1978/79 when we left sterling (after the IMF entereed the UK ) and 1998/99 when we left the Puint. For most of their careers they also did not earn “stratospheric” salaries compared to every other worker.

I also found the appointment of a citizen of Sweden (which is not in the Euro and knows a lot about Banking crises) as deputy Governor of The Irish Central Bank five months ago as a very interesting development together wit the the fact that Ireland has apparently “drawn down” a lot of the money allocated for borrowing during the bailout period to be interesting developments.

Other EU stakeholders may be talking about “Fire power” and “big Bazookas” but I hope a small country like Ireland realises that the only economic thing we can do until this chaos is solved is make sure we have enough “turf” and “spuds” (even if they are “borrowed” in the shed and maintain neutral diplomatic relations with all sides.

In any event I think I will hold on to my solitary Transnistrian Ruble. 🙂

@B.E.B et al

I don’t understand the mechanics of the Sovereign bond market, but is it true to say that the recent 10-year Bund auction would have involved Germany soliciting bids for its bonds, and then reviewing the bids and deciding on a minimum price such that all bids above this were accepted and all bids below this were rejected. For example they may have received bids of €1bn at 1.9%, €1bn at 2.0%, €1bn at 2.1%, €1bn at 2.2% etc. Then they decided to accept the first €3bn of bids (at the actual average of 1.98%) and decided to keep the other bonds with the intent of selling them later.

If this is the case then it would seem to imply that they think the current market rate of 10-yr bonds, at 2.2% is too high, and will drop, so that they can get a better deal when they do sell their unsold bonds. This would make sense if they know that their policies will not change, and that it will become clear in the next couple of week that

– there is no way Germany is going to increase its liabilities to the EFSF/ESM
– there is no way Germany is going to allow Eurobonds or any mutualization of debt
– Garmany shares a common analysis of the impact of large-scale ECB bond purchases with the ECB, and so believes there will be no change there.

To mask this “nothing is changing” policy, Germany has set the agenda for the next summit on a totally irrelevant Treaty change to do with the ECJ, since there has to be some agenda. When everyone sees that Barroso’s Eurobond proposals will fade away quickly, and that Germany is not going to assume any further liabilities, then the Bund yield will drop back, they will sell off the unsold portion of the last issue, and so will have profited by holding this inventory back. Would that be a plausible analysis?

Der Spiegel International Today

The Return of ‘Madame Non’: Why Merkel Remains Opposed to Euro Bonds

There were some who thought that Angela Merkel might soon soften her stance on euro bonds. But on Thursday, the German chancellor once again emphasized her opposition. Why, though, is Berlin so adamantly opposed to issuing joint euro-zone debt? SPIEGEL ONLINE offers an overview.,1518,799803,00.html#ref=nlint

Der Spiegel International – On the other hand behind the scenes

Euro Bonds Debate: German Resistance to Pooling Debt May Be Shrinking

Never say never: The German government remains officially opposed to controversial euro bonds. Behind the scenes, however, press reports indicate that some within Chancellor Merkel’s government have begun discussing the conditions under which they might accept a pooling of euro-zone debt.,1518,799692,00.html#ref=nlint

Why, because it is going to cost Germany an enormous amount in extra interest…as the lady pointed out today.

The Plot Thickens

Who’s afraid of Germany? (4) Merkel’s Nein is wrecking the EU
24 November 2011 Die Tageszeitung Berlin

Alone against all, the Chancellor says ‘No’ to a supporting mandate for the ECB and ‘No’ to common euro bonds. In Germany too, more and more experts are warning that her firm stance on discipline and rules is plunging the eurozone into chaos.

meanwhile, back at the ranch, Irish are giving the rest of the European Parliament a tutorial on how to really ………….. [fill in the blanks]


Kafka_Reloaded by The Austrians

In the Czech Republic, Respekt fears that –

… countries like Hungary, Romania, Serbia and Ukraine will be forced to contend with a sudden credit crunch, at least with regard to Austrian banks, who will be reluctant to lend.

Blind Biddy is heading for StalinGrad …. hope she gets there in time … chaos theory is unpredictable at times such as these …

Its encouraging to have people following up with the commission on the new bank resoulution framework. The reason that they are delaying is probably the weakness of large global European banks and to protect them form any side effects. As Simon Johnson points out for global banks with business in all kinds of countries the chioces are really bankruptcy like Lehmans or a full tax-payer bailout like AIG. He suggests breaking them up into smaller entities. Or a G20 agreement on how asstes and liabilties will be treated in their countries. Thinking big a developed world bank resoultion mechanism for global banks is needed.
On the other hand the FDIC released a paper this year on how Lehmans could have been restructured well if the new Dodd-Frank legislation was in place then.
Perhaps some part of the commssisions bank resolution framework might require a treaty change. If so it should be bundled together with the treaty changes Merkel and Sarkosy are now recommending for budget controls early next year.

Those banks are not releasing their exposure to CDS and if they give any info its only their nett positions. The info is not out their as the OTC market is not properly regulated. Nett positions are not accurate in the case of the counter-party not being able to repay their CDS. Which in the case of a financial crisis is quite possible. CDS is big news which receives very little mainstream coverage. It was the reason AIG went bankrupt as it had to pay out hundreds of billions in insurance to Lehmans bondholders. Geithner is vetoing the pay-out of CDS in europe and at the same time not regulating it in the US where more and more CDS are bieng sold.

@ zhou_enlai

My reaction was triggered by the victim narrative of ‘subjugation’ coupled with the nonsense about a ‘messy default.’

Of course people’s views reflect their own experiences, values etc.

Lawyers for example can find 101 or more reasons that are valid to them to object to change. Direct self interest may not be seen as a primary one.

Why for example is the issue of private pensions such a non-issue in the public sphere?

Would it have anything to do with the fact that they and policymakers have an excellent system themselves?

@ Chris

“CDS is big news which receives very little mainstream coverage. It was the reason AIG went bankrupt as it had to pay out hundreds of billions in insurance to Lehmans bondholders”

Eh, what? This did not happen. AIG’s losses were related to CDS written on mortgage-backed securities. It had very little (almost nothing in fact) to do with outright losses on Lehman Brothers bankruptcy. People need to stop making up stuff on here. Also, “hundreds of billions to Lehmans bondholders”? Seriously, get a grip man.

@Bond Eoin Bond

What game is Geithner playing with CDS – who is driving this? Who are the big boys in dishing them out? Which one of them is the most vulnerable?

Back to the original article.

As pointed out in the indo yesterday, the article posits that the nationalissation of Anglo was a turning point in the euro crisis, which in turn has affected the global crisis.

Lest our self-loathing tekes over, let us not forget that the policy of no bank must be allowed to fail was formulated by the G20, and Trichet hammered home the message ot Lenihan at the fateful hour. As such it is clear that the EZ mambers of the G20 and the ECB are, to a large degree, the authors of their, and our, misfortune. This is not to exculpate our own State apparatus which ascribed a low probability to the consequences for our State which have come to pass.

@Michael Hennigan

“Lawyers for example can find 101 or more reasons that are valid to them to object to change. Direct self interest may not be seen as a primary one.”

Never a truer word spoken.


The Financial Times and ISDA estimated the gross notional value of CDS contracts written on Lehman Brothers at USD 400 billion just after the failure. Based on this amount and a recovery rate of 8.625%, default settlement would have entailed an enormous transfer of USD 366 billion from
protection sellers to buyers.
The gross amount is not known as CDS is pretty opague, just estimated so ths things really are a matter of opinion and can easily fall into dispute.
0f the 5 U.S. institutions that sell 90% of CDS, AIG was known to be the lead seller of CDS on Lehmans. So 366 divided by 5 is somewhere over 75 billion, gross, estimated. AIG was known to be relatively unhedged in the CDS market.
AIGs bailout soon after totalled 180billion.
AIG also paid out tens of billions on other CDS liabilities such as subprime mortages.
The leading cause of AIGs bailout was its CDS liabilites, in Sep 08 it was aked for collatoral by everyone on all it CDS after its downgrade. So CDS is big news. That was the overall point.

Here a former Lehmans executive says
“Lehman had over $400 billion in credit default swap contracts with AIG”

And here on the overall point
“Myron Scholes, the ‘father’ of financial derivatives, who won a Nobel Prize in economics in 1997 for inventing the stock options model that led to financial derivatives back in the 1970’s, has declared that derivatives and Credit Default Swaps have gotten so dangerously out of hand that authorities must ‘blow up’ the market.”

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