McCarthy: This burden of bank debt is simply not sustainable

Colm writes another dinger of a piece for the Sunday Independent, it’s required reading. From the piece:

No other eurozone member has incurred bank-related debt under ECB duress. There are no provisions in the Maastricht Treaty, in the Stability and Growth Pact or in any other pact or international treaty which grant this power to the ECB, nor was any eurozone member state ever asked to accede to such an arrangement. Commissioner Rehn’s Latin phrase (“pacta sunt servanda”) has no pact to refer to, insofar as these imposed debts are concerned. Ireland never signed a pact or treaty which empowered the ECB to behave in this fashion.

One can only speculate as to the ECB’s motives, since it does not deign to explain. European banks have come to rely heavily on unsecured bond financing and the ECB may have felt that no bank bondholder should suffer losses, in order to encourage the survival of this market in bank debt. If this was the motive, the policy is being paid for, not by the ECB, but by Irish taxpayers and sovereign bondholders and financed by European taxpayers and the IMF. There is no pact which confers powers of taxation on the ECB.

All of the Greek debt relieved, to the tune of €100bn in recent weeks, was contracted, without duress, by the lawfully elected Greek government. The write-down was welcomed by Commissioner Rehn, who described himself as “very satisfied by the large positive turnout of the voluntary debt exchange in Greece”. The same “exchange” was described by one of the bankers enduring a 74 per cent haircut as “about as voluntary as the Spanish Inquisition”. The bondholders agreed only after punitive retrospective clauses had been inserted into bond contracts, with the agreement of the European Commission. Some of them are initiating court actions, presumably in jurisdictions cognisant of the “long European legal and historical tradition” to which Commissioner Rehn refers so approvingly.

The Financial Times, in a leader last Thursday, argued that Ireland should be afforded debt relief in order to ensure debt sustainability. “Pacta sunt mutanda” it intoned, which means treaties should be altered. The portion of the Irish debt in dispute here does not derive from any pact or treaty but was arbitrarily imposed by the ECB. There is no need to alter any treaties and the FT, uncharacteristically, has misunderstood the Irish case.

This whole sorry saga has raised once more the enduring policy dilemma of ensuring that central banks are both independent and accountable.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

213 replies on “McCarthy: This burden of bank debt is simply not sustainable”

Does anyone know what proportion of total ECB liquidity support, Ireland presently gets? Irish banks had €87bn of direct ECB lending at the end of February.

And how does our current proportion compare with the height of the crisis in Sept 2010 – Feb 2011?

Have the power positions between Ireland and the ECB shifted in the last 18 months?

Does anyone know what proportion of total ECB liquidity support, Ireland presently gets? Irish banks had €87bn of direct ECB lending at the end of February.

And how does the present position compare with the height of the crisis in Sept 2010 – Feb 2011?

Have the power positions between Ireland and the ECB shifted in the last 18 months?

“the ECB may have felt that no bank bondholder should suffer losses”

It was the ‘only game in town’ under JCT.

As Weidman’s response indicated, the ECB undermined its own anti-inflationary stance with the LTRO exercise. But that action was perceived as absolutely expedient, as an EZ banking collapse would have hit the ECB stakeholders themselves.

As the sociologist Pierre Bourdieu puts it, the powerful maintain their position by constantly changing their stance. The new ECB stance, however, has made left them open to allegations of arbitrariness.

This piece reflects the increasing alienation of ‘mainstream Ireland’ from the EC. It’s also a measure of the degree to which the ‘odious debt’ argument is gaining respectability 🙂

The Governor, MoF are the new Sec General of the DoF are going to be increasingly isolated domestically if the trend continues, because we are headed towards a proconsular-type administration. A thumping Dail majority is no guarantee against economic stagnation, with ensuing institutional, or even constitutional crisis.

From Karl Whelan’s blog.

“Promissory Notes: No Magic Required”


“One can wave away arguments about a special deal as simply Irish exceptionalism that would set a precedent for everyone else to get such a deal. However, that misses the key fact that the IBRC promissory notes are an exceptional deal. Nowhere else in Europe has a country taken on debts of 20 percent of GDP to bail out an insolvent bank. Indeed, bank resolution proposal documents such as this one from the European Commission are partly premised on the idea that what happened in Ireland with Anglo is unacceptable and should not be repeated.

“So the reality is that the promissory note\ELA deal involving IBRC is an exceptional one and one that the ECB Governing Council has agreed to. The ECB has taken a number of bold steps in recent months including radical changes to its collateral framework. Against this background, it should not be considered unimaginable that the collateral for IBRC’s ELA could have its payment structured altered.”

Embedded in the first paragraph is a link to:


Which, health warning, I haven’t read in full, but contains the following:


“The Commission’s Communication of October 2010 sets out a general framework for a comprehensive EU framework for troubled and failing banks. The Commission intends to proceed gradually towards such a regime. As a first step it will adopt before the summer 2011 a legislative proposal for a harmonised EU regime for crisis prevention and bank recovery and resolution. This will include a common set of resolution tools and reinforcement of cooperation between national authorities in order to improve the effectiveness of the arrangements for dealing with the failure of cross border banks.”

I have been quietly emailing the Commission for months now, looking for this. I was first told it was due end 2011. Then end March 2012. I shall happily keep going, but would be grateful if a proper journalist could pick this one up.

And it also contains:

“In addition, the Commission is helping to shape the work of the FSB [Financial Stability Board] and the G20, and is also closely monitoring other international developments. The G20 summit held in Toronto in June 2010 committed to the design and implementation of systems whereby authorities have the powers and tools to restructure or resolve all types of financial institutions in crisis, without taxpayers ultimately bearing the burden.”

I think there is a bit of revisionism going on here here. In September ’08, our government decided that all stops should be pulled out to keep the Irish banking system afloat, hence the unilateral blanket guarantee which I understand got up the nose of the EU/ECB.

They could have chosen to let Anglo go ala Lehman, the ECB could not have objected as this was a legal recourse. But concern for depositors and concern for the contagion effect on our “pillars” made our government decide that Anglo (et al) should be supported at all costs.

Subsequently the depositors have been evacuated from Anglo and so far as I know there is now limited risk of contagion in walking away from Anglo. In fact the main “loser” would be the ECB. And so we convince ourselves that our commitments to Anglo where forced upon us by the ECB and therefore why should they expect to get all their money back? Shame!

Let us remember what really happened. Anglo borrowed money from German banks. It lent it to Irish developers. They in turn gave it to Irish landowners in silly prices for their land. Work it through. What we are asking is that those former landowners should hold on to their false windfalls and the ECB should retrospectively foot the bill. Shame again.

‘Here’s one I made earlier’:

March 18th, 2012 at 4:20 pm
Colm McCarthy slags off the ECB today in the indo for “forcing” the Irish government to act against its own will. Could I make the point again that although Colm might have been shown a copy of the letter the ECB refused to publish, I and so far as I know no other commentator has. If it really is as clear cut in demonstrating no actual element of choice for the Irish government to act this stupidly – but simple “force” – then I have to say it is incredibly dim for the contents of this letter not to be leaked at least partially by the Irish side. If what Colm says is a fair reflection of what occurred then the ECB can hardly sustain, in in international financial media context, much of a complaint about facts getting an airing – don’t forget it has to remain credible in an international context.

If you have a few phrases from that letter Colm, would you mind posting them or emailing them on please?

Here are some bits and bobs from todays article:

“The ECB, for reasons which it has never explained, then forced the Irish Government, against its declared wishes, to continue paying 100 per cent of face value on maturing senior bonds in these zombie banks.

The ECB threat was to restrict liquidity provision to the Irish banking system unless the unguaranteed bondholders were paid in full.

No other eurozone member has incurred bank-related debt under ECB duress. There are no provisions in the Maastricht Treaty, in the Stability and Growth Pact or in any other pact or international treaty which grant this power to the ECB, nor was any eurozone member state ever asked to accede to such an arrangement.

This whole sorry saga has raised once more the enduring policy dilemma of ensuring that central banks are both independent and accountable.

The European Commission at least communicates without resort to anonymity and is to be commended for accepting this form of accountability.

It is time for the Commission to show independence as well — in particular, independence from the unaccountable central bank.”

@ Grumpy
There is no letter. Brian Lenihan started hinting at duress so that history would be more forgiving. Colm McCarthy may well have been told there was a letter but I bet you he has not seen anything of the sort. He has been fooled on this.
This “letter” idea is just a shoddy stupid lie propagated by Fianna Fail to get them off the hook.

@ Brian Woods II

Shame me arse.

1) The German banks took ‘risks’ on Irish banks and got rewarded. They didn’t lend them the money out of kindness.
2) The German banks had cheap money due to some degree to the monetary policy of the ECB.
3) The ECB was for ‘no bank fails’ and is likely to have sent a threat letter to that affected to B.Lenihan with the man himself describing the situation as being ‘bounced in to it’.
4) The ECB has in essence forced us to pay ungauaranteed bond holders in a bust bank.
5) This isn’t about whether the ECB or ‘former landowner’ should pick up the tab, it’s about how much money the irish citizens and their future children should be expected to pay for a bust banking system.

Colm’s article caught my attention yesterday, I’d kinda given up on Colm McC and lately also virtually given up on many Irish economists in relation to their position on the Troika bailout,negotiating a deal for Ireland.

In various ways I believed they were under the spell of Tir na NÓg variously capitulating to LB/FG Weltanshung FED by masters in the Irish financial, political, banking arena, ‘technical’ spells negotiated a la the Merkozy.

Often, I read Colm’s Indo articles and see him variously lay out all the compelling arguments
only to be disappointed at that point when all the dots gets joined together and he would, in my view, not see the full picture; but see him fall back to some rather circumspect mode that at most would be a critical appeal for eg ‘we’ll have to vote yes, even though there are problems with Europe’ or similar appeal for compliant leniency pleading favour that should be extended to us.

Colm’s Indo article made me feel good. This was in economic Joycean terms, an epiphany equivalent to
Joyce’s, the Dubliners. He’s found his true voice and found himself at the same time. He has bluntly called a spade a spade and in so doing has raised himself head and shoulders above all the sirens and censorious wafflers and supporters of the Troika debt agency edicts handed down to us with the lies we should honour odious debt.

Colm’s piece is excellent analysis of why the Irish right-wing authoritarian Irish Government version of Marshal Philippe Pétain, which came to power in France following the defeat of France by Germany in 1941, who’ve sold out this country to the bankers and the Troika, should be opposed in their goal to subjugate us to the gremlin, authoritarian bureaucrats in Europe or at home.

Well done, Colm, nice one. Good to Colm’s eyes opening. My faith has been restored in the old alma mater. Welcome aboard the Mary Celeste and welcome home from Tir na NÓg 🙂

@ Brian Woods II and Grumpy

You hit the nail on the head! It is a pity that the SBP is now subscriber only as Donal Donovan’s article provides a counterbalance to this article by Colm McCarthy which I find singularly lacking in facts to back up the many assertions that it contains (including the title which I do not think misrepresents the content).

Pat Leahy puts the situation in a nutshell in the SBP

“Underlying this whole question is the gulf in the perception of the bailout agreement between the European policy elites and large sections – though by no means all – of the Irish electorate.

Bluntly speaking, it’s this: many Irish voters – egged on by politicians who also believe with varying degrees of sincerity – believe that they are being uniquely and crudely oppressed by Europe; Europe, on the other hand, thinks that it is rescuing Ireland from a mess of its own making.

European officials were keen to stress this point last week. One of them venture: “The German banks lent the Irish banks large amounts of money…But, if they hadn’t. someone else would have. The Irish banks and the Irish people wanted the money”.

The Irish people got the money and they spent it, in the process moving large amounts of it from the pockets of some to the pockets of others, leaving the former with the associated debt.

The one correction that I would make to the comment by Brian Woods II that it cannot be the ECB that foots the bill; it does not have the capital resources to do so. Only the taxpayers of other countries can pick it up.

The politicians of other countries are as entitled to defend the interests of their taxpayers as Irish politicians are to defend those of their taxpayers. As Donal Donovan points out “moral arguments are unfortunately not usually determining factors in the world of economics and financial realpolitik”. Especially, one could add, when they are not very convincing.

cf. also this article which throws up the reality that it might be best for Ireland if the country did not “recover its sovereignty” i.e. hand it back to the politicians, too soon.

The work of cleaning out the Hibernian stables has barely begun.


Presumably there is a difference of perception for the ECB in that the LTRO applies some whopping haircuts – particularly to assets which are akin to business loans – and the EZ banks take the liquidity. You can argue some of these assets are duff beyond the haircuts but that is not established.

In the Irish situation the assets had been revealed to require writing down to the point the banks were definitely insolvent so what many in Ireland would like to think was only ‘pretend capital’ (the pro notes) was stuffed into them and the liquidity freshly printed up by the Irish central bank.

The EZ view is not that the LTRO is a printing exercise, although at the Germanic fringes they argue it is at least a bit.

The right thing to do was to have made as really really loud noise about the bank bond repayments and make it crystal clear to the international financial and political community that the Irish government thought repayment was a bad idea and was being AT THE TIME forced by specific threats to do so. Instead the government line has always been to play along with the idea that it was its duty to and in Ireland’s direct interest to pay out the bonds.

There was a much bigger appetite for applying capitalism to the bonds than what many view the pro note write down argument as – ie printing money to finance state deficits. The guys who were in the markets in the late seventies along with the Germans, are programmed to react against that.

paint ….corner….into…..strategy….awol….


The sentence “The Irish banks and the Irish people wanted the money” is not within the quote attributed to the unnamed official but is in the body of the article.


I think there is a letter. The question is, if the contents were published, would most people recongise it as the letter it is supposed to be. Professional cynics also have a duty to consider the possibility it is the Irish side that don’t want it published and have asked the ECB not to – because its publication might reveal to the public that there was little or nothing more than polite discussion and an expression of preference and the ‘duress’ story is politically convenient.

(There are lots of professional cynics in the financial markets).

This is silly.
If there is a letter then show it. If there is not then just accept that history is written by the winners and it’ll show that the bank guarantee was our choice.

Ireland is full of b.s. stories like this. CMcC clones propping up bars around the country explaining that Michael Collins was shot by the British, Develera was never at the GPO and that Lenny had to do it because he got a letter. Boring..Yawn..

Get your head around this. Israel is a few months away from attacking Iran. How’s our beleaguered economy going to cope with the oil price hike? How are we going to cope with the underlying steady increase in energy prices? Bearing in mind that the recent find in Cork was by a company called Providence – not Charity!

Colm of course isn’t from the same mold as Viktor Orbán, the right-wing Hungarian prime minister, who told thousands of supporters on Thursday that he would resist EU pressure to amend legislation passed last year and compared “European bureaucrats” to the Soviet apparatchiks who ran the country for decades after World War II. “Hungary will not be a colony!” he shouted to thousands of supporters.

Colm also knows that the while some would like to have a single self-satisfying soundbite: ‘we was robbed,’ that is not credible.

It would be nice to get a Greek-type deal as it would for Spain, Italy and Portugal.

It is likely that there will be a recheduling of the debt.

Dan O’Brien’s article from last Friday:

@ grumpy

“The ECB threat was to restrict liquidity provision to the Irish banking system unless the unguaranteed bondholders were paid in full.’

Look, this is no big issue. Iceland was threatened with Armageddon. These guys will use every threat spoken and unspoken. The only way to deal with similar stuff is to stand up to such bullying.

Also, I’d question any such threats in the first place on the basis of suspicion that those allegedly making the threats were already preaching to the converted; also that FF were themselves the possible authors of such threats as a means to enforce their incompetent agenda re ‘the foolish guarantee’.

Finally, the delivering on any such threats would have to happen openly on the world stage. We would have the support of the diaspora and the support of Irish citizens in standing up to threats such as those.

Overall, my view is the discussion around the so-called threats made to enforce capitulation is an attempt to coverup and detract from the incompetence of our negotiators. Don’t underestimate the level of incompetence!

Colm McCarthy is absolutely correct, both in principle and in practice, but I’m not sure what purpose is being served by lamenting that EMU central banking, bank supervision and financial regulation isn’t, and demanding that it should be, broadly similar to the institutional and procedural arrangements that took more than a century to establish in the US.

Even with this solid foundation the US has struggled to repair the damage caused by the bonfire of financial regulation in the late 1990s. The confict between federal governance and states’ rights endures. The Dodd-Frank Act is not pretty and falls short of being fully ‘fit-for-purpose’, but it was probably the best that could be achieved given the political exigencies. It was passed in the teeth of growing opposition to any increase in federal governance fuelled by those who espouse the perverse notion that since regulation that was designed to fail inevitably failed the answer is even less regulation and who have not accepted the democratic legitimacy of an elected Democratic Party President since 1992.

The EU has its own variants of these inbecilities and, even worse, in the context of the institutions and procedures of governance, is little more than a ‘gentlepersons’ agreement’ with, in many areas, and, particularly in the areas of central banking, bank supervision and financial regulation, an entirely inadequate development of the necessary institutions and procedures. The EMU was based on this ‘gentlepersons’ agreement’ that everyone would behave responsibly, that each would not do damage, by commission or omission, to others or to the collective interests and that, given these undertakings, there would be limited central/federalesque legal invigilation or enforcement of these undertakings – mainly because the member-states would not consent to this.

Ireland broke this ‘gentlepersons’ agreement’ almost unliaterally and more violently than any other member-state. Its actions stretched the EU’s institutional capability far, far beyond what it was designed for. There are no heroes in this mess; just a cast of villains seeking to evade, self-servingly, the varying degrees of culpability they should be required to bear. And some are more adept than others in doing this.

Setting out the principles of democratic and institutional governance from the economic high ground is fine, but perhaps a bit of humility all round might be more appropriate and a recognition of the unique nature of the EU as an association of sovereign nations bound by treaties and of the variety of institutional and procedureal challenges that goves rise to – particularly in a time of stress.

@ Michael Hennigan

Re Dan O Brien’s article, how embarrassingly pathetic and drooling can an article on the debt crisis be. After a Stockholm syndrome entry point which lasts 3/4 of his article in which he defines an illusory and nonsense version of the ECB, he sinks Ireland’s case and having drowned our right to justice floats up to the surface a little hope for leniency….


My own sentiments and thoughts entirely agree, but the reflexive grasp for the charity cup is long embedded in the Irish psyche. Don’t you know, we are owed a living?

Some in the chorus in demanding a debt deal for the big numbers seem fiercely resistant to a debt deal for ordinary citizen.

While talk is of recovery, under the hood it looks pretty bad. No doubt when the final tribunal bills are sent in, a fair number of the great and the good will sleep easier.

@ Paul Hunt,

A currency union designed to create surpluses in the core, liabilities on the periphery, ignore Stability & Growth Pact ‘gentlemen’ agreements by the periphery and the core, reinvent itself with an authoritarian Merkozy alliance, penalise and crush the periphery to save the core, turn its banking system into a Breshnev USSR version of Russian oligarchs is getting ready to fall….unfortunately, Ireland appears to be the famous falling man of the Twin Towers in this economic saga. Here’s maybe a more appropriate ‘major malfunction’ video version of LB/FG Irish bailout in the euro currency for Noonan

@ The Alchemist

‘Don’t you know, we are owed a living’ This kind of statement is nonsense in relation to the Bank Debt. It’s more like ‘we’re owed a CHANCE at a living/future’.

@ The Alchemist

I see that the IFA plans a massive campaign to oppose changes to the third level grant scheme – – which in my opinion was a racket from the start.

Note the Trappist silence on the rise in incomes resulting from the global food commodity boom.

The land payments alone from the national roadbuilding budget in the past decade exceeded €4bn.

So have all the riches of the boom gone up in smoke?

Of course not and the people who are likely making the biggest noise about expecteing less well-off people in some countries in Europe to write off debt, have little to say about the invisible victims of the recession who have no IFA to make trouble for them.

In March 2008, it was reported that Kerry farmers had acquired a €12.2 million shopping centre in Saarbrücken, in south-west Germany.

@Colm Brazel,

The EU emerged to constrain the madness and folly that, from time to time, seizes groups and even nations and over time has sought to minimise the incidence of stupidity in political and policy decision-making – and the outcomes of the inevitable stupidity – and to expand the rule of law, democratic governance and economic prosperity within its expanding borders. It is probably the worst means of achieving this; but it is far. far better than any means yet conceived and capable of implementation.

It is very easy to denigrate this enterprise as a total failure; the charge-sheet is long. And you will not be short of allies building and expanding your ‘bell, book and candle’ condemnation. But wishing so fervently for a demolition that you seem to consider inevitable and, indeed, arguing for this demolition, should impose some obligation to outline alternative, replacement institutions, procedures and arranagments that will fill the gap if or when this enormous edifice crumbles or is demolished. Because the gap will have to be filled.

So, perhaps, if you were to ease off on your rants about the obvious and inevitable imperfections of what is in place and reflect a little on what you think might be more fit to replace it those of us with much more modest ambitions might have an opportunity to engage constructively without being distracted by these rants that unfortunately seem to secure some traction with those who, either deliberately or unwittingly, choose not to inform themselves to the extent they probably should.


You are of course probably right. It is impossible to believe that such a smoking gun letter letter existed without being leaked. Even our muppets could work out that.

Also there is spin here. The original guarantee was a home-grown brianwave and no amount of spin from the Greens and FF can change that.

Spinning won’t fool the ECB, who know the truth, so these lies are directed at the unfortunate electorate.

It would be better if all those who campaign against the sustainablity of the bank debt admit that it was originally self-inflicted. Muddying that truth casts doubt on the main argument against sustainability.


I agree with you on the grants scheme. It makes no sense for the capital asset value to be excluded. The same farmers that whine about the terrible injustice of factoring in the asset value have no difficulty cut out a site or two for the favoured sons and daughters for houses. What value should be placed on that opportunity?

I have said here several times that CAP should be abolished. It has kept subeconmic units intact rather than allow a more natural market in land to emerge. It is no more than a form of rent supplement with the same built in distortions.

This ultimately comes back to the issue over what burden of responsibility a sovereign state has to responsibly manage and regulate its financial system, especially when you include Ireland’s membership of both the EU and EZ and the responsibilities we have to them. Given the lack of either practical resolution schemes or an answer to the “too big to fail” question, i would suggest we haven’t come close to figuring put an answer to this issue yet. Saying simply “let them got bust, that’s capitalism”, when banks get into difficulty, is naive in the extreme, and completely ignores how the developed world economies are currently structured. We haplessly mismanaged our entire banking and credit systems, as well as our public finances, and it was not simply a “rogue” bank that was at fault in our economic collapse. The ECB was of course completely asleep at the wheel during the credit bubble, and bears major responsibility in creating the conditions which led to the crisis, as do the leaders of most Eurozone economies for continuing to push pro-cyclical economic policies reliant on massive amounts of cheap and easy credit. So there is a duty for more sharing of the risks and losses arising from this crisis. But anyone who thinks that “this is Europes fault” is either being dishonest or is intellectually challenged.

Let’s be serious: those bondholders were stupid enough to believe that there was a government ,a regulator and a central bank in Ireland, all of them doing what they were supposed to do .How naive of them! Let’s punish them! It is only fair!

@ John Foody

An awful lot of Irish people were made extremely rich and remain so as a result of the silly bubble prices for land. We don’t seem to have any mechanism for getting that money back off our own citizens though personally I don’t see why we don’t have retrospective super taxes on bubble gains.

So if we cannot get back this windfall from those Irish citizens who were so lucky to be in the right place at the right time, whose responsibility is it to fund that windfall? Seems to me more of an Irish responsibility than a European one.

@Paul Q
LTRO is deflationary as it will take money away from people to build up commercial banks balance sheets – it will eventually be inflationary however as no appropriate investment will occur until it is too late.
The production of base money euros and giving it directly to Goverments based on lets say Population would have been a more honest transaction.

Anyway back to the point – Colm is right for the most part – there is most probally no historical precedent for this given the unique structure of the ECB . The ECB has a major weakness – it has no Treasury – yet it has somehow co opted knaves or fools in the department of finance to use our tax raising powers to bail out finance or credit deposits.
There was most probally a sort of automatic internal corruption in this also as under even the nation state model the banks are the state and the state is the banks.
The nod and the wink might have been that they would create interest free base money some time in the future that can then subsequently be taxed but this has clearly not happened at scale.
Even If the Irish CB can or will not play ball it is the duty of the state to print its own currency in such circumstances and cut the financiers & therefore the Euro off from the tax spigot as they are clearly running wild now.

How much could have been saved if burden sharing was applied to unguaranteed unsecured senior bonds in the banks?

A 50% haircut on all of these outstanding on Feb 18th 2011 would have generated €8.2 billion. If BOI is excluded the savings would have been €5.6 billion.

At the end of this year the general government debt will be around €183 billion.

It comes down to whether the ELA is Tragfähig or a an impossible Belastung . It’s very like witch ducking. Ireland is on a chair hanging over a pool called default. The chair is weighted down with bags of manure labelled Anglo Irish . If over the course of the next few years the chair enters the water and Ireland drowns then Ireland is not a witch. But life in the EZ is a bitch.

@Mr. Bond,

Thank you. It seems you are fated to keep repeating these simple facts and unaddressed challenges. But I suppose we will always have those determined to keep their ears and eyes closed.

Ironically, in terms of bank restructuring, bank supervision and financial regulation, Ireland is probably in much better shape than most other EZ members. But this has been secured at an excessive cost. Though I remain convinced some means will be secured to reduce the on-going annual burden of this cost. And I doubt that frenzied comment here or elsewhere will speed up this process.

And it is an, oh so, convenient distraction from the huge amount of work that needs to be done. This combination of salami-slicing of public expenditure and incremental increases in taxation without any effective, counter-acting structural reform is worse than medieval blood-letting.

Most of Official Ireland seems to think that by sticking with the main fiscal and banking elements of the Troika’s programme, cunningly and deviously playing silly buggers with the Troika’s extremely limited structural reform programme and accepting, unquestioningly, the outcomes of the EU’s Grand Panjandrums machinations they will arrive, very soon and relatively unscathed, in the ‘sunlit uplands’. They may very well achieve this, but it will be at an enormous, and totally unnecessary, cost to the majority of citizens and residents outside of this ‘charmed circle’.

@ Eureka,

There is a letter. Gavin Sheridan has done the spadework and there is an initial attempt here.

One quote from Mario Draghi from the first link:

The confidential communication was aimed at discussing measures conducive to protecting the effectiveness and integrity of the ECB’s monetary policy and fostering an environment that ultimately contributes to restoring confidence among investors in the overall solvency and sustainability of the Irish financial sector and markets, which, in turn, is of overriding importance for the smooth conduct of monetary policy.

I have no idea what is actually in the letter but it does exist.

@overseas bloke

“Let’s be serious: those bondholders were stupid enough to believe that there was a government ,a regulator and a central bank in Ireland, all of them doing what they were supposed to do .How naive of them! Let’s punish them! It is only fair!”

Evidently you have heard of ‘government, ‘regulator’ and ‘central bank’. Have you ever heard of ‘fund manager’, ‘buy-side analyst’, ‘sell-side analyst’, ‘broker’, ‘market strategist’, ‘risk manager’, ‘fund trustee’, ‘prop desk’, ‘ swaps dealer’, ‘investor’?

Do you think these roles and others exist because the three institutions you mention are supposed to be so smart that it is assumed everyone can simply rely on them to get things right?


Pimco is allergic to Irish debt apparently.

It seems to me that the more the debt unsustainability argument is promoted, the more distant is a return to the private sector bond market. Didn’t Rehn or some in his entourage tell the government to cut public service pay if it had a problem repaying its debts? Should be interesting to learn of the troika’s response to the Mahon tribunal legal bill.

@ PAul Hunt,

Re ” So, perhaps, if you were to ease off on your rants about the obvious and inevitable imperfections..”

I’m altogether amused at what qualifies for rant and what qualifies for considered intellectual and informed reasoning with considerable research and intellectual backing. Rant becomes what one doesn’t agree with, an object of inversion of black to white. Out of this septic bag of tricks to quell opposition to ludicrous nonsense, comes appeal to
some personal view as to the best of all possible alternatives being compliant, unquestioning, blind adherence to ill informed understanding:-)

So, to avoid ‘ranting’ that you so perfidiously rant about, here’s I’m sure an unwanted answer to your question, stated in the bluntest and simplest terms.

On Mar 31, whenever the due date of the ¢3.1 bn falls (should be April 1), simply shout in the manner of a Mr Rajoy, simply say, NO, not paying it, we are referring it to International Court for Banking settlements, in the Grimsson manner,

You’ll have to read back on my posts to see what else I got to say about alternatives, but that should be enough to get you going 🙂


“Ironically, in terms of bank restructuring, bank supervision and financial regulation, Ireland is probably in much better shape than most other EZ members”

Did you notice the story in the SBP I think a couple of weeks ago to the effect that because the CB was going to (yes, going to – I kid you not) introduce a ‘fit and proper persons’ requirement Irish lawyers were anticipating a flood of unfair dismissals business.

Did you know that financial advisers who are authorised in the UK at no matter how high a level, get no credits for anything no matter how non-irish specific should they seek authorisation in Ireland – they are effectively asked to start again. Oddly the UK does not seem to be so protectionist the other way round.

Irish financial regulation is just impeccable.

Glad to provide some amusement. And good luck in the Permanent Court of Arbitration.

Sort of off-topic, but related.

Has anyone seen this?

“Social Welfare Benefits – Local Government Charges
Tuesday, 13 March 2012”

“Minister for the Environment, Community and Local Government (Deputy Phil Hogan): I propose to take Questions Nos. 354 and 355 together.”

“The Local Government (Household Charge) Act 2011 provides for a number of exemptions and waivers from payment of the household charge. The exemptions from payment of the household charge are -”

“· Residential property owned by a Minister of the Government, a housing authority or the Health Service Executive”

Before I explode in an alarming sort of way – does that mean what I think it means – to whit, Ministers of government have declared themselves exempt from the household charge?

For those arguing that social cohesion, keep it together and keep pushing in the national interest (Colm McCarthy and John McHale have both invoked the National Interest, about which I have some issues). But for now, if this exemption is correct, where does this leave ‘the national interest’?

I have it from very (very) high up financial services people that there was definitely a letter from JCT and there is supposed to be a ‘second’ letter though I have no idea who from (I’ve heard more than one EC official/EZ politician’s name linked to it – it’s impossible to know what’s true and what’s speculation).


There is little prospect that banking resolution will become an EU responsibility. The Member States are not willing to agree such a step. It is reported in Handelsblatt that Barnier, the Commissioner responsible, will present an EU-wide network of national winding-down schemes for ailing banks before the summer.

As the interview is verbatim, Google Translate provides fairly intelligible and accurate text.

It may be noted for the umpteenth time that Article 127 TFEU states that “the primary objective of the European System of Central Banks (herinafter referred to as the “ESCB”) shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies of the EU etc.” The ECB is part of a wider system, which includes the Central Bank of Ireland. As LBS points out in his interview, it would be in Ireland’s interest to recognise that it is operating within such a system, not looking in from the outside (which seems to be the mindset of quite a surprisingly large sector of supposed expert opinion in Ireland).

Seumas Coffey puts the entire issue of the failure to “burn the bondholders” in its correct overall financial perspective.

The peripheral bank bond market dwarfed sovergin debt by a large amount.
I don’t have the historical numbers at hand but remember a FT graph back in the day that put the entire credit hyperinflation into perspective.
Ireland & Spain alone were huge dead whales of things.

What the ECB perhaps do not wish to confront is that they have destroyed the long term value of the currency by not liquidating this malinvestment that would have had no significant effect on day to day demand but would have reconfigured the entire investment landscape which was obviously deeply flawed at that point.
The bank bond debate is effectivally over now but when the CBs do not now produce enough base Euros to pay off the malinvested debt they are committing a double crime of immense scale and darkness.
Economies throughout Europe are screeching to a halt now as not enough medium of exchange is available to oil commerce.
It is the sacred duty of sovergin goverments to produce domestic taxable currency now – otherwise all commercial activity will cease.
Multiple Closed shops in the centre of Cork simply do not make sense unless you realise we are living withen a non optimal currency with a CB operating with full executive fiscal power.
EMU / euro has effectivally inverted the city / hinterland relationship withen Ireland since 1979 / 1987 which is a quite unnatural but extraordinary achievement.

Colm’s piece opens with:

Ireland’s ratio of debt to GDP is expected to hit about 120 per cent in a few years’ time. Roughly one-third of the total will be due to bank-rescue costs.

I think it’s closer to one-fifth and that the “normal source of debt” makes up around 80% of our debt mountain. This might not be a huge difference but there is a perception held by some that bailing out the banks is the source of most of our problems.

At the time of the Budget the DoF forecast that Ireland’s general government debt in 2013 will be €195.8 billion with a nominal GDP of €164.5 billion. This gives a debt equal to 119% of GDP.

One-third of €195.8 billion is just over €65 billion, which is the amount of money we are projected to have injected into the banks by then.

However, all of this was not borrowed. €20.7 billion has come from the NPRF, though we can consider the €3 billion that was frontloaded into the NPRF in 2009 to be borrowed. Around €18 billion of the money used to recapitalise the banks came from the savings built up in the NPRF.

We have also got some money back. The sale of a share of BOI generated over €1 billion in 2011. In 2009 and 2010 fees charged as a result of the bank guarantees generated around €2.5 billion of revenue for the Exchequer.

The Central Bank Surplus transferred to the Exchequer has also increased in recent years and some of this is due to providing ELA to the banks. The surplus averaged €170 million in the four years to 2008 but averaged over €700 million in 2009 and 2010.

Although we will have provided €65 billion to the banks the impact on the general government debt in 2013 will be closer to €42.5 billion. This is just over 20% of the projected general government debt of €195.8 in 2013.

If the “banking debt” was removed the GGD would be €153.3 billion or 93% of GDP in 2013.

We will have put €65 billion into the banks but not all of that has been added to the general government debt. Most of this money will never be returned, particularly the 50% of it which has disappeared into Anglo/INBS, but the 10% interest charged on, and possible return of, €3 billion of contingent capital, further profits on ELA and fees levied under the guarantee as well as the hope of selling the stakes of the viable banks at some stage will partially offset the initial injections. It is impossible to know what the final net cost of the banking disaster will be.

This is not to dispute the statement that the banks “destroyed the credit-worthiness of the Irish Exchequer”. They did, but it was as much about the uncertainty about the size of the hole to be filled as anything else.

@ Gavin Kostick Says:
March 19th, 2012 at 1:24 pm
Sort of off-topic, but related.

Depressingly priceless.

As well as referring unconscionable, odious, PN tooth and nail extractions, referring the matter to International ‘Permanent Court for Arbitration’, would hopefully have the investigation into IRBC run concurrently with the present 10 men Garda CAB fraud squad investigation with discoveries and evidence including video evidence and video of proceedings done in public, for the edification of a global audience interested in such matters, perhaps to prove the liability of Irish taxpayers for the schenanigans…will happen, won’t happen?

For the delusional and self-interested folk with the weight of the victim’s cross on their backs, who believe foreign taxpayers should pay for all the debt consequences of the banking bust, wonder if you are a citizen of Finland – – a small country like Ireland – – that was also a member of the EMU from the start, would you honestly think the Irish expectation of a full write of banking debt given the reckless political leadership and regulatory mismanagement, fair or reasonable? The same political groupings, oozing with arrogance and fatuous self-entitlement, were reelected twice – – some here no doubt had drank the soup.

What should the ratio of blame be in respect of Ireland and the EU: 80/20 or 70/30?

Even if some of the public money spent had been allocated wisely, there would have been some legacy to build on.

Economist Rossa White said in 2010 when he was chief economist at Davy said:,

Probably the best way to compare the wealth of countries is to look at the capital stock. Years of high income can be turned into physical wealth if invested properly. let’s take three small nations as an example: Belgium, Finland and Ireland. The three are closely matched in the euro-area income per capita table, albeit that Ireland slipped behind in 2009. But no Irish resident who has visited Belgium or Finland would have the audacity to claim that this country is wealthier. Transport infrastructure is vastly superior in those countries, as is the telecommunications network, and public services are delivered from higher-spec schools and hospitals.

He added:

On the face of it, Ireland’s capital stock soared from 2000 onwards. In the eight years to 2008, the net capital stock of the state had more than doubled from €222bn to €477bn. But, as we know only too well, too much of it went into that unproductive asset: housing. The net capital stock of dwellings jumped from €118bn to €302.5bn, an increase of 156%. Ex-housing, the productive capital stock rose by only €70bn to €174.4bn. It is remarkable to think that in 2000, the unproductive capital stock exceeded the productive stock by €14bn. By 2008, that gap was a whopping €118bn!

@ Seamus Coffey

Thanks for your useful debt analysis.

Facts of course are not always a counter to ignorance.

@ Seamus,

excellent info there,

But are you overlooking NAMA which because it was set up as an SPV though the cost is about 30% of GDP plus ongoing staffing costs,

“The €54bn required to fund NAMA represents around 30% of gross domestic product (GDP).”

Seems like I’m not the only one calling for refusal to pay the PN on March 31,

+ 1

“The country needs to adopt the stance of a predator fighting for its very survival and assert its innate sovereignty on Anglo’s promissory notes now.

The country needs to adopt the stance of a predator fighting for its very survival and assert its innate sovereignty on Anglo’s promissory notes now.”


“Irish government strategy for dealing with Anglo’s promissory notes – thanatosis

March 18, 2012 by namawinelake”

@ Seamus Coffey

Thanks for that post.
AIB market cap is €50bn and is 99.8% owned by the government.

@Seamus Coffey,

We all benefit from your efforts to put these numbers in to some sort of context. But it be might be worth while pushing a bit beyond many economists’ obsession with a stock (GGD)/flow (GDP) ratio and trying to disaggregate the elements even further. Even if half of the €65 billion put in to the banks is a total write-off, the other half should really be classed as an ‘investment’ which should be recovered (including the net cost of funds in the interim) eventually. A ‘revised measure of GGD would deduct the portion of half of this €65 billion that is currently included and the related net cost of funds would be netted out of both sides of gross government receipts and expenditures.

Similarly a portion of the GGD was built up to finance public capex so there are assets being backed by this portion of the GGD. In turn the value of these assets should be deducted from GGD and the implied net cost of funds (plus the annual depreciation charge) should be deducted from gross government receipts (on the assumption that this investment washes its face – a bit heroic I know).

Making these adjustment to GGD and to gross government receipts and expenditure might give a better handle on the amount of the GGD that is related to current economic activity (or the lack of it) and on the ‘real’ gap between gross government receipts and expenditure. I suspect a restructured annual IBRC/PN/ELA whatever payment would amount to a very small portion of this gap.

Yet there seems to be a view – widely held (apparently both by the informed and the swivel-eyed) – that this debt and these payments are the main thing – if not the only thing – that is pushing Ireland in to the mire.

@ Colm

““The €54bn required to fund NAMA represents around 30% of gross domestic product (GDP)”

You probably need to update the figures dude – it’s only 32bn or so we’re shelling out now.

70,000 + in mortgage arrears, numbers growing, our political rocket scientists all playing ‘trade mission’ across the world, when this should be left to the Dept Trade @ Commerce or Enterprise Ireland, while they deal with the ¢.25 trillion of debt emergency, but they’ll be back soon to get us to sign up for more bailout !! Slight air of unreality, don’t you think? Re the 120% GDP in case anybody doubts this, debt to gdp over 100% is a red flag of default looming warning for sovereign default…for the ordinary guy 30% is excellent, while a ratio over 40% is a threat of potential disaster…we’re moving into a global slowdown with our GNP already in deflationary mode and into minus figures ! This LB/FG has default written all over it!

You pick a obvious feather from this Davy Turkey and declare it somehow a revelation – we all know this is a feather.
Then you praise Seamus for his debt anylasis as if they were both directly related.
“A country that is sovergin does not have to produce debt or obtain it.
Believe it or not, the European countries and others can simply use printed currency to retire their debts. This isn’t original or earthshaking in concept. Sovereign nations have always been able to issue their own currencies at will without taking on specific liabilities. President Abraham Lincoln issued greenback dollars during the US Civil War. By his doing so, the Union was able to finance what was up to that point the world’s most expensive war without having to borrow from banks”
Steve from Virgina.

What we cannot afford is the export of at the moment very valuable euros to pay for example 5.168 Billion on petroleum products in 2011(A record & 3 times the worth of the road vehicles imported at 1.706Billion)

This is why we have a domestic demand crisis in Ireland – why shops in the very centre of town are closing while shopping centres are thriving.
Its a completly unnatural occurrence and has been accelerating at a faster and faster rate.
The Irish physical economy is unable to cope with the European monetory system.
Lets just accept this as a fact of life shall we.
All efforts to integrate with the continent has been a failure…….some of which have simply not been our fault as to use the late B. Lenihens stunning revelation we are a Island.

@ Bond

Dude, thanks for correction, original estimate was given as ¢54 bn, current estimate is ¢31 +. But I’ll believe it when I see it.

I reckon it could be somewhere between both figures when NAMA eventually concludes all the cases that will be brought against it by developers eg Treasury case here:

Plus there is the hidden cost of the call by Honahan for the banks to get tough with buy to let properties when these properties start flooding the market interfering with prices.

But there is another cost as well. Basically when you mark to market in a NAMA or bank loss situation exposed to a weak market, the difference between what the previous value was and what you are prepared to pay, you indirectly assume that loss unless the price you pay tomorrow is going to see the price you pay rocket to twice that…..

The true cost of NAMA to the economy has yet to be fully measured 🙁

@ Gavin

“@AlanFarrell: Properties owned by Govt Depts are exempt from the household charge, NOT personal properties owned by Ministers.” – from FG Alan Farrell

Actually, to simplify the above, point I’m making is there par 4 above is because we’ve paid ¢31.8 bn for the ¢71.2 bn the banks who lent that money out during the boom, who has taken the approx ¢40 bn losses even on those figures, its us through the guarantee we’re shouldering, we wont ever get back that ¢40 bn never mind a large proportion of the rest of the money we’ve paid for those loans.

Make the ECB accountable to whom? It is already accountable to the banks, is that not enough? [innocent face]

That 50 billion valuation of AIB must make the Minister the best share punter of the century. Even George Soros couldn’t match that gain. (smile).
Pity about the 50 million a day that Joan said we were borrowing to pay the wages.

Colm Mc makes a good point about sov bondholders being shafted so that bank bondholding hedgies could get their 100 cents in the Euro for some lovely windfalls .


Make the ECB accountable to whom? It is already accountable to the banks, is that not enough?

Hogan, I missed you.

John Quiggan will be touching on it in the paperback version of Zombie Economics but the hugely negative role played by the ECB in the current crisis is just the most egregious example of the dangers of state institutions escaping popular democratic control – monetory policy should never have been given the same grandiose treatment as the judiciary – it went to their evil little heads.

As I see it the fatally flawed government in 2007 were euphoric about our growth prospects. Were they high on the drinks in the racecourse tents or was it the stuffed brown envelopes. When the curtain was descending on the Tiger era in 2008 the finally fecked were deep in denial, quite convinced that this was the USA and we had a minor short term (2-3 year) liquidity problem that a copy of TARP would solve. And so having low corporate tax rates we could not possibly suffer a severe downturn. With this in mind they bet the farm on borrowing as much as possible as quickly as possible wherever they could get it. Remember these are the same people that blew the biggest bubble in Irish history. They were fully convinced that propping up the developers and the banks at any cost was the road to a continuation of racecourse tents and contributions from the grateful.

If the ECB deserves blame it is for agreeing with a bunch of chancers whose horizon was the the upcoming election.

There was no thought given to property busts in Japan, Sweden, Denmark, USA, Canada, England and the aftermath in those countries. Once confidence is shaken in a run up in values that widely exceeded the rate of inflation for over a decade it takes up to two decades for values (infl. adjusted) to reach the boom peak.

In my opinion our gov’t and the expensive professionals both domestic and foreign that provided “advice” are as good an example of ineptness as could be found anywhere on earth. Even worse the successor gov’t is equeally deluded.

If the ECB deserves blame it is for agreeing with a bunch of chancers whose horizon was the upcoming election.

Yes, perhaps, the Euro was a bridge too far, but the EU can only try to shore up things and advance. Any retreat runs the risk of disintegration. Disintegration has its fans here, but I have seen little evidence of a careful thinking through of the implications.

And yes, it is easy to demonise those who were and are charged with responsibility for monetary policy and financial stability, but who were deprived of the authority and tools that were ‘fit-for-purpose’ in a time of extreme fnancial stress. And it is even more easy to underestimate the extent to which Ireland’s action in 2008 stretched the exercise of this limited authority and the use of these inadequate tools beyond their limits.

And it is unfortunate that the dominant political hegemony is of the centre-right and that any movement towards medium or longer term resolution over the next 18 months is constrained by the need to pander to the whims and prejudices of right-wing or right-wing leaning voters in France and Germany. But those on the left and centre-left might profitably reflect on how they have vacated the field.

Don’t underestimate the ‘we havn’t a clue, all we know is we were told to guarantee the banks by the ECB and the banks, the whole thing blew up after that. We havn’t a clue what happened, or how to deal with it, its really the ECB should know though, so we just do anything they tell us and everything will work out, won’t it ? Funny though, we’ve just taken off with their rocket fuel bailout and the two DC 9 engines are banging away, both engines seem to be shutting down, employment and growth? I wonder what’s going on ? I mean ECB know what they’re doin, right? Looks like employment, growth and emigration are turning into the walking dead.

@Seamus Coffey

Your post seems to be mixing up gross and net costs in a quite unbalanced way, using net costs on one side of the argument and gross on the other. If you apply a net cost approach across the board, and compare the two scenarios of with and without banking support, you’ll have €32bn in the NPRF/Exchequer accounts in the “without” scenario, that is not there today. That money could have been used to avoid further borrowing in the same amount. As a result for the purposes of general discussion it is far more accurate to say that the total cost of the bank bailout is closer to 1/3rd rather than 1/5th of GDP.

As you point out there will be some revenue flows from the banks back to the state via preference share sales, fees, ELA interest, contingent capital returns etc. but overall these are still relatively small compared to the amount of money injected, and bring the cost down closer to 30% rather than 20% of GDP.

@ Paul Hunt,

Paul, severe case of Stockholm syndrome there 🙂 Re “but the EU can only try to shore up things and advance”. They are well able to think for themselves, but we have difficulty with independent thinking, don’t we?

No great panacea of choice exists. Implications may come down to something very basic ‘retaining this island as a sovereign state’ as opposed to handing it over as a protectorate or principality run by the ECB for the Merkozy. Simple as that.

There you go again, another bout of SS, “And yes, it is easy to demonise those who were and are charged with responsibility for monetary policy and financial stability, but who were deprived of the authority and tools that were ‘fit-for-purpose’”

The poor muppets without the financial tools, give me a break. Wakey, wakey, Paul, fire in the hold, time to think “independently”

If you decide the former route above, there is PuntNua, a link to Sterling, or dollar, leaving the EMU and EZ but retaining membership of EU. I could go into precedents but you can study these for yourself looking at outcomes in Argentina, Russia, Iceland to name a few.

One step at a time though, gently does it, practice saying it, “No, we’re not paying the ¢3.1 PN due in March” Olli Rehn doesn’t own this place yet, he may do by 2016.

Was that hard to say ? 🙂 ?

Good spot. So when the powers that be in the EZ say that the Greek default will be unique they are either deluded or telling porkies.
PIMCO El Erian was quoted as saying Portugal goes by year end. That will pribably take down Spain and contagion will quickly spread to the core again.

CMcC draws a distinction between the ECB and EU Commission, however to date there has been no difference in substantive policy positions, whether claiming Greece was solvent in Summer 2011, or that Ireland had an obligation to pay back unguaranteed bank bondholders. In effect you could say that the EU Commission is the fiscal policy wing of the ECB.

A key test of whether this will change or not is the upcoming bank recovery and resolution legislation. The framework document had provisions for a “comprehensive” approach to resolution, which involved non-voluntary write-downs of senior debt and forced debt to equity swaps. Let’s see if these provisions make it into the proposed legislation. The issue of whether there will be a permanent blank cheque provided by taxpayers to bank bondholders will have to be addressed at some point. The legislation cannot be delayed forever.

@ Bryan G

One way or the other, there will not be a system of bank resolution in which the governments of the EU agree to share the financial responsibility. “Comprehensive” can only mean, in these circumstances, a commonly agreed set of rules. Too late to do much good for Ireland and, in any case, not changing the reality that the solvency of EU banks is, and will remain, a national responsibility. It is impossible to imagine any other outcome given the fact that the legislation will have to encompass the 27 and the idea of there being a collective responsibility for UK banks, to take the most obvious example, is an economic and political non-runner.

@ Tullmcadoo

What I took from it was that the IMF, were it not constrained by its entanglement with the EA, would be even less of a soft touch.

Almost certainly true. Every Govt obligation would be haircut to restore debt sustainability- wages, transfers and Bondholders.

@ Seamus Coffey

“ It is impossible to know what the final net cost of the banking disaster will be.”

It will be much greater than previously suspected if what I learned over the weekend is replicated throughout the land. Both of the following stories are from persons I know very well:

Story #1: Buy-to-let investor with 6 apartments/houses in the Dublin Area. Has stopped making any payments (not even interest only) on his mortgages in the past 9 months. Knows the properties are completely underwater, did not sign personal guarantees, and is using the rental income to pay off other secured mortgages with a different bank. The reaction of the covered bank? Nothing so far other than asking him to prepare a statement of account.

Story #2: Homeowner in huge negative equity. Is making only low nominal payments on his mortgage for the past 18 months. Bank is taking no action. Is emigrating and will hand back the keys probably declaring bankruptcy abroad.

Perhaps David McWilliams is correct – the reason banks are not taking action is that they would then have to recognise their losses and they do not have the capital buffers for this.


Underlying your post, and indeed all your posts on this topic, is the assumption that governments should be responsible for the “solvency” of private banks, using as much public money as necessary. That assumption is deeply flawed and corrosive to good public policy.

I should have made it clear that the “comprehensive” approach that I referred to was one of two approaches described by the Commission in their discussion of a debt-write down tool – the other was a “targeted” approach which required banks to issue a certain amount of debt which could be bailed in. The point is that there is a legal framework and practical planning (including pre-funded resolution schemes) for senior bondholders to take losses rather than taxpayers, and restructuring procedures put in place to allow payments systems and other essential functions to continue with minimal disruption. At this point there is a lot of “prior art” in place (e.g. in the USA, Denmark etc.). There is no need to re-invent the wheel.

Whether this occurs at national level or EU-level is secondary – the point is to decouple the banks from the sovereigns. If there is no EU-level agreement on detailed legislation, national governments can and should take their own actions. However it is important that politically at EU-level the principle of senior debt bail-ins and debt write-downs is supported, to face down the ECB. If Ireland unilaterally produced bank legislation tomorrow with mandatory write-downs and bail-ins, what do you think the reaction of the ECB would be?

@Bryan G
LTRO was all about locking the banks into the sovergins – they are like a tick stuck on the part of the back you just can’t reach.
The only option in my opinion is for the Treasuries of European goverments to eject their own CBs / commercial banks from the tax spigot completly by producing greenbacks.
But that will not happen as the network is too powerful in Europe.

@ Paul H,

I blame Eurostat! The general government debt is far from the optimum measure of public debt but it is the most widely used. As you rightly point out its gross nature does tend to overstate the level of indebtedness. Our own measure, the National Debt, overcomes some of these but does not have complete coverage.

It is a pity that a complete public balance sheet is not created. The CSO give a financial balance sheet in the Institutional Sector Accounts.

These show that at the end of 2010 the general government sector had €149.5 billion of liabilities, which apart from Accounts Payable is General Government Debt. (Eurostat report a GGD of €144.3 billion for 2010)

At the end of 2010, the general government had €72 billion of financial assets. These were:
+ €21.6 billion of cash
+ €10.9 billion of securities other than shares
+ €8.2 billion of loans
+ €23.2 billion shares between quoted, unquoted and mutual funds
+ €8.1 billion of other accounts receivable

The net financial position of the general government sector was negative €77.6 billion, which is less than half of the GGD figure, though this will have deteriorated further in 2011.

We could go down the line of including publicly-owned capital assets (i.e. non-financial assets) but unless they are going to be sold, the schools, hospitals, roads and other infrastructure held by the State have little debt-reducing potential. They do generate value but this is through use by people rather than in money earned by the State. They would of course be on a public balance sheet if such a thing was available.

The Estimates of the Capital Stock show that there was €347 billion of fixed capital stock in Ireland at the end of 2010, but does not give a breakdown by government, household and corporate sectors. Here are some largely (but by no means exclusively) state-owned categories of capital stock
+ Water Supply: €6.9 billion
+ Public Admin & Defence: €9.9 billion
+ Roads: €24.0 billion
+ Education: €6.5 billion
+ Health: €4.9 billion
The State will also own a portion of the €192 billion of dwellings.

Consumption of Fixed Assets (depreciation) was €16.2 billion in 2010. The Institutional Sector Accounts attribute €2.7 billion of this to the general government sector. Making a heroic (undoubtedly incorrect) leap and assuming the the proportion of depreciation (16.7%) represents the holding of capital stocks would, put the government capital stock at around €58 billion in 2010.

You are right to suggest that a public balance sheet would not look as bad as might be believed. However, I think the emphasis will remain on stocks and flows.

“Whatever about declaring losses, never say you have run out of cash” is an approach for businesses that want to stay alive. Ireland’s GGD reflects the losses (banking but mainly deficits) and the “we’re fully funded to the end of two-thirteen” line tells us when we will run out of cash.

@Dork of Cork

There’s no doubt that the LTRO greatly increases the coupling between banks and sovereigns. It makes perfect sense from the ECB’s point of view – by providing funding it allows all wholesale bank debt to be repaid on time and in full to private parties, and as the new debt is owed to official creditors it provides the leverage necessary to have a huge say in both banking and sovereign policy. This leverage will be used to further the oft stated federal/integrationist aims of the ECB.

It was the end of the bank guarantee in Sept 2010 that precipitated Ireland’s bailout. It remains to be seen what the end of the LTRO will precipitate.

@ Bryan G

I am not disputing the amount of money we have injected into the banks. That is due to be around €65 billion by the end of this year. This is 40% of GDP, which is a figure that virtually no other eurozone country could have absorbed, or even contemplated doing so.

What I am disputing is that 40% of GDP has not been added to our general government debt because of the banks. In gross terms the banks have cost us 40% of GDP but if the debt is 120% of GDP at the end of 2013, one-third of that will not be due to the banks.

As a result of the destruction of €18 billion of savings built up in the NPRF and some offsetting receipts the bailout of the banks will be responsible for about one-fifth of the 2013 general government debt. Deficits and building up a cash buffer will be responsible for the rest.

The full cost of the bank bailout cannot be disputed but when you ask someone the size of their mortgage you do not include the value of the deposit they put down. The deposit is part of the cost but it is not part of the debt.

We had a big ‘deposit’ in the NPRF and now it is gone. As our debt heads for €200 billion we have to realise that the impact of the annual deficits is greater than that of the bank bailout (though the actions of the banks undoubtedly led us to a situation where such deficits came into being).

Also, I never said the cost of the banking disaster would be 20% of GDP. I said the bank injections will have resulted in borrowings equal to 20% of the 2013 general government debt. The non-borrowed funds are on top of that. We can only guess what the final net cost of this fiasco will be.

Yes Indeed , but goverments can still say No – the great weakness of the ECB is that it has no tax raising powers – any Treasury with Liathordi can do a Ian Paisley Act but they need populist support first I guess.

Most of that capital stock is very input sensitive – I guess we are a victim of bean counters who know the cost of everything and the value of nothing.
1 Sizewell B PWR for example could be reducing our magnificent Gas bill significantly every year for the next 40 years and yet it would show up as being worth perhaps a tiny 4-5 Billion , nothing really in the context of all that useless real estate concrete.

Do you Agree the Goverment can modify its tax policey to force people to make the most effiecent capital good purchases ?
Most of the car stock bought before 2008 is grossly inefficient.
I have mentioned bringing in a new A+ vehicle class of 100 or 90 g per km(the skoda Greenline is 89g perKM)
I seem to be getting no response despite the magnificent Petroleum bill we must pay this year and into eternity.
What does it take ? must we reduce our food imports to mere Gruel to pay for our car & home heating folly ?

Re – Brian Woods ”I think there is a bit of revisionism going on here here. In September ‘08, our government decided that all stops should be pulled out to keep the Irish banking system afloat, hence the unilateral blanket guarantee which I understand got up the nose of the EU/ECB..” etc.

What since has come to light are communications between the Brians (or one of them) and Trichet, during which according to Eamonn Ryan the govt. were told ”in no uncertain terms that no bank was to be allowed fail”.
As for the ECB’s expressions of distaste for the gurantee, it didn’t last long and was followed by repeated objections to allowing the guarantee to expire when due to do so.
And very large proportions of the lending from the European banks (not the ECB) through Anglo went to overseas projects, many with no Irish connection at all. Groups including some of these european institutions had earlier lobbied Cowen when he was head of Finance to relax regulation here (since detailed by Kathleen Barrington in the Sunday Business Post).
We are told that there was enough debt at stake to seriously compromise Deutschebank, Credits Suisse and Agricole, BNP, etc.
In short, we see what was at stake, who has benefited, and who has not.
I don’t think anyone is openly contradicting the notion of ECB involvement at some level in the motivation behind the guarantee. There is likely far more solid, documentary evidence lying around than the matters referred to above, for anybody inclined to deny it to be confident enough to do so, without fear of being later exposed.
Add into the mix that all ECB policy subsequent has conformed to the euro-bank-protection motivation of the guarantee, and I don’t think there remains a credible case for the decision being made solely in respect of local (Irish) insterests.

Regarding -”the ECB could not have objected as this was a legal recourse”
– the pressure we have seen exerted by the ECB on National Governments across europe since then dissolves any notion that we are dealing with institutions adhering to mere assumptions like Law.

@ SC

What I am disputing is that 40% of GDP has not been added to our general government debt because of the banks. In gross terms the banks have cost us 40% of GDP but if the debt is 120% of GDP at the end of 2013, one-third of that will not be due to the banks.


Ah right – got it.

Its unlikely we will have a French like high quality capital stock given our limited imagination but there is much low hanging fruit we can pick without much beaucracey or planning involved.
We can form our car based transport policey around a cheap / economical car with a accepted pedigree.ën_2CV

Obviously not the 2CV but using those ideas as a background to our policey decisions in a energy starved world.
We must try to be rational.
If the Euro banking vultures continue to invest in Brazil , China etc they will and indeed have impoverished Europe.
We must execute our limited power around some rational objectives that can easily be acheived as the Irish seem incapable of long term planning now.

@ Mark

I guess that you believe your version of events in respect of the ECB and bank guarantee is based on what you believe to be ‘facts’ and maybe some speculation.

On Sept 29/30 2008, the guarantee decision was made without any prior consultation on the actual detail with ECB officials, Joaquín Almunia, then EU commissioner for monetary & economic affairs; the heads of both the Ecofin and Eurogroup finance ministers’ groupings.

Ireland was the only Eurozone country to guarantee bank debt.

Anyone who has had a position of responsibility in a multinational company would know that an individual unit would not go ahead with a major decision on the basis of a phone call with one division head.

The decision not to consult was deliberate.

Sept 30 was Anglo’s fiscal year end; it was at the cliff’s edge having begged arch rival BoI for an alliance and it desperately needed to window-dress its balance sheet with a loan from IL&P.

There was no contact with Europe because Anglo had to be saved and a negative response was feared.

As for the ECB’s expressions of distaste for the gurantee, it didn’t last long and was followed by repeated objections to allowing the guarantee to expire when due to do so.

This is more fantasy…

If the document below is evidence of the ECB putting pressure on a reluctant government, then you confuse your fairytales with the facts.

It begins with the central bank slamming the Department of Finance for the short notice period in respect of its request for an opinion on the Eligible Liabilities Guarantee scheme:

@Seamus Coffey

Taking a position that the Exchequer/NPRF cash that has disappeared into the banks has no impact on the GGD is a pretty artificial construct, and one that can only be maintained with a static, backwards-looking view. The disappearance of this money does have an impact on future GGD debt levels and trajectory. If the money had remained, the GGD level could have been reduced by the same amount. Alternatively it could have been used as collateral for new sovereign debt issuance, easing a return to the markets.

What matters materially is the net cost of the bank bailout; the source of funds for that bailout is much less relevant.

Fintan O’Toole i today’s FT.

“What’s Latin for tear up these odious notes?”

“Secondly, are the promissory notes covered by any international treaty? No. They represent an agreement between the Irish Central Bank and the State. Not only is there no treaty, but the agreement is not even international. If the promissory notes are torn up, there is no cost to the European Central Bank or the European Union as a whole. The money is effectively burned by the Irish Central Bank – every year for the next 20 years. This payment structure was, as Karl Whelan, puts it, “tacitly agreed to by the ECB governing council”. But there’s a vast difference between silently allowing something to happen and entering into a binding international treaty.”

@ Michael H

The objectives of the domestic and European players are not necesarily contradictory. Anglo was politicallly systemic in Ireland, so the collapse had to be managed locally. The ‘fix’ was carried out under cover of a broad sovereign guarantee. An Irish solution to an Irish problem, or so it was thought.

The extent of the Anglo losses began to become clear over the following months. The losses the other domestic banks also began to emerge, and the real effects of the guarantee started to crystallise. Absent bank resolution mechanisms, the ECB had little choice but to weigh in behind the rescue.

The culpability of the ECB does not hang on its role (if any) in the guarantee. It arises from its failure to address rampant speculation in European financial markets. Its Council overlooked the massive involvement of core EZ banks in toxic derivatives, and sat on their hands while trillions were malinvested in EZ property.

DOCM and others argue that the ECB lacked the authority to prevent any of this, because national goverments were unwilling to cede the necessary powers. Trichet could, and should have threatened to resign unless such powers were provided.

He did not do so, because he lacked the required commitment to the European project. The ECB Council did not press for the necessary bank resolution mechanisms, because their primary loyalty is to their associates in the world of banking.

The Dork has it right.

@Seamus Coffey,

Many thanks for your informative response at 9:25pm. Re-casting the Government’s ‘tennis club’ accounts into something that might resemble an income statement, a funds flow and a balance – and having pro forma versions of these going forward under different plausible scenarios – is something I’m wittered on about here from time to time. Colm McCarthy advised me that doing this properly would be far beyond the resources and capability of an ‘ever so ‘umble’ university economics department.

I accept that doing this properly, comprehensively and precisely would constitute an enromous undertaking – and would probably have to be underpinned by statute, but I’m just exploring the possibility of doing something that would build on the data reasonably readily available, add some plausible restatements and estimates and generate some ‘rough orders of magnitude’ that might help to re-frame the debate in a more sensible and productive manner. Rather than focusing on the accountants’ penchant for being precisely correct, I would prefer (most?) economists desire to be approximately correct.

It probably would be something for IFAC – if it weren’t an element in this grand optical illusion of a commitment to fiscal rectitude that the Government is seeking to project to mollify the Troika and for international media and analysts’ consumption.

I have no wish to dump this on you, but you have carved out a niche for yourself as ‘the man with the numbers’ and you have been adept and efficient at puncturing a few fantasies before they got legs.

And I think that Bryan G has a point re the NPRF. Colm McCarthy has described it as a leveraged punt in the international equity market. This has confused some, but it is precisely correct. Rather than paying down the national debt by the amount in the fund, it was decided to take a punt on the market and everything would be fine and dandy once the return secured exceeded the government’s cost of funds plus any fund administration costs. When the equity markets headed south and the government’s cost of funds soared it was actually quite useful to have it to plug some fiscal gaps. The net cost of adding the same amount to government debt starting from a level that was lower by the amount of the NPRF would probably have been much greater.

It doesn’t take from the fact that much of the increase in government debt has been, and is being, p1ssed away, but there are always cash flow implications that are worth trying to understand.

‘Its Council overlooked the massive involvement of core EZ banks in toxic derivatives, and sat on their hands while trillions were malinvested in EZ property. ‘

Correction. That would be a trillion plus in US property based derivatives and hundreds of billions in European property lending.

@ Gavin Kostick

I bet Karl Whelan regrets ever getting associated with these PNs.

Unlike the infamous deposit selling moment, which was a one day wonder which even Fintan O’Toole would have seen through, the colourful and misleading exposition used by KW has encouraged people like FOT and Peter Mathews to believe that these PNs can simply be torn up with no consequences for anyone other than the Irish taxpayer would gain 31bn out of Scotch mist.

Some time soon there will be some sort of closure of this PN saga with precious little win for the Irish taxpayer. People like FOT and PM will then turn on KW and say “but you told us…”

@Seamus Coffey at 9.25pm

“We could go down the line of including publicly owned capital assets(i.e. non-financial assets)but unless they are going to be sold,the schools,hospitals,roads and other infrastructure held by the State have little debt reducing potential. They do generate value,but this is through use by people rather than money earned by the State.”

In valuing these assets you might use the concept of “deprival value” developed by Professor WT Baxter former Profosser of Accounting and Finance at the London School of Economics.

@ Bryan G

We are at cross purposes here. I am all for the introduction of tough bank resolution schemes. The fact that I am stating is that the responsibility for bank solvency is, and will remain, with governments. There is provision in the treaties to give the ECB the task of supervision of credit institutions (other than insurance) but little stomach for actually doing so, ostensibly, because the UK responsible (through the City of London) for 75% of the action in Europe in financial services would not agree. In fact, none of the main players wish to do so. Governments – if they do decide to do something – will have to act together as otherwise they risk regulatory arbitrage.

@ Gavin Kostick

Fintan O’Toole also, evidently, never heard of the ESCB nor the rules applying to the granting of ELA.

@ Stephen Kinsella

Link to your piece in today’s Indo.

It is worth recalling what Donal Donovan had to say in the SBP.

“The situation is different from that facing Greece Greece since official, rather than private, creditors are involved. From the perspective of some in Europe (notably the ECB), funding to make the payments is already being provided by the troika, so there is no immediate cash-flow issue”.

@Seamus Coffey (and John Corcoran),

I noted the point that John has picked up on, but decided to let it pass to avoid making my previous comment excessively long.

Colm McCarthy et al’s State Asset Report is still out there – even if its good sense and intent has been butchered by the Government in its half-arsed privatisation proposals. Considerable value could be extracted by the state by re-structuring, re-financing and then privatising many of the semi-states. I agree that it would not have a major debt-reducing impact (goven the sacle of the GGD), but it would have a major role in financing capital expenditure to which the state is committed and should commit (at least in the medium term). This would help to reduce the gross fiscal deficit – and the rate at which the GGD increases. It would also have a major impact on the perception of sovereign bond investors. And the restructuring and re-financing would reduce the currently excessive ‘point-of-use’ charges being imposed on businesses and households.

I understand the theoretical attaction of concepts such as ‘deprival value’, but I think the net book values using historic costs subject to international accounting standards is as good a starting point as any for these businesses mainly characterised by long-lived, specific assets.

@Bryan G: Very well said, thank you!

Seamus is one of the best contributors on this site. However, I think some of his comments on this post have missed the mark. The banking and fiscal costs are being paid by a pool of money made up of NPRF and borrowed funds. Money is fungible, and assigning the NPRF exclusively to banking costs is arbitrary and very misleading.

@ paul quigley

“Absent bank resolution mechanisms, the ECB had little choice but to weigh in behind the rescue.”

I mentioned at 9.39am that I have been exchanging emails with the Commission on this for some time. Oddly, later in the day, I received the latest, so “according to Commission Sources”

“Up till now we do not have a precise date for the adoption of the proposal you mention”

To be clear. The ESCB came in with their recommendations on this in May 2011, I started emailing a bit after. Initially it was quite definitely going to be in place by Christmas, then more aspirationally by the end of the first quarter this year, now we have the above.

If anyone has some specific questions you’d like me to push along with, please say.

If any MEPs read this – any chance of chasing it up?

@ Brian Woods II

I’m of the the Karl Whelan has done the state some service view on this. Without his admirably lucid expositions it would be a much harder subject for public discussion.

Putting slightly rose tinted spectacles on, and looking at it from the government POV, this is roughly where I’m at.

Government has committed to paying it’s way.

Government wishes to exit troika support.

Government can see this is going to be a damned close run thing. Growth predictions from our partners also suggest same.

To exit support, government needs to access the market at sustainable levels. If government goes on a solo run (tears up the notes), it is in danger of damaging it’s creditworthiness, even with the relief.

On the other hand, with the weight of the PN repayments, growth and employment is flatlining. Clearly it would be better for the Irish economy to work out some rearrangement of payments with its partners. Certainly the IMF thinks so.

Government needs to argue in a non-shouty way that the key objective is a flourishing eurozone with Ireland successfully out of harm’s way. After all, no second bailout (in whatever form it takes), means eurozone tax-payers don’t have contribute to same. Getting Ireland back in the markets means getting fellow tax-payers off the hook.

Also, on the whole, a mutually agreed rearrangement would improve Ireland’s creditworthiness due to improvements in the economy. The reduction of the initial interest rates was not seen as a negative.

So if the interest of Irish and European tax-payers, if the PNs can be dealt with in a way that (a) doesn’t impose further burdens on taxpayers, and (b) doesn’t mess with price stability, then it’s a potential win-win.

I haven’t said much about working the trackers and the ESM into all this, as has been trailed, partly because it’s speculative, but certainly it makes me deeply uncomfortable – it looks like another bank bailout to me and I would welcome further analysis.


“Fintan O’Toole also, evidently, never heard of the ESCB nor the rules applying to the granting of ELA.”

I wouldn’t bet on it. He puts it in a rather casual way:

“This payment structure was, as Karl Whelan, puts it, “tacitly agreed to by the ECB governing council”. But there’s a vast difference between silently allowing something to happen and entering into a binding international treaty.”

But his point is that the PN/ELA arrangements are not the subject of an international treaty.

“The established meaning of “pacta sunt servanda” in international law is, to quote the Court of Arbitration at the Hague, that “Every state has to execute the obligations incurred by treaty bona fide”. We can break it down into three simple parts: (a) a state entered into an obligation; (b) that obligation is part of an international treaty and (c) the obligation was entered into bona fide – in good faith. Not one of these conditions applies to the promissory notes.”

Hmm, you could argue that the government did sign on when it signed the July 2011 agreement with the sovereign pen – but I’m arguing that that treaty has clearly been overtaken by events and contradicted by the shiny new compact.

@ paul quigley

Despite its narrow mandate, the ECB has generally responded to the crisis faster than political leaders.

We have a situation here where we have been a member of the EEC/EU since 1973 and the EMU since 1999.

Apart from the cash benefits and the supports for agriculture, it has been a selling point for FDI.

Should it be national policy to accept just the rules that suit us, which appears to be the position of some?

The flaws in the system and supervision have been well aired.

So should the ECB have an obligation to be the lender of last resort for Ireland: both funding Irish banks and also accept all the boom losses of the banks?

If not then what?

@ Gavin Kostick

Should the emergency funding of Irish banks be subject to an international treaty? Why not the bailout?

I see Namawinelake is also going off on a “ourselves alone” canter:

The ‘money shot’, not surprisingly, is right at the end:
“The country needs to adopt the stance of a predator fighting for its very survival and assert its innate sovereignty on Anglo’s promissory notes now.”

Observe our fury, ye mighty, and despair.

This is getting totally ridiculous – and what a gloriously convenient distraction from the abject failure of democratic governance which led to this mess and the continuing failures of governance that are helping to conceal the extent of the mess and preventing taking the necessary steps on the path to recovery.


Ruler against which this govt will be measured will be their action on PN…good point

PN as odious debt, true; deferment of payment, flimsily false, perhaps even unworthy of a mathematically based analysis; set IBRC PN’s to nil, yes. No terms are given, no data to specify deferment for 6 yrs accompanied at that time by a new 30yr schedule? The notion that even after 6 yrs in the current global climate with our debt profile as is, returning to growth to efficiently deal with PN’s and our overall ¢250 bn is rather a sad notion, tainted with ludicrousness especially coming from an Irish economist.

Debt write down is the name of the game; not this go n’eirigh libh i dTir na N’Og debt deferment proposal, already scorned by the ECB indirectly questioning if extensions will cost the Irish economy more in the long run.

The true task of Irish economists should be settling on the means to burn away the 40% of GDP
of our debtpile debt/gdp ratio represented by banking debt, that which scuppers this economy.

Colm McCarthy sees the problem and outlines the stark facts succinctly in his column:

“Commissioner Rehn and his colleagues in the Commission effect not to understand that not all debts are created equal. There are objections to at least a portion of the bank-related debt now carried on the books of the Irish Exchequer that are in the nature of moral or ethical objections, arising from the circumstances in which the debts were created.

The case for a proper negotiation on the bank-related debt, or at least a major portion of it, does not arise solely from Ireland’s high debt burden and consequent concerns about debt sustainability. Even if there were no question marks about debt sustainability, there is a portion of the Irish debt which was incurred under duress and inappropriately, under threats from the European Central Bank.

That portion is smaller than the total of bank-related debt which has now been socialised. Many European countries have chosen to shoulder bank bailout costs. Ireland is unique in the Eurozone in two respects. It has absorbed 40 per cent of GDP in this manner, far more than in any other eurozone member, to the point where the State could no longer borrow in the markets. In addition, some of the bank-related debt was incurred involuntarily. It was inflicted on the Irish Exchequer after exit from the markets became the likely consequence, due to arbitrary actions by the ECB.”

Colm McCarthy gets it. Yet, from Karl Whelan and now Stephen Kinsella, we get this pitiful, nonsense, no analytic data provided to demonstrate its validity, except the faint whiff of dreamlike supposition, our debt stock pile is manageable and can be paid back without radical Grecian default writedown.

Ooops, I forgot, perhaps we’re not supposed to even discuss or comment upon this, binn béal i do thost, the emperor has no clothes on. Stephen Kinsella is happy enough that IBRC debt will be repaid, well, he’s not exactly happy about it, a little deferment and sure, its grand.

Perhaps we need a report card drawn up by some bright spark to indicate all the options/choices to follow in regard to our debt stockpile and get everyone to fill out a true/false checkbox style answer sheet, to be publicly opened in three years time.

@ Paul Hunt,

Privatization of the Eircom like semi states as opposed to making them more efficient is a disastrous idea. Using the money to finance capital expenditure is foolish in the extreme given the current eyeing up of these semi states by the Troika, not for capital expenditure but as better collateral against PN’s perhaps using part of the loot money to lessen/replace PN repayments. Privatization of semi states would amount to officially endorsed looting of the economy, but we’re used to that by now. As I’ve given before, here is some academic lit calling for public reversal of such programmes because of their failure:

Finally, the penny is starting to drop. Central bank central planning has failed utterly. Stalin would have been proud of the ECB and FED. Ireland is now behoven to the ECB. This is not how it should work. Why are we bowing in front of this bank? It is only a bank afterall. As Colm said, we never made a treaty with the ECB. The consequences of this subservient attitude to the ECB will be deep and serious in the years and decades to come.

Was it also not Tim Geitner & the G20 in Seoul who forced the EU to ensure that no further bank defaults happened thus forcing us to bail out Anglo & INBS?.

@ Bryan G,

If there was a commonly used measure of net debt this issue would not arise. Alas there is not, and the debate tends to focus on the gross general government debt. A net debt measure will have increased by the cost of the banking bailouts.

If we had €65 billion in the NPRF and used all of that for the banks there would have been no impact on the gross debt and there would be no statements relating the cost of the bank bailout to the debt; the cost of the bailout would be fully reflected in the destruction of the NPRF.

We are somewhere in between. Some of the bailout was funded with borrowed money; some was funded with existing savings.

Absent the bank payments the GGD would be c. €153 billion in 2013 AND we would have a c.€26 billion sovereign wealth fund. As it is the GGD will be €197 billion (+€44b) and the wealth fund is down to €5 billion (-€21bn). These changes reflect the full €65 billion injected into the banks.

General Government Deficits (estimated excluding bank payments)
2008: -€13 billion
2009: -€16 billion
2010: -€16 billion
2011: -€15 billion
2012: -€14 billion (f)
2013: -€11 billion (f)

This gives a running total of around €85 billion. With equivalent deficits of €7 billion and €4 billion forecast for 2014 and 2015 (under fairly strong revenue growth forecasts) the total won’t be far short of €100 billion.

I know this isn’t the place for it but The Economist has a nice take on economics blogs:

Should be very relevant here given the relatively few posters, the general lack of effective engagement and the corresponding lack of ‘depth and liquidity’ on threads. It should also give people some pause for reflection on the ‘omerta’ in Official Ireland that discourages/prevents public engagement on policy matters.

Also regarding Colm McC

“Even if there were no question marks about debt sustainability, there is a portion of the Irish debt which was incurred under duress and inappropriately, under threats from the European Central Bank.”

Not only that, but the govt got conned and govt then conned taxpayers. Govt was misled and perhaps criminally misled there was a liquidity problem, but not a solvency problem. NTMA and Regulator still havn’t adequately been grilled as to how this happened. We still havn’t had the case against IBRC in the courts ! Directors loans, B&B loan breakfasting, we’ve still no analysis of the bonus led culture or how certain developers got their loans passed. These developers are hidden away in NAMA and legally through NDA with NAMA may be prevented from giving evidence in any IBRC case. We had the saga of the leaping billions of debt pulled out and piled in successive tranches onto the taxpayer. Was this done in that way to keep taxpayers on the hook?

There could be merit in adoptiong what William James termed in 1906: ‘The Moral Equivalent of War.’

However, beyond the outrage that is whipped up in response to the foreigners who are actually maintaining an undeserved standard of living, there would still be no equity under our own noses.

The piggys with the force of collective power would still elbow those without from the public spending trough.

Keep in mind that relying on exports from local firms would hardly fund basic imports never mind anything else.

@Colm Brazel,

I don’t know how many times I have to write it, but any privatisation of infrastructure or utility services that does not have economic efficiency as its primary objective is bound to end up in some sort of costly mess. And the second vital condition, for both the public and private provision of infrastructure and utility services, is that unless there is effective advocacy and representation of the collective interests of users of these services it will also end up in some sort of costly mess.

In the Irish situation local governance is a sick joke and the semi-states, some more than others, and their unions simply have too much power. In the decades through to the mid and late 1990s they progressively captured successive governments. Since then governments have gleefully seized on ‘economic regulation’ to conceal the extent to which they have been captured, to avoid taking responsibility in the public interest and to distance and insulate themselves from the political implications of the costs this policy and regulatory capture imposes on households, businesses and the economy.

The economic regulators are doubly bound. They are obliged to act as the proxy implementers of government policy – with government able to hide behind this fiction of ‘regulatory independence’ – and they have been totally captured by the semi-states. The CER is the most tightly bound of all – and, surprise, surprise, it is proposed to give it regulatory responsibility for the new Irish Water semi-state.

Those who prevent government from governing in the public interest are the government. Hail to our real masters.

Stiglitz gets it as well, written almost a year ago, could be somewhat more worked re PN’s and so forth, but the math is still there governing the flight of Ireland falling to the ground zero point of default.

“Under the current strategy, under “rosy” scenarios, Ireland’s debt to GDP ratio will quickly reach 125 per cent. Think what that implies. Assume that Ireland doesn’t try to repay the money, but just pays the interest, and assume that market interest rates return to something more “normal” – compared to the current very low rates resulting from the flood of liquidity from the ECB and the Fed. A country with a debt to GDP ratio of 125 per cent could easily have to pay 8 per cent interest rates. This would mean that 10 per cent of Ireland’s GDP would have to go forever to just service the debt.

This is a noose around the country’s neck that will strangle it. It makes clear the IMF, ECB and Government must come to terms with imposing losses on the international lenders whose loose lending policies played a central role in the current crisis.

Debt restructuring is neither easy nor costless; but the costs are far less than the alternative. Argentina, after its debt restructuring, grew at an average annual rate of more than 8 per cent for six consecutive years until the global economic crisis hit. Ireland, with its talented people, its location, and the advantages provided by being in the EU, would be in an even better position.

After restructuring, Ireland would attract new banks and new firms that would see these fundamental strengths. In contrast, continued delay in dealing with the inevitable day of reckoning will cast uncertainty over the economy: so long as there is not debt restructuring, the country faces low growth, high taxes and/or low public services, a disgruntled labour force and citizenry that has been made, unfairly, pay for others’ mistakes.

And so long as there is not debt restructuring, economic risks of a highly levered economy and associated uncertainties of a future debt restructuring and its consequences will discourage investment, both domestic and foreign.

Those representing the interests of the lenders (bondholders) have, of course, a different view. They want to extract as much out of the Irish people as they can.”

@Fintan O’toole fans

” If the promissory notes are torn up, there is no cost to the European Central Bank or the European Union as a whole. ”

So let me see if I get this. You are allowed to print an international currency ‘co you can’t raise any on the basis that it will be temporary – you will on schedule reverse the printing.

a) That, despite letters of comfort and the sovereign signature, is not really in any way binding?

b) If everybody who was short of cash just printed some, there would be no cost to those that didn’t?

Is he just trying to fill space in the paper or does he really think the Irish side can argue this?

@ Paul Hunt

I get your point. In an ideal world, your points would be valid. In a less than perfect world, what actually happens re state sponsored privatisations, is studied in that article. It does not describe a pretty picture. But I’d like to draw attention to one anachronistic and contradictory aspect of your logic in favour of privatisation; that is, your condition that rules of economic efficiency should be followed. But you clearly state your belief in govt re economic efficiency is close to nil, “Those who prevent government from governing in the public interest are the government”; so why the heck in the same breath propose that Govt with Eircoms in the cupboard, should even contemplate with even half the faultlines you ascribe to them, should be trusted to carry out privatizations? Perhaps I’d understand better if I hadn’t studied logic and math at different points 🙂

@colm brazel

Colm McCarthy gets it. Yet, from Karl Whelan and now Stephen Kinsella, we get this pitiful, nonsense, no analytic data provided to demonstrate its validity, except the faint whiff of dreamlike supposition, etc.

Really and truly, this ad hominem stuff adds nothing to the debate. I know none of the people you mention though I would recognize one maybe two in public.

No one has responded to the piece of information I left here yesterday, namely that Pimco are staying away from Irish debt – El Erian mustn’t have heard of the 6% growth prospect rocketing off next year.

Surely it is reasonable to infer that if the government insists that growth, recovery and a return to the bond markets is around the corner (around the bend might be more apposite), and also insists on some form of debt restructuring of PNs because the debt repayment is unsustainable, that something is awry in the works, like a clock deciding to go against itself.

Moreover if it is acceptable to write off the big debts because they should never have been incurred on that scale, were an example of ‘wool over the eyes’ practices, and based on inaccurate and optimistic projections, should not all in sundry be making the same argument for personal debt ran up during the bubble years? Why is ok to contemplate ‘tearing up’ 30 odd billion of PNs but not even 6 billion of mortgage debt?

Again, as I’ve frequently pointed out, the first step is for government to assert its authority to govern in the public interest by re-structuring and re-financing the semi-states while they remain in public ownership. The extent to which policy and regulation has been captured by the semi-states and their unions means that this is never going to happen. Therefore we get these half-arsed privatisation proposals being advanced by the Government. And these are half-arsed because they are designed primarily to cause the least discomfort to the affected semi-states and their unions without any consideration of the damage that is being done, and will continue to be done, to the interests of consumers of the services provided.

And so I say once again: hail to our real masters.

@Colm McCarthy

I concur.

Wonder what part of UNSUSTAINABLE does the ECB not understand?

@ grumpy,

He’s a fine journalist and has an excellent conscience and moral fibre. Unfortunately, he doesn’t have a great deal of knowledge on the subject of economics. There is a cost involved in squishing ELA PN’s to nil. IT should be funded through the EFSF or ESM but only as a loan writedown. There are other inventive and creative ways of doing it and, as with Greece, they are well able to figure out a way to do this. But, you see, they’ll hide behind the septic guarantee stating its difficult for them to help. But the guarnatee should be challenged perhaps on the basis of criminal fraud and negligence. In the main, Fintan is exactly right, there is a growing cohort of us stating the PN’s should be set to nil. It is odious, unconscionable debt. Simples, if they don’t do this, we’ll be certain to default as Stiglitz above and others believe. I’m coming slowly around to the view the Troika and ECB know that we’re for the chopper. They’re just filling in their position that eventually will go before some Banking Court of International Settlements following the euro economic collapse, our own economic collapse and meltdown, whichever is the sooner. The only thing that will work is debt write down and how much debt write down is required to avoid default. As, I believe, hinted at by Stiglitz, the only way to go is outside the euro; if and only if the ECB/Troika take the side of the banks and their lenders, against the citizens of Ireland, which they have.

@ The Alchemist

Re “Really and truly, this ad hominem stuff adds nothing to the debate”

This fluffy, weasily ad hominem nonsense is just meant to smother and stifle debate. I’m specifically referring to a position on debt management held by Stephen and expressed in article referred to above.

I don’t do ad hominem. We need robust debate of ideas especially in the land of binn beal i do thost of LB/FG.

Anytime I disagree with a person on a specific point of debate, means I’m not attacking them as a person. I’m challenging their views. Its called mature exchange of opinion on matters of mutual concern.

We can become all autocratic, authoritarian and precious about the views and information we exchange, but its unprofessional, unscientific and frankly rather childish and peevish if we deny others the right to challenge the views we publicly send out there.

Laws of libel, slander, etc I concur with. But if I can’t disagree with someone on the basis of alleged ad hom, dude, perhaps we need other rules of debate more fitting to a more closed society such as USSR. Looks like we could be going there anyway with EUSSr 🙂

Goverment defecits are merely a artifact of reduced consumption.
For example if everybody drove a A rated car less & less tax would accrue to the exchequer via VRT / road tax /Fuel tax. etc etc.
So increased efficiency results in higher fiscal defecits…….

What this country needs is a CB or Treasury that can produce domestic monetory units that can then be spent on further internal consumption.

The crisis is a balance of payments crisis withen the remaining rump taxable sector of the economy – meanwhile a vast multinational criminal tax arbitrage system functions above our heads.
We as Irishmen should be all deeply ashamed of our part in this darkness.

@ Michael Hennigan

“Should the emergency funding of Irish banks be subject to an international treaty? Why not the bailout?”

No, I wouldn’t think so, not any more treaties anyway – not sure which bailout you’re referring to in the second sentence, there have been so many.

Rehn boinked the Irish with ”pacta sunt servanda”, and McCarthy and O’Toole are making the point that this phrase has “no pact to refer to”. It’s a bit of a picky argument, but one the whole the principle is no objection can be taken as tacit acceptance, so you’re as well to object.

@Fintan O’Toole

Perhaps Fintan might ask his property editor to tone down the property propaganda his rag has engaged in for the last 15 years. Also his Chairman David Went was CEO of Permant Irish Life during the bubble years and really should do the honourable thing, apologise to the Irish people and resign.

@ Seamus Coffey

The problem isn’t the difference between net and gross debt. The problem is that your argument effectively denies the fungibility of money.

Suppse that I need to buy good X and good Y. I use a debit card to pay €10 for good X, and this empties my bank account. Then I use a credit card to pay €10 for good Y. I now have a debt of €10.

Of course, it wouldn’t make much sense to say “100% of your debt is due to good Y”. I could have just as well used the debit card for Y and the credit card for X, and my situation would be just the same.

@ Tunafish,

And yet this sub-theme started because of a statement that attributes one-third of the government debt to the banking payments. I disagree with that, as I’m sure you would (though for different reasons).

As long as you have both something that is worth 2 x €10 we would not be concerned about the debt position. You will still have net assets of €10. We’re borrowing huge amounts of money and will have little to show for it.


100 years at 0.001% percent interest to handle the ‘legal’ aspects. Done.


And John Teeling, now that he is off the drink!, suggests deferring 80 billion on Brady-Noonan bonds ….

Plenty of options still available …. UnSustainable is Unsustainable …

@Seamus Coffey

‘We’re borrowing huge amounts of money and will have little to show for it.


In reality its people deferring consumption and yet the Official sector is profiting from this rather then increasing rational fixed capital spending.

We are dealing with a vast criminal conspiracy.

As an aside for those who mentioned it, the AIB market cap is currently a (very quirky) technical anomaly. The tiny free float and low volumes mean that factors like short covering can drive up seemingly fantastical valuations.

If sold today in a trade sale, the government would do well to get €3 billion for its stake in AIB. So for those considering a punt, I would not recommend paying more than half of one cent per share.

Back on topic, I think realistically the best case scenario regarding PN’s is that the interest payments in the 2013-2015 period are greatly reduced or postponed entirely. That would effectively guarantee that the government will achieve its deficit reduction target of <3% by 2015.

I was going to say we have a 50 billion bank to show for all the dosh spent and then Carson went and spoiled it with his technical analysis.

I suppose you could take the view that we have a nicely propped up state apparatus for the 50 million a day we are borrowing…for now.

@ Carson

Laura Noonan in the Indo today had a piece suggesting that it wasn’t crazy to buy AIB at 10 cents, so long as you figured you could sell it at 11, even if that didn’t make sense. She’s a fan of the magic-bean/tulip/Q4 2006 Irish property-buying crazes, just so long as you got out in time.

I must commend CMcC for his article.

The concept of odious debt is gaining momentum (I note it being used in Stephen Kinsella’s most recent article).

Time for Ireland /the Irish to better fight their corner. However, as I have argued before, simply asking the EU for debt forgiveness will not achieve it. It will have to be taken to them. As Michael Hennigan has long argued, there will be consequences….it is not an easy proposition. I agree, but it at least offers the potential for a better future than the withering and crushing path the Govt is currently pursuing.

In more normal times, the Fiscal Compact vote would /should not perhaps be the focus for such a change in direction. However, its overlay effect on the existing Programme is likely to make things much worse as we have debated here before.

Clearly, in the absence of Govt willingness to make a change in strategy, the vote offers an opportunity for the people of Ireland to effect change, if that is what they wish.

If the FC vote is no, there will be a need for an alternative strategy. It needs to be thought through now. CMcC’s article greatly assists with that debate.

Joan Burton alluded to the subsidised placing to-date of 28,000 people – positively taken off the dole queue, paid for by the State. However, when added to the 70,000+ leaving the country this year alone, it underlines a much higher underlying unemployment rate than the official Irish rate. More likely, the real rate is towards 20% and continuing to rise. That in itself underlines the need for something to be done to improve the situation.


OK – seems to be a terminology issue, though I think “responsible for bank regulation” is better than “responsible for bank solvency”. Private banks are responsible for their own solvency. Governments should provide a framework to allow insolvent banks to be resolved, and a government’s financial responsibility should be limited to the shortfall, if any, between the amount of money in an industry-wide pre-funded deposit guarantee fund, and the money needed to meet the obligations of a limited deposit guarantee.

@Seamus Coffey

You’re still missing the point – saying the NPRF/Exchequer cash transfers to the banks has “no impact” on the GGD is only true in the context of an artificial and contrived backwards-looking-only viewpoint. If there were €65bn sitting in a government account today, would future debt issuance, debt levels and debt trajectory be different from a situation where there was no such account? If “yes” then the absence of such an account has a very real and material impact on the GGD, taking a forward-looking viewpoint, which is what matters. If “no” I’d be interested to hear why.

@Bond..Eoin Bond.
Was not aware that the swaps paid out on those mentioned. What was all the fuss about contagion etc. if bank debt default triggered CDs payouts?

@ Carson

I know we are straying here but I don’t think we can put the AIB share price down to some bizzarre technical anomalies, surely there is some rationality in our stockmarkets.

Of course, AIB is not worth 50bn. Let’s say it is worth 3bn as you suggest. That would mean the free float was worth 6M. Now perhaps the actual process of putting AIB back to the market will entail, in some way I can’t yet fathom, cancellation of a lot of the State’s shares giving rise to the free float being worth say 100M, not much to give away from let’s say the 10bn that it will be sold for.

Somehow I think the very existence of that free float, which after all was not necessary, confers on it some windfall possibilities in the future sale.

Just trying to rationalise what seems a silly market cap. I wouldn’t be shorting, even if allowed.

@ Bryan G

I think I am with you though not usual for SC to get these things wrong. One way to look at was to imagine that back in 2008 say, when we saw the writing on the wall we decided to use the NPRF to pay down our debt. It would then look fairly clear that the money subsequently put into the banks all derived from an increase in GGD. But SC is certainly right that we should allow for the value of the Pillar Banks as an investment when making these sort of assessments, so I prefer his 24% to CMcC’s 40%.

@Paul W
An “odious debt” is more a label than a concept. I doubt foreigners would make a distinction between the default on an “odious debt” and any other debt(it does not impress Mr Rhen, among others). I understand it is politically expedient to attribute Ireland problems to foreign bond holders but simple arithmetic shows that it is only a very partial explanation .

The remaining “structual” adjustment is a result of the bank credit investments also – especially those made since 1987.
Our built envoirment is a consumption sink because it was designed that way.
We were a conduit for European funds funded by Saudi & others surplus energy production.
Now the core wishes to push us into 19th century energy surplus again without taking any loss on their “investments”
Does the expression F£$k off mean anything to you ?

@Stephen Kinsella

Thank you for posting.

Well done to both Colm McCarthy and Fintan O’Toole for attempting to address the legal and moral basis for paying these bondholders via PNs or otherwise.
This matter is surely not beyond the fine legal minds of our former AGs, who felt impelled to save us from ourselves at the last referendum. Where are they now with their country in its hour of need.
Surely there is case here for European Law to answer.

But before we get carried away, Ireland should look to her history and particularly her history of taking on powerful forces in open field battle, before she considers any action. It is not a tactic that works well for a small nation.
The last time Ireland became the theatre in a European conflict (1688/1691), things worked out very badly for Ireland.
Open field battle was not a strategy that the 1798 rebels found successful. Ireland will need to use other tactics to resist this odious debt.
Why not start with a legal challenge?
If the EC feel believe they have European Law on their side, we should test that first. Lets see what the European Court thinks about the imposition of private debts on the public purse of a particular country. Lets see the ECB defend its actions and lets have full discovery of all documents.

@Bond Eoin Bond
Thanks. Interesting that all our banks are official defaulters regardless of the ranking of the debt.

@ Bryan G,

Yes, I am missing the point and will probably be foolish enough to continue doing so.

The gross general government debt makes no provisions for assets so regardless of how much is sitting elsewhere the GGD does not change. My view is indeed “backward looking” but it is only by doing that do we know how we got here.

Ireland’s general government debt was €167 billion at the end of 2011 and no amount of assets can alter that. It would be different if we borrowed (or more particularly spent) less money but would be just changing reality.

I think assets are important but they are not counted for the GGD. For example we have a cash buffer of around €16 billion in the Exchequer and other accounts. This was primarily created through advance borrowing by the NTMA in 2008 and 2009 when the cash held by the State was increased from its typical level of €4 billion. This buffer has been maintained as part of the EU/IMF programme.

The increase in Ireland’s general government debt since 2007 debt includes €12 billion for cash we have borrowed and still have on deposit with the Central Bank. We could reduce the GGD by nearly 10% of GDP using this.

In future years we could use this cash buffer so that the increase in the GGD is lower than the annual deficit, but having this cash does not make the GGD any lower now.

Of things would be better of we hadn’t poured €64 billion into the banks. In my view we would have a GGD that would be around €46 billion lower and an NPRF that would be around €18 billion higher.

A measure of net debt would incorporate all this into a single figure and I am not disputing that such an approach is best. A net figure would eliminate a largely circular discussion of whether money that is spent comes from borrowings, savings, or even income (which has been ignored so far).

Any discussion that uses the general government debt measure can only reflect the amount of money borrowed as no account for assets is taken.

The GGD will head for 120% of GDP over the next few years. At the end of 2011 it was €167 billion.

If we add the 2007 debt (€47 billion), the increase in cash (€12 billion), the deficits from 2008 to 2011 (€61 billion) and the outlay on the banks so far (€64 billion) you get €185 billion.

As the debt is €167 billion there is a €18 billion balancing item to be found. This is the money that was taken from the NPRF. Without this, the debt would be €18 billion higher. It is pretty clear we agree on that.

I make the leap and say that this money was used to reduce the borrowing necessary for the bank payments. As the €18 billion in the NPRF (plus another €3 billion transferred from the Exchequer in 2009) was used to “buy” stakes in the banks I don’t think this is entirely inappropriate.


appealing to the better angels is pointless. The attitude “that lear” i that if a country runs its affairs like we did from about 2002 then it deserves everything coming to it.
As I see it there are about 4 options
*the current govt. policy which is like that of CnaG from 1922 which is to badger and cajole the Troika into cutting a deal. It might not work and there will obviously be a few Quid Pro Quo in terms of SW cuts, property tax and wage cuts for the PS. It might work but there willbe ritual humiliation along the way.
*the SF policy of default and go alone which is likely to leave on the outside looking in. It might work but there are loads of unknowns.
*whingeing about our lot and doing nothing about it-a classic Irish reaction
*sucking it up and getting on with it in a stoic Central European fashion.

Apeealing to some European Court will not work. Last time we tried that in the early 1970s we had a water tight case against the Brits for torture of internees in NI. We did not win as the big powers always get to appoint the judges.

@Seamus Coffey and Bryan G,

I possibly added to the confusion by looking for a breakdown of the GGD into (1) the portion financing assets (both financial and non-financial), (2) the portion that is lost in the IBRC (reparation for past sins?) and (3) the portion that represents accumulated excesses of expenditure over receipts.

In this respect the use of the NPRF is neither here not there. If it hadn’t been readily available presumably more of the debt would have been paid off. But the cost of building up this amount again via borrowing might have been greater than the opportunity cost of using it as it was used.

@ JR Good idea. However, difficult to get done…unless some body of State takes up the running. Could the legal challenge in the first instance be domestic? In particular, can the President refer the referendum bill to the SC. Can the SC then put the Q. to the ECJ as a point of law? Would be very difficult on the face of it for the EU to block if the basis of challenge is EU legality.

Best alternative strategy suggested so far (as I can see). Any more suggestions?

Now if that type of “injunction” is possible, our present President may just be the man to start the ball rolling for the people…..

In the absence of that, my implicit question is whether the FC vote is the best alternative forum to challenge /change? Still unanswered /addressed here.

@Overseas. There is no easy way. However, increasingly there is little alternative either. As indicated before, it comes down in the end to debt sustainability or not (if not, legality won’t be the main issue). If one believes that the debt is not sustainable, why wait for grinding “destruction” when there are alternatives? As a Debtor, Ireland has the right to protect itself and do what it can in its best interests. This is not a popularity contest.

You will merely further legitimise the European court – you would be playing into their hands

Do you find it distasteful that Hibernia must act like a Private Corporation ?
Husbanding cash only for it to be probally taken off us by Troika Dictat at some future arbitrary point.
Many of us have had enough of this Ireland Inc Meme.

Sometimes enough is enough.
No Quarter will be asked or given.

@David O’D

“100 years at 0.001% percent interest to handle the ‘legal’ aspects. Done.”

Tell you what. You lend me ten quid on the basis I repay you the ten quid in five years time and pay you 5 cents each year as interest.

I then decide to tell you I will repay your tenner in 100 years and you can forget about getting any interest beyond a couple of cents. What is the value to you now of your loan out to me?

The correct answer is basically nothing – you have been swindled.

In this case you are analogous to in the first instance IBRC, and in the second Patrick Honohan’s gaff.

For instance, and additionally, could JR’s legal challenge be used to delay the FC referendum as has been well and very logically argued here, so that the referendum vote becomes a fallback, alternative strategy as opposed to being in the vanguard?

Plenty of options…….even if the Govt won’t cooperate.

@ Paul W/Joseph

“Why not start with a legal challenge?”

Eh, challenging what, and on what basis exactly? The ECB didn’t “impose” the debts, they basically said if you want to retain access to a set of facilities we’ve already loosened up significantly, you’ll stand behind your banks, take it or leave it. And this came after our government, of its own free will, no doubt cajoled and ‘advised’ by the ECB but still of its own free will, put in place a blanket guarantee. How about the EU takes us to the ECJ for happlessly mismanaging our banking system? That should be a larf.

@ Paul W

“Now if that type of “injunction” is possible, our present President may just be the man to start the ball rolling for the people….”

You need to read the constitution. Our President is not empowered to be so interventionist. If you want to take something to the SC or the ECJ, you can do it as a private citizen yourself. People need to stop imagining John Grisham-like movie endings to this. It’ll be conducted as it always is, a mix of boring technical and legal deliberations between civil servants and administrators of various sovereign and super sovereign entities.

@ Michael Hennigan

‘Despite its narrow mandate, the ECB has generally responded to the crisis faster than political leaders’

The ECB has consistently misrepresented this crisis as a crisis of fiscal governance. While that is part of the problem, the core problem is financialisation of the real economy. As a public institution, the ECB should be helping to unravel that. Instead it is bent on denying the reality, and kicking the can down the road.

‘So should the ECB have an obligation to be the lender of last resort for Ireland: both funding Irish banks and also accept all the boom losses of the banks?’

The derivatives losses of core banks far outweigh the loan losses of the periphery. LTRO is a big bazooka, and the ECB will defend the Eurosystem until it implodes.

Funding insolvent Irish banks is part of the process whereby private losses are transferred to the state(s), under the guise of ‘saving the economy’. Leaving the politicians to sort out which group of citizens takes the hit.

Divide and conquer has always been the way.


‘It’ll be conducted as it always is, a mix of boring technical and legal deliberations between civil servants and administrators of various sovereign and super sovereign entities’

Wouldn’t bet on that. We haven’t been to this movie before.

@ Seamus Coffey

You said:

“Of things would be better of we hadn’t poured €64 billion into the banks. In my view we would have a GGD that would be around €46 billion lower and an NPRF that would be around €18 billion higher.”

But it’s very unlikey the NPRF would be €18bn higher. Surely it would just have be used to pay for non-banking costs instead. This is the key point I suppose. If we hadn’t poured €64 billion into the banks then in fact our GGD would be €64bn lower and our NPRF would be depleted, just as it is now.


Why it won’t be boring:

‘The outlook for money growth in the periphery is tied to confidence and, to some extent, ECB policy. Given the degree of planned fiscal retrenchment and the fact that banks, at best, use LTRO liquidity to play the carry trade on the short end of the government bond curves there is little hope for an immediate pick-up in the money supply in the periphery. In this sense, the monetary transmission mechanism to the real economy has been thoroughly broken in the eurozone’

@Bond. Eoin Bond

@ Paul W/Joseph

“Why not start with a legal challenge?”

Eh, challenging what, and on what basis exactly?

That the ECB exceeded its legal mandate by using its powers, solely intended to guarantee price stability, to interfere in national fiscal policy to achieve political goals that suited its stakeholders and helped made European policy on behalf on the financial sector rather than the people? Not a very hard sell surely – Trichet’s stock drops all the time, Bini-Smaghi is hiding in Harvard, probably with a bodyguard.

Having said that I think it is a mistake to imagine that there is a likely legal remedy in European law, this outcome (policy being made on behalf of the creditor countries and banks) was how the law was intended to function and as DOCM and Gavin Barrett will volunteer we are being robbed entirely within the law and we should rejoice in its majesty (nice to see that the ECHR backed kettling as well, Europe gets ever less liberal).

So the law is the problem, since there is little philosophical ground separating Enda, Michael and Angela we should not expect our current representatives to pursue a different political approach until they have no other option, which is why ensuring a no vote to the Fiscal Compact should be every progressives primary concern.

@Seamus Coffey

As Tunafish pointed out, the troika would very likely have required the bulk of the NPRF to be liquidated anyway even in the absence of a bank bailout, as that reduced the amount they needed to lend. Chopra described the principle:

Everybody should put in whatever they have and in order to make its success. So, I think it’s important that there is a large, important Irish contribution to this.

So the GGD would basically be lower by the net cost of the bank bailout, say €60bn allowing for fees, interest etc. The IMF estimate the debt in 2012 to be €181. CMcC estimated the ratio for hypothetical-non-bank-bailout debt to reality-with-bank-bailout debt to be 2/3. Your original post claimed that CMcC got his sums wrong, but I don’t think he did. Maybe the sale of shares of AIB etc. in the future will bring the net cost down further, however this will be outside the target window of returning to the markets, and the debt sustainability level that will apply at that time, which was also a focus of the article. Within this longer timeframe there are other plausible scenarios where the net cost could be higher. Overall the numbers in CMcC’s article seem pretty accurate to me.

@ Tunafish/Bryan G,

That hypothetical scenario could never be tested. If there was no bank bailout and the NPRF remained intact, there would be no IMF to require us to liquidate it to fund other costs. It is the bank bailout that forced us into the programme in the first place.

The Irish contribution referred to by Chopra was the €17.5 billion (€10 billion NPRF, €7.5 billion cash) which was part of the €35 billion set up as a ‘worst case scenario’ contingency for the banks.

If the GGD was around €120 billion now (i.e. no banking costs) it is unlikely there would be a need to liquidate the NPRF to reduce it by another €20 billion. If we wanted to reduce the GGD we could just use the cash buffer we have built up. It is only because of the bank bailout that the NPRF was tapped into (and over €10 billion had been used by December 2010).

Absent the bank bailout the GGD would not be €60-odd billion lower.

@Bond. Eoin Bond.
“The ECB didn’t “impose” the debts, they basically said…”

‘They made us an offer we could not refuse’
Contracts as in marraige must be freely entered into. There used to be a phenomenon known as a ‘shotgun wedding’.
The post marital ‘nuptial’ will continue until 2031. Not much time for the ‘bride’ to take breadth!

@ Shay

“its powers, solely intended to guarantee price stability”

These are not its “sole” powers, just its primary mandate. It is also charged with “contributing to prudential supervision and financial stability”, and it is required to be consulted on any “(European) Union act in its (the ECB’s) field of competence”. Further they are tasked with “monitoring” and “promotion of arrangements for maintaining” financial stability and “effectively managing financial crisis”.

You can argue about whether their conduct has been the correct course of action, but clearly they have a strong argument that all of their decisions have been in the pursuit of “financial stability”, even if their effect has been mixed or poor in some regard.

@ Paul Quigley

my reference to “boring” was the decision over the promissory notes and the fiscal compact. Some people are expecting Tom Cruise to start demanding answers from a ranting Lorenzo Bini Smaghi at the ECJ – “Did you order a side letter be issued?? Did you order a side letter be issued??”. More likely we’ll have a Kevin Cardiff-type citing EU and Eurostat regulations in coming up with their decisions.

Mr. Bond,

I doubt you’ll have any success in trying to dampen the ardour of those whose blood has been charged, but full marks for your relentless efforts. They may, I hope, have some traction with those who read, but don’t comment.

What puzzles me is that some of our leading economists, with high public profiles, are making so much of the PNs/ELA, etc. I accept it isn’t their intent, but it is feeding the rabble-rousers, populists, atavistic nationalists and utopian hard left. As you point out, the ECB has been really struggling, in the absence of the necessary legal powers and political sanction (that other CBs in the major economies have), to behave like a proper CB. It has pushed continuously to develop this ‘liquidity support’ to compensate for its inability to provide ‘solvency support’ to banks and governments in distress.

The fundamental problem is this centre-right hegemony that is dominating the politics of the EU – with a mjaor requirement to pander to the whims and prejudices of right-wing and right-wing leaning voters in France and Germany. The Dutch have a similar problem with Gert Wilders calling many of the shots.

Cet. Par on another thread linked to a Greek interview with J-C Juncker:

I have great time for the Luxembourgers. With a population of half a million they have provided politicians who have done great service in Europe. The ill-fated Jacque Santer was the exception that proves the rule. J-C is a wily old bird but the fact that he has expressed his anger and frustration in this interview so forthrightly gives a good indication of where the real battle-lines are being drawn in the EU. The debate in Ireland, if it could be dignified in that manner, is so far removed from these concerns as to appear as if it were taking place on another planet.

@ Bond 11:18

“Eh, challenging what, and on what basis exactly? The ECB didn’t “impose” the debts, they basically said if you want to retain access to a set of facilities we’ve already loosened up significantly, you’ll stand behind your banks, take it or leave it. And this came after our government, of its own free will, no doubt cajoled and ‘advised’ by the ECB but still of its own free will, put in place a blanket guarantee. How about the EU takes us to the ECJ for happlessly mismanaging our banking system? That should be a larf.”

Err, indulging in a bit of fallacious sophistry there, I see, Mr Bond.

You describe the Irish Titanic threatened and bullied to accept the debt only iff a portion of debt is used to bailout French and German banks? If this were the FOMC, Anglo would have been closed immediately, the ‘guarantee’ useless as it was would have been denied.

@ Paul Hunt

Re ” is so far removed from these concerns as to appear as if it were taking place on another planet.”

I hope to welcome you back to planet Earth someday 🙂

Seems to me the ECB is well on the way to becoming a rather large version of Ireland’s Anglo Irish Bank. The Greek and peripheral crisis is merely ending its beginning.

@Paul Hunt

I accept it isn’t their intent, but it is feeding the rabble-rousers, populists, atavistic nationalists and utopian hard left.

“Idealists” is shorter and I would humbly suggest that had their been more of us in positions of power in Europe this disaster of the dissembling, elitist, financial sector friendly, market crazed, pan European neoliberal centre right would not have escalated to the level it has.

Lying back and thinking of the EU guarantees more pain and humiliation.

@ Bryan G

So let us take as our goal to identify how much of our net indebtedness is due to the fact that we lived beyond our means and continue to do so and how much is due to the banking system failure.

We have to hypothesise that the banks behaved well. This thought experiment quickly leads to a realisation that an awful lot about our finances in say 2007 was an illusion. The low GGD, the very existence of an NPRF largely subsidised by property boom taxes as well as illusory savings on social protection. The “structural” GGD, whatever that means, was much larger than the nominal GGD.

Now lets do another calculation. Imagine we hadn’t applied the ludicrous and illusory FF increases in Public Sector pay and pensions and Social Protection payments and that we had not implemented Charlie McCreevey style income tax and capital tax handouts. I haven’t done the sums but I imagine one will find that the vast share of our current GGD is down to living beyond our means in the last decade or so.

The banking dimension is merely payback time. We all lived high on the construction boom, but it was an illusion, now we have to pay. Can’t see how we can legitimately ask Germans to pay. As Enda wouldn’t say it is indeed our fault.

Thanks, Colm B. Your unwillingness, and, I suspect, your inability, to engage with the substance of my comment says it all really.

Ireland really did go on to an extra-terrestrial trajectory with the bank guarantee and the then government and the Oreachtas committed the state to provide the fuel to keep the engineless, insolvent banks aloft.

The European System of Central Banks (note the key word, system) has struggled ever since to bring the state and the banks back on to a closer, safer orbit of the EZ. And its struggle was made all the harder in the absence of the neccessary legal powers and, more crucially, the necessary political scanction from other EZ members who were busily shoring up their own, less spectacular, bank messes.

Yes, it would have been wonderful if the ESCB had an EU-wide bank resolution scheme and the ability to use its firepower to blow the shorters and the mayhem merchants out of the water. But it didn’t. And, given the nature of the EU as an association of sovereign nations bound by treaties – and the politcial imperatives of the big powers – these things are slowly, very slowly, being crafted.

It seems to make a lot of people feel very good in themselves, but it is totally useless – and, indeed, counter-productive – to blame inadequately empowered and resourced EU institutions for not having the ability to rush to the rescue of a small economy that, with excessive and unjustified bombast and hubris, had put itself in to the line of fire.

Irish people now have a choice. They can decide to land this craft in a reforming Euro Area or to pitch it somewhere in the mid-Atlantic where it will be a supplicant of a US whose economic and strategic focus is fixed across the Pacific and will be pulled in to the closer orbit of a UK that is increasingly Europhobic.

@ Seamus Coffey

I promise this will be my last post. Suppose we imagine two scenarios:

Scenario 1: The government uses €21bn from the NPRF to pay for banking costs.

Scenario 2: The government uses €21bn from the NPRF to pay off €21bn of debt. And then immediately after that, the government borrows €21bn and uses that money to pay for banking costs.

Would you say that in Scenario 1, banking payments account for roughly around a fifth of our debt. And that in Scenario 2, banking payments account for roughly around a third of our debt?

@ Colm

“Err, indulging in a bit of fallacious sophistry there, I see, Mr Bond.

You describe the Irish Titanic threatened and bullied to accept the debt only iff a portion of debt is used to bailout French and German banks? If this were the FOMC, Anglo would have been closed immediately, the ‘guarantee’ useless as it was would have been denied.”

I fail to see any actual argument being made here, just some random words being jotted down, the near mandatory reference to the Titantic topping it off. I asked for the basis of a legal challenge. Others at least attempted this, but you didn’t even make it to stage one. Well done. Like Paul Hunt commented, that says it all really.

@ Bond,

Ah, my Titanic analogical metaphor, you have difficulty with. Fair enough, not everyone is smart to see the iceberg of default or Captain “Enda” Smith binn beal i do thost …. 🙂

“A closed mind is not only closed to outside thoughts, it is often closed to itself as well. It is closed to new thoughts and anything that threatens the status quo. But if you can open the doors, maybe just a crack at first, the ideas that have been patiently waiting at your gates will flood in.”

History will tell its own story. As regards legal challenge, as I’ve stated before, odious, unconscionable debt of IBRC, Director loans,
B&B loans, confidence trickery, criminal misrepresentation and falsification of records, wrongful and criminal representation of information, criminal negligence, liquidity vs solvency coverup, a coverup of ¢31 bn of debt loss foisted on gullible, if not incompetent, Irish financial regulators and politicians amounting, if proved, to charges of embezzlement of public money?

Isn’t it disgraceful we’ve only 10 garda investigating matters such as the above, the outcome of such a court case meaning our case against odious debt, could be challenged in some International Court of Settlements?

Time will tell.

@Paul Hunt

It seems to make a lot of people feel very good in themselves, but it is totally useless – and, indeed, counter-productive – to blame inadequately empowered and resourced EU institutions for not having the ability to rush to the rescue of a small economy that, with excessive and unjustified bombast and hubris, had put itself in to the line of fire.

I do not recall any of the EU institutions expressing any frustrated desire to help us Mr Hunt, if only they had the tools.

Everyone however remembers Bin-Smaghi threatening us (as he still does, fulfilling his class loyalty obligations while safe in the US) and the German right and fellow travellers exhorting us, absurdly, to become like them by collapsing our economy. I remember Barosso spluttering red faced rage at the impudence of Joe Higgins for criticising his betters. I recall no offers of rescue. Why would I? Merkel is more a “punish” than a “rescue” kind of person, and the the twin interests of the ECB are its own unaccountable power and the European financial sector. The Commission would like to snatch power back from Merkel but thinks that discipling Ireland is its best route to relevance.

Our decision is not the bondage market liberalism of Berlin or the dysfunctional hyper-capitalism of Boston but whether we guard our sovereignty or resign ourselves to becoming a provincial outpost. The Fiscal Compact is, in its way, is our Act of Union – a surrender of economic national self determination so that our politicians and civil servants might compete for status in a bigger stadium.

@ Paul Hunt,

Re ” They can decide to land this craft in a reforming Euro Area….”

Now there’s a leap of faith. I think I missed the ‘reforming part’.

The Fiscal Compact is to reform as water is to fire…sure, begorrah, I don’t know how the ECB put up with us, at all, at all, anseo in dTir na N´Og 🙂

Fair enough, we’re not going to agree, are we ? Lets just agree to keep poring over the evidence 🙂

@ Paul Hunt and Colm Brazel

I don’t think you folk are as strongly at odds as it may seem from the recent exchanges. Like other regulars, both of you have presented consistently strong, well evidenced arguments over a lengthy perioid.

Paul has obviously lost all patience with the Irish state and its entrenched stakeholder interests, and is looking for better governance from European institutions. That is a defensible position.
Colm is focussed on the financial sphere, where the EC has not exactly covered itself in glory. His position is pretty compatible with that of the Dork, as well as some sharp observers in the broader blogosphere.

This is a marathon, not a sprint. My guess is that both of you dedicated bloggers are going to see your fairly complementary critiques accepted in the mainstream, as the wheels come off the overloaded Irish state and the badly designed EZ. We will see then what can be attempted.

@Shay Begorrah,

““Idealists” is shorter and I would humbly suggest that had their been more of us in positions of power in Europe this disaster of the dissembling, elitist, financial sector friendly, market crazed, pan European neoliberal centre right would not have escalated to the level it has.”

Hmm…. Idealists with a limited purchase on reality are often more dangerous than the most vicious misanthropes. And I’m not sure who this ‘us’ is. As for this ‘dissembling, elitist, financial sector friendly, market crazed, pan European neoliberal centre right’ I couldn’t agree more, but the challenge is to secure the democratic consent to shunt it aside. Raging about it among the converted may generate a warm, fuzzy feeling, but it is ultimately futile. And the first step in the task of shunting it aside is to understand why it has been able to establish this apparent political hegemony.

So we need to parse your mouthful:
dissembling: all poltical systems require a certain amount of cant, hyposcrisy and bullshit if they are to function. The problem arises when these define and characterise the political system. I would contend that the Irish system is more full of these than that at the EU-level.

elitist: the EU from the beginning was an elitist project, but, again, ever so slowly, steps are being taken to enhance democratic legitimacy.

financial sector friendly: governments of all complexions over the last 20 years entered in to a faustian pact with banks to support ‘privatised Keynesianism’ (h/t Aidan R) to compensate for wage repression and the hollowing out of traditional employment.

market crazed: those who most loudly advocated ‘free markets’ absolutely loathe, hate and detest them. They will do everything in their power to rig, distort and subvert them in their own narrow interests – and suborn government to achieve this. Genuinely competitive markets are in the interests of the vast majority of citizens and consumers. But those on the left seem to retain their obsession with the omniscience of the state.

pan European: in a world increasingly sominated by large emerging powers I would prefer this to any alternative.

neo-liberal: it is probably true that most genuine neo-liberals fail to understand the extent to which their have become useful idiots for the neco-cons.

centre-right: the question for the left is why given the extent to which effective collaboration between the liberal centre and the left provided the basis for and secured much of the post-war settlement is it that the liberal centtre has been pulled rightwards.

And some interesting recent research on how political preferences are related to the extent of moral sentiment that people possess:

So, maybe the left might give some thought to how it might pull the liberal-centre in its direction to secure sufficient popular consent to shunt this vile hegemony aside – rather than engaging in the ritual of abuse and name-calling.

@Paul Quigley,

“Paul has obviously lost all patience with the Irish state and its entrenched stakeholder interests, and is looking for better governance from European institutions.”

You misrepresent me, sir. I want better governance in Ireland and in the EU – and a better-governed Ireland engaging effectively in the EU.

@Colm Brazel,

As for ‘poring over the evidence’, I tend to focus on what is being and might be constructed for a better tomorrow; you seem to be on the lookout for icebergs the ship might hit and appear to salivate at the prospect of the mayhem that would ensue. And, unfortunately, you don’t seem to be alone on this thread.

It surprises me that no one has in fact legally challenged the banks’ guarantee, whether via an odious debt argument or simply on the basis that the decision was not properly made by Govt. If that was an illegal act, what flows from it was incorrect /flawed also. Rectification is messy….but that’snot the point.

However, if the conclusion is that there is no practical or possible legal route available, then the FC is a potential crossroads’ focal point for Ireland, beyond its narrow reading. While there is much talk of right wing, etc. agendas and Ireland’s “Act of Union” as per SB above, I feel that, in essence, it is much more basic than that. It’s survival in the first instance and above all else (“Men Saving Themselves” as opposed to the waiting for resusicitation model)……

@paul hunt

Thank you for the detailed reply. I’ll go through it after work.

@paul quigley

This is a marathon, not a sprint. My guess is that both of you dedicated bloggers are going to see your fairly complementary critiques accepted in the mainstream, as the wheels come off the overloaded Irish state and the badly designed EZ. We will see then what can be attempted.

As always Mr Q, you are the hateful, hateful voice of reason and civility.

I understand the position of those think that Ireland can market and/or democratic “reform” our way out of trouble but in the face of the current combination of a ludicrously inappropriate Fiscal Compact, a basically untamed and dangerous European financial sector (sorry BEB), a Eurozone that does not make sense and a European political consensus starkly at odds with reality (obligatory smackdowns from Krugman) I think keeping our heads down is a terrible, terrible mistake.

Someone has to mention the naked Emperor.

Don’t understand your man crush on Krugman – the guy called for a housing bubble to get out of the equity bubble for Christ sake.

Don’t understand your man crush on Krugman – the guy called for a housing bubble to get out of the equity bubble for Christ sake.

@The Dork of Cork

Don’t understand your man crush on Krugman

It is mainly the beard and that “Am I a downbeat private eye investigating the mysterious death of an old friend or I am a professor of economics investigating why western economies are being mutilated?” look – so mysterious, so sexy. Great teeth too.

It might also be that he seems to be a moral man who uses his intelligence and grasp of statistics in the service of his human empathy and not in place of it – the global financial crisis radicalised him in a way that I did not expect.

It would be nice if he, Stiglitz and the MMTers could get together over a bagel and a few coffees and produce a synthesis that better modelled the role of debt but like the man says, nobody’s perfect.

@ Shay

i’ve never denied that the size or scope of the European financial system was dangerous – i’ve just pointed how we’ve hitched ourselves (both our societies and our economies) to it, wilfully, going back over 30 years. The financial crisis was created over a 30 year timespan, not 30 months as some seem to think.

@Eoin Bond

i’ve never denied that the size or scope of the European financial system was dangerous

Is it Paul Quigley who has done this to you? Nah, you were always this reasonable.

So, and I doubt the adults are reading any more, how do we start to tackle the hangover of the thirty years since Reagan, Thatcher and the primacy of financial capitalism?

Those of a optimistic nature see Draghi’s LTRO blitz postponing the moment of reckoning in Europe until we are ready for it (or can get a cushy, well protected, teaching number in Harvard), to others it looks very much like Europe is once again prioritizing its financial sector over its member states – the fact that the law prevents the ECB from directly funding states is not a terrific justification – its one of the primary causes of the crisis.

With such a fundamentally wrong headed approach to the balance of the public and the private sector and the role of money the current European (and perhaps western) economic and policy making framework seems built to fail us and simultaneously determined to preserve itself for as long as possible.

What would you do, if you had the power?

@Mr. Bond,

Your 30 years is about right. Thatcher and Reagan laid the foundations in the UK and the US. Bush Snr. and Major had enough humanity to try to moderate it – the former criticising the ‘voodoo economics’ on which it was based – but both were swept away. Clinton and Blair, both lacking a moral compass – though the former did put up a fight, succumbed and copper-fastened it. Bush Jnr. and the later Blair (preoccupied by his Neocon delusions) and Brown put the pedal to the metal. The Canadian Liberals (aided by a right-wing implosion) resisted and Canada has escaped largely unscathed. New Zealand’s David Lange was an early convert, but varying measures of rationality subsequently prevailed. The Australians were initially resistant, but Keating eventually succumbed and John Howard charged ahead. Australia has been protected by locking its economy in to the East Pacific and the rise of China as a resource-hungry economic power.

France, under Mitterand, initially resisted but under the crook Chirac succumbed. Kohl, in Germany, also held his ground, but was gradually undermined and Schoeder, a champagne Red, did the real damage. And the infection spread throughout the rest of Europe.

It’s been a long time in the making and this debacle had many fathers and mothers – even if it looks to some like a recently born orphan now – and it will take a long time to unwind. If it were pure unbridled capitalism or a hare-brained socialist frenzy it wouldn’t be proving so intractable. The capitalists were receiving state welfare (directly and indirectly) beyond the dreams of avarice, the aristocrats of labour got their noses in to the trough and all below the median wage were being progressively ground down, yet all in society were being encouraged to max out readily available credit.

Yet it can be resolved; it has to be and it will.

Some here appear to have the view that we should only accept EU/EMU rules when it suits.

Not a net cent has been paid to the EU budget since 1973 and cash gain of €42bn in nominal terms is likley close to the whole cost of the bank rescue.

So, some here may believe that countries like Germany and the Netherlands should pay the whole bill for the Celtic Tiger folly plus continue supporting a high standard of living — solidarity please without strings!

The public pay, pensions and welfare costs are higher than at the peak of the bubble.

Private sector pensions are likely to remain in a very bad shape for years and the VHI loss in 2011 of €23.5m on subordinated bank debt is an illustration that simple solutions without downsides are simple.

@Michael Hennigan – Finfacts
‘public pay, pensions and welfare costs are higher than at the peak of the bubble’

The bundling of those three items may make useful comparison difficult. Moving from close on full employment to an unemployment rate of over 14 per cent does bad things to welfare costs.

@ Shay

Bond is a thinking man, or he wouldn’t be putting his time into these exchanges. He has his take, which is evolving like yours and mine. Lets hope there are a few more Bonds in and around the markets, because we can’t get out of this hole without them.

@ Shay/PH/PQ

almost every debt crisis in history has been solved not through outright default, but through stealth default via inflation. The hope is that eventually the Germans realise this, even to some small extent. Key to this will probably be disguising inflation as “growth”. This is the current challenge facing Ireland – reflating an economy with a large debt overhang when nominal growth is at a cyclical low, so even when real GDP growth could end up being solid, its impact will be much less than in the 80/90s.

For those who urge an allegedly short, sharp adjustment of our oversized financial system, i would suggest you are condeming a sizeable amount of people to 5-10yrs of unemployment – 5yrs of deleveraging followed by 5yrs of economic shock adjustment.

Against that, a 20yr deleveraging process, which would allow for a much more acceptable deleveraging process, runs the risk of running into mission drift or a change in the political winds or simply another bubble being blown by very long term easing on monetary conditions. We could end up back at square one.

There’s the rough two choices in terms of downsizing the global financial system, and neither of them are perfect. Like i said, a 30yr credit bubble, if you want to completely unwind it, as opposed to deflate, patch up, and reflate (the standard reaction we have had to recessions post WWII), is either a long term plan, or an unpleasant short sharp shock. Not sure which is more acceptable to society. Anyone offering fantasy solutions in the short to medium term deserves contempt in my view (just being honest), they are peddling falsehoods.

@Paul Quigley

Bond is a thinking man,

My default assumption is that everyone who posts is both better informed and less addled by age than I am, until they prove conclusively otherwise.

It was one of the great reliefs/awful revelations of adult life (decades ago) for me to find that the world was filled with people much better equipped to understand and solve any given problem than I was, except that they had other priorities.

Excluding medical professionals the largest employers of Oxford university college graduates in 2011 was the financial sector – all that talent, all that intellect, in the service of financial capital.

@ Bond
But the ECB are pledged to fight inflation and current strategies are working for Germany
Plan B is called plan B for a reason…

@Seamus Coffey

I accept that there would have been no forced liquidation of the NPRF in the hypothetical case, so that from a pure GGD point of view the level would not have dropped by €60bn.

However given that constructing the hypothetical case is difficult and arbitrary, perhaps a much simpler metric is more useful – what proportion of the net debt is due to net bank bailout costs. The IMF estimate the net debt for 2012 at €164bn, so with a net bank bailout cost of €60bn that is close to 37%. This drops to 32% by 2015 as the net debt increases due to deficits. So if anything this shows that the proportion due to the banks is for now even greater than the 1/3 commonly referenced.

@Brian Woods II

The hypothetical case I was looking at was not one where private banks behaved well, but one where the costs of their bad behaviour were not assigned to the taxpayer (e.g. net cost of zero to taxpayer, as in the US, for example). The large increases in public spending in Ireland based on cyclical revenues would remain, of course, now financed by deficits. For the purposes of general discussion a 1/3 vs 2/3 split is quite reasonable. You can argue it is less, based on GGD, or more, based on net debt, but the numbers still oscillate about the 1/3rd value. So 2/3rds is the responsibility of taxpayers, and 1/3rd is not, or rather should not have been but is, due to the insane blanket guarantee.

I’m not aware of anyone asking “the Germans” to pay however. Stretching out the ELA payments, for example, is not a cost to the Germans, it is a cost to Euro currency holders, as the currency would be slightly diluted by that action. If anything the Germans would gain as the interest payment flow from CBI to Bundesbank (via intra-Eurosystem liabilities) would last for longer.

Stretching out ELA payments would be a perfectly reasonable course of action, all things considered (as evidenced by IMF support), however in practice it isn’t about reasonable courses of action but is about political control and using the crisis to shape the future power structures in Europe (e.g. who gets to determine the agenda, scope and implementation of economic reforms). That’s why there’s no chance of the ECB agreeing to any changes in the foreseeable future. And that’s why Noonan’s approach of presenting carefully constructed reasonable arguments to the ECB, whether on unguaranteed bondholder repayments, or ELA, won’t work. Only long after that political control has been secured, through a series of incremental steps, from the Fiscal Compact, the two-pack etc., will concessions be granted.

You start by expressing the hope that Germany will tolerate default via inflation and you end by expressing contempt for those who peddle fantasy solutions. If you are to be consistent about this a little self-contempt would seem to be in order.

@ Bond
We are snookered here. Not enough growth, not enough inflation – its going to reach crisis in the next 12-14 months.
My biggest concern is energy. We can’t absorb a price hike there and it’ll knock everything on its head.

@ Bryan G

Stretching out ELA? I think you are in a different thread. Colm is not arguing for a stretching out, he is asking for an outright default or forgiveness, I think.

My point was a bit corny but I’ll give it another go using a very simple thought piece: Bank borrows 100, lends to developer who buys land and develops, generating stamp duty, VAT, income tax, CGT, a reduction in dole queues, let’s say 50 for the Exchequer in total versus if the bank hadn’t made that borrowing. Bank goes bust with a hole of 50. State has to fill the hole. Quids in. Simply paying back what we didn’t have in the first place.

Of course the Exchequer’s mistake was to spend a lot of that 50 and to set itself on a ledge where it has to continue the illusory largesse. It had also built up an NPRF which was also an illusion.

Unfortunately the process did involve a mass internal transfer within the coubtry from future taxpayers to the public service and the windfall winners of the boom.

@Brian Woods II

If private bank A funds private bank B which lends to private developer C who doesn’t pay it bank, there is no obligation for the state to make private bank A whole. There is no “we”/taxpayer/state in the picture at all. Windfall revenues for the government are a separate issue. Tax policy was clearly poor, but the rules were clear and known in advance to all the private parties concerned, who made their own decisions taking that into account. Microsoft and Google do not expect the state to pick up the tab for any poor investments they make, perhaps aided and abetted by favourable CT tax policies. Why should Bank A or Bank B be any different? All governments tax economic activity, some just manage the revenues much better than others.

@ Bryan G

Yep, the government cuda walked from the banks, pocketing its own windfalls from the lending boom. It would of course have brought down our banking system and our economy. The government decided wisely that it better pay back its illusory windfalls rather than try to hold on to them.

I remain convinced that a request to default/be forgiven our obligations is asking others to fund the windfall transfers within our own borders. There is no moral or legal basis for expecting that.

@ paul quigley

As this thread has turned discursive let’s take your lad Bourdieu out for a spin and see what he can do.

Bourdieu suggests that we can think of society as made up of three kinds of capital: economic, social and cultural. These all interreact. Further, in his model, these types of capital can be manifest in two ways – subjective and objective.

For example, in cultural capital, Ireland has a long tradition of boxing. The training of boxers is a kind of embedded cultural capital. If a boxer wins an olympic gold medal, they have turned this into objective capital. A kind certificate which says ‘this person is the best amateur boxer in their weight at this time’. These certificates can be devalued (eg too many drug cheats, too many medals like swimming), but they still have an agreed value.

Similarly social capital might lie in neighbourliness, and its certificat might be a Tidy Town, or a UNESCO dedication. These can be ‘cashed in’ eg through tourism. Cultural, social and economic capital can all be interconverted – hence the Aviva stadium. And the corrollory is that damage can cause damage – the Aviva stadium.

My suggestion that whilst Ireland has just seen its economic capital destroyed it still has huge reservoirs of cultural and social capital. The Irish family and neighbourly networks are soaking up the strain with the cultural tradition of emigration as a valve, which the less engrained social solidarity of trade unionism isn’t yet being deployed, other than to hold on.

Splitting post here.


My further suggestion is that these huge reserves of social and cultural capital may – just like economic capital – may be in the wrong places: misallocated if you like.

I’m NOT saying this is a misallocation, but some people at the last election were arguing that the mandatory teaching of Irish to Leaving Cert was, in effect, a misalocation of cultural capital. (Teaching of Irish: subjective transmition, certificate to get into Uni and Teaching: objectification).

So for another example, in our political system the clan-leader-like aspets of our TDs might be seen as the wrong kind, or harmful, social capital.

Also note that shifts within social groups can alter the value of individual capital and will effect the whole community. Sean Fitz’s behaviour has destroyed much of the social capital of all bankers. Every cyclist that cheats dimishes the Tour de France. Other cyclists and bankers envy their success early on and secretly want to be them, then hate them later.

What stares out from this analysis is that bankers bonuses need to be moved from economic capital to social capital as a form of reward. If money is increasingly seen as the only form of capital worth having, then the rich will want more, not so much to spend, but of the status that goes with it.

The UK have the OBE and it was interesting to see Sir Fred’s certificate of social capital – his OBE – stripped from him. Did it hurt enough, I wonder, to stop others?

Anyway, I therefore suggest that Ireland starts some serious Presidential award system which is seen as aspirationally the best thing one can receive from the nation and would be a source of great pride to have.

Any thoughts?

@ Gavin

This board is a good example of Bourdieu’s ‘interpretive structuralism’ in action. Some posts provide lots of numbers, which help us to grasp the dimensions of the various issues under discussion, or set out the structure of the various instituitions, regulations, or instruments at work. Other posts focus on the agency isues, the individual or corporate actors, and the sort of concerns may motivate them. A good historical acccount, such as Joe Lee’s Ireland 1912-85 is able to take us into the minds, and the dilemmas, of leaders like Devalera or Cosgrave.

Bourdieu takes the view that ‘homo economicius’ is a product of history. The US and the Taliban are not just fighting over a piece of ground. Each of them is the Great Satan (Shaitan) in the eyes of the other. What is common sense and reason to one is absolute anathema to the Other. Any objective observer would, however, immediately note that there is as much religion in the US as there is business in Afghanistan.

Bourdieu conducted initial researches among Algerian peasants, where values of honour still prevailed. There are parts of the western world where that sort of thinking still survives. Drug dealers operate, like bankers, on gentlemen’s agreements, and people don’t usually charge their families the going rate.
Ireland has a mixed value system, and people who lose out in the modern sector may well take refuge in some of the old decencies. Nothing wrong with that. Our ghettos will be much less violent if the mainstream of our society becomes a bit more thoughtful, flexible and co-operative.

As the Dork always points out, it makes no sense to waste capital. This point applies equally to social or cultural capital. The bankers weren’t the only professionals who abused the position of trust they were given, and the damage to professions across the board is profound. Joe and Jane Public will be a lot wiser by the time all of the bubble costs are totted up.

There are errors, and there are big, historic errors, which lead to major system change. As Paul Hunt says above:
‘It’s been a long time in the making and this debacle had many fathers and mothers – even if it looks to some like a recently born orphan now – and it will take a long time to unwind.’.
Bond says:
‘There’s the rough two choices in terms of downsizing the global financial system, and neither of them are perfect. Like i said, a 30yr credit bubble, if you want to completely unwind it, as opposed to deflate, patch up, and reflate (the standard reaction we have had to recessions post WWII), is either a long term plan, or an unpleasant short sharp shock.’

Like all the greats, Bourdieu has absorbed the ideas of his philosophical and sociological predecessors. He suggests that we need to retire ‘homo economicus’, or at least make him part-time. We gave him a good lash, but he is taking us all over a social and ecological cliff. A shopping state of affairs, you might say.

You can emigrate from Ireland, or Spain, but you can’t emigrate from the biosphere. So this isn’t just Ireland’s problem, not by a long chalk, as many posters note. Maybe Randall Wray’s Job Guarantee ideas, as linked elsewhere by the Dork, need a closer look. Let no man say to the march of a nation ‘ne plus ultra’ and all avenues should be explored in a crisis.

I don’t know the President, but I read his recent book, and I’d say he would have a few interesting thoughts of his own to add. Sometimes less is more.

@ paul quigley

A classic post. I shall consider and respond when I have time to digest.

“Drug dealers operate, like bankers, on gentlemen’s agreements, and people don’t usually charge their families the going rate.”

As I have the pleasure of knowing both drug dealers (reformed, so they tell me) and bankers (unreformed), this rang very true.

Feel free not to reply – do you teach at some level? It would be a great service if you did.

@Brian Woods II

More outcomes were possible than either (a) exactly what happened or (b) meltdown and chaos. Perhaps everyone should note the date 9 March 2012 in their notebooks. The sky did not fall down and the earth continued to turn, notwithstanding a €150bn sovereign default and triggering of credit default swaps. There was no chaos and no meltdown. In the USA banks have absorbed large losses due to strategic defaults on non-recourse mortgages etc. Again, no falling skies have been observed. In fact profits have been pretty good. All the tales of impending doom, peddled by the banking industry, and the ECB on their behalf, were primarily intended to intimidate and force the desired result.

All water under the bridge of course. The next key decision will be what happens to the EU bank resolution legislation that has been successfully stalled by some governments for well over a year now. There are no doubt some major battles going on behind the scenes, and it’s too early to know who will prevail.

@ Bryan G,

I think we’ve come around to the far side of the circle but we went in opposite directions to get there. We still differ on the gross measure and as I’ve said from the start this is not the best measure. This will get to 120% of GDP but the banks are not the cause of 1/3 of that.

As you say (and I wholeheartedly agree) a net debt measure would be much better. This would fully reflect the cost of the banking payments. If we had an agreed measure of net debt to work off we would never have gotten ourselves into this tangle in the first place.

Dan O’Brien works with the gross debt measure in today’s IT. He has a table (not online) with six estimates of the percentage of the 2011 GGD that is due to the banks. You might be surprised to see that my estimate is the highest!

@Seamus Coffey

Without any disrespect the lack of a net debt measure should not mean we use the less meaningful gross debt measurements as the baseline in our discussions about the cost of the banking bailout and the relationship of that cost to our deficit (and our overall financial and political situation). Brian G’s figures seem like the most honest attempt to capture this cost.

This is without any attempt at asking how much of the deficit that is not directly related to the banks (social welfare, the costs of funding, the loss of emigrated talent) are worsened by the lack of flexibility that the bank bailout entailed.

Dan O’Briens article is yet another attempt to play down the central role of the financial sector (and their ECB sponsors) in Ireland’s current crisis because since the very beginning of the European component of the global financial crisis the political right has tried to shift the blame for a staggering market failure (which they will accept any blame for enabling) onto the state, particularly those elements that were social democratic.

The Irish Times has always been an establishment newspaper but the establishment it represents is not even Ireland’s any more.

@Shay Begorrah

Dan O’Brien’s article is yet another attempt to play down the central role of the financial sector (and their ECB sponsors) in Ireland’s current crisis because since the very beginning of the European component of the global financial crisis the political right has tried to shift the blame for a staggering market failure (which they will not accept any blame for enabling) onto the state, particularly those elements of the state that were social democratic in nature.

An editing function would be appreciated.

@ Shay,

I don’t think we intended to use the gross debt as the baseline but it arose from figures in the article that triggered this post.

Ireland’s gross debt is heading for 120% of GDP. As everyone has agreed Ireland’s net debt is difficult to pin down. If all offsetting assets to the gross measure are included (cash, remaining NPRF funds, bank shares etc.) then it could be anywhere in the range from 90% to 105% depending on valuations of the last item (from nothing to say 15% of GDP). The banks are likely to make up close to a third of this. I don’t see any dispute of that.

Measuring the secondary effects of the bank bailout on the deficits would be even more difficult and of course the actions of the banks in the first place are part of the set of primary reasons that got us into this mess in the first place.

I think the point about the primary balance is well made. If we had no debt we would still be running a deficit of 7% of GDP. The central role the banks have played should not be played down but it should not be portrayed that they are in that position on their own.

Between 2008 and 2015 we are going to run deficits of around €100 billion, excluding the direct bank payments. Of course the actions of the banks led to a situation where such deficits were possible but that €100 billion is not been borrowed and spent for the benefit of the banks.

@Seamus Coffey

Between 2008 and 2015 we are going to run deficits of around €100 billion, excluding the direct bank payments. Of course the actions of the banks led to a situation where such deficits were possible but that €100 billion is not been borrowed and spent for the benefit of the banks.

Absolutely, even if the banks had not been bailed out we would still be feeling the effects of the GFC and still be faced with large fiscal adjustments. The structure of our economy was already wrong before the bailout, and had been wrong for five to ten years (including pay in the public sector and taxation)

However a controlled restructuring of the economy became almost impossible after the banking bailout. If our debt/GDP was a bank bailout free 90% as opposed to a bank bailout inclusive 120% (naive, I know) we wound find ourselves in the company of France, the UK and Canada – in short people without serious funding difficulties. The size of the banking bailout served not only to nearly bankrupt us but caused the interests of the larger EU countries to become misaligned with ours – had they faced knock on effects from the lack of a bailout and a touch of contagion we would be in the same boat and arguing over slight changes in course, not destination. The ECB would long ago have found a way to work around its mandate and Merkel and the Mitteleuropeam austerity chorus would find themselves isolated.

Therefore when Dan O’Brien gives his bullet points the second one is right, right and right.

* The economic and budgetary outlook would be transformed if banking debt could be offloaded.

It is right financially, right politically and, no, wait, I only had two rights….damn.

A Europe in which the Irish banking crisis had already been confronted would have been better for everyone not invested, socially or otherwise, in the financial sector and Ireland’s level of economic flexibility (by which I mean more or less state spending on infrastructure and training) would match that of many of our neighbours. By attempting to play the good Samaritan to the money lenders (forgive me, it’s Friday) we took the wrong side and prevented the financial crisis from being resolved, something policy elites are still determined to do.

Therefore the banking bailout and its political and institutional sponsors are the central feature of our economic crisis and Dan O’Brien’s analysis is seriously clouded by neoliberalism.

@ Gavin

We can’t keep on meeting like this. I am reminded of Shaw’s remark that those who can, do and those who can’t’ teach 🙂

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