What If Ireland Defaults?

Congrats to the lads on their publication.com

It appears sales of this book are going very well. So congratulations to all involved.:)

Personally I do not think Ireland will need to default unless it is the result of a political decision. However I do believe it is a discussion we should not be afraid to have.

I look forward to reading comments on this book which I have not read yet but will try to as soon as possible.

Shurley Constantin would have pointed out to the great TCD Senator
that the correct reference is to the Indian Rupee:

“Cecily, you will read your Political Economy in my absence. The chapter on the Fall of the Rupee you may omit. It is somewhat too sensational. Even these metallic problems have their melodramatic side.”

@BEB

Over to Roubini

http://blogs.ft.com/the-a-list/2012/03/07/greece%e2%80%99s-private-creditors-are-the-lucky-ones/#ixzz1oY34DzHQ

“The new bonds will also be subject to English law, where the old bonds fell under Greek jurisdiction. So if Greece were to leave the eurozone, it could no longer pass legislation to convert euro-denominated debt into new drachma debt. This is an amazing sweetener for creditors.”

That’s the kind of stroke I expect the ECB will pull if Ireland thinks it can default

@Eoin

For the moment! Look what they have done to Greece under the latest deal. Restructured Greek debt to be covered by UK Law.

One further point on a day that the ECB left rates unchanged in the face of the competing forces of a Eurozone recession and pressure from the Bundesbank for a rate hike.

If anyone thinks a restrucuring can be avoided, think about what the ECB reaction will be if there is even a hint of recovery in the periphery. And think about the impact that will have on the nascent recovery and residental mortgages here.

We will be paying it all back (at some stage) according to the ECB or else default as our only option.

http://businessetc.thejournal.ie/draghi-expects-ireland-to-meet-annual-repayments-for-promissory-notes-406881-Apr2012/

BTW, I note form the front page that shane ross is surprised he understood it. That makes two of us 😉

Zhou
So having not read it you still commentate? Is that hubris, malice, folly or just plain rudeness? Here’s an idea: do as I’m doing, buy it , read it and then comment. To do else is to show yourself a churl. Honestly, the level of buck ignorance….

@ BEB

Greece got shafted. Ireland is in the waiting room.
Bondwallahs want their money back and if it comes to a default scenario Ireland will get the Greek treatment. As you wrote, nobody wants to get caught out again. The PR savaging will precede it.

Err Zhou that’s incorrect. There’s a look inside and indeed a toC. But, you probably haven’t gone to amazon either 🙂

@seafóid

There is a Stephen King book about a man who is rescued post accident by a nurse . He assumes he’s going to recover but the nurse proceeds to do awful things to him. The ECB could be the nurse.

http://en.wikipedia.org/wiki/Misery_%28film%29

See Zhou..never prejudge a boom, either by cover or worse by author.

Very good to see this bit of analysis hitting the shelves so soon after the Macroeconomic Stability Report. I suppose a lot of the ‘what ifs’ depend on the ‘what else’s’ which are about the place. The biggest domino to fall is Spain, with useful updates on this link.

If, or when that mother goes down, all bets are off.

http://www.facebook.com/pages/Edward-Hugh/103632406357698?v=wall

Hard to disagree with the Dork’s pungent assessments. We are in the grip of a plutocratic tyranny.

@Bond Eoin Bond
A question…
I see David McWilliams saying (Indo today) that the ECB took a 50% haircut on their Greek bonds.
Is this incorrect, I think it is.
Not good.

The Irish Times headline is noteworthy
“ECB’s Draghi cautious on Irish promissory note plans”

Can they not interpret comments in the IT. The reality is Draghi told us to p off…..
“He offered no direct comment on talks between the Government and the EU-IMF troika to replace the promissory notes with EFSF or ESM bailout fund bonds, saying he was simply taking note of the deferral deal.

He described that initiative as a “completely Irish operation” and said the bank believes the Government “has very good chances” to return to private debt markets. “We expect that future redemptions will be met according to the schedule to which the government has committed itself,” he said.”

In other words..borrow the money and pay it back on time.

@Seamus

I have enormous respect for what you write and your work which follows common sense lines and adds up and is not sensationalist. Some of the other contributors to this publication leave a lot to be desired when they put pen to paper which somehow they think makes them Gods!!!!

@Longtail

Are you on the sauce?

@Ceteris

“……The reality is Draghi told us to p off…..”

Or maybe : The reality is Draghi told us he was p….d off

Either way I am pretty sure one “team” was told to “p off” sometime over the last ten days and it would not surprise me if it was the Frankfurt team currently being managed by an Italian.

I also would not be surprised that a Limerick lad was not the only one “re-emphasising” the “suggestion” last week in Copenhagen. 🙂

@Livonian

I suppose you could say he was negotiating with himself..
“He described that initiative as a “completely Irish operation”

The Irish have always behaved like badgers at official and elite levels. It is among the main habits which prevents reform in the country. It also helps explain the perverse interest in the misfortune of other nations rather than rectify the local potholes. No mirrors at home.

There is no way back. Standards of living have fallen for the unemployed and many in the private sector. The idea that similar change in circumstances can be staved off by jobs for life in the public service and the butter of FDI is wearing thin. But it is part of the culture of entitlement.

The government has not faced up to the impact of the drop in living standards nor that it will persist. It can be managed, but only through radical action in personal debt in my opinion.

Default is great around the dinner table after a few jars, but where is the money to come from?

@docm

Yes, but the key thing is that some of us reckon Germany can and should tolerate wage rises to have labour make up lost share of GDP, because it is an ideal anti-inflationary context.

The question is, just how is this going to be allowed to happen, if at all? Leadership would have to come from popular political opinion, and there don’t seem, to be intellectual enablers in place to lead a campaign and allow that to occur.

This is why I am so skeptical of the “Fiscal Treaty opens gate / lays path ” argument – yes it does, but that is irrelevant if the target audience being pandered to doesn’t want to use said gat/path.

In which Brian Woods II shows : never drink and blog….
🙂

It’s important to remember that digital money is created whenever a bank loan is approved. And so every digital euro, or 94% of our money supply, has a matching debt.

In fact due to interest we owe more digital money than exists and so it’s impossible for every loan to go according to plan.

Defaulting is inevitable under this system. However, we don’t have to run our economy this way. We could declare digital money as legal tender which would allow us to remove current accounts as liabilities of the banking sector.

We could then remove debtors from the balance sheets of the banks without causing bank insolvency.

Greece negotiated a partial default because the creditors and their governments decided that some lucre is better than no lucre. There was blood on the streets of Athens and other Greek cities. Politicians were rescued by helicopter and armored personnel carriers. Greece has had a revolution within living memory and is quite capable of having another one. It would most likely take the form of widespread public violence with the armed forces coming in to restore order. This would be followed by a declaration of national emergency with parliament being disbanded and a military dictatorship ruling the country.

The EU, ECB EC would then be dealing with the Greek military who are not as predictable as the politicians. In other words all bets would be off.

If you can see Ireland on a similar trajectory then we could negotiate.

There are a number of scenarios that could still unfold:

1) Maintain the status quo. (most likely)

2) Pull out of the EZ and restore the Punt. (Sweet Jesus save us) (sixty percent depreciation)

3) Form a bloc led by France to set up a separate and distinct monetary union. The roadblock countries could remain in the EZ namely Germany, Finland, Austria, Holland, Slovakia. ( preferable to 2) (33% depreciation)

4) Throw Germany out of the EZ. ( The threat alone should bring Merkel to her senses) (20% depreciation)

I am not a betting man when the circumstances are uncertain. If I was I would bet on #1. Like rabbits frozen in the glare of the dazzler, that is our leadership.

“Debt, Crises and Default from a Parliamentary Perspective” and
“A Politician’s Perspective on Debt and Default”

This is just redundant

@ rf
+1

There is nothing wrong with debate on any financial crisis topic.

A topic such as this is of course likely to be much more popular than one on internal reform.

This book maybe different but usually when other country examples are cited, inconvenient facts negating the comparison are seldom cited. Soya beans, fish for anyone?

Finally, most of the contributors appear to be in cushy positions (with those platinum-plated pensions) or are well-off.

Would the mayhem that would follow a unilateral default risk any job lesses in the thousands of firms that have survived four difficult years or is that an academic question?

@ Longtail

Thanks for the advice Mr/Mrs Troll.

As for your asinine comment, Seamus Coffey opened this thread presumably to generate some general comments and the announce the publication.

It had been launched on the previous evening.

Given the other ignorant comment that you made above, if not a troll, then you are in the wrong place.

Michael H
jeezely crow…defensive or what? It was and is on amazon/nook etc. Which is downloadable. Gosh, your touchy aren’t you?
To reiterate: you comment without reading and scorn the authors for their origins. That is pre-judging. And you call me a troll? Zhou had the grace to go “Err, yeah, ok…” and thats what debate is about.

@ CP

“I see David McWilliams saying (Indo today) that the ECB took a 50% haircut on their Greek bonds.”

Here’s his paragraph:

“The hardliners at the European Central Bank, who are obviously in the ascendancy now, would baulk at the ECB being involved as a broker in such a debt restructuring. But then again, in Greece, the ECB took a massive 50pc-plus haircut on its exposure to Greek bonds. So stranger things have happened.”

Your gut instinct is correct – he’s making this up. ECB have not taken any “haircut” on their exposure. All they’ve done is say they’ll give back their profits (they bought at an average of 70 cents, and they will be repaid at par) to the national governments, who can then decide what to do with the money.

The effects of default on internal reform might be an interesting one.

As far as I can tell, the unilateral default ship sailed when we renewed the guarantee. It may have even sailed before that with the ELGS.

The question that interests me is what to expect if we do end up in that situation. The biggest known unknown at that stage is whether we will exit the euro.

My expectation is that we won’t act unilaterally. We are in a managed default situation as it is. We are slowly signing away our assets and rights. This process will decelerate if we start to recover. This will accelerate if things get worse. Such acceleration will turn into a quantum shift if we actually default, i.e., restructure or experience a credit default event. We will sign away everything in the hope of working our way out of it.

This to me is the short view. The long view has more serious and bigger threats which Irish politicians and mainstream journalists have not contemplated in any detail, viz:

A. Inevitable shringking of incomes and living standards (for the 99%) in a globalised economy.

B. Inevitable high levels of unemployment in a technologically advanced and technologically convergent globalised world.

C. Global Food shortages. This is a major issue in circumstances where we are losing our sovereignty through bilateral arrangements rather than through EU integration.

D. The Energy Crisis.

E. Liklihood of global political instability due to A, B, C, D and the decline of USA global hegemony.

Is there a ban on posts over a certain length? I composed a masterpiece but it is not appearing.

… but I’d probably take 100 years at 0.001% interest only payments – on ALL vichy-banking-system related debt.

@MH

The effects of default on internal reform might be an interesting one.
As far as I can tell, the unilateral default ship sailed when we renewed the guarantee. It may have even sailed before that with the ELGS. The question that interests me is what to expect if we do end up in that situation. The biggest known unknown at that stage is whether we will exit the euro.

My expectation is that we won’t act unilaterally. We are in a managed default situation as it is. We are slowly signing away our assets and rights. This process will decelerate if we start to recover. This will accelerate if things get worse. Such acceleration will turn into a quantum shift if we actually default, i.e., restructure or experience a credit default event. We will sign away everything in the hope of working our way out of it.

This to me is the short view. The long view has more serious and bigger threats which Irish politicians and mainstream journalists have not contemplated in any detail, viz:
(A) Inevitable shringking of incomes and living standards (for the 99%) in a globalised economy.
(B) Inevitable high levels of unemployment in a technologically advanced and technologically convergent globalised world.
(C) Global Food shortages. This is a major issue in circumstances where we are losing our sovereignty through bilateral arrangements rather than through EU integration.
(D) The Energy Crisis.
(E) Liklihood of global political instability due to A, B, C, D and the decline of USA global hegemony.

My expectation is that we won’t act unilaterally. We are in a managed default situation as it is. We are slowly signing away our assets and rights. This process will decelerate if we start to recover. This will accelerate if things get worse. Such acceleration will turn into a quantum shift if we actually default, i.e., restructure or experience a credit default event. We will sign away everything in the hope of working our way out of it.

@DOD

It was more cormac McCarthy. Cold, spare and bleak.

This to me is the short view. The long view has more serious and bigger threats which Irish politicians and mainstream journalists have not contemplated in any detail, viz:
(I) Inevitable shringking of incomes and living standards (for the 99%) in a globalised economy.
(II) Inevitable high levels of unemployment in a technologically advanced and technologically convergent globalised world.
(III) Global Food shortages. This is a major issue in circumstances where we are losing our sovereignty through bilateral arrangements rather than through EU integration.
(IV) The Energy Crisis.
(V) Liklihood of global political instability due to I, II, III, IV and the decline of USA global hegemony.

@Zhou

Objective Realism then ….

http://www.google.ie/search?q=munch+%22The+Scream%22&hl=en&lr=&as_qdr=all&prmd=imvns&tbm=isch&tbo=u&source=univ&sa=X&ei=N3x9T7PIEJGLhQeIzvS-DA&ved=0CD4QsAQ&biw=1280&bih=599

@ zhou “We are in a managed default situation as it is. We are slowly signing away our assets and rights. This process will decelerate if we start to recover. It will accelerate if our finances deteriorate further. ”
+1
Simply a debtor slavishly servicing debt, with liquidity support from the creditors preventing default on unsustainable debt. The debt service programme is not there to “rescue” Ireland. You are right – if there is recovery, there will be increased debt service extraction. That’s how it works. Recovery (or even preventing social unrest) would simply be a welcome aside for the creditors as the chances of recovery of their money is thereby increased, which is their primary objective.

The difference between the Yeahs and the Nays is that the former thinks Ireland Inc. is a viable “going concern”, in a kind of Receivership, capable of servicing its obligations, while paring costs, and looking to relaunch itself as a smaller version of what went before. The latter see Ireland as being in Examinership, where the main emphasis shifts to credit recovery with run down of assets, and ultimately a selective, agreed default.

Mickey – just posted it on Philip’s Corset Thread

ECB – Lender of Last Resort to Sovereigns … must be daydreaming of Amen Corner!

Sorry I was comparing feb & march figures & pasted the wrong figures ..silly me.

There were 10,581 new private cars licensed in March 2012, compared with 12,390 in March 2011, a decrease of 14.6%.
The number of new goods vehicles licensed in March 2012 was 1,155 compared with 1,179 in the corresponding month last year – a decrease of 2.0%.
The licensing figures also show that:
In March 2012, the total number of all vehicles licensed was 17,171 compared with 19,307 in the corresponding month last year – a decrease of 11.1%. See Table 1 below.
The total number of all new vehicles licensed during March 2012 was 12,568 compared with 14,483 during the same month in 2011 – a decrease of 13.2%.
In March, of the 10,581 new private cars licensed, 2,568 (24.3%) were petrol and 7,705 (72.8%) were diesel. See Table 2A below.

John McH has just issued a new article on the Indo. No doubt will be posted here for discussion. A more balanced article, at last.

One point though relevant to this thread:

“With this adjustment path, the primary balance (ie, the balance excluding interest costs) would likely show a surplus of around 4pc of GDP based on the Government’s growth forecasts. This would put the debt-to-GDP ratio on a downward path, helping to underpin renewed creditworthiness, intergenerational fairness and growth.”

You need to believe three interconnected things for this to work: (1) the Govt forecasting is accurate /realistic, which in turn depends on (2) growth, which in turn depends on (3) the international /global economic outlook.

Clearly, the Receivership, going concern, “open for business” strategy of Official Ireland is “optimistic” re (2) and (3) and hence (1).

However, this FC report is also the second time in the last few weeks (first being from CBI) that there are significant downside risks. If (3) and hence (2) take a turn for the worse (e.g. Spain is already threatening stability /outlook), then “self defeating” will increasingly materialise……and Naysayers will claim victory. Vice versa is it goes the other way. It is clear that by issuing red flag warnings, both the CBI and FC are moving a little to “the ditch”, to hedge their positions against the downside.

@Mickey
The 1970s will be regarded as the best economic decade Ireland has ever lived through on a comparative basis at least. (not the 1990s)
We were still part of the Sterling zone yet got all those fiscal transfer thingies that the Brits would never dream of transferring to us.

From 1979 we were simply in the wrong monetory zone – deflationary integration efforts in the 80s were catostrophic for this country and have done long term damage ….. from 87 they hyped up the place with credit to conceal what lies underneath.

The money supply as published on the CSO (feb2012) is showing big declines in M1,2,&3 these past few months
Is this LTRO in operation ?
It looks catostrophic.
We need CBs to print base money to promote good & service sub. – not this deflationary madness.

@Mickey Hickey

The role that the British used to fill is now filled in our own minds by the Germans and other EZ states that governed themselves responsibly.

That must be it Mickey, no European component of global financial crisis, no badly conceived EMU, no trade balance problems in Europe, no out of control financial sector. No crisis in capitalism actually. It was just that the Irish (and it must be said many many of the Eurozone countries not sharing a border with Germany.) are a profoundly flawed people.

What parochial nonsense. We are a small country on the wrong side of huge international crisis with its roots in financial capitalism and you blame what – Irish nationalism?

A little more nationalism and we would not be in this mess.

I firmly believe we are incapable of governing ourselves and that order has to be imposed from outside i. e. the EU, EC, ECB…

Perhaps you are just having a bad day but right now it sounds like you have profoundly racist, anti-democratic and authoritarian right tendencies. If so then sadly you are representative of a Europe that is more right wing and hostile to the idea of the common good since the 1930s.

@ seafóid

You’ve used this item of abuse previously and retaining the sporting context, when hurling insults, have the decency to use your own name.

Your reaction is interesting because it’s not untypical.

The impact of a default would likely be greatest on those who have been the main victims of this recession.

On people’s life/work experiences and the impact on their views, there is a reason why for example private sector pensions or the absence of them hasn’t been a priority for policy-makers. The fear that exists in a business that is close to failure has to be experienced to really understand it.

It’s not an attack on anyone’s integrity to raise the issue of range of experience in respect of an issue of huge consequence.

Why is it seen as important now that the Central Bank has an executive with a range of outside experiences compared with people who had worked in the same old hierarchical organisation for decades and then they were expected to make consequential decisions or not, using their own judgement constrained by limited experience?

@ Ceterisparibus

I see the IT reporting car sales down 8.6% with the Examiner and the Indo reporting 14.6% decrease. As did the Dork. They must have a newly appointed spin sub editor in the Times.

The 8.6% is the quarterly decline.

@ Shay Begorrah

There can always be a 101 or more reasons or excuses for a problem.

Unless we accept the major responsibility for the crash and the factors in the culture that brought the economy to the brink of ruin twice in a generation, then we will never address the problems.

It’s clear that the interest in reform at home will never match the search for scapegoats abroad.

Fantastic article on the FT site this afternoon – the essence of which is that some periphery sovereigns have been in effect issuing guarantees (can you believe it 🙂 ) to investment banks that have written credit default swaps on the sovereigns’ bonds.

What this does is partially rig the CDS market for sovs so that as perceived default risk rises, at some point, for some contracts, the contract gets dumped on the sovereign, often via local banks (can you believe it 🙂 ). The pressure for wider prices then is reduced, and the local taxpayers end up with the potential bill (can you believe it 🙂 ).

http://ftalphaville.ft.com/blog/2012/04/05/950911/the-mystery-of-morgan-stanley%e2%80%99s-footnote-unravels-%e2%80%93-part-2/

@ Dork Any CBI commentary on M1? Difficult to get a sense of it based off just nominal numbers. Velocity of money must be something they monitor very closely.

@Paul w
Definite improvement on the ground in US. Reports today of a potential glut of apartments in Washington State. Another bubble. Apparently they are shoving them up in a few large metro areas like there is no tomorrow.
Yes, there must be consequences of all that money sloshing around. Interesting that the Draghi carry trade seems to be grinding to a halt.
With Ollie saying Portugal needs more help and Rajoy issuing dire warnings I suppose even the most nationalistic banks must rein in their purchases. It will be interesting to see if the ECB has to resume sovereign secondary market activities.

@MH
Still spin..only headlining the lower number.

@Ceteis
Is not LTRO wildly deflationary ? its a mechanism to save the com. banks as tax will have to be raised to service the interest , depleting checking accounts ?
Its much more effiecent for central banks to create base money that will be spent directly
This will weaken currencies and reduce money exports over time – making domestic economies more sustainable & redundant.
The object of the exercise should be good & service substitution in a positive monetory envoirment.
Deflation is extremely inefficient as it creates a system where too much real economic activity goes to too few people causing a misallocation of resourses such as too little Garda on the beat (Bicycles ?) so that we can pay for cars causing a rise in burglary.
Think of it of resourse management.

This rail line once went to Spain.
http://www.youtube.com/watch?v=_AZ-0TG-2vs
– after the bridge collapsed in the early 70s the French never rebuilt it as too much real resourses was going to buy cheap Spanish goods.
However the French kept the line to Oloron open despite it being a not so busy route…… why was that ?
Because from a holistic national economy perspective it was not losing money despite what it said on the SNCF accounting books.

@Paul W
I don’t care to be honest – the M3 has been declining since mid 2007 but the M1 !!!!!!

@Various

As a source, I’d treat ZH with a pinch of salt (professional opinion). Yes, there’s some good stuff there now and then – the odd pearl for sure – and from some guys at the ‘coal face’ and it can be very entertaining – but there’s an awful lot of unsubstantiated crap and analysis/statements of the bleedin’ obvious on there too……

…….and I just can’t cope with all the “bitchez!” and “sell your shares for gold, guns and tinned goods.”

Avoir une bonne fêtes de Pâques…. and c’mon Leinster. A grateful client even managed to cough up a ticket – a good one too.

@Shay Begorrah

As I see it there was an Anglo Saxon (US & UK) Financial crisis which affected countries that were already unstable. Greece cooked the books, the Spanish private sector overbuilt, Italy’s Gov’t overspent and under taxed, Portugal’s poor productivity problems worsened. Ireland had been pricing itself out of the export business for a decade largely due to the movement of workers out of mfg. into construction. Our Gov’t poured subsidy and tax advantages onto the property/building boom. The distortions in Ireland of the size, price, volume and location of development activity were brought to my attention by Frankfurt development bank economists about five years before the bust. Essentially they were asking me specific questions about developments that in their eyes had no visible signs of support. We agreed that things in Ireland were headed for a bad end. These were people whose main expertise was investment in Latin American infrastructure. Where were the Irish Gov’t, CBI and domestic banks and their experts as the wreck approached.

I live in a world where four languages are used in my own house, I have worked for three national gov’ts over a dozen MNCs and vote left consistently. I am noted for my patience in bringing people around to my way of thinking in meetings where tempers flared. Authoritarian I am not. I firmly believe that every nation has the right to govern themselves as they want. Nationalism is the last refuge of scoundrels.

As for racism I am Irish with a perfect right to comment on things Irish. In Kerry we talk in terms of breed as in them Gillymuddys are a bad breed.

re- Longtail: ‘..never prejudge a boom, either by cover or worse by author…Boom=Book, bloody smartphones’

– a fortuitous error, though the wisdom is a tad retrospective…