Germany: No Deal on Ireland’s Bank Debt

Despite ratifying the Fiscal Compact by a sizable margin, which boosts the case for the Compact in other EU member states, it appears any concessions Enda Kenny hoped for on our bank debts on foot of the ratification may not materialize. Apparently any renegotiation would send a “negative signal”. From the Irish Times piece:

“We see no need for movement at the moment,” said Martin Kotthaus, spokesman for finance minister Wolfgang Schäuble.


By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

146 replies on “Germany: No Deal on Ireland’s Bank Debt”

In an alternate universe in which Ireland voted “No” in last weeks referendum, the Department of Finance would this morning be arranging emergency talks with the EU and ECB, aimed at discussing Ireland’s funding problem in 2014 where €18bn is needed to fund the deficit and repay maturing debt. Without the ESM, the country would have no choice but to default in 2014. And the talks would inevitably lead to a discussion about the two bonds that fall due for payment on 26th June at what was Michael Fingleton’s Irish Nationwide Building Society. And the brave souls at the Department of Finance would shrug their shoulders as they announced that we can’t repay these bonds when the sovereign will face almost certain default in just over 18 months. And the bonds that fall due in three weeks are representative of the 120%+ debt:GDP in 2013 being shouldered by this society which will no not move a whit after a popular vote which gives the seal of approval to a Government which has achieved SFA in the past 15 months*. Sadly in the real universe, we are back to the reality of having nothing to negotiate with, and the unchallenged hogwash spouted by Messrs Kenny and Gilmore on Friday is replaced by the German reality of “you’ve got nothing”

*The €10bn reduction in interest came on the shirt-tails of Greece and unlike Portugal, we had to cede concessions on corporate tax to get the same deal as Portugal. The €5bn “saving” in the liability management exercises with respect to subordinated bondholders came on the back of €10bn “savings” made by the previous FF/Green administration and the “deal” announced on the Anglo promissory note in March 2012 is insulting of the description, and we still await the outcome of the BofI AGM on 18th June.

There will be no serious movement on this unless the CDU are voted out of office in 2013. Enda Kenny is simply too close to the EPP to drive a hard bargain. A shift in this conservative right-of-center political alliance is necessary for common economic sense to prevail in Europe.

Oops, it’s an EGM at BofI on 18th June and the two bonds at INBS (or IBRC now) that will be paid on 26th June come to a total of €640m and they’re unsecured and unguaranteed.

Blown away so I am.

Who would have thought our strategy of hoping something comes our way wouldnt work out.

There is a line between being a good player and being the patsy. Guess what side of the line we stand on.

Cue the background drone of apologists for the financial sector, the ECB position, neoliberalism generally and Angela Merkel particularly explaining how the Fiscal Compact was never about Irland’s banking debt but was instead about

* Accepting reality, being sensible, understanding the terrible moral dilemma the Germans are faced with, working withing the existing complex institutional framework in Europe, accepting incrementalism (backwards in this case) and generally just surrendering economic control to forces outside the country because Irish people are not up to it.
* How “regaining sovereignty” is synonymous with “doing what Germany wants.”
* How banking debt has nothing to do with our little slice of the European component of the global financial crisis anyway, it is all about vested interests, excessive social welfare benefits, the Croke Park Agreement and loss of competitiveness.

I feel entitled to be negative and unconstructive, so congratulations again “Yes-sirs!”.

@Aidan R

Enda Kenny is simply too close to the EPP to drive a hard bargain.

It is not just Enda though is it?

Ideologically very little separates Fine Gael and most of the right wing of the Irish policy elite and media from the Mitteleuropean Christian Democrat view that what we are experiencing is not a crisis in capitalism per se but the failure of some countries in their commitment to capitalism. Hence the markets did not fail the people, the people failed the market. The anti-democratic impulse in Ireland and the EU is much easier to understand in this context.

Anyway, even outside those on the right in Ireland I think you could say the establishment has always understood that “European Solidarity” was something that we did get to participate in the definition of but had to conform with. The Fiscal Compact flows naturally from that, as does economic atrophy and loss of sovereignty.

One thing which has struck me in relation to Irelands position… both in negotiation and in domestic economic policy

In these negotiations, they claim to be playing the ‘long game’… Which is recognising that things are in fact far worse then what is being admitted in official European circles….. and that as things unravel, they will make ‘gains’

This is in stark contrast to their domestic economic strategy which appears to be another ‘long game’ but of hunkering down and sitting out the recession and things will be back to normal when the recovery kicks in… first in 2009, then 2010, 2011 and so on…

There can be an argument made for either of the ‘long games’ but not for pursuing both simultaneously as they are based on completely opposing view of the situation.

From the Treaty:

“POINTING OUT that the granting of financial assistance in the framework of new programmes under the European Stability Mechanism will be conditional, as of 1 March 2013, on the ratification of this Treaty by the Contracting Party concerned”.

If there were negotiations on the €18 billion funding requirement for 2014 taking place today why does anyone think we wouldn’t get it if there had been a ‘No’ vote on Thursday? How credible is the threat to default when we just have to ask for the money?

The 1st of March 2013 is still nine months away. Even after that date it is clear that our programme will not be ‘new’ and could be extended. It is hard to see how a ‘No’ vote would have allowed us to ‘hold all the aces’. We mightn’t even be sitting at the table.

As of this morning the indicative 9-year yield provided by Bloomberg reads 7.4% with the 5-year at 7.0%. The best we could hope on any return to the markets is a rate of 4.5% and something close to 5.0% more likely. As the plan is to return to the markets a 5% cost has to be built into projections.

If we had to borrow at 7.5% the additional cost on the €18 billion would be €450 million of interest a year. This is a lot of money but relative to our public finances would such an outcome be the straw that broke the camels back?

I was rather surprised at the official reaction to the outcome. The line all through was that the Treaty had very little to do with bank debt, yet as soon as the result is announced it is all about bank debt. We have seen any voter surveys (if any were done) but I would be surprised if there was a significant yes vote ‘to get a better deal on bank debt’.

The comment from the German Finance Ministry is not surprising. At present we don’t even know what ‘a better deal on bank debt’ means and John McHale laid out some possibilities in a previous post. It is hard to see how a ‘No’ vote could have helped facilitate any of those.

Ireland’s gross general government debt is forecast to peak at 120% of GDP in 2013. Because of Italy this has been choosen as a sustainability threshold for public debt in the eurozone. All the efforts on Greece were about getting to a situation where the Greek debt would be 120% of GDP in 2020 (even if this is only likely to occur in their spreadsheets).

If Ireland is to get any concession on bank debt it would have to be clear that we are going to break through this artificial threshold (or can make some irrefutable arguments that a lower threshold should apply for Ireland). At present this is not the case so the German Finance Ministry sees no reason for such concessions.

One thing about this crisis is that “nothing can happen until it happens”. So the line is “no bailouts” until there is a bailout, “no PSI” until there is PSI, and also “no deal for Ireland” until there is a deal for Ireland. The statements themselves are not that significant and merely reflect official projections at the time they are made.

If Ireland’s debt ratio does not stabilise, an improvement in the terms on the IBRC funding (term and interest rates rather than principle) is probable. But that has little to do with last Thursday’s vote.

Thankfully Germany will not allow any reduction in the bank debts that an Irish government so recklessly agreed to underwrite.

As a disillusioned private sector employee it is likely that any write-down achieved on bank debt would be filtered back into a lecherous public sector that is bleeding the real economy dry.

What the public sector economists in the DOF/ESRI axis will not admit is the bank debt is easily affordable if there are proper steps taken to bring public spending into line with new economic realities. Germany realises this and therefore justifiably will ensure this pathetic failed state keeps its sovereign promises.


Excellent post, well said.

The bank bailout costs are clearly the most important issue facing the Irish state – without an aggressive renegotiation the government debt burden is unsustainable and the Irish state is simply not viable.

It is an appaling state of affairs that most commentators and economists in the Irish establishment, who really should know better, campaigned for a Yes vote without recognising that the state is absolutely insolvent under the current debt burden.

Sure as along as we can continue borrowing to pay the salaries of economics professors, sure we’ll be grand. Look, the government has even lifted the moratorium on public sector hiring to so that they can employ more economists. Fantastic…

What the Germans said was that there was no need to change the current loan programme agreed with the Troika. This is not such a big deal as the relevant changes could be included int he next programme.

I am not sure if that amounts to the same thing as ruling out a change on how bank debt is managed.

I don’t think there is any point in getting over excited just yet. The signs apart from that are generally positive with Draghi and Rehn both backing an EU banking union.

However, it does amaze me how quickly one can always find a German official, spokesman or politician to make a absolutist negative statement. One wonders what status all these politicians and officials have.

No flip plop spineless disintegration from the Germans, no wonder we are surprised, we revel in populism and create our own parallel universe where the righteous Irish live. Time to invest in one of these!

Germany said this morning….you are not getting a deal because this would create moral hazard and double the bailout programme. Full stop.

We may have bigger problems to worry about than what Germany will or won’t let us do.

Walking into work this morning, all the indications are that the Swiss lifeboat is getting ready to sail now that most of those who need to be saved can be saved. You think the value of the CHF was artificially kept down against the Euro in recent months to help Swiss exporters? That was a good one.

Once the lifeboat has been boarded and departs, the curtain goes up on the final act for the Eurozone. It will be interesting to see how it unfolds. Lots of money printing to kick off with I presume.

It always struck me as funny how if China put artificial limits on its currency it is called a “currency manipulator” but if the Swiss do, then that’s just fine and dandy.

Bankers really will deal with anyone – even the scum of the earth – just so long as they can make money out of them.

I hope that after the event, someone somewhere can get hold of a list of everyone who sent their money to Switzerland in the past year.

@PR Guy
You don’t have to send it to Switzerland …just buy a few of their 10 year bonds
And you will get 0.48% return this morning.

I recall chatting with somebody in Australia in early 2004 who was buying silver direct form the mines to preserve theri wealth. The reason they gave was that the derivatives which were being traded were pure hokum and would lead to a global crash.

That person pointed to the Germans’ decision to allow such derivatives to be traded in the finanacial markets Frankfurt (I think it was Frankfurt anyway). They said that the Germans had been the only bulwark of common sense up to that point.

Correct me if I am wrong, but one of the reasons we had such a credit bubble coupled with so much systemic risk is that the finaincial markets in Frankfurt, London and Paris allowed these derivatives to be traded. Without the derivatives it would have been much easier to cut bad banks loose. Ireland may not have been forced to save Anglo.

Is there any merit to our promoting this narrative in Europe or are we fatally compromised by the existence of the IFSC?

“financial” is causing me particular trouble today.

In the meantime, I suggest a campaign of civil disobedience whereby everybody puts at lease three typos or mis-spellings in each post in protest at the lack of an edit function 🙂

It still bothers me that I typed “epitomy” instead of epitome a few weeks ago. It is cruel and unusual psychological torture.


It still bothers me that I typed “epitomy” instead of epitome a few weeks ago. It is cruel and unusual psychological torture.

I feel you’re pane.

“Kevin Donoghue Says: Is anyone actually surprised by this? If so, why is it surprising?”

Exactly. How can anyone be surprised by this? And if we do need another bailout, does anyone actually think we’ll get it on anything like sustainable terms?

Voting no would have forced some sort of discussion about accommodations. Voting yes only says that the economy isn’t bad enough yet for the Irish people to be angry.

I see that most of the economics lecturers that voted “Yes” are still spoofing or have not recovered from the celebrations yet.

“Ireland is considered a model student at the moment, so you would have to think of the consequences of such a renegotiation, which would in effect double Irelands bailout program”.

They know that Ireland has not taken the austerity medicine yet and won’t be happy until those that are funding the black holes are earning more than those that are living in them.

Kenny now tells us there will be no “decision” on Irish Bank Debt in June because of “Greek and French elections, spanishp banks etc….” why must our subservient politicians always wait for the emergence of new flag bearers or the spread of malaise elsewhere before we are willing stand up for ourselves. We are like scavengers in the wild waiting for someone else to deliver the blow or simply drop dead before we can get our dues…


“The introduction to the Treaty states that countries that want to get funding from the EU’s new permanent bailout fund – the European Stability Mechanism (ESM) – will only have access to that fund if they ratify this Treaty.”

A “No” vote would have meant the Dept of Finance had something to talk about today. Instead they can whinge for Ireland about ethics (“it’s SO unfair”) and economics (120% debt:GDP is unsustainable, but then again so is Italy’s, Greece’s and soon Portugal’s and perhaps even Spain’s)

So they can phone the ECB/EU this morning but they have nothing to negotiate with. If the “No” vote had passed, they could at least have talked about default as in “the Irish people have spoken, the Fiscal Treaty makes it clear we will only have access to ESM if we passed the Treaty, so with no ESM access and default looming in 2014, we’re not going to pay unsecured, unguaranteed totally bust banks today” Pull at that thread and very soon promissory notes would also have been on the table, as bondholders would have sued IBRC on 27th June, and the only way to stop them being successful would have been reneging on the Prom Notes.

The people have spoken and that should be respected, but it just gets under the skin to hear leaders claim the vote has strengthened our hand in negotiating a bank deal.

Richard M
“As a disillusioned private sector employee it is likely that any write-down achieved on bank debt would be filtered back into jews that are bleeding the real economy dry.”
reads a bit worse now dont it?
guess you never had a child educated, a relative nursed, a crime committed upon you , a need to drive on a road, a need to fly from an airport and dont NEED a public sector.

@ Jagdip

The Treaty doesn’t say:

“The introduction to the Treaty states that countries that want to get funding from the EU’s new permanent bailout fund – the European Stability Mechanism (ESM) – will only have access to that fund if they ratify this Treaty.”

That is just an interpretation and it seems to leave out some pretty significant elements. The Treaty we voted on actually says:

“POINTING OUT that the granting of financial assistance in the framework of new programmes under the European Stability Mechanism will be conditional, as of 1 March 2013, on the ratification of this Treaty by the Contracting Party concerned”.

While the preamble to the ESM Treaty, in which it will be applied, says:

“It is acknowledged and agreed that the granting of financial assistance in the framework of new programmes under the ESM will be conditional, as of 1 March 2013, on the ratification of the TSCG by the ESM Member concerned”

The quote from the Referendum Commission makes no reference to the word “new” or the date “1 March 2013”.


It is one thing to play the default card when the rest ofthe world is solvent and stable. It is another thing altogether to start bandying around when there is grave political and economic stability within the EU. The “threaten to deault” ship has sailed to a large extent.

The fact that we voted Yes means we cannot politically and possibly legally take whereby we take a course of action which could lead to us being forced out of the Euro. This is a significant option to lose in my book because leaving the Euro as early as possible may well turn out to have been the best option available to us.

However, the fact of the matter is that we would not have had a negotiating position as there is no willingness to compromise. (Certainly, our negotiating power would be paltry as compared with Spain which could refuse to take on its banks’ debts.) What we would have had is an option/choice.

We have given away that choice on the basis of an act of faith. All acts of faith so far have yielded little. However, things may change as the governments turn and the EU political tectonic plates push up against each other.

Should have been: “It is another thing altogether to start bandying it around when there is grave political and economic instability within the EU.”


Why would a rational country pay unsecured unguaranteed bonds at a bust bank in June 2012 if in January 2014, that country was going to be unable to repay sovereign debt?

If that country was in a bailout then the country might be forced to pay the bonds at a bust bank in June 2012 if the bailout agreement included such a term. Our bailout doesn’t.

So this morning, our Dept of Finance would have had something to talk about with the EU/ECB. Instead, their calls probably go straight to ansaphone at organisations that are getting visibly fed-up with the Irish whingers.

“A source at the G7 has told Reuters that today’s G7 conference call is likely to turn into a “Germany bashing session”.”

Maybe Enda can hack in and give her a bashing for us…


I think you are confusing cause and effect.

Irish bond yields will remain at 7%+ until our debts are sustainable. Our debts will not be sustainable until the total burden is under 100%.

Italian debt may have been a benchmark in 2010, but events last year have shown that this is no longer the case. Without LTRO, Italian 10 year yields would be comparable to Irish. The evidence from the market is that debt of around 100% is the limit at which the bond markets will lend to a EZ state – just contrast the yields of Belgium and Italy in the last year.

To say that the fiscal compact was totally unrelated to the banking crisis is either naive or obtuse. By ratifying the treaty we have bought into the Germanic narrative of the crisis. We are in the middle of a massive financial and monetary crisis and to concentrate on the fiscal symptoms is plain stupid, unless you’re German and you have no incentive to change the status quo.

The fact of the matter is that nothing will change unless the German and EZ politicans are forced to stare into the abyss of a Euro break-up. An imminent Irish default, as Jagdip outlined, would have concentrated minds and precipitated a change of course. Now we can look forward to 10+ years of ESM funding, a loss of sovereignty and continued depression in the domestic economy.

Can we not stop beating around the bush?

As Brian Lucey, who I still respect despite his YES endorsement – grin-, once said in an updated version, “the heirs of Richelieu and Bismark against” Noonan and Kenny…. right!

It is a coup d’état, and Noonan’s attendance on the latest Bilderberg meeting, well, make up your own mind, but the next chapter is already written, and Europe will be transformed by force now…. THIS YEAR… mark my words!

The very same people who are at the wheel since 2007 will enforce this.

@ Jagdip,

One must assume that the rational country is of the view that it will be able to repay its sovereign debt in Jan 2014.

Ireland is a country that has €8.2 billion of sovereign debt maturing in January 2014. Yesterday that closed at a price of €95.64 and a yield to maturity of 6.94%. As recently as the end of April the yield was around 4.8%.

The change is largely the result of external rather than internal developments. It is clear that there are significant doubts that the Jan 2014 bond will be repaid, and these have increased in the past month, but the weight of probability is still that it will be repaid.

We know the terms of the programme for financial support provided for the state by the EU and IMF. This does require “the non-accumulation of external payment arrears by central government” but it is not clear that this includes bond repayments by state-owned banks. I do not think it does. We do not know the terms of financial support provided for the banks by the ECB but I’m sure our guesses would be pretty similar.


Would tend to disagree with you here.

If we had a “No” vote then the NTMA, S&P and for what little it’s worth politicians indicated that this would have a negative impact on our bond prices. How negative? The market might think there is a modest probability of default with a “Yes” vote which is supposed to gain access to the ESM, but that doesn’t tell you what a “No” vote would have meant. The worse the market reaction, the better Ireland would be able to argue that it faced default and in such circumstances it would be lunacy to pay unsecured, unguaranteed bonds at a bust-to-blazes bank

A rational country would indeed pursue strategies which allowed it to avoid default as long as the debt was sustainable. A rational country would pursue strategies to achieve a debt write-down – preferably agreed – if its debt was unsustainable.

I think we disagree on whether our debt is sustainable or not. I see the DoF has a new definition of “sustainable” and that is that is debt which can be shown to be reducing. And the latest Dept forecast shows debt:GDP coming down to about 115%+ in 2015 from 120% in 2013.

I don’t think our debt is sustainable.

Deal on banking debt for Ireland

Direct recapitalisation of Spanish Banks

Eurobonds for France

What all three countries are requesting is some form of capital transfer (or to be more precise in the case of Ireland and Spain, non repayment of a capital transfer that has already happened).

Hard to see how to dress this up in anyway that is acceptable to the Germans except if they have to make a choice:

Germany gives money to periphery/everyone


Eurozone ceases to exist

It is amazing that on serious blogs like this we still try to dress everything up like it isnt a transfer payment!


Was there not a transfer from our citizens to other countries when we guaranteed the debts of the Irish banks to implement EU and G20 policy not to let any possibly systemic bank go to the wall?

@philip II

“Richard M
“As a disillusioned private sector employee it is likely that any write-down achieved on bank debt would be filtered back into jews that are bleeding the real economy dry.”
reads a bit worse now dont it?
guess you never had a child educated, a relative nursed, a crime committed upon you , a need to drive on a road, a need to fly from an airport and dont NEED a public sector.”

Does it really assist the image of the PS if arguments, perhaps exhibiting more than a hint of irritation, about pay rates are met with OTT responses? I don’t think anyone imagines the comment you mugged from RM above carried any implication that PS workers should be thought of as less than human in order to prepare public opinion for them to be murdered in their hundreds of thousands.

It would be just as silly and twisted to re-write it the other way:

“As a disillusioned private sector employee it is likely that any write-down achieved on bank debt would be filtered back to the mafia that are bleeding the real economy dry.”
reads a bit not worse now dont it?
guess you never had business rival blackmailed, a relative appointed to a second fake job, a crime you committed not investigated , a need to drive on a road in a stolen car, a need to fly from an airport without your luggage being checked dont NEED an organised crime syndicate.”


re: It is amazing that on serious blogs like this we still try to dress everything up like it isnt a transfer payment!

How about letting the Spanish banks fail. Let capitalism take its course. Would that involve a transfer?
Spains debt to GDP would remian lowere than that of France or Germany.
Does not the policy of ‘ no bondholder left behind’ involve the greatest transfer of public monies to investors that has probably ever happened in democracies in the last few centuries?

I agree that the debt load is unsustainable. Rogoff and Reinhardt in their study say that anything over 90% results in a growth cut. So with virtually no growth, our debt load of 120% next year would appear to be in very dangerous territory.
That is why our bond prices are unsustainable even after the pillars invested a few billion.
Btw, I see our investment in the AIB pillar is sinking….down about 20billion in a few months.

You may find it OTT, grumpy, but there can be no denying that there is a propaganda campaign against the public sector in this country, echoed by the likes of Richard M, and that uses language that bears more than a passing resemblance to certain kinds of anti-Semitic discourse: e.g., an ideological rhetoric of the PS as parasitical on the “real,” vital forces of society. Were the same rhetoric used on any other group in Irish society, it would be unacceptable.

As a result, a certain portion of the population has become convinced that all of our problems are the fault of the public sector and can be easily solved by simple cuts to public spending. Welcome to the Inverted World: “We could easily pay off the odious bank debt owned by wealthy bondholders and illegitimately foisted on the Irish people if only we weren’t saddled with public services that benefit Irish people.”

This propaganda campaign has everything to do with the triumph of the Yes side in the referendum.

Looks like the G7 conference call produced zilch…they agreed to cooperate on Greece and Spain and it seems nobody bashed Angela…

Far more worrying
“The parliamentary leaders of Angela Merkel’s Christian Democrats and the opposition Social Democrats are both in Brussels today. They have both urged Mariano Rajoy to hurry up and ask for help while stressing that the rules can’t be bent.

Volker Kauder, the CDU’s parliamentary leader in Berlin, said there was no point in discussing any other kind of help for Spain.”

How long will it take for Spain to capitulate?

It looks as though Spain is doing what nobody knows whether Ireland did – ie stating that it doesn’t think it appropriate for it, the state, to make gifts to bank creditors by using state funds to recapitalise them.

If, as a result of the posturing by Spain on the one side and Germany on the other, there is an agreement reached whereby Spain has its banks’ creditors bailed out by gifts of recap funds from the ESM or EFSF, then the question of whether or not Ireland acted voluntarily in
a) guaranteeing and
b) recapitalising its banks using Euros it borrowed in its own name, using its own sovereign signature, from the ‘official creditors
may be pivotal in the argument that Ireland should get the same deal retrospectively.

Is Ireland going to be in a position to produce evidence to its EZ partners, their electorates, and the wider financial audience aka ‘the markets’ to show that Germany and the rest of the core are obliged to make gifts of billions of Euros to the Irish state to cancel out the gifts the Irish state [was forced to make?] made to those bank creditors.

@ Seamus

Moody’s rates Ireland’s sovereign debt at Ba1, or junk status. So they obviously are not buying your arguments.

There are excellent reasons for that rating. I certainly believe it is appropriate and if it was even vaguely sustainable it would not be rated Ba1.

I think you equate sustainability with a type of zombified economy one that is not growing but declining while appearing to sustain itself, as things worsens on more debt. Interest on this debt our contributions to ESM and our funding of unfunded pensions not to mention 40% of many salaries are being funded by debt and this is what most economists have argued for to their shame. As government tries to reduce debt to GDP to 3% and and then .5% it will find itself chasing its own tail.

God knows, at this stage, how many business people I know who are subsisting on hope, depleting savings and dreading having to ratchet up redundancies. I also know people who are, believe it or not, building apartments right now. When I told them they were mad they shrugged and said “but we need the work!” They would rather be doing something, anything, but what they are doing is going to make things decidedly worse in a short time.

For clarification – I am not a defender of the German position (far from it).

We are seeking a capital transfer though. Whether we deserve it / they should do it etc are different questions.

Some comments on the PS need to be separated from each other. It is a fact that all public service payments are in aggregate, more than the revenue raised by taxations. These two MUST be brought into balance. That is going to prove so difficult that it may take multiple government admins (like the 1980s) to achieve it. It will happen, but it will be a Pyrrhic victory for some folk. And Mr Growth has been taken into Rehab – so no help there.

There are three parties to the PS issue: the Gov of the day; the union leadership, their rank and file members and the non-unionized employees. The first two parties are living in la-la land and will have to be brought to their senses – if this is even possible. The other two parties need enough take-home to live on.

The major reductions needed in PS pay and pensions may have to be achieved with high taxation bands. Gov will have to severely curtail all the services (number and cost) it buys in. That will be interesting. But the real crunch may come if Gov has to impose duties and VAT on ALL commodities and eliminate ALL allowances and deductions on personal incomes.

If I was a government minister proposing these sort of measures, I would not vote for me! Interesting times ahead.

re- Zhou

There is nothing to prevent Ireland at any point from decideing to leave the euro, even now.
Whatever side you fall with regards to consequences, it can be done.
All of the treaties are revisitable (in a unilateral withdrawal sense) in a Republic.

Let’s look on the bright side ….

Angela has proposed a centralised EZ banking union supervision – and is sympathetic to Lorenzo Bini-Smaghi’s [see his FT piece] lobbying to head up such a supervisory body …

Two thirds of ‘the Troika will be Thrilled’ to borrow a phrase from Student of “Q” and DOCM will make up the difference on the blog. Happy Days! (for others)

FYI Der Spiegel International [good graphic on Ireland’s DECLINE

Banking Woes
Ireland Still Long Way from Overcoming Debt Crisis
By Christoph Pauly in Dublin

Irish voters have approved the fiscal pact in a closely watched referendum, to the relief of European leaders. But the country is still a long way from solving its debt crisis, and its banks will soon need additional billions in fresh capital. ……..
Illusory Confidence

In 2010, the European Union had to support the country to the tune of €67.5 billion ($84 billion). Ireland’s local banks had gambled and lost on real estate loans, and had been bailed out with comprehensive state guarantees. Soon thereafter, the Irish and their fellow Europeans throughout the continent had great hopes that the worst was over. Recently, the Irish were considered a paragon for the entire euro zone. In 2011, the economy even grew, albeit only by 0.7 percent. But such confidence proved illusory.

As things now stand, Ireland will have to be bailed out a second time. The banks have proven to be a bottomless pit. They have to be recapitalized once again. The previous write-downs of the 10 largest consumer banks, amounting to €118 billion, are still not enough.

We see ever Tom, Dick and European Harry interviewed on Der Spiegel and Bild … yet all we see in influential German meedja from the Irish is silence …. where are the interviews explaining the reality of Irish situation on either Press or German TV – the Gov’s communication strategy to the EU public sphere is dire …. Where is the Tanaiste? Where is Lucinda? Read this and find the lucinda_izm … and weep!

The advanced country members of the G-20 (total of 19 countries) will have a gross debt GDP ratio of 116% in 2015 – – up 6% from 2012; the emerging economy members will have a ratio of 30% – – down 7% from 2012.

So saying Ireland’s official debt ratio of 115% GDP rather than GNP will be unsustainable maybe right or maybe not but we will not be an outlier in the rankings. The US is forecast to have a level of 112%.

So here we get to an interesting issue.

We’ve had 3 threads opened here since Sunday and all dealing with what Germany should do. It’s a similar story with the newspapers.

Debt terms may be eased over time, but there are several countries in the same boat. The narrative about bank debt is a simplistic one.

Germany of course has a crucial role in resolving the Eurozone crisis. However, economic growth in a country such as Ireland cannot be fully engineered in Berlin.

Ireland produces little itself but it has a general high standard of living for now.

Compared with the 1980s, the global market is much bigger and in the past two decades competition from Eastern European countries hit the sclerotic economies of Southern Europe hard.

In the 1950s, Western Europeans worked the equivalent of almost a month more than Americans. By the 1970s, they worked about the same amount. Today, Americans work a month a year more than Dutch, French, Germans, and Swedes, and work notably longer than the less well-off Greeks, Hungarians, Poles, and Spaniards.

However, Nordic countries, show it is possible to innovate, raise productivity and maintain generous social welfare at the same time.

Finance minister Noonan repaid the unsecured, unguaranteed bonds of IBRC and AIB this year. In total (if I am not mistaken) it was just shy of some 3 billion euro. This is the same as the amount that was taken out in tax increases / spending cuts in last years budget. The argument for repaying for the bonds was that we would get a better deal on the promissory notes / banking debt if we were seen to toe the line etc.

It is now abundantly clear to me that this was nonsense of the highest order. No deal has been forthcoming with Germany saying that a reduction of interest rates to Ireland would ‘send the wrong signal’. Wrong signals indeed. So it quite okay for children in schools in Cork to faint because of malnutrition, it is quite okay for vicious cuts to healthcare, quite okay for cuts to autistic children’s education services, quite okay that families with handicapped children are being deprived of respite services, just so long as we send the ‘right’ signals.

We had the misfortune to be led by one of the most incompetent and corrupt governments since the foundation of our state during the finanacial crisis. It seems to me, that all we have done is replace one bunch of crooks with a bunch of cowards.

If as a country we do not stand up for ourselves and take ourselves seriously, then we cannot expect anyone else to.


“There is nothing to prevent Ireland at any point from decideing to leave the euro, even now.
Whatever side you fall with regards to consequences, it can be done.
All of the treaties are revisitable (in a unilateral withdrawal sense) in a Republic.”

Without wanting to be offensive, you couldn’t be more wrong.

Ireland and all other countries must abide by the rules insofar as is possible. If it becomes impossible then you may get some absolution.

The Treaties are a one way street. Or, to spectacularly mix metaphores, the Treaties are a one way street made up of lobster pots. We have agreed to amend our sinstitution to give EU law SUPREMACY. EU law says there is no way back.

Apart from the legal position, the political and economic reality is that the population have effectively agreed to ESM. Therefore, any move to exit the EZ while ESM is available would be seen as a grave betrayal of the rest of the EU and possibly the rest of the western world.

If we want to be sued, to have national assets located abroad subject to seizure, to lose access to the common market and to be subject to sanction and fines which may be enfirced by force, then we can leave whenever we want just like the southern states were allowed to leave the USA.

However, if we want to stay in the EU but to exit the euro then it must be because we have been forced to do so because our banks have frozen. In such an event we would likely be allowed to remain in the EU and outside the EZ. I that case we would not have wronged anybody politically even if we had wronged legally.

@ Actuary,
“Germany gives money to periphery/everyone
Eurozone ceases to exist”

I’d suggest a third option – QE. It breaks the direct link to Germany paying and could possibly be a free option.

From Der Speigel posted by DOD above:

“As things now stand, Ireland will have to be bailed out a second time. The banks have proven to be a bottomless pit. They have to be recapitalized once again. The previous write-downs of the 10 largest consumer banks, amounting to €118 billion, are still not enough.”

“…have to be bailed out a second time”…for who and for what purpose?

Lorenzo Bini Smaghi as head of new EU Bank Regulator??

Would he continually veto bank resolution? Shag that for a game of soldiers.

“Germany gives money to periphery/everyone”

Germany could stop going via the periphery and get someone else to pay for all the bust banks. It’s inefficient to route the payments via the sovs, not to mention lethal. If the banks were routed into debt for equity swaps Germany wouldn’t need to do anything.

@ Peter

“It seems to me, that all we have done is replace one bunch of crooks with a bunch of cowards. ”

What policy action did the current Government overlook? What options were left on the table?

Enda is not a leader of men, so the idea he might have persuaded Germany to a deal on bank debt is laughable.

From, “Mr Shatter denied the remarks from Germany were a rebuff to Ireland”.

Rebuff? More like a child being told to shut up and go to its room while the adults decide if you can get any more pocket money.



“It still bothers me that I typed “epitomy” instead of epitome a few weeks ago. It is cruel and unusual psychological torture.”

It just proves that you know the pronunciation…..I heard Govt. Ministers saying epy..tome[rhymes with home]….??

and so many teachers too…just wait til 214

Watch out for the Men in Black
5 June 2012 Presseurop ABC

They call it a rescue, but in reality it is a kidnapping; they take over the sovereignty of the nation concerned and wire it up to shock treatment, until the now-happy patient relaxes a little. They are the Men in Black, the flying emissaries from the dreaded EU troika, the commissioners that Merkel sends to impose her airtight budgetary discipline. It’s a pitiless brigade whose presence always sparks panic in governments when things start to go the way they are going in Spain.

Starting with pensions and unemployment benefits, they move on to taxes and civil service salaries and end up selling off all the assets that can be bought. When they finish, they leave the economy burned to the ground and politics mowed down to stubble, and depart arm-in-arm with the patient brushing the dust off their shoes. They may be able to clean up a nation that has sunk, but if there is any possibility of recovery they will leave it buried it under the rubble.

Waiting for Spain – Waiting for Godot …

@Michael H

Using the example of the G20 countries’ debts to benchmark Ireland’s is misguided, to put it mildly.

Japan, the 3rd largest economy in the world, has debts in excess of 200% of GDP, yet it can borrow at rates that are amongst the lowest in the world – strange, eh? Similarly, the UK has higher debt than Spain and a higher deficit than Italy – compare their bond yields and go figure.

Of course, the UK, Japan and the US have their debts denominated in their own currency and can inflate, depreciate or print their way out of any debt burden. Investors know this, but are either indifferent (have liabilities in the same ccy) or are hedged (FX or inflation).

The problem with Spain, Ireland, Italy and others is that we have our debts essentially denominated in a foreign currency, much like most developing nations. If you compare bond yields inside the EZ you get a much better idea of what is and what is not sustainable.

Both Belgium and Italy have low deficits, but one has debt of just under 100% of GDP and can borrow at under 3% over 10 years. The other has debt of 120% but can only borrow at 5.6% despite massive support from the ECB. Seems like maybe 120% is not the magic sustainability ratio it was 2 years ago?

Ireland’s debt will top out at about 120% of GDP (in the optimistic bailout scenario), and our debt to GNP figure, which is a more appropriate measure for us, will be over 140%. On top of this and unlike Italy, we also have massive household debt and when the ECB starts to raise rates again it will exacerbate the current mortgage repayment crisis. And finally, while Italy is too big to fail and can rely on support from the ECB, the Eurocrats have shown time and again that Ireland is expendable.

There are no examples anywhere in history of the circumstances that Ireland finds itself in being sustainable. Considering all of the above, it is imperative that there is a massive restructuring of the bank bailout costs. The alternative is a 10-20 year depression and/or a Euro exit.

In mid-2005, annual private sector credit growth in the Eurozone was just over 7% while in Ireland it was heading for 30%.

Ah shur, it will be all grand at the end of the day! Somebody should have stopped us!

Trinity College economist Patrick Honohan said in 2006 that Irish banks’ borrowing from abroad to onlend to Irish residents soared from 10 to 41% of GDP between 2003 and 2005.

Davy Stockbrokers said in 2005, that over 40% of houses built in Ireland in the previous two years were lying vacant as second homes, holiday homes or unlet investment properties.

The Economist said in 2005 that rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000 and it estimated that the total value of residential property in developed economies rose by more than $30 trillion over the previous five years, to over $70 trillion, an increase equivalent to 100% of those countries’ combined GDPs.

The surge not only dwarfed any previous house-price boom, it was larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America’s stockmarket bubble in the late 1920s (55% of GDP). The Economist said that the rise looked like the biggest bubble in history.

Ireland’s Endorsement of Austerity and Other Reasons for Euro Optimism
by Jacob Funk Kirkegaard

“In a hopeful development for Europe’s struggle to stabilize its economy, Irish voters last week endorsed the proposed Fiscal Compact Treaty by a resounding 60.3 to 39.7 majority. For all the nonsensical predictions of a grass root rebellion against austerity across the continent, the striking thing in Ireland was not just the acceptance of fiscal discipline but also the low the turnout—only 50.6 percent, or much lower than usual for such balloting. Far from seething with rage and determined to send a message of rejection, large numbers of Irish stayed at home, while the majority backed the European route out of this crisis.

Not that anger doesn’t exist. But fear almost always trumps anger among rich and ageing electorates. …”

I gave up there!

The turnout was not low for these types of vote in Ireland.
Our population is not ageing like the rest of Europe. You can’t swing a cat without hitting a toddler.
Also, the Govt told people that voting yes would allow them to proceed with the less austerity than voting yes.
Practically the entire Irish elite agreed austerity wasn’t working in the EU but that voting No would be counter-productive.

Like I said, I stopped reading when my screen started whimpering for fear of what I would do to it.


We’ve had reams from Jacob Funk before … he is a little to the roight of Genghis Khan and wedded to the neoliberal ‘freedom lovin mawrket’ doctrines that allowed the unregulated dodgy wings of the financial system to destroy quite a few sovereigns …. and pauperise millions of citizens: for Jacob Funk, unlike his better known namesake, there is no ‘Existential Krisis’ – simply a leap of faith for citizen_serfs to believe in the all seeing-power of their masters in the financial system and to be grateful for the opportunity to carry its burden of dodgy debt.


“it will get access to enough Euros to pay the bills but that it must hand over its dole book. And one of the kids.”

Unlike those Greeks, who according the the majority of the rest of Europe’s press clearly go out and spend it on ouzo and fags in Lidl on a Thursday as soon as they get a tranche and then just lay around doing nothing for the rest of the week. That same press appears to portray Paddy as a spendthrift who’s incapable of making their own financial decisions. Unfortunately, I have to read a lot of that crap every day. I wonder what stereotype they will come up with when Spain gets its bailout thrust upon them? Oddly, you read very little comment (opinion) in other countries about the Portugese – they seem to fly under the radar.

Anyway, it looks like the Germans are going to say “nein” to everything at the moment (andthe Dutch seem to be rowing in behind them). They’re certainly upsetting the Spanish…. who thought that the sneaky trip to the US last week to talk to Tim and Christine would find a way around Germany.


Grate! We’ll give you a brake.

I’ll get my coat…….


Herr Kierkegaard seeks absolution ….

‘Finally, as I have described before here on RealTime, broader opportunities to impose losses on private bank bondholders under new European banking regulations will allow Ireland to get a better deal on refinancing its outstanding National Asset Management Agency (NAMA) bank bailout promissory notes. After all, these notes were issued by Ireland because its request for losses imposed on private bondholders of Irish banks in late 2010 was denied by European authorities and the ECB. The reason was their concern for systemic and national banking sector stability. Now that Irish authorities have done their homework by endorsing the Irish referendum, and Europe has introduced what the Irish sought in 2010, Europe must give Ireland a better deal. It is in Europe’s own interest to walk an extra mile to help its top performer restore full market access as soon as possible.’

Love that … ‘its top performer’ …. spose it depends on the criteria … !!!


18.1 necessary due to spanish speakers en masse de-friending from facebook!

In Ireland, a ‘deal’ on bank debt would more likely allow the banks to write down debts owed by a few of the Great and the Good, than it would translate into debt write downs for the ordinary man or woman in debt distress.

Even with a ‘deal’, the long running structural deficit needs fixing, so one wonders just how any deal would really work out.

When it comes to ‘deals’ on debt, the government has shown little or no bottle to pass insolvency legislation comparatively favourable to that of the UK.

Speaking of reality comparisons with the UK, this item of news might bring a wry smile out on a bad day.

Where is Flann O’Brien’s successor for these moments?

@The Alchemist

When things go wrong,
And will not come roight
When An Taoiseach keeps droppin de ball
When all we have is a hape o debt
Shur, a pint o plain is yer only man!

(adapted from and with apologies to Flann)

Extremely interesting and well presented.
Also how exposed are big German banks to the rubbish ‘exported’ by US pillars of finance over the last eight years?

@dave o’ donnel

The origin of the problem is national interest? However the architect of the problem to a large extent has been the institutions of the EU whose supposed interest is pan-europeanism – part of the reason for its dislocation from the people. It advocates for a country that doesnt exist

@dave o’ donnel

The origin of the problem is national interest? However the architect of the problem to a large extent has been the institutions of the EU whose supposed interest is pan-europeanism – part of the reason for its dislocation from the people. It advocates for a country that doesnt exist

The truth is not the problem – we all know the truth
Our government cannot negotiate – end of
There is a need for a revolution

The exchequer figures show spending is about 400m up on last year when it is forecast to be down 800m. The culprits are Ministers Reilly and Burton who are clearly not on top of their big spending Departments.
Until that slippage is reversed and we hit a primary surplus then we have no leverage.
Even the Greeks nearly got to a primary surplus before they gave up and stopped paying their taxes.

@ Tull
If you cut 20% off pay in each of those departments (on average) that would yield about 10% of a total saving when you take the tax intake out of it.
You would need to cut by 50% to achieve a 25% reduction.
There is scope there but it needs to be coupled with radical action on the debt.

FG are doing ok in this govt. They’re being true to form.
Labour are a thundering disgrace. They are so busy picking fights with Sinn Fein that they have left their voters in the absolute lurch.
Poor old Eamon should have gone to Specsavers – myopia doesn’t allow him to see beyond the tediously parochial. This isn’t about Shinners or trotskyists – this is about espousing some kind of vision of the future.

You’re right – we need to be leaner but we also need to start fighting tough. It is a combination of tax rises, spending cuts and selective defaults (but it will take all 3 in approximately equal measure to get through this)

How on earth can anyone in Ireland, who reads any European media, expect a deal on bank debt when the public sector wage bill is so generous?

“The culprits are Ministers Reilly and Burton who are clearly not on top of their big spending Departments.”
Shocking, that in a recession, the poor keep demanding money and dare to get ill. Better if we were to not pay them anything, and let them starve.

Omf: don’t think Philip or his moderators do “demands”. A polite email might work wonders


“The exchequer figures show spending is about 400m up on last year when it is forecast to be down 800m”.

What growth rate was the 800m based on? and what was the actual growth rate ?

The Tipperary family in this documentary are on the dole and will be for as long as sadomonetarism is in vogue!v=3300969

Look, till and his ilk DON’T CARE about these people. They use up precious resources….

re- zhou; ‘We have agreed to amend our sinstitution to give EU law SUPREMACY. EU law says there is no way back.’ etc

I take no offence at contradiction, and can even weather rabid insults good-humouredly.

I don’t deny the possibility of punitive responses; they’d be quite likely.
But the EU has evolved from what it was, and usually without the implication made explicit. There are grounds there alone for any or every portion of our ‘integration’ to end – there are international protocols that assert the right to national self-determination and independence; I imagine there being a struggle between this and the matters you mention should the matter come to a head.
As for EU law, it becomes void if we opt out of it. There are several contradictions in the current arrangement – we have our own Republic’s Constitution & it assertions on the one hand, and on the other a mass of post-its saying that the whole thing is secondary to EU law. It’s an uneasy and potentially volatile mixture, if it comes to the push.

Extraordinary situations arise all the time; look at Israel, Kosovo, etc.
And with Ireland there is no question of doubting the legitimacy of sovereignty.
We do, though, have less of a leg to stand on than other ‘territories’, they having had no input to the game that has changed it’s rules and forms at every point where we had referendal consultation. This, though, carries only rhetorical weight.

The situation of exiting is going to be arising pretty soon – the last treaty was by no means the last word & there’ll have to be another one; fairly soon, by the looks of things. FG passed the last treaty by negotiating the cheese into the mousetrap, as regards the ESM (the only negotiating they’ve ever successfully undertaken, to get back to the thread’s topic here) – I really can’t see budgetary competence being transfered as easily.
There is the apocalyptic but not unlikely possibilty of a total civil division on the matter – in the sense that a portion of the country will (with some legitimacy, I’d hold) see the situation as an attack on the fundamental of the nation, and competing administrations could arise. If even a majority such as seen in the fiscal treaty passed fiscal union, many would see it as opting out of the state which they would choose to adhere to.

Without these type of scenarios, I think the more likely eventuality will be withdrawal, with a lot of diplomatic pretense & niceties as a faced over quite a bit of bitter rancour, & then something like a staged transition, not very unlike the decades from after the war of independence on (minus civil war, with luck).
I really don’t believe Ireland is going to be the only country to consider here, either; nor merely Greece, Spain & Portugal – this is a major existential metamorphosis approaching – Hungary is already positioning itself, by the looks of things. The old eastern block will be quite a battleground.

@ Alchemist
Look at it in reverse:
What European – having read the media in Ireland could expect more sacrifices to be made without a deal on bank debt?

This isn’t rocket science you know. If a teacher earns x and they spend y on a mortgage. That leaves x-y as spendable income.

Now if you cut x and leave y you reduce spendable income . And if you really cut x and leave y you reach a point where the spendable income is unlivable on or where the house gets repossessed or both.

I find the short-termism of the Germans amazing. In one way they are right – money should not be printed wholesale. But in another way they fail to see that the solution is a mix of everything


do not expect a deal on bank debt until i) the marginal and average tax rates are in line with European averages-the former applies the latter does not. ii) Public sector pay is in line with EZ averages-it is way above iii) Social welfare rates are in line with with EZ averages-again above iv) untaxed transfers to the middle and upper classes v)the tax base is broadened-a property tax whic everybody pays. Implement all this an the deficit declines. Then go after rent seeking-most of it by the public sector and a few private professions-the lawyers having being dealt with.

When we have got everything into line with our peers, then we can go to our lower paid German taxpayer and say to him that we are reducing his pension by burning some of his bonds or reducing his current income as he pays a solidarity levy to bail us out. It is simple really

Ah but inflation is a tax on the purchasing power of the thrifty Swabian housefrau and her BMW autoworker husband.

peter Says:
June 5th, 2012 at 3:07 pm


seafóid Says:
June 5th, 2012 at 3:30 pm

What policy action did the current Government overlook? What options were left on the table?

The policy option to grow a set and say this is unsustainable and worse you (ECB) know it.

Mick McGarry Says:
June 5th, 2012 at 3:34 pm


bazza Says:
June 5th, 2012 at 4:38 pm

Spot on.

zhou_enlai Says:
June 5th, 2012 at 4:41 pm

‘Not that anger doesn’t exist. But fear almost always trumps anger among rich and ageing electorates. …”

I gave up there!’

Yeap +1

OMF Says:
June 5th, 2012 at 6:13 pm

Welcome to the Party – +1

@ all

C****t on the C***s – 3.6bln and no one responsible.

vinny Says:
June 5th, 2012 at 6:58 pm

+1 ‘the hidden hand’.

@ Eureka

+1 almost.

@ Tull

Your head must really hurt! 😉

To my mind the situation is this.

There is no need for an Irish Gov. re Leo V and Pearse D on the radio this afternoon – that level of Bolloxology would not stand at any board I have ever attended.

Unfortunately RTE does not provide a podcast of the debate.

Bottom line is this, too my mind.

The Gov. of Ireland are like a Master Gunnery Sgt. USMC (turned Salesman for IMC company) I meet in London in March this year at a conference.

Out of his depth with Flag Officers.

I note the lack of the ‘usual suspects’ on this thread – maybe they are having a busy day…………………:-)

As an Ulster man I won’t give you the usual cry from these parts – take a leaf out of Munster.

Stand up and FIGHT !!!

@ Tull
Ok – but everything is connected:
So you cut public sector pay and mortgage defaults go up
You cut social welfare and the local retailers go out of business
You raise taxes and it becomes more expensive to employ people

Everything is connected. This isn’t an easy fix. Everything has to be looked at together. We need an FDR type new deal. Everything has to be in the mix – everything, including John Corcoran’s bugbear of extortionate rents.

PS and SW are easy targets. Bankers bonuses and landlords money piles not so much.

The deal on bank debt is not an option – it’s an essential part of it.

most of the people shouting Stand up and Fight are in the bar shouting at the lads down on the pitch about to face the HAKA. They have never tackled anything tougher than a round steak and have no intention of ever being in harms way. Moreover, seeing as we are togging out against the men in black, who own the ball, we know how it will end.
Talk is cheap.

@ Tull
Yep – it is.
First thing in a this is you have to figure out what side you’re on.
I know what side I’m on

@ Tull

Been doing it since 1995 and in Paris next week maintaiining jobs in Ireland and if all goes well in next two yrs. making more ‘value added, export manufacturing’ positions in Ireland.

Talk is cheap, you are right – I am doing it.

What are you doing?

Early in the FG/Labour govt., when in their first talks with the troika, Enda (in the Dáil) mentioned that the govt. had to make some ‘hard decisions’ about (quote) the ‘size’ of the country.
It seemed to come after some consultation with the IMF specifically.
Is there a portion of spending predicated on some future goliath-role for Ireland ?
Would the question of dissolving banks have been mooted that late in the day ?
Something else ?

@ Eureka

It is not, to my mind, a matter of sides.

Sides exclude solutions regardless of the context.

More a case of deliverable solutions in a strategic context.

@ Tull

As you take to my (still playing when the opportunity presents) pastime.

You surrender if you like – I know where I stand

“……neoliberal ‘freedom lovin mawrket’ doctrines that allowed the unregulated dodgy wings of the financial system to destroy quite a few sovereigns ….”

So when the sovereign states out of their free will borrowed too much helped by false security (skewed perception of risk) facilitated by a half-baked political common currency project and in an environment of artificially low interest rates kept low by government controlled central banks who in term were doing so while attempting (in vain) to maintain the economy in a stimulated condition in order to keep the general public happy – that is the fault by free markets!!!

Or are you talking about the sovereigns who were obviously coerced by the European (undemocratic) bodies to underwrite the debts of private banks the overinflation of which was facilitated by the same environment of ‘cheap’ credit created by government controlled central banks and in the environment where the regulatory bodies supposed to supervise the banks was either soundly asleep at the wheel (like the ECB) or prevented from acting (Irish CB) by political maters (FF) eager to maintain the illusion that the electorate is getting richer in the ‘boom which is getting boomier’ – that too is free market failure??

@Dom K

Good bit o both. Greece/Portugal close to the former – Ireland/Spain? close to the latter.

Bit of real Capitalism and TheDodgyDerivatives wing should go to the wall. As even Ollie has figured out – link between banks and sovereigns must be severed and the real re-structuring (which ain’t happenin in tea party lovin delusional land) needed is a dismantling of the toxic parasitic set of tools that have emerged since at least late 1980s [and which still have a neat bigh black hole in Frankfurt that receives little attention].

The Marxists and the Genuine Capitalist should get together and wipe out these aliens before they destroy the planet!

Diarmuid O’Flynn and the Ballyhea protest group on bailing out bankers presently outside door of ECB in Frankfurt …..

Blind Biddy approves.

@tullmcadoo/Ordinary Man

“Talk is cheap”

I’ve got some bad news for you – it’s worse than that….. talk is actually free. Which I guess is why so many people treat it with disrespect.

But back on thread…. if they keep downgrading those German banks (Moody’s) then Germany is going to retreat further into its ‘nein’ position.
Spain’s industrial output down 8.3% yoy. Can’t see Spain beating Germany in a no blinking contest somehow – and there’s no ‘mañana’ in this contest.


“This isn’t rocket science you know. If a teacher earns x and they spend y on a mortgage. That leaves x-y as spendable income.”

It speaks volumes about the cultural affinities in Ireland when teachers are cited as labour market exemplars rather than small business owners and retail/factory floor workers.

There is quite a gang of teachers in the Dail.

Despite spending several bank bailouts on higher education, the Minister for Health recently announced that he needed more outside expertise to for his Special Delivery Unit as there expertise was lacking within the HSE and Dept. of Health (only 100,000 employees to choose from). If that statement is fair reflection of his judgment it is extraordinary and I suggest that the universities and colleges be bulldozed to the ground.

It does seem like the denouement of the crisis is approaching and that we’re in for some shock and awe .


It is as simple as you outline. What is extraordinary is the extent to which there is a collective refusal of the commentariat to admit publicly to the fact. However, I am convinced that the population in general accepts the situation. If it is viewed, as it must be, as a collection of individual interests, it is waiting to see what happens next in terms of government action on the deficit.


The economy is a wonderfully intricate Heath Robinson contraption with 2 large bags of cement called debt and the banks hanging over it, kept in place by a single horsehair as well as a series of fans which blow air in their direction , driven in part by an ongoing supply of cash from the deficit. If the fans cease operation engineers are concerned that the bag of debt cement will become flooded by an act of god and smash the bank cement thus overwhelming the horsehair and crushing everything.

The ECB believes that the horsehair will double over time and that the cement bags are actually filled with Angel Delight.


I posted a few pieces before (though not for a couple of months) and posted something last night/early hours this morning but it has not appeared yet. Is it being moderated, will it appear?


You can judge for yourself the EC’s report on bank recap. just released but it looks like more can kicking and simply makes me ask: “Is anyone actually taking charge in Europe or just sitting there mouthing platitudes and hoping someone else is going to step in and sort it out?”

There may come a point where it’s too late to sort it out.

And the ECB keeps interest rates on hold…… wonder if anything is coming out of Draghi’s press conference?

Another ******* report. Just what’s needed. Ah well, look on the bright side. It will probably create some fees as we set about whittling it down

@ Alchemist
So let’s say number of private sector retailers in the area is b. Where x is total net income and y is mortgage repayment then (x-y)/b is spendable income in each ps retailer.
Now if each ps retailer pays c in tax and d in rent the total they get is (x-y)/b-c-d
Now the only way of offsetting a drop in x assuming y stays steady is to cut either c (taxes) or d(rent).

So it’s not rocket science but you and Tull conveniently ignore how interconnected everything is.

This requires looking at everything – a new deal

I don’t know if I am any happier about Spains banks being guaranteed by the EZ countries than I am about Ireland’s banks being guaranteed by us.

If Spain is going to get a direct injection into its banks then those banks, or a good number of them, should be put through a resolution process first with guarantees for depositors if necessary.

the core problem in the EZ crisis is that we are all looking to for an EU level solution to national level problems.

Banks are regulated at the national level. Only national authorities have the popwer and responsibility to deal with them.

The ECB, which lies at the heart of the mal-designed mess that is the Currency Union, is acting as if it has powers, prerogatives and responsibilities which it does not yet have.

Accordingly, individual states must deal with their banks and must propose a national level solution for the other countires to invest in and support.

The other states must recognise this and must diplomatically support individual states in making these difficult decisisions rather than making things harder for them. The ECB should be frozen out of the equation until it, or another body, has been granted the prerogatives and responsibilities it so craves.

A message I tried to post last night:

@ David O’Donnell,

I registered on the Der Spiegel site and sent a letter, and a message to the forum (but I haven’t seen it appear yet).
It is similar to something I wrote on the New York Times site last October (link below)

Shouldn’t a lot of us be doing something like this?

letter to Der Spiegel / message to forum:
‘Banking Woes: Ireland Still Long Way from Overcoming Debt Crisis’

“Your article does not inform your readership of the real background.

Some people have written:
“German money should belong to Germans.” (1)

which is true, but therefore:
“German private bank-loans should belong to German private banks”,

whether the loans make a profit or a loss.

And this is what we’re talking about here.

Ireland (the Government & the Irish people) did NOT get this money.

You wrote: “solving its debt crisis” – but this ignores that it was the debt of Foreign banks (including German) that Ireland was forced to (continue to) guarantee that is central to this crisis!

You should understand that Ireland (the government & the people) DID NOT receive this money. This is unlike the situation in Greece, Spain, Italy etc., where the sovereign did actually get the money.

In the discussion about money owed to bond-holders people use the phrase “if Ireland can’t or won’t pay it back”.

It is incorrect to use the word ‘back’.

What is being considered is whether to ‘pay it’, or not, but as we, the Irish citizens, never received this money in the first place it is wrong to talk about paying it ‘back’.

In fact not only did Irish taxpayers not receive the money, the fact that FOREIGN banks lent the money irresponsibly meant that the vast majority of Irish people were disadvantaged by massively inflated house prices. Sensible people never wanted this money to flood into Ireland in this way in the first place.

Foreign PRIVATE risk-taking banks lent money to PRIVATE banks in Ireland. Later when these PRIVATE banks were going bust, in an attempt to stop a contagious disaster throughout Ireland and Europe, the Irish government said they’d try to guarantee this private debt (but the Irish citizens weren’t asked and certainly did not agree to it).
Professor Honohan and others said that Ireland prevented an event worse than the Lehman’s collapse in Europe. When it was obvious that the little Irish citizen couldn’t possibly pay this huge debt belonging to private risk-takers, and were not going to renew the guarantee, Europe (ECB etc.,with major German influence) stepped in and insisted that there should be no ‘frightening the horses’, and haven’t yet let the debt be given back to those whom it belongs to.

There was (& is being made again) a real solid economy, based on real things, before this cheap money flooded in, looking for private sector “investment opportunities”. Ireland took ~30 years putting the pieces in place to create this solid economy, and then two parasite so-called professions – bankers (foreign & Irish) and property lawyers – came along and not only sucked the blood out of the economy, they expelled huge numbers of the next generation to emmigration. And they did this sitting in offices putting immoral contracts & 40 year mortgages down on paper, pushing house-prices out of reach for any sane calculation (but then lending 12 times salary to panicked novice first-time-buyers who are now also destroyed), they didn’t create ANYTHING, they didn’t even physically build any part of one of the surplus houses, and they could’ve done all that they did with 18th Century quill pens & ledgers and so on, so out of touch are they with what it means to contribute in a modern society.

As one U.S. commentator asked (1): “Why should the Irish people be forced to bail out the Germans who loaned the Irish banks the money in the first place? Shouldn’t the German bondholders who took the risks be required to take a major haircut? Isn’t that how capitalism works?”

Thank You,
Peadar Coleman

(1) New York Times article responses:

Alchemist “despite having spent several bank bailouts”…
really? we have spent 68b on the banks. Several is lets say four or five. Have we really spent 300b on higher education (spend this year c 1.2b)? Or are you talking hyperbolex?

@Minister Shatter.

Today ECB president Mario Draghi said that there wasnt a quid-pro-quo for the Yes Vote on the bank debt.

Is that a senior enough position for you?

@ Peadar Coleman

As a matter of interest, where do you think the money loaned by bondholders in Irish banks and which fueled the property boom is now?


A lot of that money went into mixed portfolios of (sometimes wealthy) people. If any was in the “safe-bet blue-chip shares” it is way way down, and any in bank-shares is gone forever. And a good deal of it is in German bonds for security. And some in gold I suppose. Could we undo it?

So a lot of THE ACTUAL CASH IS ACTUALLY back in Germany.
And the German (& other) bondholders also got a ‘return for risk’ during the so-called “investment” years.
And then when the deal went bad the German (& other) bondholders had the debt passed on to people who had nothing to do with it, and in fact were the people who were disadvantaged by massively inflated house-prices during the so-called ‘good years’ & which helped make us an even more unequal society.

I would love a fair society where there weren’t the extreme differences in wealth, a sort of socialism for all, not just the powerful elites.

but we weren’t allowed to have that, and it turns out the capitalism that we were told we must have is just for the “little people”, and powerful bond-holders want “Capitalism Without Balls” – they like the upside but are not prepared to take the downside that fell to them when they got it wrong.

Interestingly, on Monday BBC radio 4 had a documentary about the Morgenthau Plan, and how it was dropped in favour of the Marshall Plan.

It would be interesting to count up all of the money that Germany received in different ways, right up and including the current Euro-mess.
“Michael Portillo remembers the Morgenthau Plan which aimed to strip post war Germany of its industry and turn it into an agricultural country. It was replaced by the Marshall Plan.

Many of us remember the Marshall Plan, the US programme to rebuild post war Europe. Far less is known about the Morganthau Plan (also drawn up in Washington a few years earlier) which aimed, amongst other things, to destroy German industry after the country had surrendered. Winston Churchill also signed up to the plan which would turn Germany into an agrarian “pastoral” society, unable to manufacture the machinery of warfare in the future. Michael Portillo examines the Morganthau Plan and discovers it was in fact drafted by a Soviet agent working high up in the US Administration. He considers the implications of this, looks at how far the plan was implemented and asks why we have forgotten to remember it.”


The suggestion that the previous government (and so, necessarily, the current one as well) were under no duress to pay off AIB, BoI and Anglo seniors at any stage, and so voluntarily chose to continue paying them off in full even under the Trokia bailout, contradicts so much of what we seem to know about the last couple of years that it seems very unlikely. And I’m not referring to the stuff that Lenihan fed to the IT.

Just off the top of my head: it would mean that Morgan Kelly’s story, apparently from IMF sources, about Geithner’s intervention would have to have been false, made up (though not necessarily by Kelly). In fact, what I’ve seen so far (though I can’t find the newspaper article now) suggests that Kelly’s account was not made up.

It would also, independently, have to be the case that both FF and Labour were telling a calculated lie when they promised before the election to haircut AIB and BoI senior debt, not just fooling themselves and the electorate about how far they would get by asking nicely to be allowed to give the haircuts. In turn, that would mean that the humiliating pratfall which the new government took when it dashed off to the EU with maximum publicity, only to come back with its tail between its legs and pay off AIBoI seniors, was actually part of the plan. More, the whole farce of “negotiations” over Anglo senior debt would have to be a self-inflicted injury too. If the present government really wanted to fully pay off Anglo seniors (and why?) while falsely claiming to have been pushed into it, why couldn’t it simply make that claim at the same time as falsely claiming to be forced to pay off AIBoI seniors? Or at any rate a month or so afterwards, instead of staging a months-long humiliation of itself?

It would also, independently, mean that other actors were behaving in a way inconsistent with their self-interests, personalities and track records. For example, the ECB would have had to say “You have us bang to rights, Paddy. Much as we hate the idea, after eating the (likely career-impairing) consequences of senior-debt haircuts at AIB and BoI, we will have to turn around and meekly provide liquidity to the restructured institutions. For to do otherwise would be improper!” Meanwhile we know that the IMF is (or was, pre-Largarde) publicly unhappy with the bailout for bank senior creditors. If the ECB and everyone else other than the Irish government was willing to tolerate losses for bank senior creditors at this point, this implies that during the bailout negotiations the Irish government – Lenihan! – turned to the IMF and say “We’re going to use any bailout to pay off the bank seniors in full. No compromise on this. You’re either in or out on that basis.” – and that the IMF lost this staredown!

Where is the plausibility here?

@ David O’Donnell,


last Oct a Barry Mullan in Boston (a forced migrant perhaps) on that New York Times comments section replied in agreement:

‘ “Peadar Coleman for Aras 11 !” Barry Mullan, Boston, MA ‘

I must keep it in mind next time, if we still are allowed to have Presidential elections. As Morgan Kelly said : “…likely see Ireland as some sort of EU protectorate, Europe’s answer to Puerto Rico”

@ Peadar Coleman

A lot of the cash is back in Germany! Really!

I was not aware that German citizens were profiting directly from the housing boom as they were neither selling sites nor houses (nor routes for motorways)for inflated prices.

You will have to look a little closer to home.

What is back in Germany is the money advanced by bondholders because (i) the Irish government guaranteed the liabilities of Irish banks and (ii) it had to do so because of its failure to monitor and regulate what they were up to.

What the losers in this debacle are left with is the liability for the debts they incurred.

FYI Der Spiegel International

Spain needs help, that much is clear. The country’s banks are teetering under billions of euros in bad real estate loans with experts estimating that between €75 billion and €100 billion are needed to recapitalize them.

Just what that help might look like, however, has been a matter of some debate. Europe, led by Germany, has insisted that the euro backstop funds not be allowed to provide direct funding to banks, preferring instead to deal with national governments only. Yet Spanish Prime Minister Mariano Rajoy has been reluctant to ask for such aid, wary of the conditions that come attached. A situation similar to the one in Greece, with a public outraged at deep cuts and painful reforms, is one he would like to avoid.

Now, a compromise to the standoff appears to be taking shape. According to the center-left daily Süddeutsche Zeitung on Wednesday, European leaders are currently considering a plan which foresees euro bailout money being provided to Spain’s “Fund for Orderly Bank Restructuring”, or FROB, a bank bailout fund set up in 2009. In return, Spain would pledge to restructure its financial sector, but would not be forced into extensive economic reforms and austerity measures of the kind that have been imposed on Greece.

@ Peadar Coleman

And, of course, the taxpayer who had to pick up the tab for the egregious errors of a government which a majority insisted on re-electing. The “boom kept getting boomier”.

View from Berlin on Spain

Pressure is growing for Spain to tap into European Union bailout money to stem its banking crisis, but the country has stubbornly refused. Instead, Madrid hopes to get around bailout conditions with direct aid to its banks. German commentators on Wednesday say that the time for pride has passed.

Both German Chancellor Angela Merkel and her Finance Minister Wolfgang Schäuble agree that Spain should be forced to accept bailout money from the European Financial Stability Facility (EFSF), the temporary euro bailout fund, to inject liquidity into the country’s struggling banks. The two settled on the strategy last week. Last Wednesday, Schäuble pressured his Spanish counterpart, Luis de Guindos, to accept the emergency funding.

Former AG and Minister and leading neo-kon ideologue MickMackPeeDeeMacDowell in the ‘boomier’ PD/ff times today as senior kounsell representing NAMA in court on repossessing a developer’s property ….

No conflict of .. er .. interest! Must be a pro-Bono …. ?

The boom continues to be boomier for certain pee dee boomiers – wonder was DOCM a PeeDee …?

I think the problem with Spain and Germany is that when the real amounts come out (like Ireland, Spain will try to drip feed the bad news which is SOP in PR terms) it will be horrendous.

Germany has an inkling of the real size of the problem and doesn’t want that size of bailout happening without the ‘strict conditions’ of a Troika programme and the sovereign on the hook (or with skin in the game as I believe some people prefer to say). However, Spain wants to get the direct funding to the banks agreed by pretending it’s a small figure and then reveal the truth later…. by which time the conditions will have been set and the ESM will just have to keep on putting money into the black hole without Spain accepting any further conditions – or else the Euro goes up in smoke.

They’re not daft the Germans. Spain is trying to pull a fast one…. we only need a small amount so let’s do it directly, before the full audit has been carried out, without any conditions on the sovereign and then we’ll let you know the real bill when the mechanisms and paperwork are all signed up.

Spain is toast. Don’t touch it or anything in it with a barge pole. Seriously.

Swiss lifeboat still at the dock. Waiting.

The Anglo: Not Our Debt Campaign Supports Today’s Protest Outside ECB Demanding Debt Justice

Representatives from a number of Irish organisations, including the Ballyhea/Charleville bondholder bailout protest group, travelled to Frankfurt to take their demands directly to Mario Draghi, President of the ECB, during that body’s governing council meeting. These demands include the immediate destruction of all remaining promissory notes and the refunding of the two promissory notes already paid, which have cost Ireland over €6 billion.

Nessa Ni Chasaide, also of the Anglo: Not Our Debt campaign, said that “civil society has to take its message directly to Europe because it seems the Irish government will not – the time for begging for favours is long passed, this is the time to demand justice, including the writing down of illegitimate debt”.

Read the full statement “nailed” to the door of the ECB here.


“Where is the plausibility here?”

Leaned on / contrary ‘preference’ expressed. Going along with. No actual threat issued => very poor tactics (no evidence).

FG / Lab government always acting politically in talking about renegotiation, not another red cent etc. Pure electoral politics. Told, as expected, strong preference by ECB etc against.

Understanding on both sides, EZ and ECB want senior bond market undisrupted, Irish government want cash to maintain CP and other cozy arrangements in order to ‘protect’ voting constituencies and be in office.


Will try interpret telegraphic reply STOP. 🙂

We’re completely agreed that the FF/PD government folded like a cheap suit in the Troika negotiations, and that was to a large extent because the Irish first priority was to keep CP and the general status quo in place for a little longer, and the ECB and others knew it. And that the resulting deal is therefore one in which all the parties (except maybe the IMF) get their first priorities. That doesn’t come close to implying that the Irish government voluntarily bailed out the bank seniors during the EU/IMF deal, though. I mean, it would come close to implying that, if the ECB had been saying “bail out the bank seniors, or in retaliation we’ll only support a bailout that includes faster and deeper public-sector cuts”.* But why would the ECB make such an oddly-shaped, half-arsed threat? In fact the only threat the ECB was likely to have made was to undermine any Irish bailout that didn’t see bank seniors rescued too. Even if the whole Cabinet had had some kind of Thatcherite brainwave on the eve of negotiations that converted them overnight into public-reform zealots, they’d still have found the ECB (and later, apparently, the US) attempting to block bank-senior haircuts.

Before the election I was fully expecting a panomime of negotiations as the new government slowly, regretfully ‘discovered’ that the ECB and company were not going to relent on senior debt haircuts. In fact, the way in which it scampered eagerly off to the EU only to be clotheslined, then cut another rod for its own back with the Anglo farce, suggests that it really had started believing some of its own PR about how fresh faces asking in a different tone of voice would get a different answer from the EU. But in the end of the day it doesn’t matter how cynical FG and Labour were being. It’s a reasonable certainty that the main reason they keep on paying off all bank and former-bank seniors is because our European partners won’t let them off the hook, not because they’re eager to pour onto Anglo’s pyre money that they could otherwise be spending on the PS &etc.

Yes, it’s possible that there is no written threat or demand or agreement signed by the ECB or anyone else calling for the bailout of bank seniors. But it wasn’t necessarily the case that the government could easily or safely have demanded one. You outlined the reasons why it would be very helpful for us to have one: as the ECB and friends aren’t entirely stupid, these are also the reasons why they might be very reluctant to give one to us. The Mafia don’t hand out invoices, and their victims don’t ask for them.

\* Actually it’s not impossible that there could have been an effectively similar choice, if the government found itself able to choose between an EU/IMF package involving fewer PS cuts, and a more austere IMF-only deal involving senior-burning which the ECB had been pushed into not undermining, and had chosen the latter. But there’s apparently no evidence that that’s actually how things went down.


We know there is a letter from the ECB which they have refused to release. It has been said by people like Aherne (ac. not pol.) that communication from the ECB was unambiguous in its threatening nature.

This may be poppycock as and when the light of day is shined on it. It is quite possible, even likely, that what was made clear – in discussions – was that the idea of not extending the guarantees after expiry, and not de facto expanding them to include every unguaranteed liability as well was somewhere it would not be wise for the Irish negotiators to go on account of the fact that they were sussed by everyone else as having somewhere they (the Irish side) could not afford to have the negotiations go, and that was the vote-licious pre-electoral sacred cow of finding a credit line to bail out the (to the potential creditors) fantastical expectations of the Croke Park ‘partners’ and the rest of the multitudinous “we’re worth it” brigade. These two ‘no-go’ areas for each side were sufficiently transparently obvious at the time to make it impossible that those two fecking great elephants in the room did not have a very significant impact on the negotiations such as they were.

If the Irish side shy-ed away from pushing hard for senior bond write-downs to the point of extracting an actual threat from the other side, so that they could have come away stating openly that they wanted to do what they thought was the right thing, but were forbidden from doing so because it was made clear that X or Y orZ would happen in retaliation, then why should an international audience not perceive that as the same thing as voluntarily agreeing to pay out all the bank bonds?

I find it extraordinary that the letter we are told exists has not been leaked if it backs up the Irish government’s story/spin? that it was “forced” to act as it did. Extraordinary because it would give the Irish government an easier ride in making criticism from domestic sources harder, and because it would make the ECB look grubby and significantly weaken their negotiating position – I don’t go along with the idea the ECB is equivalent to the mafia, and nor would most observers. If they are then they will pay a price once that perception becomes widely accepted.

The “forced” line is presented by respected commentators to the man in the street as a fact. It is time it was backed up.


I don’t know why you change what I said.

I didn’t say the German citizens got the money into their hands, I said some of the money would be in German banks & bonds. And they would be at zero or negative interest rates (so the German country (& so indirectly the citizens) as a whole benefits with free capital etc.).

I also asked above (& previously), could the deals be undone? Could the private money that the ‘winners’ got, e.g. for the Glass bottle site, be taken back if the deals were reversed? What do you think? Well why not that, but ‘yes’ to putting German bond-holder losses onto the Irish citizens?

Re: (i) “the Irish government guaranteed the liabilities of Irish banks”
This was for a limited time. They were then forced to CONTINUE to keep the guarantee in place by Europe (ECB, with powerful German influence) as they did not want any bank runs in Europe. Why do you ignore this

Re: (ii) it had to/choose to do so for a limited time, but then were forced to continue to guarantee, as per above.

I don’t follow this blog as much as I’d like, so I don’t know much about the line/views of some posters, but as a matter of interest, where are you from? What do you think should happen?

and a small but important point Re: “a government which a majority insisted on re-electing”
The majority did not vote for them, either as FF alone nor in any of the combinations. And while I know what you mean, it was technically a different Government without the PD’s but with the Greens – would a different/stronger coalition partner have stopped some actions, e.g. the guarantee, and its continuation.


It is quite possible, even likely, that what was made clear – in discussions – was that the idea of not extending the guarantees after expiry, and not de facto expanding them to include every unguaranteed liability as well was somewhere it would not be wise for the Irish negotiators to go on account of the fact that they were sussed by everyone else as having somewhere they (the Irish side) could not afford to have the negotiations go, and that was the vote-licious pre-electoral sacred cow of finding a credit line to bail out the (to the potential creditors) fantastical expectations of the Croke Park ‘partners’ and the rest of the multitudinous “we’re worth it” brigade.

And, again, all of this is only of any relevance if the ECB also stated that “oh, but if you tear up Croke Park, then everything is different! Yes, we’re ready to deal with any problems that might arise from burning Irish bank seniors, if only the golden prize of reversing Croker can be obtained”. Given what we know about the ECB’s behaviour and its chosen priorities – propping up the European banking system while saving its members’ hides is Job One – the chance that the ECB ever took that position is discountably small. If instead the ECB took the position that to all appearances it did take – that of attempting to prevent any package at all for Ireland that countenanced burning of bank seniors, among other things by threatening not to extend liquidity to the restructured banks – then no amount of sleight of hand is going to transmogrify a) the Irish government’s known (and bad, horrible and very wrong, yes, yes) lust to save Croker even while in external assistance into b) an actual desire to bail out all bank seniors even while in external assistance.

I don’t go along with the idea the ECB is equivalent to the mafia, and nor would most observers. If they are then they will pay a price once that perception becomes widely accepted.

I didn’t compare the ECB to the Mafia in general. I used an analogy to make it clear that if the ECB a) has issued a threat and b) it is (say the least) questionable whether it was proper and legitimate for the ECB to issue that threat, then c) it is very much in the ECB’s interest to hide and obfuscate the fact that it has issued the threat, and also d) the institution it was threatening is likely not in an easy position to demand that the ECB instead make the threat clear and evident. The ECB is unlike the Mafia in many ways, not least in that its road to Hell has been paved with mostly good intentions. But it has got itself into a situation where its (in its estimation) great and noble crusade to save the financial system (and conveniently also save its own hide) could fail unless it exerts a small squeeze here and there on a few bad little boys who probably deserve it anyway. This would be an overwhelming temptation for any mighty institution, and there’s scant evidence that the Bank has been up to resisting it. Not only is this pretty plain and obvious, there’s no problem finding observers who have come to this conclusion by now.

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