Seamus Coffey on Resolving the Euro Zone Banking Crisis

Seamus Coffey has an excellent article on resolving the euro zone banking crisis in today’s Irish Independent (HT DOCM).   For the Irish situation, Seamus puts the proper focus back on the case for extending the maturity of the promissory notes/ELA arrangements as the correct focus of negotiations.   The idea that the ESM would retrospectively cover already crystallised losses in the Irish banking system looks fanciful, and only serves to create confusion about what Ireland needs – and could realistically be provided – in order to further the shared objective of getting Ireland off external assistance.  

In the certainty of attracting vitriol in comments, I think Seamus is being a bit hard on the ECB.    The problem that the ECB faces is a bank creditworthiness crisis across a significant part of the euro zone.    In fairness, they have been willing to meet their proper function of acting aggressively as a lender of last resort to stem deposit flight.   But they can only do this if the banks they are lending to are solvent.   They have insisted that the banks be recapitalised, preferably directly from centralised bailout funds, but failing that by governments, with money borrowed from those funds.  

I think most analysts agree that the future stability of the euro zone will require a form of banking union, with centralised supervision, centralised deposit insurance and a centralised resolution regime that allows for losses to be imposed more broadly on certain classes of bank creditors.   The challenge is how to get from here to there.  In the short term, putting creditors at greater risk of losses reduces bank creditworthiness further, potentially causing the crisis to escalate.   Moreover, given the differences in the solvency of the banks in different euro zone countries, any move towards centralised deposit insurance has potentially large distributional implications across euro zone countries.   If a deposit insurance regime could be agreed behind a “veil of ignorance”, with negotiators not knowing which country they represented, it should be relatively easy to agree to such arrangements.   But alas this “ignorance” is not available.   The messy and fragile two-way process involving greater risk sharing and more credible assurances of mutual discipline will continue. 

49 replies on “Seamus Coffey on Resolving the Euro Zone Banking Crisis”

@John McHale

With due respect to Seamus Coffey … “the proper focus back on the case for extending the maturity of the promissory notes/ELA arrangements as the correct focus of negotiations” is open to adjectival challenge wrt to ‘proper’ and ‘correct’ …

The set of adjectives remains OPEN. Just noting that in the peasant culture I’m familiar with the proper and correct action with an entity that is dead is to bury it.

I have already made a comment on this on a previous thread but it shouldn’t be forgotten that extending the term of the ELA is a second best option.

The govenrment must not abandon (did they ever begin?) the fight to get debt write down on Anglo.

Apologies for repeating myself from previous thread but really don’t understand Coffey’s reference to ‘rules being slowly put in place to require private creditor bail-ins’…

Those rules have been written for centuries in the cut and thrust of the market…it was the ECB that interfered with the market and put a ‘stay’ on those rules at the prompting of the Germans and French. No rules are required to require a “bail-in”…simply the technocrats need to butt out!

We cannot forget that private creditors did not expect to be bailed out of the Anglo fiasco – if you don’t believe me read Simon Carswells excellent article in the IT last week where he interviewed a number of bondholders. Those bondholders had priced in their risk…it was the ECB that said don’t worry lads.

Reading Coffey’s article, (which is bang on in relation to the promissory notes it should be stated), one would think we have had an epiphany that now requires us to write some rules to breath life into some great new idea! If our government buys into that nonsense what hope have we of them fighting our corner on Anglo debt…..

“we can’t do anything about getting a write down because we didn’t have these amazing new rules that risk takers should bear the burden of their risk before now!”

@Seamus Coffey

As noted before on this blog quite a few times, if a decent burial is not forthcoming, then 100 years at 0.01% interest on the PNs will be a satisfactory compromise + the New ESM taking over the bits in the so-called pillars and the neu pollyshawneen coated ICB. Of course why EZ needs an ESM or an EFSF is beyond me … we need a neu properly constituted and correctly functioning ECB .. by end of June would be cool.

Is Irish debt sustainable? Clearly not.

What level would be sustainable? Look at what is currently sustainable in the Eurozone and note the difference between Belgium and Italy.

Will a maturity extension bring Irish sovereign debt to GDP close to 100%? Clearly not.

What kind of restructuring of bank bailout costs would make our debt sustainable? Possibly a 50% write-down.

Why do ECB apologists in the Irish establishment always start with a position of what might be reasonable or possible from the ECB’s point of view. Our position should be what is necessary to make the state viable. If that is uncomfortable for the ECB then let them worry about it.

A write-down in the value of the bank-bailout costs may be fanciful, but so is the break-up of the Euro or the construction of a Euro-wide banking union. Either the Euro breaks up or Germany and the ECB have to do the unthinkable/impossible/fanciful.

It is the ECB apologists in the Irish establishment that have paved the way for the government to pay, later this month, unsecured and unguaranteed bondholders in a dead bank. Shame on them!

@JMcH – from a previous thread.


“Outstanding contribution from Seamus Coffey.” Sorry – me thinks not. Far from it in fact.

It seems that Seamus Coffey agrees with the notion that repaying the €25bn remaining PN over an extended period is a sensible policy. Unfortunately the only sensible policy here is take the view that the decision the Irish Govt made in providing a dime to Anglo was a wrong one. In the words of Leo Varadker ‘not a red cent more’. Despite SC arguing the ECB policies and strategies over the past number of years in relation to banking matters is generally flawed I can’t see why if most other ECB policies are deemed deficient then why the repayment, at all, of the PN is seen as sensible. This is a bizarre conclusion.

Seamus also suggests that Senior Bank Bond investors invested safe in the knowledge that in the event of the bank going bust they would always be repaid in full – no questions asked.

“The bailing-out of bank creditors has meant those with the money could provide funding to banks safe in the knowledge that public funds would be provided to make good any losses incurred The bailing-out of bank creditors has meant those with the money could provide funding to banks safe in the knowledge that public funds would be provided to make good any losses incurred”

As a long-term bank bond investor I can readily assure Seamus that his interpretation of the world of bank bond investors is seriously misplaced. Nobody can seriously suggest that a fund manager buying a 5-year AIB bond in 2005 for instance had a deep insight into the likely movement of Govt and their stance in the event of an AIB failure in the intervening period. Most sensible investors would have assumed the worst i.e. wipeout and importantly bought on that basis otherwise why would there exist a spread at all between the sovereign and the bank. Seamus believes managers bought these instruments knowing the safe hand of the State was always on had to cushion the blow if AIB had blown up. This is simply untrue and is not representative of the facts on the ground at the time. The breathtaking stupidity of the State has ensured that Seams’ theory has since become fact but this was not the expected outcome back in 2005. Far from it.

Seamus also suggests that:

“Ireland can repay the money. What we need is for the ECB to wait until we are in a position to do so. Some of the costs of banking mistakes in the future will be covered by senior bondholders and possibly depositors. Ireland needs to allowed time for growth and inflation to help reduce the real cost of banking mistakes from the past”

This sounds awfully like a Mike Wallace financial strategy i.e. delay and hope. Hope is never a clever business strategy and many have learned that the hard way. We don’t need more time. We need a deal today. That deal is simple and very clear. We the people are embarrassed by the incompetence of our elected leaders in agreeing to this daft idea that repaying the bond holders of the most insolvent banks in the world in full was naïve, stupid and long term economically suicidal. We the people have decided that it is now in fact in Irelands and Europe’s long-term interest to call a spade a spade. Bank Bond investors (of all colours) are not depositors, they are a much more sophisticated animal and they understood the risks in lending to Irish banks who they themselves thought lending into property transactions at less than 1% net rental yield was a sensible business strategy. Bond investors who undertook these investing decisions should get zero when the institutions they risked their cash to fails. Repeat zero, nothing else will do to cleanse the system. If the ECB was stupid enough to believe otherwise and support the no bondholder left behind policy then sadly they also deserve their fate. Stupidity is not a money making scheme. Never was, never should be. Seamus knows this.


If you think Seamus is being unfair to the ECB, do you think the ECB is being fair to my kids when forcing the Irish government to repay senior unsecured bank bondholders?

Furthermore, bank creditworthiness from an investor’s perspective is not the problem. LTRO has ensured that banks do not depend on the bond market for refinancing anyway.

The problem is the lack of faith of depositors in the banking system and the Euro and the resultant threat of runs across the continent. Depositors do not really care if bondholders get burnt or not. In fact, wiping out shareholders and burning bondholders is likely to increase bank solvency and restore the confidence of depositors.

I would find the intellectual contortions employed to defend ECB policy errors now and in the past amusing if it wasn’t so serious.

@ All

I note that despite opposing arguments, there appears to be general acceptance that the analysis is bang on, to quote V. Barrett, as far as the PNs are concerned. But this is the substantive issue.

It would have been nice to think that the error of mispricing of soverign risk by the markets over a lenghthy period could have been dealt with by a sudden return to tooth and claw capitalism but the failure of banks across Europe would have been the price, with incalculable consequences. Bondholders may not be able to believe their luck; but there it is!

It was a slow unthinking process that gave rise to the present mess and it can only be hoped that it will be a slow but thinking process that will get the EA out of it.

There are strong hints, for example, that Berlin may buy into the suggestion of its own Council of Economic Experts on the idea of a bond redemption fund. The idea of issuing short-term debt is another possible avenue. Supervisory powers could be given to the ECB in a matter of weeks using the so-called fast-track procedure.

What the markets need is some certain indication that the euro will be defended by Berlin to the bitter end. This is the magic ingredient that is missing and the crisis will continue until it is supplied.


…just to be clarify i had indicated in an earlier thread that the Coffey on the PN was not the first best option….but in terms of his arguments vis-a-vis the ESM as a second best option he is bang on.

From the Guardian…
“And surely that will annoy Greece, Ireland and Portugal, who all took a bailout. As Gary Jenkins of Swordfish Research points out:

It appears that Spain does not want a bailout in order to recapitalise its banks, they just want cash. And it also appears that there may be plans underway to give them pretty much exactly what they want, with numerous reports suggesting that officials are working on an idea for the EFSF/ESM to lend directly to the Spanish banking rescue fund (FROB) in order for them to on-lend to the banks, thus avoiding the embarrassment of the Spanish government itself receiving a bailout.”

Rajoy is starting to look like the most competent leader around!

@bazza +1

Krugman: “something impossible is going to happen”

In this environment ruling stuff out as fanciful seems crazy. If Spain keeps the banking debt there is no way it can avoid joining us, Greece and Portugal.

Spain need someone to give it money – senior bank bondholders or EU as a whole.

It would take some PR marketing campaign if the Irish contribution to saving spanish banks was > amount raised in household charge!!


“Rajoy is starting to look like the most competent leader around!”

Not likely! Something has them terrified though.

ECB and BoE have done nothing in the past 24 hours when they could have (though China cut its rate by 25 bps earlier) so I guess Bernanke is going to print?

Buy gold? Short the $ ? Is that joining up the dots correctly?

So basically Seamus Coffey’s want to tell the ECB we cant afford to pay but our children will be able to?

I can see Enda standing in the Rotunda saying “these babies will meet the commitments we have made for them”


“Either the Euro breaks up or Germany and the ECB have to do the unthinkable/impossible/fanciful”

Like Bank of America taking over Merrill Lynch. I think we are getting close to that sort of weekend when everything you thought you knew is blown out of the water.

Or are the ECB and BoE keeping their powder dry in advance of a global co-ordinated move? Seems odd that a recent G8 then a G7 FM’s meeting should announce practically zilch.

Has to be.

Lets simplify the whole thing:

We have put €64bn into the banks and got €6bn back. For simplicity lets say the current value of all the banks is €4bn (optimistic). Therefore we have lost €54bn.

The ECB have lent us €30bn at 1% instead of 4%. If the average term is 8 years this is worth about €6bn (assuming 1% remains unchanged)

So the net cost so far is around €48bn.

So we are looking for relief of €48bn. I am not an expert negociator, but if I was looking for relief on €48bn I would try to start with a figure that was close to €48bn.

What are we looking for – an extension to the PN terms? What is that worth to us – another €5bn or so max is the answer.

Jaysus we are really fucked if we pay €48bn to save the Eurozone and then ask the rest of the lads to chip in €5bn.

“In the certainty of attracting vitriol in comments, I think Seamus is being a bit hard on the ECB. The problem that the ECB faces… ”

In fact Seamus is not being hard enough on the ECB. They implemented a policy of imposing bank losses on countries to save large investors. That policy saved the investors, but destroyed this country.

There were and are other factors in our destruction but the ECB policy and insistence on its policy was certainly the factor that pushed Ireland over the edge.

The consequences for Ireland are to be seen, heard and felt daily.
What are the consequences for the ECB. They will walk away into well remunerated retirement or other sinecured positions.
There is no requirement to answer for the destruction of a country.

It is time to force open all the documents in relation to ‘bail-in’ of Irish taxpayers and the ‘bail-out’ of mostly European investors.

As far as I am concerned, the ECB is not my central bank. I will never again accept it’s spurious legitimacy. It policy was the the 21th century equivalent of ‘croppy lie down’.

I hope the Spanish stick to their guns. They need to. Otherwise the ECB will destroy them too.

@ PR Guy

I imagine the last thing the Tory boys want to do is be forced to pump more taxpayer money into the corpse of RBS. I think I read somewhere that that once august institution has several tens of billions of peripheral debt on the BS.

Cameron is most likely to say CTSO to the others.

2 Speed Europe…which lane will we be in?

“”We need more Europe .. a budget union .. and we need a political union first and foremost,” Ms Merkel told German public television. “We must step by step cede responsibilities to Europe.”
She added that the upcoming EU summit will not resolve all the euro zone problems.”

Imagine being governed by Barrosso, Ollie and the likes of Von Grumpy.

Just to emphasise the level of destruction going on in the glass business at present, here are a number of companies gone into liquidation/receivership in the past two months or so.

Flair Showers (Cavan, yesterday); WMG, Cork; Fahy Wood Products, Galway; Cavan Insulated Double Glazing; Robeplan Fitted Furniture Ltd, Dublin; Galway Glass Centre (Director is a TD), Douglas Glass Works (Monaghan).

This is now a far bigger closure rate than at the height of the crisis in 2009.
But the bondholders got paid. That was the important thing.
And oh, the euro was saved. That is supposed to be important too!
And we are turning the corner!

“China Investment Corp, the sovereign wealth fund, has cut its exposure to Europe drastically and sees a growing risk of a break-up of the eurozone, according to reports in the Wall Street Journal. The fund planned ahead and withdrew its exposure to the eurozone periphery without incurring any losses. Chairman Lou Jiwei told the paper:” from the telegraph

Who is holding the paper now?

My guess is the banks….which in Spain’s case means they are more insolvent (if there is such a thing) than first thought. If Blackrock do the audit then prepare for a dangerous outcome. It could be even worse than ours…our banks at that time had not loaded up on sovereign debt which is devaluing rapidly.

@John McHale

The challenge is how to get from here to there. In the short term, putting creditors at greater risk of losses reduces bank creditworthiness further, potentially causing the crisis to escalate.

I would have to say that the policy of prioritizing protecting private investment over national financial stability always seemed immoral to me and that it has had increasingly negative consequences for the EU. The sick joke of Europe’s villainous and incapable banks getting LTRO at less than half the interest of the forced national bailouts that often served to prop up these same banks is as much of an indictment of European policy preferences as one could ask for.

The ECB, being fair to them, are the primary institutional agent of this failed policy. They helped make this crisis into what it is, on behalf of their stakeholders, and their self serving palaver about the responsibility for sorting out the crisis being political and national misses the causes substantially being institutional and international.

It seems glaringly obvious that had bank bond holders been at risk to start with they might have invested more responsibly and accepted some losses when it all went wrong. The end of private sector protection for banking investment might also have the effect of making government bonds much more attractive.

Banks and their role in national financing and ordinary domestic saving are the sources of many of our current problems so why are we going to such much trouble to maintain the link – in fact make it tighter?


Why do ECB apologists in the Irish establishment always start with a position of what might be reasonable or possible from the ECB’s point of view. Our position should be what is necessary to make the state viable. If that is uncomfortable for the ECB then let them worry about it.

That worries me too. It is one think to try and put yourself in the shoes of your opponent (and Germany and the ECB are currently our opponents, unfortunately) for the purpose of calibrating your own actions, it is quite another to attribute the same importance to their needs as ours.

After all it has been the position since the crash of 2008 that the ECB first, and then Germany’s conservative government, found themselves with directly opposing interests to Ireland’s. What they think is reasonable is relentlessly pursuing their own interests at the expense of ours. I would never have described either right wing thug Lorenzo Bini-Smaghi or brilliant ignoramus Jean Claude Trichet of being either fair or reasonable and Merkel has made partial and unreasonable her motto.

So this this is now a zero sum game and we can not continue to make our principle strategy for escaping the European component of the global financial crisis “rolling over and begging for mercy” (sorry, protracted negotiations) while we watch 60+ billion Euro disappear down the gaping maw of the European financial sector.

Surely someone in the Irish establishment can see this?

It’s not much use crying over spilt milk and the crossing the Rubicon moment was when Anglo should have been allowed fail. The wrong die was cast and an Ecofin Oct 2007 agreement gave cover for pushing for a compromise. The facts are that Anglo’s debt was given a State guarantee.

Today, the current bail-in proposals give us no clout on getting debt written off.

Who would pay for a special writedown of debt when as others also have pointed out, we still have bubble salaries and benefits in some sectors despite our bankrupt status?

I’m not arguing that the debt level is sustainable but apart from nuclear options, we are in the same boat as others and Enda Kenny could scream as much he could but we are a small country that in fact has done very well from a club without costing us a cent until the common delusion Ireland had invented the free lunch.

In the US, following the collapse of Lehman, US authorities sanctioned full payments by bailed-out AIG to the likes of Goldman Sachs because of fear of contagion (the optics weren’t of course helped by the fact that teh Treasury secretary was the ex-head of GS).

The world is in an unusual situation: a recovery in advanced countries has faltered for a third time after a steep bust.

In the US it is possibly the weakest recovery in 200 years. Annual average GDP growth  in 1933-1940 including the 37-38 downturn was 7%. In the first quarter of 2012 annualised growth was 1.8% compared with 2.4% since 2009. Even allowing for the housing crash, this situation is different.

Emerging economies have provided growth but India is faltering with rising budget and trade deficits and still high inflation. The rupee has fallen by 20% against the dollar in the past year but the trade deficit has widened to $186bn. Devaluationists take note. There are specific factors such as the oil bill but as I have said many times, it’s easy to imagine an exports boom from a suburban armchair – even more so if you have never sold anything in a marketplace.

Ireland mainly depends on an  entrepot economy and it cannot or does not produce enough itself to sustain a rich country standard of living.

We got the potential of emerging globalisation right but the country has been appallingly misgoverned for decades.

We have had an election and it’s two months short of the fifth anniversary of the credit crunch and we have had national ideas initiatives and advocacy of debt default and leaving the euro – some inevitably from folk who have not made one consequential decision in their professional lives.

Not even a pope is infallible and in times like this, iconoclasm should be welcome. However, on radical solutions, apart from selective comparisons with other countries, is there a credible blueprint on how things would work out in the real world?

“… most analysts agree that the future stability of the euro zone will require a form of banking union, with centralised supervision, centralised deposit insurance and a centralised resolution regime that allows for losses to be imposed more broadly on certain classes of bank creditors. The challenge is how to get from here to there …”

The problem is most analysts may agree but if one reads yesterday’s draft directive from Barnier Europe has not the remotest intention of going there, none at all. So the challenge does not exist as a practical matter. As Colm McCarthy points out elsewhere on the blog, the proposed directive is not intended to be in place before 2015. Second though the draft law expressly rules out a centralised resolution regime, centralised supervision and so on. A banking union as it is envisaged is simply envisioned as a bureaucratic house of cards that keeps in place the institutional frameworks of Member States, adds a new few floors to it all, and leaves undisturbed the EU’s banking oligarchs and their oligopoly.

“(the optics weren’t of course helped by the fact that teh Treasury secretary was the ex-head of GS)…”

The optics of the positions you have taken isn’t great, but not surprising, considering Finfacts website appears to be heavily patronised by Bank of Ireland – who would know a thing or two about “free” lunches unlike the foolish proletariat.

Having said that – i agree 100% with you on the following point:

“Who would pay for a special writedown of debt when as others also have pointed out, we still have bubble salaries and benefits in some sectors despite our bankrupt status?”

It was one of the great shames of the fiscal treaty debate that not a single park used the C word once – this country is sorely lacking a social democratic party that is not capitive to either trade unions or the professional elite…there must be a middle ground.


“2 Speed Europe…which lane will we be in?”

The hard shoulder?

“China Investment Corp, the sovereign wealth fund, has cut its exposure to Europe drastically ”

Don’t disagree with the analysis as to why but isn’t there a slew of economic data due out of China over the next few days? I don’t think any of it is expected to indicate that their economy is doing as well as it has done in the past. Drawing in the horns and all that.

My live Bernanke blog isn’t working. Any news? My guess is still nothing happening today and there will be co-ordinated globalmeflippjip coming from a central bank near you soon. Failing that, we will be looking at a globalmeflipjip market crash shortly.

It’s a bit sad when you can find more up to date news on Zerohedge than anywhere else these days!

@ V Barrett: “there must be a middle ground.”

There is. But who will stake it out? We might be in for a re-run of the 1981 – 1982 triple-election scenario. Irish voters are spread out from left-of centre to right of right-of-centre. There is not sufficient electoral support for a major left-of-centre party. SF will attract many marginal Labour supporters and rural voters that supported FF. That should put them in the mid 20%. FG will hold its core, but will lose its marginal supporters. That will put them in mid 20% also. Labour will probably bottom out near 10% – if they are lucky. That leaves a big bunch in the middle with no real home to go to. It would be brave or foolish political commentator who would predict what the next election will throw up. We would need three op polls to provide some evidence of a shift of the floaters. No one wants a ‘new’ party. That about leaves FF to stage a comback if Martin can dump his troublsome brooders.

@PR Guy
Same old. EUrope the problem….built in tax increases a danger….he is ready to help out if things get worse.

Risk on again today….they must have forgot about Greece.

@ V Barrett

The optics of the positions you have taken isn’t great, but not surprising, considering Finfacts website appears to be heavily patronised by Bank of Ireland – who would know a thing or two about “free” lunches unlike the foolish proletariat.

Please feel free to trawl through 24,000 articles and show where we were a Doctor Faustus. Try and distinguish between a news report and editorial comment.

Of course in Ireland, you find it strange that we would sell advertising to banks but at the same time not be for sale – – in fact spend years highlighting reckless misgovernance. We weren’t angling for quango appointments or kowtowing to developers to get work writing works of fiction known as ‘economic impact’ reports.

Because economic crashes are relatively rare, having principles comes at a cost and individuals like you will assume that everyone is on the make. After all, the beggars on horseback usually win if success is measured in money terms.

The likes of you want free online content like a bum in a pub but then we are compromised by selling advertising.

“Because economic crashes are relatively rare”
not really: Look at Reinhart and Rogoff.


My comment pertained primarily to the “optics” as opposed to any “reality” – you appeared to have understood the difference when you alluded to GS earlier.

The fact that the “optics” coincides with your apparent desire to divorce yourself from reality by suggesting the Irish “got a free lunch”…while ignoring it was in fact the bondholders that got a free lunch and thereafter adopting the “we are where we are” approach to the Anglo debt. I think it is worthy of comment.

If you choose to use this site to advertise your wares as well as to make comments, some of which I think are well founded, then perhaps you shouldn’t be so sensitive to comments from “the likes of me”….

Ballyhea protestors go to Frankfurt
7 June 2012 Presseurop Irish Examiner

Every Sunday, after mass, the citizens of Ballyhea in southern Ireland march silently from one end of their tiny village to the other. Their protest is against the rescue of the country’s banks, which crashed after the Irish property bubble collapsed in 2008. The billions needed to keep these banks afloat, all at the taxpayer’s expense, eventually led the Irish government to seek the €85 billion EU/ECB/IMF bailout of 2010.

For the protestors – “greeted with unexpected civility by the citizens of Frankfurt and the staff of the ECB” –

The ECB is to blame for our soaring bank debt. The ECB has been abusing its financial muscle and forcing a weak Irish government to assume for the Irish people a debt burden that is not ours.

Under the iron thumb of the troika
7 June 2012 ABC Madrid

Fourteen months on, Portugal spends its days under the watchful eye of the IMF, the ECB and the European Commission, which have lent it the money to pay back its debts. As the lenders’ emissaries inside Portugal verify that the reforms are being pushed through, the people are calling for “more time, more money and better conditions.”

In April 1974, the Carnation Revolution ushered in democracy. And in April 2011, following in the footsteps of Ireland and Greece, the Socialist government of Prime Minister Jose Socrates was forced to go to the European Union with a dramatic plea for help.

From DOd link on Portugal

“Despite having the lowest levels of pay– the “mileuristas” of Spain are, with any luck, “560 euristas” on this side of the border – the sacrifices have only been piling up since the government decided last year to apply a 50 percent excise tax on the Christmas bonus of all those Portuguese with incomes above 485 euros per month, which is equivalent to the minimum wage.”….

…we are clearly nowhere near how far it can go here.

Swiss CB spent 65bn in May keeping the lifeboat ready. 65 billion in one month. There is some heavy stuff coming down.

Seamus says:

“A move to the bailing-in of bank creditors may actually lead to the more stable banking environment that the original misguided policy of the ECB was trying to effect.

The move may make bank failures less likely as investors and depositors will be more cautious about where they put their money and therefore will be less likely to provide funding to risky banks whose operations are concentrated in sectors such as property development and construction. These banks will have to pay more for funding which may curb their more reckless actions. ”

This is correct. The only, minor, downside, is that there will be a boost to the market for the services of financial analysts, advisers and money managers who actually try to understand what they are doing as opposed to those who have been ‘trained’ to the point where they get a certificate that says they are competent, but whose interest seems limited to looking at a list and picking the highest stated interest rate.

He goes on:

” At present, this is just one per cent and there is little possibility of that increasing anytime soon. A deal linked to the ESM would not be a good switch for the Promissory Notes that remain. Rather than Ireland looking for what Spain might get, it is possible that Spain will look for the arrangement that Ireland got.

Ireland can gain if we ignore the ESM and hold on to the Promissory Notes, but delay their repayment over an extended period than set out with the current €3.1 billion annual payments. This would provide access to cheap funding for a longer period, reduce the real costs of the repayments and would have significant funding benefits in the medium term. The ECB would be vehemently opposed to this but this would not be the first time that the ECB holds opposition to a proposal in error.

According to the standard ECB line, a change to the Promissory Notes would be a precedent that it does not want to set and argues that “the commitments of the Irish state are met”. However, the Irish precedent is one that has to be repeated.

With slow moves to the bailing-in of bank creditors there should be less need for public bailouts of failed banks. It is also the case that the ECB’s governing council can block the use of Promissory Note type instruments to recapitalise banks. The ECB allowed Ireland to do so because there really was no other way to ensure that bondholders and depositors in Anglo and Irish Nationwide were repaid. Ireland was not in a position to issue government bonds to raise the money.

Countries can now turn to the EFSF and, from July, to the permanent ESM if they need funds to support their banks.”

The fact that at least one of the EFSF and ESM exist does not, surely, automatically mean that Spain cannot at least push for the sort of deal Ireland got – being permitted to, on a time-limited basis, have its central bank print the money to recapitalise the banks. AKA promissory notes.

The failure in Ireland to appreciate the extent of the ECB’s determination not to let Ireland turn this temporary printing into effectively permanent printing might not have happened if first the pro notes’ objectionable character to the German wing of the ECB had been fully realised, and second, if the fact that Spain might quite like a similar deal – followed inevitably by pressure for the un-printing timetable to slip, slip,and slip again – had been though about.

Why should Spain be forced to borrow from the ESM to recap its banks (if it has to, which it perhaps shouldn’t) when Ireland was allowed to print the money and is openly campaigning for that to effectively be the end of it?

Juncker (on Spanish banks this afternoon): “It is too early to spend time on figures, but if Spain needs help, it will have support. ”

Yes, let’s not bother your silly little heads with trivial things like FIGURES!

Hi caramba.

I see Spain now has the same rating as Kazakhstan (and lower than Ireland’s!). Let’s just bail it out without the hassle of the usual Troika oversight, believe their estimates of only 40bn, ignore that forecast about it still being in recession at the end of 2013, etc. What could possibly go wrong?

Euro 2012 starting soon, what will be the biggest news for the next couple of weeks?

@ grumpy

The answer to your question is that those pushing this line have no grasp of the wider context. This is why they repeatedly walk into a wall of near total incomprehension. The notable exception is Minister Varadkar.

The impetus for this strange state of affairs is parochial and domestic and there does not seem to be any immediate chance of it dissipating.

re – David O’ Donnell on the Ballyhea group in Frankfurt

As for the ECB’s ‘friendliness’, it was nothing more than the usual manic-grin they adopt when faced with criticism (witness that V.Browne interview)
– they like to peddle the facade of tolerance and support of democratic protest, but only when it doesn’t pose an existential threat to their sugar-coated totalitarian philosophy:'s-way
Diarmuid O’Flynn, the protest’s organiser, said:
“I was just thrown out of the European Central Bank (ECB). Someone from the ECB press office came down and said they were afraid that I could cause havoc in the press conference. I had my official media accreditation from Village Magazine.”

They stopped holding press conferences here, remember.

(re V. Barrett, in answer to your question of whether I was serious or sarcastic on reparations – deadly serious. A late reply, but you can understand why I feel the need to clarify, I’m sure)

@Brian Woods Snr
The future political middle-ground has to be the coming together of FG and Micheal Martin’s reshaped FF.
Very few of the 25-45 year olds in this country want to know anything about the ‘civil war’ stuff.They want a well run State suitable for them and their children(Our grandchildren!)…..then again that’s what we wanted and look what we got?
Oh well better than having the Shinners/remnants of Labour and a ragtag bunch of Higgins/Ross/Flanagan and Wallaces types….
As for the radical reform of the ‘permanent government’ set-up….then you might really be talking about a renewed and vibrant State!


“The impetus for this strange state of affairs is parochial and domestic and there does not seem to be any immediate chance of it dissipating.”

I have lived in important places, times
When great events were decided : who owned
That half a rood of rock, a no-man’s land
Surrounded by our pitchfork-armed claims.

I heard the Duffys shouting “Damn your soul”
And old McCabe stripped to the waist, seen
Step the plot defying blue cast-steel –
“Here is the march along these iron stones.”

That was the year of the Munich bother. Which
Was most important ? I inclined
To lose my faith in Ballyrush and Gortin
Till Homer’s ghost came whispering to my mind.
He said : I made the Iliad from such
A local row. Gods make their own importance

Krugman’s recent blog output about the European component of the global financial crisis is worth reading right now.

It is all ECB, all the time.

“The urge to punish” is about the sado in sado-monetarism (and its earlier origins with the neoliberal thinkers) and how it reveals the unsavory character of the ECB while “Doing Their Best to Destroy Europe” is more about how the ECB will not take any action because they might lose the credibility that comes with being determined to keep making the same mistakes.

Does our continued corporate tax rate which serves transfer pricing to rob our EU partners of tax income have any bearing on this debate?

Has that issue been put to bed with Sarkosy? or is this issue clearly in every EU policy makers mind when considering Ireland?

Should the premis that Ireland is benifiting disproportionately from tax haven activities costing fellow EU member states be compared with the cost of Ireland swallowing bank bail-outs. How much is it worth to us to retain our corporate tax rate? – What percentatge of the bank bailout would need to be on the table for us to countenance playing fair with regard to taxations of global income actually generated in Ireland as opposed to channeled through Ireland?

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