Summit Statement

The short statement from from the European Council summit held last night/this morning can be read here.  Some of the points of note:

  1. “When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly.”
  2. “The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme.”
  3. “We urge the rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for recapitalisation of its banking sector. We reaffirm that the financial assistance will be provided by the EFSF until the ESM becomes available, and that it will then be transferred to the ESM, without gaining seniority status.”

UPDATE: I have provided some initial reaction to the summit here.

163 replies on “Summit Statement”

The concession on seniority of ESM debt is the most significant, otherwise debt repayments continue to be due. of course in the case of default then the ESM gets at least equally burnt.

It would be ungraceful of me not to use this opportunity to thank the following for their aid during the referendum campaign. Sincere thanks to Michael Hennigan of FinFacts,Bloomberg TV, France 24 TV,Spanish TV,Thomson Reuters,Danish newspapers,De Telegraaf Holland, RTE radio Morning Ireland, Newstalk downtobusiness and BBC radio which organised the joint broadcast with myself and Paul Krugman. I am sure I have omitted many and for that I apologise.

On point 1. above, we know from our own experience that recapitalising the banks doesn’t necessarily alleviate the problems.

Understanding that money comes from banks loans and is retired as loans are repaid provides a good indicator as to why.

If banks are well capitalised they are well equipped to pay each other and in theory they should be more confident to create new money through lending.

However, even with well capitised banks in Ireland we’re still unwilling or unable to create any new money through borrowing from a bank. The few that do get loans don’t help to resolve the debt crisis either since any new money created by banks through loans has a corresponding debt also.

Hence the conundrum of this system of money creation/destruction. If we want new money, we have to record a corresponding debtor. If we concentrate on reducing our debts to the financial sector, the money no longer exists.

Attempting to kick start the economy in an era when mortgages have reached their natural limit of taking two incomes their working lives to repay is futile as we’re seeing today.

Having bank loans as the only significant source of new money in the economy isn’t feasible. Ultimately we need a publicly created source of digital money to end the debt crisis.

Another point of note, first sentence: “We affirm that it is imperative to break the vicious circle between banks and sovereigns.” And the Ireland reference is right in the opening paragraph.

Credit must be given where it’s due. The Irish govt has become adept at riding the coat-tails of the big boys: it probably helps that we’ve been through the grinder already, and could recognise last month’s makeshift decision (financing the Spanish banks via the sovereign) for the disaster it turned out to be.

Once enacted then all Irish bank beneficiaries of the ESM should windup and cut the anchor of bank debt – hurrah!

In hind sight, will Merkel’s 999 call turn out to be analagous to Thatcher’s out, out, out call just prior to her consent to the Anglo Irish agreement.
Did the German’s blink when faced with the serried ranks of the Club MED pack with IReland at scrum half and Hollande at out half?

It looks better but I came across this piece by Joyce Carol Oates yesterday which seems pertinent to the discussion

Joyce Carol Oates on Jeanette Winterson

Winterson’s memoir has the unsettling air of the most disturbing fairy tales—those in which there would seem to have been a happy ending, after much fearful struggle; yet the happy ending turns out to be a delusion, and the old malevolence returns redoubled.


thanks for that


‘Bout Time for ‘The Conflationist Fallacy’ to get a good kick up the proverbial: that said, it remains standing at the mo … and Irish Citizenry remains on the hook …. not a bob has been substracted … and the insider_inbred governance clique remains in power … and insidious dispersion of resources remains untouched … half a million un(under)employed … and socio-economic-psychological re-structuring to be thought and done …

At EU Level – a positive step to sever Sovereign from FinSystem … essential to future of Democracy …

Listening to Eamonn Gilmore’s effusive interview on Morning Ireland it would seem that the core points were agreed in principle.

Whilst there is a way to go to get to the point where the ESM will inject money directly into banks, and there is likely to be tough conditionality, this is an excellent result.

The reference to making Ireland’s position more sustainable suggests we put our oar in.

Having criticised the Government heavily to date and having expressed a lack of confidence in their ability and their officials ability to get a result for Ireland and the EU, I think it is only fair that people should acknowledge this as a very positive step forward.

This is the first action taken by the EU leaders which makes me feel positive about the next few years and gives me hope for a recovery in the Irish economy.

Let’s hope that the banks, investors and householders also regain their confidence as and from this announcement and that the domestic economy, which is in absolutely dire straits, rebounds as a result.

Forgive me but can someone have a stab of what this all means practically before we get too excited….that remains as clear as mud to me. It’s all up for grabs yet. Deficit targets still to be pursued…demand to contract we are celebrating the potential lowering of borrowing yields sometime in 2013?

I think we should also thank Spain for standing up for itself.

Spain was bounced bullied and berated into taking all bank debt onto its tax-payers. Spain held tough and talked tough and got ready to rumble. It also built a formidable alliance with France and Italy. Without Spain we could not have achieved anything.

I hope Lorenzo Bini Smaghi and Nicolas Sarkozy are out there somewhere crying into their strong black coffee.

It’s hard to know what point number 2 means at this stage, and whether it will make a big difference for us. Are they just talking about problems which may yet emerge with the banks, or are they talking about the legacy fiscal problems arising from previous banking sector problems? The wording suggests more the former than the latter to me but hopefully I am wrong.

The bigger problem is as far as I can see that the combined firepower of EFSF/ESM is still much too small, which means that the future of EMU is still very much in doubt.

I’m a bit skeptical about the language being used here: examining isn’t exactly doing. I think we’re missing specifics on the sequencing of any changes to our bailout conditions as regards the banks (see Kevin’s point above) and of course whether the new deal applies only to new potential losses on the bank’s balance sheets or the old stuff we’re already on the hook for. Does the deal treat, say, the promissory note arrangements for Anglo and Nationwide the same as the more standard recapitalisation of BOI and AIB? Lots of questions but undoubtedly a good news story, if not the be all and end all of the problem.

@ Kevin O’Rourke,

That’s what I was thinking. I think we have to view the statement as positive, but we don’t know what it means.

On the ESM, is it now going to pay private bank losses? ‘coz it’s not really set up for that. Effectively if it’s going to cover such losses it becomes a liquidity facility to pass losses on to other member states. Did we really get that level of movement last night? I doubt it.

Taking V barret’s point let’s assume the ESM recapitalises our banks directly

1. Are AIB, Anglo, INBS, EBS et al then effectively owned by the ECB?
2. How does the ESM get its money back particularly in relation to Anglo and INBS where there is no prospect of recovering anything?
3. Does Ireland save on the interest payments in relation to the money we borrowed to pump into these worthless banks?
4. If the ESM can’t get its money back on the Irish banks do we then effectively have to contribute to the write off. (Even if we do at least this is less than the original write off)
5. If the ESM has to write off money pumped into Spanish, Portuguese, Greek, Italian banks do we have to contribute to that also? If so we might just be back where we started?

06/29/2012 Der Spiegel International

Monti’s Uprising: How Italy and Spain Defeated Merkel at EU Summit

By Carsten Volkery in Brussels

Angela Merkel took a tough stance ahead of the EU summit, insisting she would not make concessions. But Italy and Spain broke the will of the iron chancellor by out-negotiating her in the early hours of Friday morning. Germany caved in to demands for less stringent bailouts and direct aid to banks.

The session ended at 4:20 on Friday morning. Ten minutes later, Van Rompuy and European Commission President José Manuel Barroso announced the breakthrough at a press conference. At 5:00 a.m., Monti, the winner of the evening, appeared at the Council building’s exit. He gave a press conference on the way to the car — and announced that he will travel to the European Championship final in Kiev.

@Stephen Kinsella

There must be a mistake Labour informed all Irish commercial tenants that retrospective legislation on upward-only rent reviews was impossible–the oligarachs and the Fine Gael Landlord association had informed comrade Gilmore and the other Labour comrades of this.

Having read the statement, viewed Enda Kenny’s departure interview and listened to this morning’s coverage there are more questions than answers.

On point 1 it is unclear how the ESM can directly recapitalise banks following a “regular decision”. The text of the ESM Treaty makes no allowance for this. Article 15(1) says:

The Board of Governors may decide to grant financial assistance through loans to an ESM Member for the specific purpose of re-capitalising the financial institutions of that ESM Member.

One point 2 the language is eerily familiar to elements of the summit statement from the 21st of July last year.

In this context, we note Ireland’s willingness to participate constructively in the discussions on the Common Consolidated Corporate Tax Base draft directive (CCCTB) and in the structured discussions on tax policy issues in the framework of the Euro+ Pact framework.

The words “examine” and “participate constructively” are vague but this is not reflected in the way they are being interpreted.

On point 3 the only real change is in relation to the seniority status of the loans. The bank recap money for the Spanish banks is still going to be added to the Spanish public debt. There has a lot of talk of retrospective action but little clarity on what this might involve.

The outcomes of previous summits have been big on words and short on actions. This time, it appears to be a summit that was big on action but it would helpful if they used a few more words to tell us what they actually mean.

The ‘solution’ seems to hinge on something or other coming together in October/November – a long time away, far more than a political week.

Does anyone have any insight into how exactly the government would use (or misuse) EIB funds should they be made available? If project bonds are used to allow another run at infrastructure projects one would have to ask whether previous value-for-money measures were respectable.


Direct Aid for Banks: Italy and Spain Get Their Way at EU Summit

Italy and Spain were able to secure immediate measures to lower their borrowing costs at the European Union summit in Brussels on Thursday night. The agreement allows direct EU bailout aid to struggling banks, which Chancellor Angela Merkel had opposed.

A detailed proposal on how a banking union might look is to be presented in the autumn by the so-called Gang of Four, made up of Van Rompuy and the heads of the European Commission, European Central Bank and Euro Group.

“The aim is, of course, to make the euro an irreversible project,” Van Rompuy said.


Another important point relates to the introduction of a new macro prudential supervisory role at EU/ECB level. The UK authorities are loving this development it seems. From the FT blog:

“I personally would welcome having as an opppostive number the
European Central Bank,” the governor says. ”Having one overall
supervisory authority that didn’t feel it had a strong political
commitment to banks, but instead the stability of the financial system
as a whole, might be better from our point of view. Personally I would
find that a bit of a relief.” However, he then notes gloomily that a
single banking supervisor isn’t germane to the main problems the
eurozone is facing.

Lord Turner then breaks ranks with the governor (see 10.48) over
keeping quiet about the eurozone summit and says that last night’s
statement is a move in the right direction.”The possibility of
recapitalising banks directly is a step forward,” he says, adding that
“the words as written look like a major step forward” in recognising
the reality of monetary union.

Lord Turner is “very supportive” that the eurozone’s supervisor should
be the ECB.

“the possibility to recapitalize banks directly”

Will this magically improve the quality or the real value of the debts on their books (that they are trying very hard to appear better than they are)?

Shifting debt on to banks….implications for credit crunch…things to get worse in that regard. It all comes back to failed institutions needed to fail and if we can’t make them fail now retrospectively we are just robbing Peter to pay Paul. The debt hasn’t gone away u know. Seismic shift or shape shifting?

@ Stewart Byltham,

Good points.

In relation to point 1 of the topic.

What happens in 2013 when the ECB Banking Supervisor looks at a bank and concludes it is hopeless?

Does it continue to inject money, or move the loans into a ECB toxic dustbin?

Perhaps that is the aim, create a giant ECB toxic dump for any and all insolvent banks in Europe.

So who is on the hook for this dustbin? The ECB or the Sovereign Govts?

Perhaps thats where closer union and tighter fiscal integration comes in, the ECB will manage the dustbin, but the respective Govts will have to fund the wind down of the dustbin over the next 50 years?

@Stuart Byltham

Yes these are good points. My take:-

1. Are AIB, Anglo, INBS, EBS et al then effectively owned by the ECB?
Not sure, don’t care – they are welcome to them.

2. How does the ESM get its money back particularly in relation to Anglo and INBS where there is no prospect of recovering anything?
Presumably the EFSF/ESM will recapitalise viable banks (in expectation of getting money back from them eventually), and assist in reengineering of State debts incl. our promissory notes, in expectation of getting funds back from us via long bonds etc.

3. Does Ireland save on the interest payments in relation to the money we borrowed to pump into these worthless banks?
If we reengineer the costly prom. notes – yes, most definitely.

4. If the ESM can’t get its money back on the Irish banks do we then effectively have to contribute to the write off. (Even if we do at least this is less than the original write off)
That’s a long way away. ESM financers- the big boys – will naturally take the bulk of the hit.

5. If the ESM has to write off money pumped into Spanish, Portuguese, Greek, Italian banks do we have to contribute to that also? If so we might just be back where we started?
Paradoxically, apocalyptic scenarios like that are easier to deal with the more mundane ones. (Indeed the steady escalation of the crisis now looks to be standing to our benefit.) If everything everywhere implodes, the ECB will have no choice but to man the money-presses.

this has happened before. its what they think this time next week that will be the real gauge. The euro is already back half a cent against the dollar from its surge this morning.

“When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly.”

I count 4 qualifications

(i) When… – i.e. not now
(ii) Could…
(iii) following a decision
(iv) have the possibility

Why not have just the when?

“When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM will be have the ability to recapitalize banks directly.”

“When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly.”

I count 4 qualifications

(i) When… – i.e. not now
(ii) Could…
(iii) following a decision
(iv) have the possibility

Why not have just the when?

“When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM will have the ability to recapitalize banks directly.”

The reason i believe IBRC will not be taken on by the ECB is precisely because of the point you raise in 2 above….the ESM will expect their money back. It would be a monumental shift – and the very one we need – if the ESM was to recapitalise more than just viable banks. Under the solidarity provisions of the Maastricht treaty when the Troika decided bondholders had to be paid this is precisely what should have happened i.e. a euro wide fund that shared the burden equally (assuming you buy into their argument that bondholders DID have to be paid).

Obviously the markets think there has been some movement – Ireland’s benchmark 9-year bond is down from 7.1% to 6.7%, which is a considerable movement and puts us back to a few weeks ago before the Spanish bailout.

But can anyone point to anything concrete here which reduces our debt deriving from bailing out the banks?

If the ESM recapitalises banks, what does this mean? If Bank A is insolvent because it crystallises losses, then it will need capital just to absorb those losses. That is likely to be dead money. Who is paying?

Is it not time that debate grew up in Ireland, we know there is no Santa Claus, and someone needs to pay for the bank losses. At present, it’s us. Does anything in this morning’s statements change that? And if there is, who is paying?

Using some simple assumtions if the 10 yr yield falls 50bps (and everything else remains constant) the implied default probability for spain has moved from 60% to 55%.

That probably accurately reflects the progress at the meeting – the probability of a solution has now increased but we are definitely not there yet.

Aren’t there 3 ways to get out of the mess

A. Perpetual austerity
B. Monetisation/inflation
C. Growth

Is there now a move in the direction of Plan B ?
I think any solution will be messy and take ages. There is no silver bullet summit on the horizon.

Angie baby now talking about the EIB becoming a quasi fiscal agency…..

Somebody better tell the Germans they are being set up by this cyborg with Swabian blood & flesh on the outside & Stazi advanced alloy skeletal structure inside.

We are all being maneuvered into a even more devastatingly centrally organised structure by this artificial debt crisis.

All of our goverments are failing us by not printing real domestic money.

The solution is to print unbacked Fiat and renationalise economies , just because the banks don’t like it does not make it the best option.

If we don’t seperate the banks from goverment we are all doomed.

Any word on our proposal for non-senior loans to directly pay public sector increments?


“Similar cases will be treated equally.”
That is the last sentence in the first paragraph of the communique. That has to mean something in terms of how Ireland’s banks costs are treated. Potentially it means that the entire €65 billion gets transferred to the ESM.

How will the ESM cope. It seems very simple to me. They will have to come up with a bank resolution scheme asap to avoid the substantial costs falling back on EZ sovereigns. But that is now just a technical detail.
The principal of banks being recapitalised by a Non State organization has been agreed. The costs will fall on bank shareholders and bond holders with depositors being protected by a higher ranking in the resolution/ recapitalization process.

This is a mojor breakthrough.
I listened to Quentin Peel of the FT on RTE after 10am. IMHO he is too cautious about this breakthrough. He seemed to equate it with other summit decisions / announcements.
It is nothing of the sort. This is a real shift.

“This is the first action taken by the EU leaders which makes me feel positive about the next few years and gives me hope for a recovery in the Irish economy. ”


Minister Noonan on News at One with Sean O’Rourke.

Don’t breakout the champagne…

No relief for the citizen in the next budget.

The ‘seismic shift’ applies only to the (if it happens) separation of sovereign and bank debt.

Banks 100: Citizens -100

Spin, spin and more spin over the weekend and beyond.


If you are right then that is significant. But i’m not convinced. Similar cases will be treated equally is not unambiguous.


“On point 1 it is unclear how the ESM can directly recapitalise banks following a “regular decision”. The text of the ESM Treaty makes no allowance for this.”

This was foreseen in the present ESM Treaty. The legal route to be taken is to use Article 19:

“The Board of Governors may review the list of financial assistance instruments provided for in Articles 14 to 18 and decide to make changes to it.”

By Article 5, this will require “mutual agreement” (ie. a unanimous decision) by the ESM Board of Governors (ie. the Eurogroup).

As to all the qualifications (“when”, “could”, “appropriate conditionality”, etc.) to the actual use of the instrument, they reflect the view of the creditor countries that it is only to be used to recapitalize commercially viable banks, controlled by union-level authorities, not to keep national zombies walking.

Anyway, this is just a political agreement. Before the actual thing is ready to use, a lot of things need fall in place. The creation of a European supervisory body will not take place overnight (it needs a rule book, for example, which may take a long while agree on). Likewise, the ESM first needs to be established, built up, and then develop policies and capacity for the exercise of its shareholder authority.

My guess is the IBRC stuff gets put out into 30yr ESM loan to Ireland, all the rest for the viable banks gets taken over by the ESM directly. The former, on an NPV basis, could be worth 10-20bn in today money in terms of inflation, reduced cost of funding etc, while the latter would be worth 15bn or so upfront. So deal could be worth say 30bn, or 20% of GDP. Pretty decent.

Gilmore effusive…we’re either depressed or elated when it would be good to find the happy medium.

My mother used to say: ‘Don’t count the chickens before they’re hatched.’

There will be a meeting of Eurogroup finance ministers on July 09 when details will be agreed.

Kevin O’Rourke has pointed out that the existing rescue funds have limited resources.

So Irish expectations that all bank related sovereign debt will be transferred to the ESM should be tempered by the reality that the ESM could not handle adverse Italian and Spanish scenarios.

The rescue funds, the European Financial Stability Facility and the yet-to-start ESM, may have over €700bn available for purchases. Italy and Spain have about €2.4 combined of outstanding bonds, bills and loans, according to data compiled by Bloomberg.

@ John Corcoran

Thanks John.

You’re a gentleman and maybe a scholar also!

@Bond. Eoin Bond

I think you are setting the bar far too low.
Ireland has put ~65billion into banks of various kinds for ‘shareholdings’ etc.
It is not unreasonable to say that this is the cost to the State and that on the basis of equal treatment with for instance a French bank that has to be recapitalised next year for say ~40billion, why would Ireland’s expenditure on banks not be treated ‘pari passu’.

Of course the State shareholdings in the respective banks would have to be transferred to the ESM. I do hope we will not be getting resistance from ‘our banks’, should that happen!

The odd bank to work out of course will be BOI, where the Irish State already took a loss on its ‘investment’ and no longer that % of the shares.
Where the State owns the shares, then the ESM can have those shares and the fine summer that’s in it on top of them.

Whats happening to Southern Europe is very simple on one level.
In Italy Gasoline demand is down 16.1 % YoY from April & Diesel demand is down 14.3% YoY.
This could be a good thing if Italy had the Lira again as it would promote good substitution and restore balance to the economy.

But this is not happening.
Italy bought 1,594 Buses over 3.5 ton in Y2011
It bought 1,101 buses over 3.5 ton in Y2012

People simply don’t have enough tokens in their pocket as they are operating withen a non optimum monetary envoirment.

“Growth” stuff won’t work under these conditions as you have no rational demand……. the money must flow first.

This experiment is a harder version of the first Marios rule where demand in 1998 was 1.94MBD to now 1.25MBD but with people without the tokens to get on a Bus.
This Euro experiment is a form of economic genocide to enrich bankers in league with the oil merchants of Arabia.

The goal of a rational altrustic economy is to stop sending money to these bastards.

Even an acknowledgement that thet are going to “examine” the Irish case is a huge departure IMHO.

It sure as hell is a long way away from, “Ireland should stick to its commitments” rhetoric whenever members of the Commission are asked about any such prospect.

In fairness, it is probably just the promissory note discussions being given a ‘formal’ (as in national, rather than European Commisson or ECB) recognition.

If ESM was to take a direct stake in banks I assume the bank in question would have to make contributions back for the next 50 years to pay it all back.

On bond-buying, I thought the ESM already had the power to intervene in secondary markets? Perhaps it was the EFSF I am thinking of.

Overall, it is alot of ‘possiblities’ but it is a damn sight more than the EIB and ‘Project Bond’ weak sauce I was expecting.

Sorry the Y2011 to Y2012 stuff is Jan to May figures rather then full year data.

There was 2,751 Buses Sold in Italy during Jan – May 2006.

Oil consumption is tanking to 1960s levels yet we are not getting good substitution as is happening in the UK.

If we look at the Jan to May Bus figures the UK market is the equivalent of the French , Italian & Spainish market combined !!

Jan to May
France : 1,812
Italy : 1,101
Spain : 803
Total : 3,716

UK :3,608


Does that bus list include the England Euro 2012 bus that was parked 20 yards from their own goal in the Italy match, ultimately to no avail?

ahhh , no – the data is not of that resolution and indeed the most recent data is open to revision.
But I am sure the Boys in the ACEA will factor in the Soccer coefficient somewhere.

But this strange fiscal policey is to stop the rational flow to peserve hypothetical debts rather then save a real domestic economy.

We are dealing with football managers who don’t see national economies as economies anymore , they see these units as conduits for debt , oil etc.
The Managers just care about the money rather then the result.
Its a Sven-Göran Eriksson method of management.
Bullshit your way to riches.

What happens inside these units is of no consequence once they get a yield.
You can see this quite clearly in the regin of the two Goldman Marios as they “structurally adjusted” the Italian economy to long term poverty and debt servitude.

in fairness to JC whether his treaty strategy was right or wrong, the objective was to get some movement on bank debt….was that not the real war – and is something not happening on that now?

thanks for the post…interesting. no mention of Enda rising up here!

“Monti’s uprising began at 7:00 p.m. on Thursday evening. That was when European Council President Herman Van Rompuy wanted to conclude the summit’s first working session and announce the growth pact to the press. According to participants, Monti was furious and asked Van Rompuy where he was going. Had the president perhaps not understand correctly, Monti reportedly asked. The Italian prime minister said he could not leave the summit without concrete measures to fight the high interest rates on Italian government bonds. He would not agree to the growth pact until that issue had been clarified. Rajoy lent his support to Monti and said that he too could not yet approve the pact.

The threats apparently made an impact on the other delegates. Danish Prime Minister Helle Thorning-Schmidt asked pointedly whether the attendees were now all hostages. Van Rompuy remained seated. It was only after 10 p.m. that he made another attempt to appear before the press. Merkel urged him to announce an agreement on the growth pact. French President François Hollande, however, told him to tell “the truth.”

Enda the “cuckoo” comes to mind as an appropriate nickname. Thanks be to god for Italian and Spanish difficulties or we would be still swinging in the wind.

Why does a Euro Area summit statement keep making reference to the European Council…

“We ask the Council to consider these proposals as a matter of urgency….” etc.

Euro last night, full EU 27 today?

@ VB

“the objective was to get some movement on bank debt”

i thought it was to get upward only rent reviews reversed. Cos thats all he goes on about.

@V Barrett
Its all theatre – believe none of it.

The politicians role is of no consequence as they have given up all money power.
Some just want the Euro cheque in the account while others such as the beautiful but strangely dysfunctional sounding Helle Thorning-Schmidt will give up anything and everything to join the Euro collective so as to become the Ultimate Euro groupie chick.

“One man dares to probe the hidden secrets”

Dork I hope you don’t take offence if i said i see strong paralells between yourself and one Mario Ballotelli who is hitting the headlines today 🙂

The reason there are so many caveats in the communique is that this allows for negotiation, ie the decisions are not settled and will be political ones.

When the Spanish and Italian governments refused to budge on further enshrining auterity without a non-sovereign bank bailout, the German delegation blinked. This is because the break up of the Euro is Mutually Assured Destruction on all sides, not excluding Germany.

Clearly, the actual outcome on a bank bailout will be contested. The main hope for Ireland would be to join with the Italians and Spanish and others in demanding equal treatment including a retrospective element to the ESM funding. How much that amounts to and in what form will also be the outcome of tough negotiation.

But only if the Irish government negotiates.

Pretending that there are huge victories already secured is self-delusion. Worse, running to the US Chambers of Commerce in defence of the corp. tax rate while others get a bank bailout would be a national betrayal.

Contrary to popular opinion from various socialists such as Yanis V. – trade defecit countries won’t do so bad in a break up.
(I count us as a trade defecit country when we look at the real domestic economy)

We don’t need no ESM , we need Punts to fill the domestic demand hole.

The German Industrial fabric will come begging for us and others to buy their goods – as outside the Euro its Germany and its overly specialised mercantile heart that is in trouble.

The wealth will not somehow disappear after Euro breakup – Europe will however stop exporting its wealth to the Oil and car merchants , crushing Arabia and its use of oil for domestic consumption.

The Euro construct built the BRICs – if it goes all their raw material consumption will flow to the Anglos.

The text is the outcome of a fractious nocturnal negotiation. It will be seen, nevertheless, correctly, as a major turning point. Getting the sentence relating to Ireland cannot be viewed as anything other than a negotiating achievement. It is recognition that Ireland was first out of the traps in the banking crisis and was made carry an unreasonable weight. Or rather, the circumstances are now such that this can be admitted.

However, I cannot see how the relevant sentences can be read in any manner other than carrying a conditionality with regard to continuing to adhere to the “programme”.

“The Eurogroup will examine the situation of the Irish financial sector with
the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally”.

Again, this is hardly surprising. Germany is, it seems, willing to recognise the elements that are attributable to the euro qua crisis but has no intention of giving a get out of jail card for the rest. Again, it is in Ireland’s own interest, and that of the other countries involved, or likely to be, to act accordingly.

Hollande’s performance was understandable, as this was his first outing, but hardly glorious.

Cameron had other concerns but it seems that he has conceded on the ECB acting as supervisor, the Barclay’s scandal making still another UK opt-out scarcely credible. But Bollinger will remain part of the City’s stable diet.

Monti is evidently the hero of the hour. Unlike the other leaders, he actually knows what he is talking about.

“Is it not time that debate grew up in Ireland, we know there is no Santa Claus, and someone needs to pay for the bank losses. At present, it’s us. Does anything in this morning’s statements change that? And if there is, who is paying?”
And by the way, aren’t we still borrowing 50m a day to keep the show on the road.
The EFSF/ESM don’t do free money.

Angela has been duped.
If there is a European regulator that means that debts owed by the ESM are guaranteed at European level.
The ESM has incredible powers in terms of debt collection etc.
So in one fell swoop Europeans have created a monster….
Don’t believe me – watch this one pan out. The crux is the ESM and the people who lend to it. 100% guaranteed and the ESM has the teeth to ensure that

Its got nothing to do with shame really , its got to do with leverage.

The central problem is the Treasuries are run by bankers , I heard recently somewhere HMT is clamouring for another Goldman head to run the BoE !
I really don’t know how the power dynamics work withen the inner sanctum but if true that says it all really.
With the MMT boys & girls topping it all claiming the CB is the exchequer and the Treasury the CB……

In the words of Steve.
“If you mean create new credit, it is the private sector.

Federal Reserve Notes are printed by the Bureau of Engraving and Printing (BEP), a bureau of the Department of the Treasury. When Federal Reserve Banks require additional notes for circulation, they must post collateral in the form direct federal obligations, private bank obligations, or assets purchased through open market operations. If the notes are newly printed, they also pay the BEP for the cost of printing (about 4¢ per note). This differs from the issue of coins, which are purchased for their face value. (Wikipedia)

To issue new currency without associated liability the treasury/government issues its own bills (Greenbacks) without borrowing from finance/central bank.”

@ Ceterisparibus

They don’t?

If somebody is lending you money at concessionary rates when no one else will are they not forgoing the income that such funds would otherwise generate? Admittedly, all that Germany has been lending up to this point is its backing guarantee but this is not valueless (as many a parent that stood guarantor for the loans of their offspring have learned to their cost).

@ Seafóid

I put the start of the rot down to the moment when banking began to be described as an “industry” rather than a service (a bit like the Irish motor trade).

the view of further improving the sustainability of the well-performing adjustment programme.”

Further improving? Isn’t the reaction a bit over the top today. I notice Mickey Noonan being a lot more cautious this evening and it doesn’t look like we will get any debt relief. Maybe 30 years to pay back the Anglo debt.

At least we saw a power shift last night.m

A dash of French Realism

Banking union, relaunched investment, deepening political and economic union; the summit of June 28 and 29 should reignite Europe, says columnist Bernard Guetta. Too bad the players managing the crisis are more like auditors rather than visionaries.

Bernard Guetta
It is no overstatement to say that none of the 27 leaders at the summit could be described as having the calibre of a Victor Hugo, or even a Robert Schuman, Jean Monnet or Winston Churchill.

The debate has been heated, but, at the end of the day, financial solidarity and debt mutualisation have prevailed, notwithstanding German opposition and even though they are explicitly ruled out by EU treaties.

In short, statesmen like Victor Hugo may be in short supply, but Europe has nonetheless succeeded in forging ahead.

Our posts crossed…..concessionary rates? Cost of funds plus a small margin is not a concession within the context of a monetary union institution.

We still have to payback the Anglo 34b.

And I doubt if the ESM will want 500 billion AIB shares we now own!

All of the French “investment” is a waste if it is not used , this credit money is all about extending the bubble out further and further into the very corners of the monetary universe to prevent the money power slipping from the banks hands.

There is nothing rational about European commerce – it is artifact of credit production , it is not needs based.
We can see this in the new plan for a 13,000 pop town in Blarney “when growth restarts”.
But Growth / waste production for whom ?
We have a perfectly functional more central , slightly more rational near empty town called Cork city.
But the banks can’t make money out of plenty you see – they must create more shortage via waste credit production.

Europe is simply not dealing with its eternal internal infernal enemy….the Cartel.

Evening Realism

06/29/2012 Der Spiegel International
Yes, for Now
Merkel Knows the Dealing Isn’t Done

By Carsten Volkery in Brussels

To the delight of investors and relief of her euro-zone counterparts, German Chancellor Angela Merkel made some key concessions at Friday’s EU summit. But the celebration is premature because she has still left herself plenty of room for maneuver.

@ Ceterisparibus

A small margin is better than the one that would be demanded by the markets. We carry the major responsibility for getting ourselves into this fix and, despite the best efforts of many in Ireland to deny this fact, nothing will persuade outsiders to the contrary.

Noonan is genuinely exciting me on 6-one right now.

When asked if all we are looking at is longer period of repayment/lower interest rates:

Noonan: (Paraphrasing): ‘No, it goes beyond that. What the statement says is seperating of banking and sovereign debt’.

Merkel’s Tactical Victory {gotta get in a bit of Hegel (-;)

Smart Concessions from a Seasoned Negotiator
A Commentary by Christian Rickens

At first glance, it looked as though Chancellor Angela Merkel gave up several core demands during the EU summit on Thursday night. But did she? A closer look reveals a clever retreat to secure greater gains. To find the summit’s true loser, one must look no further than Paris.

Spot of Bother in the Bundestag

Irritation in Berlin over Euro Summit Compromise
Politicians Demand Delay in German Bailout Vote

Politicians from both inside and outside Chancellor Angela Merkel’s government are calling for the vote on the euro bailout fund scheduled for Friday evening to be pushed back. Too much has changed since the marathon summit in Brussels, they say, and they need time to sort things out. […] Members of Germany’s opposition, the Social Democratic (SPD) and Left parties, as well some politicians within Angela Merkel’s own coalition partner, the Free Democrats, called on the chancellor to delay the vote on ratifying the permanent euro bailout fund, the European Stability Mechanism (ESM), and the fiscal pact.

As I have said before the Euro is collateral money ….Gold is rising today for a reason.
Golds rise since 1999 is all to do with the Euros birth & structure.

If Europe held all the Gold in the world this might work out for us but we don’t (I think)
Istanbul is a major Gold exchange market.
Why is it rocking and Greece is in the doghouse ?
Why is it sucking in so much credit / commercial activity and therefore diesel consumption ?

When was the last time Luas trams were this full ?
Video Taken this month.

Meanwhile in my completly unscientific tram video analysis Angers single uncoupled trams appears almost empty.

Its not logical captain – something swims underneath the surface of this (albeit stormy) sea

The collapse in public transport in Ireland was not caused by high oil prices.
It was /is a lack of domestic currency.
The collapse of domestic demand is almost entirely a monetary phenomena.…plpp

We don’t need 1.8~ million private cars in this country , the Germans need to have the periphery full of cars ,we don’t

We got on quite well with 800,000~ cars in 1990.

Saw noonan on six one…if he is as good as his word then a massive massive part of our problems are over….but it sounds too good to be true. He could rue this interview

If they somehow build another satellite town of Cork as that is the only mechanism for “Growth” withen this waste based monetary construct then people will eventually be forced to walk further.

Its unbelivable really -especially the post 1987 world has completly destroyed the Ireland I once knew yet our leaders if you could call them that want yet more Grot production to dig them out of this Hole ?

For what I have no idea as it does not serve any purpose but interest payment.
(credit bubbles / deposit production pay the interest on “sovergin debt” without poltical turmoil while destroying real wealth in the process)

The Kinsale field will never come back – its gone.
During the Pre 1987 state capitalism period they blew it on NET and the electricity for Irish steel -scrap in / scrap out , post 87 it was credit consumerism.

Its a inescapable conclusion really – the western world is a pointless plaything of the banks.
A Grand depletion experiment.

@ All

The Bundestag has approved, with an overwhelming majority, the fiscal pact and the ESM.

@ Seamus Coffey

Having read your contribution to the Indpendent, I would suggest that some of the reasoning is based on the false premise that the European Council and/or the Euro Group meet and issue statements when, in fact, what they do is agree hard one compromises which is reflected in whatever texts emerge. Those texta that are short, and somewhat ambiguous, and emerge in the middle of the night, are usually the most substantive as the late hour, and the status of the participants, reflects both the differences and the importance of the subject matter.

At least there’s progress on the idea that a country’s banks’ debts shouldn’t be lumped on to that country’s taxpayers without any consideration of whether those people have any relationship to the shareholder’s and/or creditors. (and even if they were to, that’s not necessarily grounds for imposing the costs on the state).

Meantime, even if the “external” arrangement of Ireland’s banks’ debts is improved, we must still recognize that the “internal” arrangement of Ireland’s finances is still borked. A large part of the state’s apparatus is still living as if it was 2007. Most of the debt and deficit is simple running expenses. We’re still hearing the idea of a borrowed stimulus to fix an economy that’s suffering from a permanent drop in activity in one distinct part of the economy….with this borrowing to be repaid largely by the parts that are managing to survive in a competitive global market.

Whatever happens to the banking debts (and this looks like progress, so kudos to Spain and Ireland) there still needs to be focus on improving our internal justice. We’re a long way from that, I fear.

@Seamus Coffey

Useful overview. Perhaps a touch optimistic in conclusion but Cork_immersion and the Charleville hurlers does take its toll!

@ David O Donnell
Bonds raised by ESM=bonds guaranteed by Europe = Eurobonds
She can dress it up whatever way she likes but she has tied Germany to the Eurozone debt forever. Germany will be the driver behind the debt collecting heavies of the ESM. It’s no win economically and politically for Germany

Merkel has managed to turn German political demise into combined political and economic demise.
Wiley Italians beat them at soccer and in politics. And monti wasn’t playing for Italy … he was playing Goldmann

@ Hugh Sheehy

+ 1

I would not be so pessimistic. There is an increasing public awareness of how the various elements of the economy fit – or, rather, do not fit – together despite the failure of the academic community to contribute to explaining the process.

And the Troika holds, and will continue to hold, the purse strings.

Egypt’s president-elect Mohamed Morsi took an informal oath of office today before tens of thousands of supporters in Cairo’s Tahrir Square, in a slap at the generals trying to limit his power.

@Angela Merkel

Nice one tonight in Die Bundestag! Lovely Deutsche Solidarity.

Blind Biddy says – Hi!

Now to really progress, can anyone solve the riddle of The Egyptian Military, The European Cental Bank, & commmon or garden citizen_centric democracy? Anyone …?

However Mairtin O Direain put it very well

Duinn is eigeann
conai a dheanamh
in arais o dhaoine
a leagfadh cios
ar an mbraon anuas

from Stoite

And how about this poem
Stoite Nua by Pól Ó Muirí as a commentary on the Irish economy ?
Thóg an fear seo teach
(le hairgead nach raibh aige)
Is an fear úd
Claí nó fál
(Nár chríochnaigh sé)
A mhair ina dhiaidh
Is a choinnigh a fhiacha buan

This man built a house
with money he didn’t have
And the other fella
a ditch that he didn’t finish
That lived on after him
And kept his debts alive forever

Would Angela have conceded if she had been backed up by a Sarkozy-led France?

The first sign of positive change from Hollande’s election, and a kick in the teeth to those who want “austerity” and are just using the recession as an excuse to get it.

@ grumpy


I like trams too, but could you reign them in a tad.

Reign in Spain or maybe rein or rain!

I’m reminded of a comment made by Robert Solow about Milton Friedman, a fellow winner of the Nobel Prize in Economic Sciences: “Everything reminds Milton Friedman of the money supply. Everything reminds me of sex, but I try to keep it out of my papers.”

This week, I came across an interesting 2007 article by Paul Krugman on Friedman, the once conservative icon:

In the long run, great men are remembered for their strengths, not their weaknesses, and Milton Friedman was a very great man indeed—a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived…

@ Eureka

Merkel has managed to turn German political demise into combined political and economic demise.

Stick to the sports punditry because many countries wouldn’t mind having some of this ‘economic demise.’

Germany’s surplus with the rest of the EMU almost disappeared in April but its ex-Europe exports have been strong, which should be seen as good news.

However, the decimation of the German solar panel industry shows that nothing can be taken for granted.

The interesting trend in trade between developing countries is that China has had a significant impact in the rising fortunes of Africa and South America.

The importance of selling to the growing markets of the world is illustrated by the fact that according to economist Stephen Roach, 40% of US growth since Q2 2009 when the recession ended, has come from exports.

Even so, the US has lost 43% of the Asia-Pacific imports market in the past decade with the biggest losses in the developed markets of Australia and South Korea.

France in particular has to retool in this changing world.

Until the 1990s, France was among Europe’s leading economies in per capita GDP. By 2010, however, the country had dropped to 11th out of the EU15 – – the pre-2004 European Union before the entry of 10 Eastern European countries. Low labour force participation of seniors and young people, as well as high unemployment rates are the main drivers of this per capita GDP gap.

It has a skills shortage, a poor educational system and youth employment double the Dutch level. At the other end of the labour market, the 55-to 64’s, the participation rate is 42.5% compared with 74.6% in Sweden.

Howard Davies, currently at Sciences Po in Paris, says that a decade ago, French GDP per capita was 94.5 per cent that of Germany. In 2011 it was 89.7 per cent. In the same period, Spanish GDP per capita continued to catch up. France has a problem of competitiveness and industrial capacity, which is getting worse.

@ MH

The real problem is the one that you identify and I am very doubtful about the capacity of Hollande to do much about it. The French econcomy is sclerotic and the new powers that be have shown no talent hitherto other than – as is usually the case – to divide up the spoils of office.

P.S. I note that I wrote ‘one’ instead of ‘won’ in a contribution above. Who spellchecks the spellchecker?

@ All

“We affirm that it is imperative to break the vicious circle between banks and sovereigns” has had an enormous incidental benefit which is very obvious from the coverage in the Irish media i.e. it seems to have broken the “vicious circle” as to which comes first, a resolution of the banking or the domestic budgetary element of the deficit. There is now nowhere to hide.


Just a question which continually gets unanswered and Karl Whelan raises my interest again

“…Ireland was placed under severe EU pressure to take on large amounts of bank-related debt..”

can somebody please show me the document that proves such ‘pressure’. I’m of the view that perhaps it wasn’t such a European stitch up but rather our own incompetence all over again. Perhaps someone could prove me wrong.


Sure I perhaps overdo it a bit………
But I use it as a mechanism to show the misallocation of resourses in the Eurozone and its hidden agenda to export European wealth to the oil and car merchants of the world.
I could show you videos of buses but they are not as sexy.
In the words of a British rail engineer recently quoted on the rail engineer mag.
Simon Kirby, Network Rail’s managing director, infrastructure projects :

He started by reminding his listeners that rail is a growth industry. “We used to use a statistic there’s more people using the railways now since the second world war – there’s actually more people using the railways now than there ever has been on what clearly is a smaller infrastructure, a more closely packed infrastructure, and a lot of what we are doing is around capacity – it’s about addressing many of those issues created by that growth.”

If you look at the Northern Ireland Jan to March Transport report published the other day the only passenger YoY growth was withen the rail area – now Northern Ireland is not the most optimum of places for railways given its population distribution and small geographical size.
Its a monetary phenomenon.

There is no doubt that real France has been damaged by the euro experience but if they somehow pull out of the euro and ignore their high elite you will find France will do better then Germany.
The Franc will allow the money to flow to their new investments preventing wealth leakage to the various sheiks of this world.

However withen the Euro their recent massive investments in rail is a misallocation of resourses.
Why did they put so much money into rail then ?

Some video footage of Orleans line B opening yesterday.

Less fanfare then Brest given its the second line but these guys are getting faster and faster at this Tram line construction game.

Testing in Le Harve seems to have already begun.

Angela and Wolfgang chilling out this fine morning …

Parliament Approves ESM and Fiscal Pact
Merkel Secures Vote for Euro Treaties

As expected, more than two-thirds of the lawmakers in Germany’s parliament moved on Friday to approve the permanent euro rescue fund, the European Stability Mechanism, and a fiscal pact long championed by Chancellor Angela Merkel. However, the treaties still face a review by the country’s highest court before they can be ratified.

Late Friday evening, Germany lawmakers — including politicians from two opposition parties — approved two key pillars of her efforts to bring calm to the long-raging euro storm.

In the first vote, members of the Bundestag, Germany’s federal parliament, approved the fiscal pact, which commits countries to stricter budgetary rules, such as reducing their structural deficits to 0.5 percent of gross domestic product. Lawmakers voted 491-111, with six abstentions, in favor of the pact, a pet project of Merkel’s that was agreed on by 25 of the EU’s 27 member states at a summit in January. Ireland became the first of these countries to ratify the pact in early June. A two-thirds majority, or 414 votes, was needed for the measure’s passage because it involves an internationally binding commitment to limit Germany’s deficit.

In the second ballot, lawmakers voted 493-106, with five abstentions, in favor of the European Stability Mechanism (ESM), the €700 billion ($890 billion) permanent bailout fund.

The Bundesrat, the legislative chamber which represents the interests of Germany’s states, also approved both measures later in the evening. Fifteen of the country’s 16 states voted in favor. Only the eastern state of Brandenburg, which is governed by a coalition of the center-left Social Democrats and the left-wing Left Party, did not support the measures.

At least 12,000 complaints are expected to be filed with the Federal Constitutional Court regarding the ESM and the fiscal pact. As a result of the legal complications, the ESM will not go into effect on July 1, as planned.

[think Portugal was first?]


Whether it does or not – Germany is heading for a REFERENDUM – due to direction of EZ – on changes to its CONSTITUTION – and prob before next General Election. (i’ll dig up a relevant link – PASS THE PARCEL TO THE PEOPLE)


Some notable quotes…

“He preferred a lighter touch, he said. “To those the naysayers who say you should be beating the Lambeg drum up and down the streets of Europe, there is another way of getting results and that’s what interests me,” he said.

“I’m a hard grafter and as some of them found out, they shouldn’t tangle with me too often,” the Taoiseach added.”

Should change his name to Clint Kenny.

And our much loved Mickey N…
“Mr Noonan initially said yesterday between €30bn and €40bn of banking debt could be transferred from Irish balance sheets, but later backed away from these figures. He also confirmed the deal would not lead to any debt writedown for Ireland.

“We don’t want to be tied into any particular figure. The big effect of this is there has been a major policy change in Europe. It’s now European policy to separate bank debt and sovereign debt and they referenced Ireland, in particular.”

He also said that some of the Government’s shareholdings in the banks could also be moved, along with the debt, to the ESM.”

So we get no relief. Pay back every cent but we will let your grand kids do it in forty years time. Bonus of interest rate reduction over forty years? At what overall cost.

As Superenda says…don’t tangle with me or I’ll pay you interest over a hundred years instead.

@ Yields or Bust

The credit crunch began in early August 2007 and from that time, Irish banks were increasingly reliant on ECB emergency funding as other banks would not lend to them on the interbank market.

Irish bank funding from the ECB rose from €28bn in December 2007 to €132bn in December 2010. a small portion related to IFSC banks.

It is true that as Irish yields began to rise from the summer of 2010 because of uncertainty about the exposure to Anglo and ratings downgrades, the ECB was worried about the reliance on emergency funding, which accounted for a fifth to a quarter of the Eurozone total.

For two years from October 2008, all Irish bank debt was guaranteed.

That was Ireland’s decision.

Maybe I’m too critical. Have I got it right? We still will owe about 200b. But 40 or the full 65 banking bailout costs will be moved to the ESM. The interest cost will be lower but we will pay for a longer period, thus increasing our overall cost over the period.
Now, those eejits in the bond market won’t notice that we have rejigged the books and will lend us at a super preferential rate because our sovereign debt will only be 160b or 135b depending on how much we can foist on the ESM.
So far so good.
Sorry, I forgot to mention that we will need 50m a day from those nice bond people to pay the wages, pensions etc. Sorry again, I didn’t factor in that we will save all this 50m per day by implementing the Croke park thingy.
Shure we are on the pigs neck.
Must read Animal Farm again.

Yanis is in good form today …

Mrs Merkel went to Brussels intent on striking two birds with one stone, pick up her bag immediately and return to Berlin with no further ado. The stone was the fraudulent re-packaging of existing structural and EIB funds (with the addition of a paltry 10 billion euros) into a grandiose-sounding ‘Growth Pact’. The two birds were, respectively, the SPD opposition back home (which had set as its condition for supporting the ratification of the ESM some ‘movement’ on growth) and Mr Hollande (who also needed some semblance of a Growth Pact to sell it to his voters as sugar coat with which to swallow the bitter pill of the Fiscal Pact).
The early part of the summit was expended discussing this inconsequential ‘Growth Pact’. When it was seemingly in the bag, Mr Rumpoy and Mrs Merkel tried to make a clean getaway, hoping that the summit was over. It was at that point that Mr Monti called the Chancellor’s bluff. In effect, he threatened the summit with permanent delay until two agreements were reached: One was the direct recapitalisation and supervision of banks (from the EFSF and the ECB); precisely as outlined in our Modest Proposal two years ago. The other was that Italy (and one presumes other countries) gains access to direct EFSF funding (i.e. that the EFSF is allowed to purchase Italian bonds in the primary market). Naturally, Mrs Merkel resisted. But, as if to prove once again that her recalcitrance was always paper thin, the moment Spain and France sided with Italy, she buckled. The result was the very first sensible EU Council agreement since the Crisis erupted.

Having said that, any celebration is extremely premature. First, Mrs Merkel has not spoken her last word. As before, this new role for the EFSF (and the ECB, in terms of its fresh bank supervisory role) may become undone in Berlin’s Federal Parliament, at the hands of the German Constitutional Court, or in the shadowy corridors of power in Frankfurt, Berlin, or Brussels. Secondly, even if this agreement is confirmed in the practice, rather than in the breach, it is only one small step. It will come to naught unless the toxicity of the EFSF is dealt with (see Policy 2 of the Modest Proposal, as an example of how this could be accomplished) and some genuine Growth Spurt is implemented (a New Deal for Europe, as we like to call it in Policy 3 of the Modest Proposal).


We still owe the odious bleed1n lot! Not wan cent reduced … if anything, over time, recent empirics would suggest many cents in odious interest added for the great_gran_childer. Aoife and Anto (who if bleed1n furious) are thinking of organizing a Riot of the Toddlers …. The Blind Biddy Hedge is giving serious consideration to sponsoring them ….

Reading the Irish Times today one might imagine that the Fountain of Eternal Credit had been rediscovered. Taxpayers to benefit apparently. Dan O’Brien talks of giddy exhilaration over the outcome. The coverage puts the trick of raising the dead into second place.

Ireland hasn’t got any deal on anything substantive at the moment.

Irish taxpayers haven’t been let off with a cent. Government domestic policy is hopelessly confused on reforms. Noonan has promised even more austerity which means income reduction, in the next budget while Howlin favors paying increments at the same time.

The full rolling amount of Anglo etc. i still there to be repaid – courtesy of the disastrous bank guarantee.

There is no guarantee that the ‘deal’ won’t unravel between now and the finalization of the banking union report. Any credit upheaval could derail plans. And there have been plenty of those in the past six months.

The Irish political elite’s interest in the EIB is to enable it to jam money into constituency sweetening construction projects and parlor working groups among insiders. The effects will be labeled in time for the next election ‘proof of the recovery’.

But none of this can stand in the way of a good fairy story.

I am not so sure its that paltry
Check out how much EIB money has been signed already for Spain

Almost double the next country Italy.

My problem with this is that they are using this quasi fiscal money to inject money into the system rather then using monetary mechanisms.
In other words the goal is not rational investment it is more about debt introduced to pay off the existing debt.

We have two extremes operating in Europe – the UK with its monetary stimulus (although they are not strictly greenbacks) but is now reaching its real capacity because of self imposed fiscal limits and countries like Spain where physical activity , sometimes pointless and not base money is used to pay the debts of the past.

I mean even I a rail freak is sceptical of high speed rail links in NW Spain !!

In reality the UK people have enough tokens to travel although with massive inequality while the rail lines of Spain remain half empty ! yet they keep building more stuff !
I have my doubts this new Tram train now testing in Cadiz is a good investment if Spain remains in this monetary zoo.

They need Pesatas so that they can utilise their previous investments to the max and stop sending high value oil money to Arabia and core Europe.

Spain would be a much more wealthy place if they had monetary soverginity.
The flip side of that equation is that the north would lose some wealth.

@The Alchemist & An Táoiseach

The only ‘Seismic Shift’ in the historical empirical records of Mayo was claimed, and irrefutably supported by the foot_prints left behind on the dance floor , by “The Divil” when he danced the two-step with the Belle of Ballyhaunis in the Dance Hall in Tooreen in the mid 1950s.

@The Dork

Yes – is remains debt to debt … this is perfectly clear to me .. the financial system remains under the illusion of ‘whole'(no pun intended). but the procedural separation, if not divorce, is a positive step_change at EU level … more to come on this: …

Can anyone suggest what is meant by “separating bank debt from sovereign debt”. Ireland will have €190bn-odd of sovereign debt next year. You could argue that €60bn-odd of that is bank debt. So what does separating that out mean? Who will pick up the bank debt if not the Irish sovereign.

“Ah” I hear you say “that’s what the ESM will do”

So the ESM will pay Ireland €35bn for cash spent so far on the bank bailout and will also take over the €30bn promissory notes, and then what? The banks can’t pay the ESM the money back, so who pays.

“Separating bank debt from sovereign debt” is meaningless for hopelessly insolvent banks. And that’s what Ireland has, and even though Spain won’t admit it for now, that’s what they have also. So what changed yesterday?

I hate to disappoint but this is just a hospital pass to September.

Politicians, bond traders, bankers and media floozies just want to have the summer off for The Hamptons, the Olympics, splashing the dosh on hookers and coke and also to try and keep everyone talking about something other than that pesky LIBOR fraud/blame it all on the minions.

Very fortunate to have this LIBOR thing at this moment in time… very fortunate…


Later on – the ‘procedural shift’ – and it is simply a ‘procedural’ shift – opens up other options at EU level [tbc……..] for dealing with the dodgy financial/banking system debt – without totally wiping out ‘sovereigns’. HOW remains very much an OPEN question at the mo … and I don’t think anyone really knows …. this is simply my humble citizen_serf_centric opinion …

@ The Alchemist

Dan’s byline is Brussels but it could as well have been sent from the North Pole.

This from the IT’s Derek Scally in Berlin:

“The details about liability . . . still have to be negotiated individually, and I can predict now that they will be quite difficult negotiations,” said Dr Merkel. “We have entered a new area . . . talks won’t just take 10 days.”

It’s interesting that the IT almost uniquely uses the honorific ‘Dr’ when Merkel herself doesn’t.

@ceteris, docm, anyone who own an iron

I think the ESM “investment” might prove to be a bit more awkward than some are assuming. Price? Form of investment (can you imaging the Eurobabble generated in attempting to have debt as equity? “equivalence” particularly regarding decisions taken previously by Ireland. What is IBRC equivalent to?

EFSF and ESM are not big enough to put 60bn (or into the Irish banks and provide equivalence to Spain etc. and backstop the Italian bond market. When this scheme was first raised a year or so ago my first reaction was that the bank-sov feedback loop moves to German and French bond rates as a consequence. If bunds sell off too much as the plans are further discussed it could be very difficult to increase the ESM and its involvement in banks might be a bit underwhelming. There is a bund bubble to unwind if Germany is genuinely thought to have been forced to accommodate the periphery.

Also SMP seniority?

How long before the ECB is likely to be persuaded to leverage up the ESM?

Does Enda have a tattoo?

On your reference to the non-banking debts and budget deficit – which will become harder to conflate with “banking debts trust onto the backs of the working people”

To correct Ceteris:
“implementing the Croke Park thingy except 1.28 which is apparently written in invisible ink and says the Agreement shall not be implemented were there to be any budgetary deterioration which was unforeseen in March 2010”

Oddly enough and rather revealingly Peter Mathews appeared on VB during the week and made an attempt to make this point. What was amazing was that he actually read from a piece of paper – presumably to add gravitas or ensure accuracy.

Peter Mathews: “if circumstances changed adversely and materially, then reviews could be considered”

Vincent Browne: “Could be considered!”

Peter Mathews – Reads:
“If public finances deteriorate materially and unexpectedly” looks away:
“then, y’know, the deal could be reviewed”

24 mins in

That is quite interesting because what Peter read out is wrong, Peter is no dimwit, and it is so easy to just read the sentence from the actual agreement.

Clause 1.28 of the agreement says: “the implementation of the agreement is subject to NO CURRENTLY UNFORESEEN budgetary deterioration.” It was signed in March 2010, to put the words “currently unforeseen” into context.

Note first Peter’s rather limper “then reviews could be considered”…and the way everybody else jumped on him to say Oh “no they couldn’t!”

The fact Peter read this different form of words suggests

a) he was reading from a government or departmental briefing paper. If that is right then it suggests government or officials are misleading their own TDs and the public about the Agreement.

b) the Agreement has been secretly renegotiated and the wording has been changed.

My guess would be a).

In contrast, here is the “Clarification” obtained by the unions before April 2010, which should clarify the reality of “then, y’know, the deal could be reviewed”

See below.

With specific acknowledgement of the effects of paragraph 1.28 as follows.

” Q Is there a ‘get out’ clause that would let the Government introduce more pay cuts even if we co-operate with change?

A No. Clause 1.28 of the agreement says: “the implementation of the agreement is subject to NO CURRENTLY UNFORESEEN budgetary deterioration.” There were similar clauses in all previous national agreements. The Croke Park clause reflects the reality that an unforeseen shock to the economy – like the collapse of the banks around the world in 2008 – would create a new economic and budgetary situation. [Note: IMF were called in 6 months later]

The clarifications IMPACT got from the Labour Relations Commission confirm that the implementation of paragraph 1.28 “will be applied in a bona fide manner by the Government side” and that “it is not envisaged that, on the basis of any currently known facts, that the clause would be utilised.” The clarifications also confirm that, if such a situation were to arise

“the parties would meet at central level (i.e. Government/ICTU) to discuss the circumstances that had arisen and the implications for the Draft Agreement prior to any decision being taken that would adversely affect the pay provisions of this Agreement.”

Have those meetings taken place?


Ireland appears to have put few projects through the EIB pipeline in the past few years (begging many questions)- six would seem to be the total. Of these two granted cash to BOI and RBS to lend to SMEs (that’s been a great a great success…). A schools program under the department of education. Two road building efforts appear to have received 25% funding. Finally a Bord Gais wind farm project which receives 50% funding.

One has to wonder if the ‘growth fund’ won’t simply fall victim to traditional same thinking – roads, bridges, colleges, hospitals, etc.

A major attraction of enhanced EIB funding is that it might stimulate the property market, lift prices and enable NAMA to shift some of its lots at a better price, and give the banks a boost in the process.

I noticed that Merck in Germany has been approved by the EIB for 200 million on a project valued at 600 million odd addressing cancer R&D needs.

Well given the wealth of high tech and Big Pharma companies in Ireland, one would imagine that they’ll be queuing up to follow Merck’e example – wonder why they haven’t been doing so in the past?

Stumping up a big chunk of their own tax haven harvested cash in a partly EIB-backed venture would seem concrete proof that more than box shifting and invoice fractionation is top of their agendas in Ireland.

@michael h

None of the working economies in Europe are likely to pick up the tab for a country that offered a unilateral bank guarantee. It would be different, I suspect, if the culpability for the ruinous guarantee could be shared with others at teh EU top table but that ain’t so.

Ireland is repeatedly a victim of its own propaganda, hoist with its own petard comes to mind. On the one hand the government pushes recovery and return to the bond market, while on the other hand whining and begging for debt sharing, debt discounting, etc. A neutral observer would be left incredulous.

BTW: EI published a load of export figures recently in a nice chart that implied massive surges in domestic companies’ exports. I was astounded to learn that Ireland did billions in exports to South america. Did you parse them for accuracy?

I can’t really explain the lack of ideas both before and after the crash.

But The French tram and local rail programmes get much local authority planning input and money which is lacking to say the least in Cork.
I have read recently they want to build another friggen road in Carrigaline !

Ok the thing now is they can’t lend without solvent banks and all.

But the petro exposure of almost all the sparse previous investments is obvious with money for airports ,roads and other energy high input stuff.

You would think we were Texas or something.

I have tried to explain that a tram system on the south side of Cork cities river using parts of the existing Muskerry and Blackrock old railways is a runner and a much better prospect then some of the tram projects in the smaller French towns.
Ok there is a danger of a Edinburgh type tram disaster but its not likely.

However the problem with the tram stuff is that it would stimulate France or Spain and not us as we don’t have the technology.
Given the renationalisation of the European economic ecosystem it would probally be best if we just did a few convential DMU lines such as the New Ross thing I keep banging on about.
I mean we can still build a few precast concrete sleepers can’t we ?
Or can we ?
These sort of projects do not require massive inputs such as a huge Diesel bill for main road projects or high speed rail.
I mean France is currently engaging in 3 massive high speed rail projects and thus are sucking diesel at a huge rate.

The difference between their gasoline and diesel consumption is now massive.
We can’t do that sort of stuff either inside or outside the euro – indeed France might start running out of diesel soon as the crisis moves north from Spain.

Maybe the EIB is simply embarrassed by this report from 10 years ago and don’t want to go there.

Anyway Douglas / Rochestown / Blackrock despite the flooding needs a new tram to the city above all else.

Me thinks there was a element of not wanting any GAA supporters withen spitting distance of the high and mighty of Blackrock for some reason.

Cork city is a strange place.

PS – if they wanted to reduce the import bill of the blackrock tram project they could have imported the now retiring 28 TFS trams from Roeun which have the perfect passenger capacity for that route and from some stuff I have read are likely to be scrapped !!! despite having another 10 years of possible life in them.

But we are dealing with a people with a lack of Elan and now a lack of confidence in their own goverment to do anything but bail out bond holders.

There is obviously something rotten in Denmark and it ain’t just Denmark.

De Neu Paper of record looks at Jens Weideman in context ..

Bundesbank chiefs are famously austere. Its current head, Jens Weidmann, is no exception.

Like an all-year-round sea swimmer, Weidmann takes perverse pleasure in the bracing virtues, rarely missing an opportunity to stress the need for austerity.

He is the mirror image of Paul Krugman, the US economist darling of the Keynesians and social democrats.

At 44, Weidmann is the youngest head of the Bundesbank ever. Perhaps, he feels a need to prove himself.

His predecessor and former boss, Ernest Welteke, has questioned his suitability for the job.

Up until last year, he served as Merkel’s economic adviser. But now he threatens to become a thorn in her side.

In the run-up to the summit, Weidmann has been dashing out opinion pieces.

Writing in the Austrian paper, Der Standard, he warned that “debt unions would delay reforms in Europe” and he dismissed suggestions the ECB, on whose governing council he serves, should be more accommodative in order to assist struggling euro member states.

@ Alchemist, grumpy and what goes up.

Reading the Indo today you would believe that Jesus arrived in the form of our superhero Enda. Three journalists wrote the front page lead article and I have never read such drivel in a supposedly main stream national newspaper.
Dan O’ Brien doesn’t do much better in that bastion of intellectual writing.
They swallowed the ” seismic” sh1t obviously put out by the government spinners.
Even the kindly Mickey Noonan was shocked by the hubris when he admitted that no debt relief would ensue.
So we are where we are.
What was that figure again…190b or 200b, (give or take a few billion) that we still owe.
Don’t mess with Enda …..he might just make sure we are in servitude for at least 50 years.
And Grumpy, that Croke park thingy section whatever. Who drafted it? It’s a classic…known unknowns and all that…never to be effected.


You have been rightly referring to the Croke Park 1.28 for a long time.
But where is the initiative going to come from to put it on the table?
The big losers would in be the top PS whose job it is to propose these measures, as their remuneration is most out of line both in Ireland and in Europe.

But the first priority of that cohort was to exempt themselves from cuts as the economy that they presided over crashed around them. They got away with it, literally, in some of the cases.
Are those that remain about to have a change of heart and effectively volunteer reductions at this point?
Is Noonan or Howlin going to insist that they do?
Fine Gael had many nicknames, ‘the barrister party’ was one of them.
How are we doing on reducing the exorbitant legal expenses paid out of the public purse? Not so good, eh?
Would the fact that the ‘barrister’s party’ is in power be a reason for the tardiness?

A day on an still no clarity as to whether there will be retrospection or not….

Couple of points, both a little off topic.

First, this blog has not delved into the Libor stuff. I would suggest readers who haven’t, might have a look. The institutionalised rejection of integrity as a concept in much of the wholesale business of the City and Wall St is something many people would be amazed by if they witnessed it first hand. Note this is mainly a wholesale phenomenon, and is not universal.

Second, on a technical note, there are still a LOT of risk-off speculative positions in various markets (copper particularly at the moment) and most relevantly Euro/Dollar, which, despite all the 1.05 – 1.15 ‘targets’ has struggled to get much below 1.25. It has been oversold for weeks and if it bounces much there could be a significant short squeeze. Complacency would then ensue, again.

@ grumpy

With respect, the goings-on in Ireland are but a tiny part of the overall picture. For a a view of the wider context cf. (hoping that Google Translate makes a reasonable stab at it).

The piece of paper that emerged from the summit does really mark a turning point. Europe is no longer divided between the good (Germany, Finland – maybe Austria – no longer the Netherlands), the bad (Ireland and Portugal) and the plug ugly (Greece).

The real change that is taking place is in Germany. A swathe of cases before the Constitutional Court by the usual suspects is now certain. If that body decides to kill in the shell the return of that vital ingredient – confidence – I would be astonished.

@ grumpy

P.S. On the Libor scandal, I agree. It is the mother of all financial scandals.

@ The Alchemist

“Ireland is repeatedly a victim of its own propaganda, hoist with its own petard comes to mind. On the one hand the government pushes recovery and return to the bond market, while on the other hand whining and begging for debt sharing, debt discounting, etc. A neutral observer would be left incredulous.”

You have a point there! Indeed, CMc adverted to this contradiction many moons ago. As I have pointed out above, this conudrum now appears to have been resolved; by popular accalim in which all pariticipants have played their appropriate part.

@ grumpy

On checking the Google Translate, I find that it refuses to go beyond the headline “Europe reaches for our money”. Maybe you will have better luck.


“With respect, the goings-on in Ireland are but a tiny part of the overall picture.”

I don’t get you. Surely “” might therefore be the appropriate and only place to discuss most of them?

Can somebody look at the ESM in all this.
This, I think, is key. It’s a potential bonanza for shadow banking but will do nothing to bring down Spanish unemployment.
Europe has screwed this up. The banking sector must contract and write down debts by 40%.

@ Michael H
Money and Power – read it

FYI: Did Mrs Merkel really concede that much?

[h/t barry ritholtz

Did Mrs Merkel really offer material concessions at the recent EU Summit on the 28/29th June. Hollande, Monti and Rajoy had big grins on their faces and the press and a number of analysts certainly believe that she did. In addition, she faced a stormy meeting at the Bundestag last Friday, particularly with a number (especially in her own party) accusing her of doing an “180 degree U turn”. However, Germany, last Friday, passed the necessary legislation in respect of (a) the fiscal compact and (b) establishing the ESM, by comfortably more than the 2/3rds majority needed, as was planned. On a closer assessment however, I’m not sure whether Frau Merkel’s “concessions” were that important and, in addition, I believe she has pushed the EZ further further down the road of fiscal, banking and ultimately political union, the ultimate policy objective of Germany/Mrs Merkel. Finally, Mrs Merkel has not increased Germany’s financial commitment to the EZ and/or conceded to mutualising debt ie Euro bonds or an EZ wide deposit guarantee scheme.

The key “concessions” were that Germany agreed that (a) Spanish banks would be recapitalised directly, without the funds being provided to the state, thereby reducing the Spanish debt to GDP by around 10 percentage points, (b) that the funds provided by the EZ rescue vehicles to Spain would not rank ahead of private sector creditors and (c) that (meeting an Italian requirement) the ESM could intervene in debt markets if applicable. I had discussed the possibility/likelihood of (a) and (b) in a note on the 27th June. The establishment of ECB as the banking supervisor (powers and scope of responsibilities to be negotiated) by the year end, is the major precondition to any country (Spain) being granted direct aid for its banks – sounds like a great incentive for Spain to push for its implementation as soon as possible. Also will be the case for Italy, which may well isolate France – very interesting, me thinks.

Personally, I believe, quite strongly, that Mrs M went into the meeting prepared to concede on points (a) and (b) above and, as a result, the view that she was forced to offer a number of “concessions” is misplaced.

Read on:
The real winner following the Summit was Ireland. EZ leaders agreed to “examine the situation of the Irish financial sector with a view of further improving the sustainability of the well-performing adjustment programme”. Essentially, Ireland will be able to exclude a significant part of its E64bn of debt incurred to bail out its banks, from its national debt (the loans will be provided directly to the banks, as is the case for Spain) and, as a result, Irish debt to GDP will decline from the expected 120% next year to around 90%, possibly even lower. Furthermore, Ireland will be able to access the international capital markets once again imminently, most likely through the issue of short dated bills initially, followed by longer term bonds. Irish sovereign bond yields are collapsing, following Fridays deal – excellent news. Importantly, the EZ can claim its first success in Ireland. I suspect a number will be looking at buying bombed out Irish property, boys and girls – prices are down between 50% to 60% from their peak levels.

I also believe that yields on 10 year French and German bonds will continue to rise – for example, from a low of around 1.17% (10 year German bunds) at the beginning of June, to 1.58% on Friday – all in a month !!!!! has been a great short so far. French 10 year yields have also risen, to 2.70% at present.

Kiron Sarkar

30th June 2012

@ grumpy, DOCM

On Libor, Chancellor George Osborne said the government was reviewing the criminal sanctions regime as a response to the “systematic failures at the heart of the financial system.”

Fraudulent manipulation in commercial transactions, isn’t already a crime?

@ The Alchemist

EI published a load of export figures recently in a nice chart that implied massive surges in domestic companies’ exports. I was astounded to learn that Ireland did billions in exports to South america. Did you parse them for accuracy?

Enterprise Ireland does some good work in helping firms but an annual report is an opportunity for senior people to pat themselves on the backs and feed the Government’s propaganda machine. The purpose is not to highlight challenges or sometimes the facts.

In early June, Forfás estimated that exports by Irish-owned firms were valued at €12.4bn in 2010; in late June, EI put the value at €13.6bn and then a rise of 12% in 2011 to €15.2bn.

The estimate for Latin America in 2011 was €139m — possibly inter-company exports in the Kerry Group.

There were 6 net jobs added in 2011 and new export sales of €2.14bn were highlighted compared with €1bn in last December’s year-end statement.

I would think that most people would regard ‘new exports’ as relating to first-time exports which would be a useful indicator – – in EI’s case it doesn’t.

This was the definition EI gave us last December, when I queried it:

The New Export sales estimate relates to a combination of New exports from existing exporters (to new and existing markets), and New exports from first time exporters. The estimate is based on company forecasts relayed to Enterprise Ireland project executives. The official outturn is confirmed by a formal survey which begins in January of each year, and is announced in Enterprise Ireland’s Annual Report. Trust this helps

It does help indeed, to understand why nothing should be taken a face value when it comes to official statements in the enterprise policy area.

The rise in global food prices into H1 2011 of course gets no mention and one can wonder, if overseas ‘construction, engineering’ contracts are exports?

Getting back to the head-line topic, Mr. McCarthy is in fine form again:

He suggests the Government should aim high when it gets to quantifying any relief on bank support it will demand. I agree. But it will have to do so quietly in the corridors of power – and not use a domestic, high-volume, megaphone.

The devil is in the detail, but a corner has been turned for both the Euro and Ireland.

What has been little commented on, perhaps, is the enigma that Italy presents. Its people can provide continuing support for a dangerous and apparently corrupt buffoon, Berlusconi, and then appear content, literally the next minute, when their members of parliament elect an erudite, experienced, European statesman, Mario Monti, to replace the buffoon. (Shades of CJH and Garret the Good – if only the latter hadn’t the Labour monkey on his back.)

Despite it not being a really pressing issue for him, it was Monti’s support for Rajoy in the focus on the fundamental problem of banks suborning sovereign states that forced Hollande to come onside and turned the tables on Merkel. It was also astute, in that it shifted the immediate focus from under-performing economies and a huge overhang of sovereign debt. He knows he has been pushing the patience of Italian voters with this focus on fiscal adjustment and strictural reform. I doubt he will relent on pursuing thse objectives, but there could be tactical changes.

It may be frustrating for the smaller nations that action is taken, and only at the last possible minute, when one or two of the bigger states are facing meltdown, but people might usefully consider alternative scenarios and outcomes in the absence of the EU’s institutional and procedural attangements developed over the best part of 60 years.

@ grumpy

The point that I was trying to make is that it is developments outside of Ireland that have driven the change in approach. This is already being overlooked in the popular euphoria. There will be as much conditionality attached to the new arrangements as there was to the old.

What differentiates Ireland from Greece and Portugal – apart from the fact that we have already suffered the full conditionality as far as our banks are concerned – is the fact that the country can now hope trade its way back to sustainability. It must be doubtful that even Spain can.

@ Paul Hunt

A first rate contribution by CMc!

@ Paul Hunt

You are being too kind to Hollande. Italy stepped into the breach because it had to under the pressure of the markets. We will see what happens when France has to swallow its dose of conditionality which I omitted to mention now extends well beyond the terms of a direct (no market access) and an indirect (threatened market access) bailout to a sea-change in the management of the euro and the participating economies.

Of course, given the pattern of Irish trade, the question remains open as to whether we should be using the euro in the first place.

@ Paul Hunt

Maybe the UK will eventually help us to answer my question.


“At Friday’s summit we ensured that the key parts of banking union would be done by the European Central Bank for eurozone members and not for us. We won’t stand behind Greek or Portuguese banks, and our banks will be regulated by the Bank of England, not the ECB.”

It is a clever speech as it leaves all options open other than the one he wishes to rule out; an in or out referendum. But made by a floundering leader of a possibly floundering economy.

Mr Cormac Lucey writes a very pertinent piece on “The need to balance the books” in todays SBP opinion section.


Pity Michael McDowell of The Progressive Democrats didn’t listen to Cormac Lucey when Cormac was Adviser to Michael on his Ideological Stance in 2004 – the ideological free_mawrket neoliberal light touch regulation stance that gave free reign to the TACA gene in Fianna Fail and to their inbred upper-echelon fellow travellers who wrecked the state during the 2002-2007 period …. Collective Cabinet IrResponsibility does not sum it up ….

“Describing the problems in UK banking as “a moral quagmire of almost biblical proportions”, Cable says the government is taking urgent action, including creating a clearer separation between “casino-style investment banking” and retail banking on the high street. Ministers will this week begin a review into the Libor system under which banks lend to each other and Cable hints that US-style criminal sanctions, such as the threat of prison terms, could be considered against those who abuse it.” …observer

Interesting that a serving government minister accepts that his banks are morally bankrupt.

@ Ceteris
Interesting points. Britain may yet come away best out of this. A banking sector free of FTT and no liability for the ESM for their taxpayers.

I don’t think I’m wrong here but isn’t it the case that the ESM will use state contributions and leverage them up on the bond market? Doesn’t this mean that there will be two competing bond markets – the ESM backed by European guarantees and the sovereign backed by state guarantees. It’s hard to see who would buy sovereign debt directly in such a case. Once the ESM is up and running it will probably lead to all European bond yields approaching 3-4%. This is still too much when growth is less than this – but the bond holders of the ESM must be paid and(as per ESM rules) they can be paid through pretty ruthless pressure being applied on the sovereigns.

I know this is rambling a bit but I am not convinced that this provides anything like a good solution for us. Our banking sector will be decimated (through the FTT) and because the sovereign is still subject to the rules of the ESM the link between bank and sovereign debt remains (the new entry on the balance sheet will be ESM liability)

William Cohan has a good book on Goldman Sachs – Money and Power. It shows how the markets think – “long term greedy, short term vicious”. There are a lot of parallels between how they insinuated themselves into the fabric of corporate America and how they’re doing the same in European politics now. I don’t think Goldmann are evil or anything quite so extreme as that – just think they’re dangerous

Where does the summit leave the ESM?

If states can access ESM funding by satisfying the terms of the FC then you can argue ESM is effectively equivalent to conditional Eurobonds.

Imagine a couple of scenarios. In one, a large EZ state sticks to the terms of the Fiscal Compact, but the market takes the view that its bonds are risky – perhaps investors calculate the country will not be in a position to continue to satisfy the FC terms in the future because of recession, stagnation, politics etc. ESM access is granted (currently this would be actual money raised on the bond market, not printed).

If investors were correct, what would happen to the ESM access when the terms of the FC were breached ( SGP type fudge, quite possibly)?

If investors are correct, and the state is large there are two problems. First, the ESM is nowhere near big enough. Second, if it were enlarged investors would start to demand higher rates on ESM debt issued.

This leaves the German (and others’) objections to Eurobonds highlighted. If ESM is expanded it effectively becomes a Eurobond system. If ESM capacity is increased by leverage from the ECB or printing, then it is difficult to imagine how monetary financing would not be top of the google search lists in the EZ core, and to agree really would require a proper, open capitulation by Germany.

…The second scenario might be if the market did not think ESM would be enlarged. Does it then just function as a bailout and exit for bond investors in the state?

If the state is small, or if ESM is thought to be flexible sizewise, then presumably funding through bond issuance by the recipient state would remain more expensive (if it were thought possible FC terms might not be met in the future) and pressure for more ESM funding to replace national funding would continue.

Mario is not a nice man – he represents pure evil.
The first Marios rule “structurally adjusted” Italy with catostrophic long term results by stopping the flow……..i.e. no rational capital was formed after his reign as CB head.
What happened was quite simple.
A stock of physical and human capital was depreciated to peserve the value of “sovergin debt”

The second Marios rule is much more brutal.
Nothing good will come of it.
It is merely a wealth transfer operation.

No good substation is taking place which means more and more people must be thrown of the cliff to maintain the artifical balance of such a economy.
Its the Neutron bomb economics we have all sadly grown used to over the years.
In a previous more visceral world they would have removed his head by now.

Post summit it seems the ESM is the receptacle for troubled banks.

It is clear that unless the cost is to be passed back forthwith to the states, thereby negating the summit objective, that the ESM will immediately have to become a bank resolution corporation.
In other word from now on, bank bondholders are on the hook. Period.
There will no doubt be resistance in the corridors of power where bankers ruled until now, but the key decision has been made.
The banks and ergo the bondholders have been cut loose.
It is up to the ESM to minimise its banking losses and that should not be too difficult.
A compulsory insurance on total bank liabilities should suffice and make a nice little earner as well.
How about 1/4% of all bank liabilities annually!

What the ESM will be in relation to state funding, I have no idea.
But with the bank monkey removed from backs of states, those states will have to live within their means but at least they will be doing without having to cope with surprise monkey droppings every time they attempt a clean up.
That should ease the cost of state bonds.

You may well be right that the Brit banking system comes out best …after they are thoroughly cleaned up… But a figure that I noticed somewhere that the uk banks amount to four point five times GDP seems to put them in the dangerous category. If you contrast with the Eurozone 8000 banks then it becomes apparent that it will be easier for Britain to clean their banking system with relatively few banks to reorganize.
@ Grumpy
If they don’t sort out the Italian and Spanish economies then it’s apparent that The ESM as currently envisiged is too small…. By a few trillion.
Current bondholders will try to offload them as quick as they can.

EFSF and ESM are probably just ‘temporary little arrangements’ …. as we head for Central Financial Supervisory and a Neu_ECB within a ‘higher level’ (systemic step_up to EU level) set of institutional structures … time scale unknown but prob needs to be reasonably medium …

.. and a rake of referenda across the EU.

& Neu_ECB will print to tidy up.

& Franco_German Gaulism goes in the bin.

@ Ceterisparibus
But unlike the Europeans you know the British will clean up their banks to sone extent – but I had a devious thought. What if British banks subjected themselves to the EU regulator but exempted themselves from the ESM? Wouldn’t that be the best of all worlds for them?

@ Grumpy
The ESM can fund states by providing funding to local banks to buy sov bonds. So if the state defaults on the local banks the banks default on the ESM and the ESM would have the powers to demand the shortfall from the state in question ( the ESM has massive powers). As far as I know the ESM can buy bonds in the secondary debt market – allowing banks to make even more profit. That’s what I think – but could well be wrong.
Would be nice to think through this scenario – Bank Y gets 100bn from the ESM and buys 100bn Irish govt bonds at 5%. It can hold onto those bonds or sell them to the ESM at a little profit if the ESM wants to drive down yields a bit. But if Ireland defaults – what happens? The ESM board can make demands of all European countries (including Ireland) to make up the shortfall. Question is how much does everyone pay? Could the ESM seize an asset (e.g. a state company) to make up the shortfall? I don’t know.

One more summit: The crisis rolls on
Charles Wyplosz, 30 Jun 2012

The EU summit produced a vaguely worded agreement that can and has been read in different ways in different nations. This column provides a quick reaction to what was and was not decided. It concludes that useful progress was made, but this was far from the decisive turn-around that many had hoped for. The crisis will continue to unfold in the months ahead.

Conditionality Lite
Finally, the official texts include vague references to the possible use of EFSF/ESM funds to bail out governments with limited conditionality. It is very hard to understand what that really means beyond pleasing prime ministers Monti and Rajoy. Light conditionality, as they requested, is bound to collapse at the foot of the Bundestag, which must approve every single loan.

At the end of the day, the summit was a little move in the right direction on bank supervision, but keep watching; we still don’t know what will actually be put in place. There was nothing on collapsing Greece, nothing on unsustainable public debts in several countries, and no end in sight to recession in an increasing number of countries.

There was no knock-out winner in this summit, but on points I’d have to say that the winner is the crisis.

Back to Die Bundestag! I’m a little more optimistic … than Wyplosz .. just a little

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