Summit Statement

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.

http://www.rte.ie/news/morningireland/player.html?20120514%2C3285548%2C3285548%2Cflash%2C257

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!

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

http://www.nybooks.com/articles/archives/2012/may/24/panic-about-love/

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.

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.

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.

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.

http://www.spiegel.de/international/europe/merkel-makes-concessions-at-eu-summit-a-841663.html

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.

06/29/2012

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.

http://www.spiegel.de/international/europe/monti-and-rajoy-get-direct-bank-aid-and-bond-support-from-merkel-a-841632.html

“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)?

@ 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.

“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.”

@CM
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).

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.

@Seafoid
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.

Personal Insolvency Bill Published

http://www.irishtimes.com/newspaper/breaking/2012/0629/breaking22.html

Thanks to the .. er .. troika!

@Seamus.

“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.

@zhou
“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. ”

+1

@JR

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

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!

Good stuff here- Eurointelligence’s immediate questions on the deal

http://ftalphaville.ft.com/blog/2012/06/29/1065261/the-eurozone-crisis-and-the-curse-of-the-small-print/

Also below is the link to the BBC radio Ulster broadcast on 30th May at 8.30 am, the item starts at 4.32 minutes into the link. At the exact same time on BBC radio 4 Paul Krugman advised the Irish electorate to vote No until the Irish bank debt is addressed. http://downloads.bbc.co.uk/podcasts/northernireland/nibusiness/nibusiness_20120530-1602a.mp3

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.

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

@Dork

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?

@BEB
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?

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?

@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”

http://www.youtube.com/watch?v=YZbHagBNY98

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 🙂

@V for Victory

http://www.youtube.com/watch?v=4i5KjchN3I8

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/06/The%20Real%20Bailoutelli.jpg

I say!

The FT sticks the boot into the banking industry

http://www.ft.com/intl/cms/s/0/6dc5b9a2-c117-11e1-853f-00144feabdc0.html#axzz1zAmgLeXK

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

Cartoon of the Day

Football
Long live sport
29 June 2012 Het Financieele Dagblad Amsterdam

http://www.presseurop.eu/en/content/cartoon/2266861-long-live-sport

@. DOCM
“………….with
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

@
DOCM
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!

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.

http://www.spiegel.de/international/europe/merkel-has-plenty-of-room-to-maneuver-despite-euro-summit-concessions-a-841806.html

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’.

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.

http://www.spiegel.de/international/germany/angry-politicians-call-for-delay-in-euro-vote-a-841769.html

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 ?
omrpublic.iea.org/demand/tu_dl_ov.pdf

omrpublic.iea.org/demand/gr_dl_ov.pdf

When was the last time Luas trams were this full ?
Video Taken this month.
http://www.youtube.com/watch?v=JqaIYzTpVk4

Meanwhile in my completly unscientific tram video analysis Angers single uncoupled trams appears almost empty.
http://www.youtube.com/watch?v=KF4VxCHoYts

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

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

@Aiman
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.
http://www.youtube.com/watch?v=u14-eIaFoLg

http://www.youtube.com/watch?v=6uSGvy6nKDw

Karl Whelan Defaults on ‘The Whelan Monologues’!

http://karlwhelan.com/blog/?page_id=22

@Seamus Coffey

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

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

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.

http://www.irishtimes.com/newspaper/breaking/2012/0629/breaking30.html

@Angela Merkel

Nice one tonight in Die Bundestag! Lovely Deutsche Solidarity.

Blind Biddy says – Hi!

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

@aiman

Fluck your fiat Punt-oh, He’s a horse outside.

One of the fallouts of the deal may be that these people

http://www.irishtimes.com/indepth/slideshows/trinityball-2012/

will never have the opportunity to run AIB into the ground

@dork

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

@ 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.

@All

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.

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.

http://www.spiegel.de/international/europe/german-parliament-approves-esm-and-fiscal-pact-a-841816.html

[think Portugal was first?]

@CeterisParibus

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)

@DOD
Thanks.

@all.
Some notable quotes…
Superenda…..

“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.

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.

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.

@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.

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?

@Jagdip

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 …

@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
http://www.tv3.ie/videos.php?video=50171&locID=1.65.169&date=2012-06-27&date_mode=&page=1&show_cal=&newspanel=&showspanel=&web_only=&full_episodes=

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.

http://www.impact.ie/iopen24/faqs-t-547.html

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?

@Alchemist
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.

http://www.eib.org/attachments/country/factsheet_ireland_2010_en.pdf

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.
http://www.eib.org/attachments/efs/efr_2002_v01_en.pdf

Anyway Douglas / Rochestown / Blackrock despite the flooding needs a new tram to the city above all else.
http://www.geograph.ie/photo/76745

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.

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.

http://www.irishexaminer.com/text/business/kfsnsncwkfgb/

@Grumpy

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?

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.

@Ceterisparibus

Mission accomplished!

http://www.japlandic.com/2012/06/mission-accomplished.html

http://i828.photobucket.com/albums/zz209/What_Goes_Up_/Japlandic/EndaMission.jpg

@ 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.

@docm

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

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

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:
http://www.ritholtz.com/blog/2012/06/did-mrs-merkel-really-concede-that-much/
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

Getting back to the head-line topic, Mr. McCarthy is in fine form again:
http://www.independent.ie/opinion/analysis/summit-offers-a-decent-chance-of-saving-the-euro-3154407.html

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.

@ 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.

http://www.telegraph.co.uk/news/politics/david-cameron/9367479/David-Cameron-We-need-to-be-clear-about-the-best-way-of-getting-what-is-best-for-Britain.html

Notably!

“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.

@Sporthog

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.

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.

@Paul
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.

omrpublic.iea.org/demand/it_dl_ov.pdf

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.

@Eureka
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.

@ 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.