Draft MoU for Spain

FTAlphaville have put up a post that links to a draft of the Memorandum of Understanding for the loans to be provided by the EFSF to recapitalise the Spanish banking system.

At first glance there are many similarities to what was followed in Ireland.  There is no bailing-in of senior bank creditors and all senior bonds seem set to be repaid in full.  An Asset Management Company will be established to remove bad loans from the banks’ balance sheet.  There is lots more detail.

114 replies on “Draft MoU for Spain”

They are doing NAMA for selected banks, with the external funding lined up.

We did NAMA all by our lonesome, and for all banks.

We did BankCleanup v1.0. Never buy the version 1.0 of anything.

@Seamus Coffey

re Spain MOU.
“At first glance…There is no bailing-in of senior bank creditors and all senior bonds seem set to be repaid in full.”

This is more than exasperating. IMHO is is a continuation of a policy of straight theft by powerful creditors and creditor nations using Europeans institutions as enforcers to shift the debts onto national citizens.
The argument that is has something to do with stability, particularly given LTRO, has long since evaporated.
I hope Spain has a ‘constitutional’ court that puts such an MOU where it belongs. In the thrash can.

During the bubble years Spain was building 700,000 residential units per annum,which was greater than the combined total of Germany ,France and Italy. It was a property and constuction boom–a large oversupply.

BLTD must have gotten a draft MoU from Trichet too. Before he decided to set up NAMA.


One of the ignored aspects of the boom era is population movements. Switzerland’s economy grew by 2% last year and immigration growth meant the population also increased by 2% over the period. More immigrants mean more apartments, mean boom.
As soon as the economy contracts many immigrants leave and then you have a property crash.

Nobody is in charge anywhere. House price rises are like dopamine but the hangover is brutal.

Instead of Long Term Economic Value, their NAMA will use Real Long Term Economic Value or “REV”. Real as opposed to the imaginary LTEV we used here, presumably.

+1 on the pun/analogy/metaphor….
I think it was a bit harsh to delete all of dorks contributions though in particular his point on pt 17.

So Spain ends up with full public liability for private banking losses too.

It does now seem highly probable that even if the ECB did not have to force the exact form of the bank bailout on Ireland that they would have had the need arisen.

Would it be wrong to characterize Germany and the ECB, the two dominant forces in European policy now, as differing only in how evenly spread they think public support for the financial sector should be?

What an amazing victory for private financial capital this is, even if it does take the EU with it.

@V barrett

We all like a bit of Dork but he does seem to arouse the ire of people with CDS*[1] syndrome.

[1]: Chronic scrolling difficulty

The Spanish MOU is NAMA (SpAMA?). Whilst nobody much likes or respects NAMA, it is not at the root or core of our banking problems.

The real issues are no bail-ins and uncertainty as to when the ESM will invest directly in the banks. This will not happen until the ECB are in charge of Eurozone-wide bank regulation at a minimum. That could take a number of years to put in place.

A bird in the hand is worth two in the bush. Spain is being asked to prejudice its position in exchange for two birds in the bush. There is some fairness to this insofar as the birds must be caught before they can be handed over. However, it is not satisfactory and may not be sufficient.

What is interesting is that the Spanish government is fighting to spare the unsecured bank creditors who have been wiped out in the Irish case. This goes against the vehement opinions of most contributors of this blog who want to wipe out everybody ,secure or unsecure ,like the Greek did.
I think this can be explained by the fact that the Spanish unsecured creditors are mostly Spanish and the Irish banks senior creditors are mostly foreign ,morality is relative.

Why is it in English ? The MoU and Spain bring me back to the French joke about les vaches espagnoles, the Spanish cows, who are very poor at understanding the intricacies of foreign languages.

People with the benefit of lavish pensions from current tax receipts can call for burning seniors bondholders without cost.

Bail-ins hit people in private pension funds who are already facing big cuts in benefits.

There are seldom cost-free choices.

Michael H : i think not just the evil public sector employees (boo!) but many others wanted to see this happen. I guess in Malaysia they have different standards eh?

Its a Communist bullitan Board.

Lets look at the little things of this construct.
But lets not ask larger more blunt questions such as where this fiat is going.
Such as Who the hell are these Senior bond holders and how does their elimination affect the payments system and immediate domestic demand ?
Answer :it does not.
So we have taxpayers fiat injected into effective free banking systems and we(Parliamentarians at least) don’t know who owns the credit deposits !!

The banks are not producing credit anyway – like Japan they will not produce consumer credit for a long long long time.
So why keep them alive at all ?
Besides bank credit is a expression of waste.
They system is up to its tits in waste.
Thats why we have had a crisis – remember.

Its not enough to splash over the FT ohhhh those poor Grandmothers.
Where is the data on all deposits ?
This stinks to high heaven.

Remember the republicans lost the civil war because Stalin (a communist) wanted Gold as payment for armaments
Go figure.

@Overseas Commentator

“Unsecured creditors” includes depositors and senior bondholders. Obviously they have not been wiped out in Ireland. Do you mean subordinated unsecured creditors/bondholders?

What tells you that Spain are fighting for them?

@Michael Hennigan

“There are seldom cost-free choices.”

That’s right. That is why it is important to think about your options carefully and choose the one with the lowest cost.

Accordingly, saying that private pensions of people already under stress will suffer and there will be losses and pain is not enough. You have to demonstrate, or at least claim, that it is a higher cost than another viable alternative choice which you can identify.

@Michael Hennigan

BTW – you are always criticising people because you do not believe they will suffer for the choices they espouse. Is the corollary that you advocate against choices which will result in you personally suffering? does that make you just another vested interest (self employed with private pension)?

Michael H has consistently alluded to the evils of be-pensioned public servants. Its clear whom he thinks should bear the pain. Funny, for someone who clearly and well expounds the virtues of capitalism he like so many now finds that yes, asset values do go down as well as up. The clear answer therefore is to somehow punish those who dont find themselves there. Taht wont refuel his pension pot but it will make him feel better because as we all know economic and social pain is a zero sum game : give X more and you reduce Y. Its economics as a morality play when he isnt even in the game.

@ Sophont

Well Ms. Sophont, welcome and how brave you are behind your shield.

I was hardly referring to clerical officers and I guess you inhabit a more salubrious cubicle.

How dare I raise the plight of the minority in the private sector who are even lucky to have a pension.

It was forecast this week that the real vale of the State old-age pension will erode by 50% in coming years.

Isnt it becoming apparent that Spain is just a larger version of the bust in Ireland. Difficulty is that they are only at stage one…denial…how many stages did we go through before it was accepted that all our banks were bust. It’s notable that they did not bring in Blackrock to evaluate their bank exposure to property. It is probable that a multiple of the current rescue funds available will be required to make solvent a lot of Spanish banks. Interesting that they start the process by screwing the little guy…

Btw, Manchau has a n interview in the FT today with Trichet where he appears to accept imposing the draconian terms on Ireland. No need now for the “smoking gun” letter (if it ever existed).

Its Mr Sophont Michael 🙂 Call me Soph…

I dont dwell in a cubicle but do have a nice view from my office over a provincial town. If you werent referring to clerical officers to whom were you referring? Again, as Zhou noted, there are consequences to all actions : you took one action (it seems) and there are consequences. Others took other routes. Why don’t you tell us what you would do? What insights from your Malaysian iddyl do you see for us poor culchies ?

@Michael Hennigan

Most Civil Servants in their 30s and 40s do not expect to get pensions equivalent to those that went before. They know that they are dependent on the economy. Do they really have gold-plated pensions to look forward to? If not, why persist in suggesting that they have that comfort?

BBVA and Santander own approximately 66% of Bankia’s senior debt, I believe.

No senior debt losses is a de facto EZ/ECB policy. Some people still adjusting to this reality it seems. Yes, it’s possibly crazy, but it doesnt make it any less real. The very loud and generally mis-informed commentariat in this country need to stop selling the ‘bond burning’ magic beans.

“If not, why persist in suggesting that they have that comfort”
It comforts Mr H to think that somewhere there is a nasty cabal that ate his pension to fund their own. There might be but its more likely to be in NYC or London than in the offices, stations, hospitals and lecture halls of the Irish public service. That however is a thought too far for M H
Bond : even the ULA are now rowing back on that

@Overseas Commentator
re “What is interesting is that the Spanish government is fighting to spare the unsecured bank creditors who have been wiped out in the Irish case. ”

Your statement is completely incorrect. Unsecured bank creditors were and are still being fully recompensed for their failed investments in Irish banks.

The only bank creditors to suffer in Ireland were subordinated debt holders.
The other people to lose in Ireland were private citizens that were forcibly co-opted as bank creditors to bail out more powerful and influential bank creditors.

It looks as if Spain is also being forced, contrary to both the spirit and wording of the summit communique, to bail out bank bondholders in Spanish banks.
It has now got to the point where the enforcers of such a policy no longer bother to even camouflage or justify the theft of the money.

The International criminal court sits in the Hague to adjudicate on certain crimes one of which will be “crimes of aggression” defined as follows:

“For the purpose of this Statute, “crime of aggression” means the planning, preparation, initiation or execution, by a person in a position effectively to exercise control over or to direct the political or military action of a State, of an act of aggression which, by its character, gravity and scale, constitutes a manifest violation of the Charter of the United Nations.”
In my view the actions of some of the creditor nations could well be considered “crimes of aggression” against the people of the debtor nations. The debts being forced on these people are not their debts. They should and are under no obligation under International Law to pay them.

What the MoU means is that sov bondholders get it in the nuts again. What is the point of investing in sov bonds?

@ zhou_enlai, Sophont

More than nine out of ten (92.0 %) enterprises in the EU-27 are micro enterprises (employing less than ten persons).

If it suits, call them a vested interest.

As for ignorant claims that public sector staff are presented as ‘evil’, this is the reaction to the bitter truth.

It’s easy make claims, but I deal in FACTS and please Take the trouble to challenge them.

People don’t like the truth eg on the Irish public pay premium compared with comparable pay in both public and private in the UK, Germany and Finland.

As with the Republicans waving the flag of class warfare in the US, demonisation is preferable to having to counter facts.

During the bubble I was among the few who challenged the idiots who claimed to have invented the free lunch.

I will continue doing so with those who cannot handle the truth.

And as for Ms Sophont, what is your racket?

But surely in a altrustic world………….senior bond burning is the best form of deleveraging as it does not gut basic domestic demand to the same level of taxing the lower middle class drones to pay for the malinvested free banking investments.

The fact that the criteria is based on wether your funds holders are based in the city should be of no consequence right ????
London is running a very large goods defecit at the moment I gather.


If you seek to divide the working population into two or three groups (self-employed with private pension, private sector, public sector) and then you oppose all policies which would adversely affect the group of which you are a member, and thereby you, for that reason, then yes you are behaving as a vested interest in what I would see as the classic sense of the phrase.

BTW, is that 92% by employees, by turnover or by number of enterprises? How does it compare with the number of non-private sector workers who also proide value and/or enhance production? How many private sector employees have private pensions and to what extent are they more or less dependent on general economic conditions as compared with public pensions? I don’t expect answers. It would be unfair. However, “FACTS” can be manipulated to fit one’s prejudices.


No senior debt losses is a de facto EZ/ECB policy. Some people still adjusting to this reality it seems. Yes, it’s possibly crazy, but it doesnt make it any less real.

This sounds like a re-purposing of papal infallibility for the benefit of the financial sector (and this definition of reality is eerily reminiscent of the previous disaster that the right inflicted on the world.)

The reality is that if no bondholder left behind is the wrong policy it will remain so no matter how set on it the Eurozone establishment is on it. Therefore the reality based community has to keep hammering on the issue, relentlessly, boringly, even if just to rage against the dying of the European Union light.

How much senior debt in Bankia is owned by BBVA and Santander?
I note a figure today of 67b being floated as the amount of unsecured subordinated debt and preference shares being wiped out. As 30b seems to be the figure for the prefs it seems about 37b in subs will take a bath. And that’s only the first round.

It best we go back to national currencies – convert those dud credit deposits held by each citizen into goverment fiat of their home currency.
Solvency problem solved.

If we stay withen the Euro – as Bond says we get stuck into this Bank Bond burning wheel where there is no stop.

“No senior debt losses is a de facto EZ/ECB policy”

Price stability is the DNA of the ECB. Where is price stability if the Euro falls apart ? Sometimes de facto policies must be sacrificed to save the DNA for transmission to the next generation.

@ zhou_enlai

However, “FACTS” can be manipulated to fit one’s prejudices.

Thanks for that wonderful revelation, and rather than bother challenging facts, you want me to present more.

Then a new arrival, a coward behind the shield of anonymity, suggests that I regard public sector staff as ‘evil’.

As I said above, when the issue of middle class earnings stagnation is raised in the US, the first line of defence is to shout ‘class warfare’ — why deal with inconvenient facts? It’s always better to imply a nefarious motive

Merriam Webster has one definition of vested interest: ‘a special concern or stake in maintaining or influencing a condition, arrangement, or action especially for selfish ends.’

How dare people in the private sector raise issues such as the above?

Several studies have been done on public pay premia by public sector staff — ESRI, CSO, universities — but inconvenient facts have always been rubbished with the old reliable: whataboutery — pick on some minor issue to exaggerate and create a smokescreen. Why be surprised that the country is bankrupt? Bertie Ahern was a pastmaster at it.

Isn’t it shocking that a public staff member, the Comptroller & Auditor General, would leave the side down by highlighting that the average public employee was absent for just over 11 days in 2007. The average number of days taken by each Clerical Officer was 16 days.

Do not confuse presenting facts and opinion with mainipulating facts.

I present facts and opinion here on tomorrow’s Bruton/IDA press briefing on the jobs outlook. Tell me that such facts are commonplace in the media or identify where I manipulate facts !


Anyway, I have better things to be doing.

Excellent article by Karl Whelan.

As I previously said elsewhere, the idea of using EU taxpayers funds to bail out the senior bondholders of bust institutions is little better than using Irish taxpayers funds to do the same. It is politically and socially corrosive and it is not very effective. It also leaves the magnitude of the problem at such a level that the EU might not be able to afford it.


I am not disputing that there are issues in the public sector. I am disputing that it is a zero sum game and I am suggesting that we should be looking for the best solution for the overall economy rather than the best solution for one class of people.

I think your site is a great source of information but I think you do your self a disservice with the ever repeated questioning of people’s views on the basis that they might be hoping to get a public sector pension.

Anyway, I am glad you have better things to be doing then calling me a coward!

“No senior debt losses is a de facto EZ/ECB policy”

I think we all know that it is a de facto ECB policy, at least. The questions are whether that should make a blind bit of difference to the government of a eurozone country deciding how to cope with a banking crisis, and whether the ECB has any legal standing to insist. In Ireland’s case, we probably wouldn’t have a banking crisis now if we had bailed in all bonds from the start, and might not have a public debt crisis either.

In the absence of legal authority, it’s the probably-avoidable Irish public debt crisis that has given the ECB most of the leverage that it has now.

The Spaniards could learn from our experience.

Although I’d like to see the senior bonds being hit, we must recognise that much time has elapsed since Irish banks went pop and ‘funds’ that inflated the Spanish property bubble have probably fled the scene some time ago.

For nonviable banks:

Steps will be taken to minimise the cost to taxpayers of bank restructuring. After allocating losses to equity holders, the Spanish authorities will require burden sharing measures from hybrid capital holders and subordinated debt holders in banks receiving public capital, including by implementing both voluntary and, where necessary, mandatory Subordinated Liability Exercises (SLEs).

So shareholders in nonviable banks will be wiped out and various classes of bondholder will get a haircut.

Sounds very Greek to me.

@ Kevin Donoghue

There is, unfortunately, a major hole in the article by Karl Whelan which removes it from being worthy of serious consideration. What does he mean by European taxpayers?

There is no European federal budget to which European taxpayers contribute. The EU budget – 2% of overall government spending in the EU – is funded mainly by way of national contributions based on shares of GDP.

There are, on the other hand, national taxpayers who pay taxes levied by their sovereign governments and they have the opportunity, as all EU countries are democracies, to throw out any government which they think is making improper use of their hard-earned cash, including the level of contribution they are making to the EU budget and the various other ersatz instruments insisted upon by Germany to try and resolve the euro crisis.

There is not point in basing arguments on an imagined version of the EU.

Karl Whelan is tilting at windmills and, in this instance, at the wrong one.

@John Corcoran
Thats a very flawed analysis.

The last graph says it all.
Spain , Ireland and indeed the UK have the lowest ratio of public sector revenues to GDP because the people who can be taxed simply don’t have the money.

The people in Norway , Denmark, Finland however do have money , so can therefore be taxed …. its really that simple….

Debt money and indeed all money systems work very simply on one level – some entity be it a credit bank or goverment fiat producer must produce the money so that money or can be taxed as it flows through the economic system.
With little or no money production the stuff can’t be taxed because it simply does not exist.
The appropriate mechanism in this case is for the Treasuary of each country with perhaps the corporation of the CB to produce new unbaked Fiat into the system.

I think things are getting a bit hairy now as I was watching a Channel 4 documentary about tax issues in the UK.
They were in the Channel islands asking why former HMR tax officials was advising private entities how to avoid tax….
As if this was a new thing or something ! (i.e.the media are now desperatly trying to change the narrative)
I am afraid certainly Post WW 11 thats how the Anglo system has worked….or not worked depending on your point of view.
The special ones were / are except from the cartels monopoly money operations.
Me thinks the west or perhaps just Europe is heading for a major devaluation which will reverse global trade flows dramatically.

They could be building major ships on the Clyde withen a few years.
Just saying like……


for me you seem to have far too much faith in the power of democracy to be the cure for all ills….its not…we have learned that lesson in Ireland better than anywhere, where we threw out one government for what you called “making improper use of hard-earned cash” and it was replaced by one that failed to fulfill the promise to row back on that improprietary. Its too easy to say you get the government you deserve…I didn’t vote for Merkel, Amussen et al…they are now my leaders.

Furthermore, is the ESM to be funded by the EU Budget or will it be in addition to? It has the look of a federal budget to me in everything but name.


OPINION: The Taoiseach and the Tánaiste welcome a mechanism to close the lingering gap between people and politics

POLITICS IS about people. The political system needs to listen to the views of the electorate and recognise the reality of people’s lives. Many believe that a disconnection has arisen between politics and wider society. This week we are moving resolutions in the Dáil and Seanad approving the calling of a constitutional convention, which we believe can go a significant way towards bridging that gap.

The programme for government contains a commitment to creating a process to better equip our Constitution to meet the challenges of the 21st century. The setting up of the convention fulfils this commitment. It is an important and exciting initiative and it represents an innovative approach to examining constitutional reform – one that has never been tried before in this country.


Not sure that this process is being sufficiently serioulsly addressed?

@V Barrett
To be fair to FF they did not create the money.
Most if not all were ignorent of economics with the exception of the PD wing but the average FF hick thought everything was grand.
We were rich and all….because we were so productive you see…….

Don’t blame them , pity them – as is abundantly clear now they were never in charge of this gaff.
Its like blaming a mentally retarded young fella for not doing the correct sums.
A pointless endeavor.

No goverment could have stopped this wall of money once they accepted the EMU ,EURO , Basel Dogma which they all did.

Only if all the money produced was conjured up in the Dail chamber could you make that point.
As we are not a republic in charge of domestic script.

Berlin Press Reiview – Gemany’s Constitutional Court & ESM

Germany’s top court isn’t going to let Europe badger it into making a quick ruling on the permanent bailout fund and fiscal pact. As a result, the euro could be in a dangerous limbo till autumn. German commentators say the court has every right to take its time.


@ V Barrett

That was not really my point. We cannot have a sensible debate on the basis of a Europe that does not exist. It is union of sovereign states that have agreed to exercise in common certain prerogatives. However, the vast bulk of sovereign prerogatives remain with the states including, unfortunately, responsibility for supervising their banks.

The ESM has nothing to do with the EU budget. It is a separate – on German insistence – intergovernmental treaty creating a facility to raise money in the markets in order to keep the euro show on the road as it has become clear that, if one creates a single currency, responsibility for banks must become a prerogative exercised in common. This objective is now agreed but remains difficult to achieve.

@ V Barrett

Incidentally, it would have been perfectly feasible to raise the necessary cash on the basis of the EU budget. The European Financial Stability Mechanism (EFSM), which is providing part of the Irish bailout, does exactly that. But there is a limit to the overall amount that can be raised; the member states – especially the new member states – objected to seeing it swallowed up by the existing member states and, most importantly, the UK – a net contributor to the EU budget – objected.

My problem with the contributions of Karl Whelan is not that they are technically incorrect – I am in no position to judge – but that they are posited on a view of the European political landscape which bears no relation to reality.

@DOCM, what Karl says in the article makes perfectly good sense if you read “European taxpayers” as meaning “taxpayers in European countries”. The notion that he is specifically talking about the EU budget is your own strawman invention.

I think the key issue of public sector pensions is being lost in the debate earlier between Michael Hennigan and Sophont. I now work in the PS but previously contributed for over 10 years to a private sector pension fund. That private fund has lost considerably and now doesn’t even cover the total amount I contributed (even after deducting the tax relief) and I cannot expect much of a payment when I do retire. In the PS, I now contribute approx. 14% of my salary (gross of tax relief) and, in effect, I am investing that in the State (Ireland Inc). If this State were a pension fund it would probably be declared insolvent. The point is that PS pensioners are drawing pensions paid out of current tax revenue and not from any separate fund. It’s great for existing retirees and they should laugh all the way to the bank. In the history of the State there has probably been no better time to be retired from the PS than in the past 15 years. I doubt if it is sustainable in the longer term although the decision-makers in Government/Civil Service are likely to be those 55yrs+ and thus impacted by any radical changes to PS pensions.

Given this is a thread on the draft MoU for Spain I’d better say something relevant: the Spanish Government should immediately offer a very large sum of money to NamaWineLake to get him to unmask himself and work as their adviser on their version of NAMA. The analysis on that blog of the workings of our NAMA and the wider economy is brilliant and always readable, thought-provoking, and incisive.

@ BeeCeeTee

I never made such a point. I am simply stating that the image that Karl Whelan has of the functioning of the EU – on the evidence of his contributions – is divorced from the actual reality.

@ V Barrett

On the position of the UK – our big neighbour with which the domestic economy is closley linked – you may be interested in this contribution by Mats Persson – of the eurosceptic think-tank Open Europe – in the Telegraph.


Amazingly, he never mentioned oil!

@ Bunbury

You have hit the nail on the head! And it is no coincidence that those doing the deciding have retired or are about to retire.

Incidentally, by any measure, the new conditions established by this and the previous government for the future intake of public servants, are discriminatory and would not stand up before the ECJ.

@DOCM, there is no evidence in the specific contribution you are criticising that Karl misunderstands the functioning of the EU in the ways you have suggested.


@DOCM, what Karl says in the article makes perfectly good sense if you read “European taxpayers” as meaning “taxpayers in European countries”. The notion that he is specifically talking about the EU budget is your own strawman invention.


Even by his/her usual standards that posting was a stinker of misdirection, but that is the game I suppose.

For those not following too closely the misdirection is one of a series of attempts to obscure the critical question of why and how the financial interests of bank bondholders have become inviolable in the Eurozone and how the general distribution of losses arising from the European component of the global financial crisis has been decided on.

Is there a right windmill to tilt at Sancho Panza?

From the KW article:
“The European Commission has produced highly detailed bank resolution plans. However, these plans call for the bail-in tool to only be applied from 2018 onwards. ”

There must be something special about 2018 that we have to wait until then. It could be simply the anniversary of 1918-all our wars are over-that kind of thing.
It could also be that the creditors banks and countries hope to have all their money in the barn by 2018. Or as much of it as possible before the skies open.

So it looks like other European leaders can wave all the pieces of summit paper they wish. They are just pieces of paper. They contain nothing more than blobs of ink.
The bottom line is that Germany, and the ECB on their behalf, has no intention of allowing bail-ins for banks.
They will use all the muscle, deceit and guile they can muster to recover the money that their lost in bad investments.
And they will hold out until the euro breaks apart because they have already figured that it will break regardless.

@ BeeCeeTee et al

Unfortunately, abuse does no qualify as argument.

My point is a simple one. In presenting arguments in relation to the EU, a constant distinction has to be drawn between what is a responsibility remaining with the states and that which has been transferred to the EU. Many commentators, yourselves included, seem incapable of seeing the distinction. Admittedly, it suits many politicians to maintain this confusion, everything that is of benefit being their doing, everything that is going wrong being the fault of “Brussels”. Indeed, it is this dichotomy which may cause the collapse of the entire undertaking.

However, there is no reason why the error should be become part of mainstream economic debate in Ireland.


Is it possible that you could clarify a few issues.

Is there a clause in the ESM charter that specifically disallows bank bail-ins? If so, at whose behest was it inserted?
If not, why can this rather obvious method of bank restructuring not be used?
To whose benefit is the ‘no bank bondholder get left behind’ policy being continued? And who is calling the shots in relation to its continuation?

[I am fully aware that the states may still have problems but with the banks off the back of the states most would have a fighting chance. While the banks still dangle like the sword of Damocles over the states the situation will only get worse.]

@Bunbury: re PS pensions and the age of decisions makers:
Not only in the PS.
I am aware of public companies creating new demarcations in relation to pension schemes. eg Discontinuance of defined benefit and introduction of defined contributions.
The decision makers are setting the cut off age so that they:
“pull up the ladder after themselves”.

One wonders if the Pensions Board can unslumber itself to investigate and comment on the legality of these ‘arrangements’.
Like @DOCM, I believe many of these ‘new arrangements’ would be chucked out by most courts of law.

@ Joseph Ryan

Without wishing to appear facetious, the ESM is simply a mechanism to enable debtor EU countries repay their debts to creditor countries. Bank bail-ins are the least of its concerns and I do not think that they figure largely in the thinking behind it cf. this very timely commentary in the FT.


What we are dealing with is a knock ’em down drag ’em out row between sovereign states that are wondering how they got themselves into this situation in the first place. The outcome is uncertain.

What strikes me most is the gap between the generations at every level, especially in Germany. The three most influential figures – if I have them right offhand – Weidmann (Bundesbank), Asmussen (ECB executive) and Vosskuehle (President of the Second Chamber of the Constitutionl Court deciding on the ESM) – are all in their forties. The last-mentioned is definitely a loose cannon and if anyone is likely to enter the history books as the individual that lit the fuse it will be him.

“Without wishing to appear facetious, the ESM is simply a mechanism to enable debtor EU countries repay their debts to creditor countries.”

That is certainly a new one on me. However, given what has been going on in the past week, I don’t doubt your summation.

Interesting age profile of some the key players!

Why don’t the Spanish just go for for a debt for equity solution instead of the pointlessness of a NAMA Castiliana ? Surely there are enough EU countries on the verge of banking nightmares to join together and force through some logic for a change.

High price f r financial aid
11 July 2012 PresseuropEl País, El Mundo

“EU puts Spain under guardianship,” headlines Spanish daily El País following the signing of a memorandum of understanding between the government of Prime Minister Mariano Rajoy and the European Union setting the terms for the bailout of Spanish banks –

The 32 conditions contained in the memorandum could qualify as de facto, though not official, foreign intervention on the entire Spanish banking sector. Because the Eurogroup imposed a total revision of the operation of the Bank of Spain; forced the Finance Minister to transfer his power to impose sanctions to the Bank [of Spain] and demanded the creation of an independent supervisor of fiscal policy. […] There is, however, some non-negligible, good news: approval for the bank bailout, the release, at the end of the month, of 30 million euros of the 100 million allotted, a moderate re-payment schedule (14 years) and an interest rate of about 4%. The Eurogroup makes it clear that the Troika (EU Commission, European Central Bank, International Monetary Fund) will control the bailout operation.


Any insight into what spanish economists are saying about this? Any senior heads pontificating that if Spain gets a bit of growth the bank albatross may just be manageable ?

@Kevin Donoghue

That may well be the silliest question I have ever seen on this blog, which is saying something.

Ah, whenever you worry about the level of silliness on this blog have a read of the Irish Times.

This is from an article by occasional blog contributor and professor of European Law Dr Gavin Barrett in an article entitled UK engagement with EU is central to Irish interests.

It is an important topic but the article quickly veered off into a combination of breathless enthusiasm for staying the course under our European partners and bizarre contempt for anyone not entirely taken with the current direction of the EU. The best line:

…the UK’s long-term strategic error of having failed to join the euro zone, which has left it largely an outsider in negotiations that will determine the future of European integration;

That is right. The UK’s strategic error of not joining the Euro.

The UK, firmly in the grip of upper class twit policy making and with a hollowed out economy enjoys better ten year borrowing costs than any of the Eurozone countries save Germany and Finland. Imagine how improved their situation would be by higher borrowing costs and lack of control of monetary policy. The mind boggles, the mouth splutters.

The article gets steadily crazier and continues in the Dr Pangloss goes to Jonestown theme that enthusiasts for the current flavour of the European project go for. Weird and worrying.

Looking at Newsnight tonight and British media repositioning itself these past few weeks – I don’t think its beyond the bounds of possibility the Atlantic powers will go full Glass Steagall soon.

I personally don’t think its enough but it seems at least some tribes of “The Boys” want this.
Interesting times.

Look at the headline..
“Domestic economy expands for first time in two years”

Later in the article…
“In the first quarter of 2012, the widest measure of economic activity – gross domestic product (GDP) – which includes exports and imports, contracted by 1.1 per cent on the previous three months.

Gross national product (GNP), which is a narrower measure than GDP but wider than domestic demand, contracted by 1.3 per cent quarter-on-quarter in the January-March period.”

You couldn’t make it up.

This was a comment I posted three weeks ago!

“I was walking around Bilbao last week and I could not help thinking that I was aboard the Titanic a few hours before it hit it’s iceberg.
People were out on the street drinking late at night happy, there was a cacophony of laughter and I was thinking “Christ do they not know that a financial tsunami is about to hit the country?” The following day, I was talking to what I first thought were ordinary indignados however, it turned out they were a group of bank employees who had been fleeced as a result of being persuaded to buy shares in Bankia. As a “gesture of confidence in the merger”. Spain is the Titanic but they are still on the sangria and 30 different types of tapas. The lack of preparedness is going to cause utter devastation.”

Spain will leave the Euro and will go back to its own currency, it has no choice. It is either that or descend downwards very fast into a Greek like death by one thousand cuts only problem is they will then still have to leave the EZ.

Dan GONE native?

Dan still has 4of the ten years of prosperity he predicted in 2006 left to run….if he could even be one third right he’s got to live in hope

Why can’t they come up with some other index that would indicate growth ?

I mean 1 positive and 2 unimportant negatives (GDP & GNP) is not good is it………
A conspiracy theorist would think the CSO needed to leak the material officially so that the Pravda had a excuse to get ahead of all those guys with those negative waves so early in the morning.


Official Ireland at its very best. The CSO publishes the national accounts ‘by mistake’ and the guy reporting on it can’t figure out if GNP has gone up or down so he hedges and says they went up and down.

Imports can spike because of aircraft deliveries, reducing or negating an export rise e.g. leasing company Avolon has placed an order with Boeing for 30 aircraft, with a price tag of $2.3 billion (€1.8 billion).

However, business capital formation is boosted.

I bet the Euro will be devalued by more than 20% by the end of the year.
Even the core countries are beginning to suffer now.

But devalued against what ?
If its the $ then we get a smaller oil ration.

No the eurozone (if you wanted this tool of the FED to continue) needs interest free money.


“the critical question of why and how the financial interests of bank bondholders have become inviolable in the Eurozone and how the general distribution of losses arising from the European component of the global financial crisis has been decided on.”

This is indeed the key question.

We have essentially been told that default on senior bank debt = Armageddon. I can understand this at a superficial level because the vast bulk of money in circulation is essentially bank debt rather than legal tender.

However, this is only superficial reasoning and does not of itself justify the cost of lumping the entire problem onto the taxpayer. The real effect of bail-ins and the different options open to Governments are rarely analysed properly. What differentiations between bank creditors can be made and how different (new) classes might be treated goes unmentioned.

The trust people have in currencies and governments and their willingness to soldier on with their businesses and banking in the face of crises (what else will they do?) is ignored. The lesson of the USA leaving the gold standard is missed.

No abuse intended. Simply a comment that based on the corpus of your contributions here you give the appearance of being a political operative of some sort, using sockpuppet tactics.

You attacked Karl on the basis of his past contributions with the following.
“I am simply stating that the image that Karl Whelan has of the functioning of the EU – on the evidence of his contributions – is divorced from the actual reality.”

Goose, gander etc.

A national government should have the option of deciding between bank resolution and bank bail-out. Support for the sovereign should not be conditional on banks being bailed out.

I sugggest that if a country opts to bail-out banks then the make-up of any rescue fund to be applied to banks should draw from the following
– deposit insurance fund (which needs to be strengthened),
– taxpayer funds from the political entity which was responsible for regulation,
– a levy on banks regulated by the political entity which was responsible for regulation,
– in the case of systemic crisis, quantitative easing or contributions from the taxpayers of the other countries who benefit from the bank bail-out.

However, even then there will be a massive moral hazard whereby banks will be incentivised to lend large to EZ countries, which is the problem which landed us in the mess in the first place. It also allows borrowing bank employees and directors to escape the fruits of their failures.

Therefore any solution must also punish pension funds and financial institutions which lent too much. Those guys need to be subjected to a bail-in. It also needs to ensure that banks are taken over by new banks to the effect that their senior management and board are cleared out without any compensation.

If EU funds are to be applied to banks in member states these accountability measures may follow.

Jayus – they are taking their time…….

Just think these could be the last quarterly reports before everything goes dark…….
Somebody better get a print out and put the paper in a metal case or something.


When senior debt is untouchable and banks start failing across the continent the EZ will begin to look like a Ponzi scheme

Or Mother Hubbardesque . And when she got there the sovereign cupboard was bare.

the point of not touching senior debt we are told revolves around
a) pensioners
b) the cost of capital is going to go up

but it is really about power
and risk was mispriced for too long and the cost of capital will go up anyway

I am puzzled by the following from the Examiner..

“Irish firms made €261bn in outward direct investment, which is considerably more than the €185bn in foreign direct investment which came into the economy.

“Outward direct investment is now commonplace among a wide range of large and medium sized Irish-owned companies and is seen as a complimentary process to traditional exporting. ”

Maybe Michael Hennigan can shed some light on this.


Indeed – those seeking to protect stability by protecting senior bondholders could indeed find the cupboard is bare. When they peek inside they make their mind up pretty rapidly.

The repeal of the ban on bank bail-ins will take place without forewarning if and when it happens. Having reflected on that, I am not sure that the reference to the ECB bank resolution paper (and the 2018 date being contained in those proposals) is really as important as KW thinks.

I find navigating away form the site very slow, esp when I submit comments or click on links. Anybody else getting that?


The 2 lines in the sand appear to be

– no senior bondholders lose money and
– price stability

And the way things are going neither of these are remotely feasible over the medium term if the alternative is a Euro breakup and the biggest economic shock since the 1930s.-


“Thousands of savers were hit by one condition of the leaked MoU, which forces any bank seeking aid to write off its preferred shares and subordinated bonds, much of which, unusually, were sold to retail investors in Spain as savings products. The people who bought them, lured by 7% interest rates, are going to be clobbered.”

That is how power works. Shaft the ignorant.

“That is how power works. Shaft the ignorant.”

In polite society we call that optimizing the outcome to your advantage where there are information assymetries.

@ BeeCeeTee

I am glad to note this to be the case.

On the point you make with regard to Karl Whelan, that I am indulging in the practice of ad hominem remarks when I deplore the same action in others, I would reject this. I remain of the view that he is not reflected accurately the realpolitik, for want of a better word, of the political situation with which the euro is confronted. This is not an attack on Karl Whelan, simply an opinion on the approach that he adopts.

The rule is simple. Stick to the arguments and leave aside speculation on what may be motivating contributors. It is not something that one would do openly in normal debate and it never ceases to amaze me that people indulge freely in the practice on blogs. It does much more damage to those indulging in it that to the intended target.

@Robert Browne /DOCM

re FT Alphaville link above:

It looks like ‘The Karlsruhe Court ‘ is fast becoming Europe’s very own Sharia court without whose consent Europe is impotent.
The law in ‘Karlsruhe’ appears less important than the prejudices and persuasions of those on the bench.

Well the story runs that Germany was pushed into the Euro in return for help with the reunification project. That is a subjective rather than an objective assessment but what is sure, is that, under Maastricht Germans were assured that the EU project would not turn into a “transfer union”.

Now they are being told, lets have “joint and several liability” for Eurobonds, when we all know, they are one of the only semi solvent countries left. They are being lined up for a massive dose of QE by other countries (Piigs and France) who want to get them in so deep, that the printing spigot will have to be opened up. Meanwhile, there is nothing more our PS, legal and political hega(monies) in Ireland would love more, than to see the Germans being railroaded into an American Federal Reserve style, based system. A system that has dismantled the financial integrity of US banking with their multiplicity of creative derivative instruments and has led to a grave diminution of all citizens rights. Notice too, how the pursuit of a fiscal, banking and monetary union in Europe has commensurately eaten into democratic processes. The more fiscal and monetary union the less democracy. Spain, Ireland and Greece will be auctioned off to hedge funds such as Pimco and other supranational bodies such as the ECB and IMF who will run these countries and pay the pensions of those whose signatures enabled the process.

Germans work hard are disciplined and, by and large, their public sector is paid less and are a hell of a lot more honest and hard working than ours. I worked in Germany and if you are entitled to something, you will get it end of story, without the Healy Rae’s or the Willie O’Dea types. You will never hear, I know sombody, who knows somebody, nod wink stuff. They are right to stand up for their country and their constitution. We are the ones who twist in the breeze whichever way it is blowing.

Finally, maybe Europe is “impotent” because Europe has pursued the wrong economic policies. The shocking thing for Europe, seems to be, that it is not being given its free lunch at cheap interest rates.

Where are all the professors of economics and their economic advisors, the less brave of whom have slinked away from this site, because their erudite thinking was being questioned, in a little too much detail. Those who lectured us in college and who were telling us, up to quite recently, that “countries could borrow and borrow and only had to ever worry about paying back interest as inflation and economic growth would do the rest”? The attitude now seems to be, Ooops! we were wrong but we still have our Phd’s and if we blog on our own we have less chance of being found out.

@Robert Browne

re My views on Germany’s position:

I do stand over my point that Europe is being rendered impotent by German intransigence and the fact that members of the German Court increasingly see it as their prerogative to direct the political direction of Germany. ‘Playing to the gallery’ was I believe the phrase used in a recent article.

If I were a German I would be vehemently against an open ended transfer union but I would also have to acknowledge that the wealth of my country was dependent to some extent on the purchasers in other countries.
I would be particularly annoyed, to the point of distraction, that any of my money was being used to support the elegant lifestyles of elites in various countries, including Ireland.

My real issue with Germany is the insistence that all debts be paid in full, particularly bank debts. Some say this is not Germany’s position. Yet I do not believe that the ECB would have been able to pursue this cancerous policy were it not being supported by Germany and even demanded by Germany.

If Germany does not want a transfer union, that is fine by me. It is a perfectly legitimate stance. But the legitimacy of that stance is being undermined completely by its insistence that banks debts paid, a inherently illegitimate stance.
That stance is all the more illegitimate when placed in the historical context of German debt write offs and it unique responsibility to ensure a stable and prosperous Europe.

The bottom line is that Germany is in a position to resolve this crisis without having to implement a massive transfer union or to implode the euro because there are other less difficult choices that would resolve it.
That Germany has not moved to resolve the crisis but has stalled every attempt to resolve it, is my real difficulty with the German position.

Germany has simply to apply rationality to the problem and deal with the issues, not the prejudices of Prof Sinn or the some of those in Karlsruhe.

The events since the summit which essentially involved Germany reneging on a written communique agreed at EZ level are inexplicable to most casual observers like myself.
[Such ‘reneging’ by Greece or anybody else else would have been met with very different responses.]
It is a political reality that does not bode well for Europe.
It is hard to see how Europe can ‘stumble along’ in such circumstances.

@ joseph Ryan

“My real issue with Germany is the insistence that all debts be paid in full, particularly bank debts.”

Germany will only do what Germany is allowed to get away with. Like all bullies it pushes the limits until the breaking point is reached then it rows back a bit, consolidates and tries to do the same again.

Ireland caved in to the pressure brought to bear first by our own crooks and then we accepted the phone call from Geitner to Trichet telling us to pay up all senior debt, instead of going ballistic and telling the US and EZ, “you want us to take one for the team fine as long as you meet the costs”. This is basic, basic negotiating skills. We must take responsibility for not standing up for ourselves. When Iceland a country of little more than 300,000 souls took a stand, we disgracefully took a stand against them and when Greece went ballistic we decided to try and capitalise on their situation by being the best boys and girls in the class. See, how far it has got us? There was the mirage of the deal two weeks ago now blown away by the MOU forced on a Spanish leader eager to bow the knee and sell off airports, ports, roads, railways etc to appease the markets. Germany is in a strong position because if the EZ crumbles they will simply write a cheque to themselves for 1 trillion to compensate themselves for the billion in losses they will incur when Target 2 imbalances are totted. Of course Karl Whelan thinks this is point is bogus but I think it is very, very real. 60% of German inputs to its exports are imported and will become much cheaper if they have their own currency and the German people would love to get their currency back regardless of what the polls say. If Germany have to have a transfer union so that other states can import their goods what is the point in that? Reminds me of the US China situation before China started to think they were on a hiding to nothing from the American printing presses.

I am in fundamental disagreement with the politicians and powerful elites in Ireland. Since the beginning of this crisis they have either covering up what happened or feathering their own nests. As C McC said, 4 years on and “not as much as a parking ticket given out”, We had Croke Park No.1 which is diametrically opposes what was/is required for this country. We needed to burden share among ourselves and then force burden sharing on those who fueled our bubble. Instead they also gave themselves a massive NAMA gravy train cheered on by lawyers, accountants, solicitors, estate agents and certain cute hoot developers who are now being paid to become rich. Even the decision to buy off those on unemployment benefits by paying them twice what we can afford is wrong. Spain are in a dire situation with 24% general unemployment and 51% so called youth unemployment. Miners insisting, that, “if they are not listened to they will be back with dynamite”. We are heading inexorably for the break up of this currency union. Even if Ireland got assurances about a second ESM bailout based on even stricter conditionality and MOU there is no guarantee that the money would be in ESM. It is a bit like those unfunded PS pensions that MH is an expert on, most PS workers know that they may never be honored to receive these sums. One final point, we have put, according to namawinelake 69bn into our banks. The most we are going to get back for 100% stakes is 14bn and that if we are lucky. The PN’s may be kicked down the road for 40 years, but so what, we still owe the money, our position is untenable. We are bankrupt in ideas too with policy being driven by NTMA bean counters and NAMA opportunists and Noonan, Howlin, Kenny, Gilmore none of whom are particularly honest. The EZ will unravel within 2 years and Spain and Italy could make it happen overnight. Ireland has no plan not even plates to print a new currency.

@ Joseph Ryan

“Muddling through” rather than “stumbling along” is the appropriate term and has been the modus operandi of the EU from the beginning. It reflects the only possible manner of dealing with conflicts of interest which have to be resolved by negotiation. The great benefit of the EU is that it provides a framework for this to happen.

Germany is as divided as any other country with regard to how to proceed cf; this comment by Quentin Peel on the “war of the economists”.


His report reminds of a cartoon which I saw years ago of the doctors in the corner consulting on what was wrong with the patient while the the patient in question is shown sidling quietly out of his hospital bed and making for the door. With any luck, this is what will happen in relation to the European economies and their natural resilience will see them through.

@Robert Browne

I am certainly in agreement with you on this part of your comment:
“I am in fundamental disagreement with the politicians and powerful elites in Ireland. Since the beginning of this crisis they have either covering up what happened or feathering their own nests. As C McC said, 4 years on and “not as much as a parking ticket given out”, We had Croke Park No.1 which is diametrically opposes what was/is required for this country. We needed to burden share among ourselves and then force burden sharing on those who fueled our bubble. Instead they also gave themselves a massive NAMA gravy train cheered on by lawyers, accountants, solicitors, estate agents and certain cute hoot developers who are now being paid to become rich.”


“With any luck, this is what will happen in relation to the European economies and their natural resilience will see them through.”

I would have grave doubts about that. My reason is that while consumption and government expenditure may trundle along, the other major component of growth ie. investment is likely to remain severely affected by the ongoing crisis. Investments can be deferred or simply abandoned. The more cautious option is usually deferral and that is probably what is happening. Some replacement investment is essential in order to sustain existing business (eg trucks, machines etc) but beyond that it is hard to see investment in enterprises being considered.
The discussion / disagreement between Seamus Coffey and Michael Burke on another thread is relevant to this important area.
In fact I understand Seamus Coffey has made the point some time ago of the need for Ireland to redirect some of its expenditure from current to capital, as have the Troika.

Redirection towards investment can’t be done withen the Euro unless you starve a large section of the population.
After you starve the population there will probally be no demand for your investment anyhow unless you import more live ones.
The remaining people with large amounts of Euros can buy imports on a massive scale…however if you cut the Euro supply such as reducing Dole payments the remaining internal money supply crashes even further.

We have had a very very non optimum currency for multiple decades which makes internal commerce uncompetitive to say the least.

I really can’t describe how absurd this non sovergin construct truely is but its out there man.

“The European Central Bank, in a sharp turnaround, advocated imposing losses on holders of senior bonds issued by the most severely damaged Spanish savings banks—though finance ministers have for now rejected the approach, according to people familiar with discussions.

The ECB’s new position was made clear by its president, Mario Draghi, at a meeting of euro-zone finance ministers discussing a rescue for Spain’s struggling local lenders in Brussels the evening of July 9.

It marks a contrast from the position the central bank adopted during the 2010 bailout of Irish banks—which, like Spain’s, were victims of a property meltdown—”

“Imposing losses on bondholders reduces the amount of money taxpayers need to inject into struggling banks. One euro-zone official said the desire to avoid putting more public money at risk than necessary was one reason behind the ECB’s change of heart since 2010. The ECB’s new stance can also be explained by the different scenarios, including the existence of a bank-restructuring framework for Spain that didn’t exist for Ireland, and the fact that the Irish government, unlike Spain’s, guaranteed much of its banks’ debts.”


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