The Irish Economy
Commentary, information, and intelligent discourse about the Irish economy
Eamon Quinn reports here.
“We are confident [on a bank-debt deal]. We have agreement at the highest possible level that there will be an arrangement found for Ireland. We are confident that we are on track and that there will be a new retro-fitted deal for Irish banking-related sovereign debt. Yes, we are confident that will happen,” [Minister of/for EU affairs Ms Creighton] said.
Confident; confident; confident … in the afternoon
This morning Lucinda was certain, yes certain … as she reached her crescendo of .. wait for it … “absolute certainty”.
Absolute Certainty! Not too sure that such a conceptualization exists?
what more do you want beyond a ‘back of the envelope deal’ that was agreed at the last summit??!! Colm McCarthy clevered coined the phrase (i am assuming) the Devil is in the principle on this one…I’m not so sure that is the case anymore. Might need to go back to the detail…but I’m by no means absolutely certain about that.
I think Lucinda’s confidence or certainty is something to be very worried about.
To me, this suggests that the the government will agree to convert the promissory notes into bone fide sovereign debt with an interest rate similar to the rate charged by the EFSF (i.e. around 3%), even though the effective interest on the prom notes is around 1% (as noted by Karl Whelan and others).
This would be a disaster, but would be sold by the likes of Creighton as a marvellous victory for the government.
Lucinda’s Competition …
In the midst of the eurozone crisis, we’re fortunate to have politicians who can tell us how things stand, ironises the Süddeutsche Zeitung, with this list of choice quotes.
“Russia is not Greece.” (Vladimir Putin, Russian Prime Minister, March 2010).
“France is not Greece.” (Christian Lagarde, director of the International Monetary Fund, May 2010).
“Portugal is not Greece, and Spain is not Greece.” (Jean-Claude Trichet, President of the European Central Bank, May 2010).
“Spain is not Greece. But Greece is where it is thanks to a policy like Zapatero’s policy in Spain.” Mariano Rajoy, leader of the Spanish opposition, May 2010).
“Hungary is not in the same situation as Greece.” (Olli Rehn, EU Commissioner for Economic and Monetary Affairs, June 2010).
“Hungary is quite obviously not Greece.” (Gyorgy Matolcsy, Hungarian Finance Minister, June 2010).
“Spain is neither Ireland nor Portugal.” (Elena Salgado, Spanish Minister of Finance, November 2010).
“Ireland is neither Spain nor Portugal.” (Angel Gurria, OECD Secretary-General, November 2010).
“Ireland is not Greece.” (Angela Merkel, German Chancellor, November 2010).
“Greece is not Ireland.” (Giorgos Papakonstantinou, Greek Minister of Finance, November 2010).
“Ireland is not in Greek territory.” (Brian Lenihan, Irish Minister of Finance, November 2010).
“Ireland is not Greece.” (Michael Noonan, Irish Minister of Finance, June 2011).
“France is not Greece and it’s not Italy either.” (Barry Eichengreen, American economist, August 2011).
“Italy is not Greece.” (Rainer Bruederle, Germany’s FDP parliamentary party leader, August 2011).
“Italy is not Greece.” (Silvio Berlusconi, Italian Prime Minister, October 2011).
“Austria is not Greece.” (Karlheinz Kopf, parliamentary faction leader of Austria’s People’s Party, November 2011).
“Italy is not Greece.” (Christian Lindner, FDP general secretary, November 2011).
“Portugal is not Greece, and it will not turn into Greece.” (Antonio Saraiva, head of the Confederation of Portuguese Industry, February 2012).
“Spain is not Greece.” (Richard Youngs, head of the Madrid-based think tank FRIDE, May 2012).
“Portugal is not Greece.” (Pedro Passos Coelho, Portuguese Prime Minister, June 2012).
“Italy is not Spain.” (Ed Parker, senior director of Fitch Ratings Agency, June 2012).
“Greece is not Argentina.” (Yiannis Stournaras, Greek Minister of Competition, July 2012).
“Germany is not Zimbabwe.” (Paul Casson, fund manager from Henderson Global Investors, June 2012).
“Spain is not Uganda.” (Mariano Rajoy, Spanish Prime Minister, June 2012).
“Uganda does not want to be Spain.” (Asuman Kiyingi, Foreign Minister of Uganda, June 2012).
Very good, I wonder how long before Greece says “Greece is not Greece” so you feck off and look elsewhere for your money back…
@david o donnell
Great stuff. What a strange “economic and monetary UNION” we’ve found ourselves in.
It’s unfair to blame Lucinda for this. Ireland is a tiny tiny piece of all of this. At the moment it’s serving a purpose of “proving” that austerity can work. It’s a relatively cheap illusion to maintain and suits everybody.
The big picture is this::
Germany is playing very very tough.
Big Tim is coming over next week to try and twist their arm – who knows if he will succeed. But Irish bank debt deal is small, tiny stuff here. There should be some clearer signals from next week on
Thanks man, I needed that.
Excellent, but who is Lucinda?
As I dont have the money to pay for a sub to the Wall Street Journal I dont know what Miss Creighton was stating in the interview.
David O’ Donnell’s quotes are just class and I really dont need to read the Creighton interview to guess what she was saying……….
Another rescue deal for Greece being reported tonight by the telegraph ..
Reuters have a similar but more detailed story..
Buiters now sez Grexit likelihood at 90%
Good overview of ECB state of play here [h/t nakedcapitalism
Is the ECB Ready and Able to Cross the Rubicon?
The big news of the day on Thursday was Mario Draghi’s pronouncement that the ECB would do “whatever it takes” to shore up the Euro. He also used the same phrases about the need to keep the monetary channel open prior to preceded previous interventions. Two-year Spanish bond yields, which had risen to unprecedented levels, came in by over 150 basis points and global stock markets rallied.
But how seriously should we take this talk? While the ECB is the only actor that can buy the Eurozone enough time for the member states to put in place the needed fixes (and bear in mind there is no guarantee that process will be a success), even measures the Eurocrats appeared to think were on the “shock and awe” scale fizzled. For instance, the ECB’s last big intervention, the LTRO, was a back-door bailout to sovereigns (banks could borrow at 1% from the LTRO and buy sovereign paper at much higher yields). Even Euroskeptics thought the LTRO would buy the Eurozone 12 to 18 months of breathing room. Instead, its impact had worn off within three months.
Read more at http://www.nakedcapitalism.com/2012/07/is-the-ecb-ready-and-able-to-cross-the-rubicon.html
Draghi the Miracle Man?
The Root of the Problem [h/t barry ritholtz
“The problem with banks is that they tend to blow up on a regular basis. That’s because bankers are playing with other people’s money (OPM). They consistently abuse the privilege and shirk their fiduciary responsibilities. Whenever they get into trouble, government regulators scramble to bail them out first and then scramble to regulate them more strictly. Without fail, the bankers respond to tougher rules by using some of the OPM to hire financial engineers and political lobbyists to figure out ways around the new regulations.
Weill sez “bring back Glass Steagall”
akin to Rumsfeld declaring himself Ba’athist really
I would suggest that this contribution by Cliff Taylor of the SBP is closest to the mark.
As to what is likely to happen, I was going to quote Harold MacMillan until I came across this comment from 2002 by Robert Harris.
And on the subject of “burning bondholders”, a popular subject, at least until recently, on this blog.
Some obvious conclusions
*the Judge enjoys grandstanding-not unknown among mi lords
*the cost to tax payers of bailing out banks would escalate. I think Spain plans to impose up to 50bn of losses on subbies in some unknown fashion. So the putative Spanish bailout (denied of course) escalates to 400bn plus.
*those that pointed out that imposing losses on the bondholders was easy were somewhat mistaken.
It is getting to the point where the only two workableoptions are i)break up the EZ and end the European Project ii) ECB buys trillions of short dated bonds -sovereigns et al and swaps them for perpetual low coupon consols or “war loans” thus reducing the NPV of the debt. The QPQ for this would be zero deficits.
If it is not ii) then i) becomes operative and the continent of Europe will be in flames for the third time in a century.
ECB Divided over Efforts to Save Euro
By Sven Böll, Michael Sauga and Anne Seith
ECB head Mario Draghi wants to save the euro at all costs. But the pledge has created discord within the bank’s governing council. Many oppose plans to buy up sovereign bonds from troubled euro-zone member states, fearing it could just make things worse.
It was an illustrious meeting that British Prime Minister David Cameron was hosting on the evening before the opening of the Olympic Games in London. Prince Charles joked with International Monetary Fund Managing Director Christine Lagarde, while top chef Tom Aikens served up Scottish salmon and Yorkshire goat cheese. The heads of global corporations like Google enthusiastically applauded the videotaped appearances of English celebrities, from Victoria Beckham to Richard Branson.
It was meant to be a day of glamour, but then Mario Draghi, the president of the European Central Bank (ECB), made a seemingly trivial remark — but one that ensured that the 200 prominent guests were swiftly brought back to gloomy reality. His organization, he promised, would do “whatever it takes to preserve the euro.”
The audience treated the remark as just another platitude coming from a politician. But international financial traders understood it as an announcement that the ECB was about to buy up Italian and Spanish government bonds in a big way. So they did what they always do when central banks suggest they might soon be firing up the money-printing presses: They clicked on the “buy” button.
Not surprisingly, Draghi’s most recent plan is being viewed critically in Germany, by monetary watchdogs and politicians alike. Carsten Schneider, the parliamentary budget expert for the center-left Social Democratic Party (SPD), calls the plan an “unconditioned and unauthorized intervention.” Critics are also speaking out within the governing coalition, made up of Merkel’s center-right Christian Democratic Union (CDU), its Bavarian sister party, the Christian Social Union (CSU), and the business-friendly Free Democratic Party (FDP). Norbert Barthle, the CDU’s chief budgetary expert, says that it is “not the central bank’s job to buy up government debt.” And his colleague with the CSU, Hans Michelbach, is “speechless that Draghi is catering to the comprehensive-coverage mentality of the southern countries.” For this reason, says Michelbach, the euphoria in the markets could “quickly turn into depression once again.”
That’s the tragic aspect of Draghi’s rescue idea: What is intended to keep the monetary union together could actually drive it even further apart.
No Time to Lose
Juncker Says Crisis Has Reached ‘Decisive Point’
A decisive point had been reached in the euro crisis and EU leaders and the European Central Bank must use all means at their disposal to rescue the currency, euro-group head Jean-Claude Juncker warned on Monday. He also confirmed plans to buy bonds from struggling member states.
The statements were a sign that last week’s events in financial markets had rattled EU leaders.
According to information obtained by SPIEGEL, the planned bond-buying operation by the ECB and EFSF will work as follows:
• The bailout fund will purchase bonds directly from the government in so-called primary market purchases that central banks are forbidden to undertake.
• The ECB will buy government bonds from banks or investment funds in the so-called secondary market in order to push down market interest rates.
The aim of the operation is to double the EU’s firepower in the fight against the debt crisis.
He said Germany was partly to blame for the escalating crisis. The country was affording itself “the luxury to conduct domestic policy regarding euro issues,” he alleged. In an indirect criticism of German Economy Minister Philipp Rösler, who said last week that a Greek exit had lost its “horrors,” Juncker said “chit chat” about a Greek exit wasn’t helpful.
FYI a link to the article by Martin Feldstein that (hopefully) works.
and the opposing view from Paul Krugman courtesy of today’s IT.
The truth lies, one would imagine, somewhere beteen the two. Feldstein’s approach, however, seems more rooted in the real world and a better indicator for likely future developments.
I can’t see you getting your war. You can probably put the shotgun away.
The ontologically challenged market fundamentalist and financial system skewed Professor Feldstein has been anti-Euro ab initio and his assertion that:
‘The peripheral eurozone countries became over-indebted in the last decade because the bond market failed to provide a signal that debts were too high. ‘
might well have been written by Dear Lorenzo as both strolled the corridors of philistine power in Harvard. He is simply spinning the ‘feckless peripheral’ thesis which leads to the idiocy of the ‘conflationist fallacy’ while ignoring the role of unregulated capital flows at the root of the crisis.
He doesn’t own a shotgun but is reputed to be a dead shot with his PeeDee watery pisTul during his daily milk round …
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