DE/FI/NL Finance Ministers’ Statement

The joint statement of the German, Finnish and Dutch Ministers for Finance can be read here.  It includes this section on ESM bank recapitalisation.

Regarding longer term issues, we discussed basic principles for enabling direct ESM bank recapitalisation, which can only take place once the single supervisory mechanism is established and its effectiveness has been determined. Principles that should be incorporated in design of the instrument for direct recapitalization include:

  1. direct recapitalisation decisions need to be taken by a regular decision of the ESM to be accompanied with a MoU;
  2. the ESM can take direct responsibility of problems that occur under the new supervision, but legacy assets should be under the responsibility of national authorities;
  3. the recapitalisation should always occur using estimated real economic values;
  4. direct bank recapitalisation by the ESM should take place based on an approach that adheres to the basic order of first using private capital, then national public capital and only as a last resort the ESM.

This is not EU policy and there does appear to be some contradictions with the June 29th Euro Area Summit Statement but it does give some important interpretations about how that statement could be implemented.

90 thoughts on “DE/FI/NL Finance Ministers’ Statement”

  1. This sounds as if legacy assets will remain under national control, i.e. Spain and Ireland.

    If so, does this imply that ESM funding to recapitalize the banks will follow the EFSF arrangements for Spain?

    i.e.

    The Eurogroup considers that the Fondo de Reestructuración Ordenada Bancaria (Fund for Orderly Bank Restructuring, FROB), acting as agent of the Spanish government, would receive the funds and channel them to the financial institutions concerned. The Spanish government will remain fully liable and will sign the Memorandum of Understanding and the Financial Assistance Facility Agreement.

    However, at the euro area summit on 29 June 2012, it was proposed that once an effective supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalise banks directly.

  2. The 29 June statement for reference.

    http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131359.pdf

    The sentences in relation to Ireland;

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

    An “undertaking to examine” with a view to “further improvement” could mean a lot, or very little. The overall text does not add up to an “EU policy” but a rough and ready political deal by Heads of State and Government the implications of which are being read in a very limiting way by the ministers with the decision-making power.

  3. We (the Irish State) decided to guarantee all private bank liabilities in 2008. We then decided to nationalise all the main banks. We have since paid out on most of the banks liabilities with funds borrowed from ECB/Troika for around €64 billion?
    Who did we ever think is going to take these liabilities away from us?
    We are on the hook and only choice is to continue to pay up or default on our debts to the ECB/Troika.

  4. @ Seafoid
    + 1
    Lying in every sense of the word. Time for them to come clean – a somber state of the union address is called for.
    “Europe is unravelling etc…”
    Need to crank up the printing presses and start heading for the exit.

  5. “I’m a hard grafter and, as some of them found out, they shouldn’t tangle with me too often” An Taoiseach Enda Kenny speaking after the Thursday night/Friday morning EU summit talks in June 2012

    “With that the sun came out between the cloud and the hill, and it shining green in my face. “God have mercy on your soul,” says he, lifting a scythe; “or on your own,” says I, raising the loy.. He gave a drive with the scythe, and I gave a lep to the east. Then I turned around with my back to the north, and I hit a blow on the ridge of his skull, laid him stretched out, and he split to the knob of his gullet” Christy Mahon in The Playboy of the Western World

  6. Nobody should be surprised that the hard core should try to renegotiate the Summit deal. Thank GOd we have the PN to burn. Now let’s rattle the cage a bit. Start with a Budget that targets a primary balance by slashing spending,

  7. Is this really a surprise?

    The statement in June was so vague it was clear there would be backtracking.

    The simple fact of the matter is we have been left with an IBRC bill of €31bn and there will be little if any reward for taking one for the team with regards the senior unsecured bondholders. The best that can be hoped for is that the ESM will managed further recaps in AIB/BoI should they be required.

    Whatever about the costs of a Euro exit, in Ireland we at least know the minimum cost of remaining in the Euro and it is about 20% of GDP (31bn). Can you imagine if Spain or Italy were presented with a bill of 20% of GDP – they would have left the Euro long ago.

    An Irish Euro exit would immediately bring our debt to sustainable levels by reducing it to under 100% overnight. The resulting depreciation of the punt would make the Croke Park wrangling redundant. The all round instantaneous improvement in competitiveness and the real reduction in the private debt burden would set us on the road to recovery. Who knows, with relatively low debt levels and a recovering economy, the new Punt might even appreciate against the dollar or Sterling over the medium term. The alternative is decades of debt service, high unemployment and depression with the only possible relief coming in the aftermath of a Grexit or some other external shock. It’s time to wake up.

    Of course, if the government were to honestly start preparing for a Euro exit and this was taken seriously by the EU/ECB, a better deal would immediately be put on the table. But that is sort of irrelavant. Its high time the government took control of our future.

  8. @seafóid

    In contrast, the new Government’s current policy of lying on the ground with a begging bowl and hoping that someone takes pity on us does not make for a particularly strong negotiating position.

    +1

    We did everything we were told without objection, regardless of how much it damaged our national interest, and now they tell us that our national interests are of no concern to them?

    Who coulda thunk it?

    p.s. I imagine everyone who said that the Fiscal Compact would soften Germany’s position rather than strengthen it will be issuing a heartfelt apology and changing the way they think about European politics and economics.

  9. According to Davy’s Irish mortgage arrears analysis (report, August 2012) ‘the banks [Aib/Ebs, Ptsb, BoI] have realised far lower discounts on asset sales as they have delevered’ [compared to the €13.2 billion capitalisation provided]. The report further concludes that extra provisioning for residential mortgage losses will be more than offset by these lower discounts.

    This is further evidence which supports the view that the government shouldn’t transfer equity in these banks to the EMS or anyone else. Yes, take over the capital loans at par, €8.36 billion, at a much lower interest rate, and support the increase in the level of deposits so that the expensive bank deposit guarantee costs can be removed, but leave equity as is.

    It seems that, as a country, we are so demoralised and illogically fearful of any state ownership in banks, that we are buying into the false notion that the ‘value’ of our €29.4 billion bailout funding of Aib/Ebs, BoI, & IL&P is a miserable €8 billion as is being regularly ‘news-itemed’. This is simply not true. Equity is €13.6 billion, Irish Life is €1.3 billion, (fully recoverable), capital loans are €8.36 billion (fully recoverable) and the ‘special capital consideration’ given to Aib is €6.054 billion. That’s the full €29.4 billion.

  10. Irish politicians are addicted to spin and this is a case where it would have served them better by keeping expectations under control.

    Usually a communiqué on an international meeting is agreed in advance. This one was put together after midnight.

    Here from the language, ‘to break’ seems to imply the future.

    As regards the specific reference to Ireland, that could well be seen as related to restructuring the PNs.

    Given that Finland has requested collateral from Greece in the past, it is unlikely that it signed off on this communiqué believing that it was agreeing to have €64bn in debt from Ireland transferred to the ESM.

    Besides, was it realistic that the ESM with a new limit of €500bn and the residue of the EFSF, would also assume old Spanish debt?

  11. According to Davy’s Irish mortgage arrears analysis (report, August 2012) ‘the banks [Aib/Ebs, Ptsb, BoI] have realised far lower discounts on asset sales as they have delevered’ [compared to the €13.2 billion capitalisation provided]. The report further concludes that extra provisioning for residential mortgage losses will be more than offset by these lower discounts.

    This is further evidence which supports the view that the government shouldn’t transfer equity in these banks to the EMS or anyone else. Yes, take over the capital loans at par, €8.36 billion, at a much lower interest rate, and support the increase in the level of deposits so that the expensive bank deposit guarantee costs can be removed, but leave equity as is.

    It seems that, as a country, we are so demoralised and illogically fearful of any state ownership in banks, that we are buying into the false notion that the ‘value’ of our €29.4 billion bailout funding of Aib/Ebs, BoI, & IL&P is a miserable €8 billion as is being regularly ‘news-itemed’. This is simply not true. Equity is €13.6 billion, Irish Life is €1.3 billion, (fully recoverable), capital loans are €8.36 billion (fully recoverable) and the ‘special capital consideration’ given to Aib is €6.054 billion. That’s the full €29.4 billion.

    Let’s write off the ‘special capital consideration’ against the income received from the bank guarantee scheme + central bank revenue – there’s a close match up – and than let’s concentrate on the €13.6 billion equity investment in Aib/Ebs (€9.6 billion), BoI (€1.8 billion), PTSB (€2.3 billion).

    The combined ownership comes to around 60%. The balance sheet net worth of that 60% at 30/6/2012 was around €12 billion. Allow for further losses for the 2nd half of 2012 + all of 2013. Then fast-forward to the 2020s. Based on existing loan size plus very modest inflation, profits in the intervening years (increasing net worth), and a ‘sustainable profit’ based sale premium, the sale value of the government bank equity, combined with whatever dividend is paid out, will be considerably above the €13.6 billion cost.

    An interesting national discussion topic: Could this ‘future’ net gain from the operational banks be directed ‘upfront’ against the AngloNationwide ‘private’ loss. That plus a partial ECB write-off in current negotiations would clear up fully the €64.1 billion monies spent on bank failures as an immediate break-even, and release a cost-free €64.1 billion stimulus to the economy. The stressed, 10-30% of households, might be glad of that approach when compared to the slow meandering of the present.

  12. What is the logic of this communique?

    Presumably the purpose of the communique is to fire a salvo at Spain in the context of the critically important negotiations over the rescue deal for Spain?

    However, it is a very costly salvo as it risks rolling back some of the major confidence boosts recently delivered. Apart from the damage to economic confidence generally, this surely must sicken the USA, Japan, UK, Italy, France and others.

    There is also the question of the ECB’s attitude to this announcement. The ECB Doves seem to have got the upper hand lately nut it is hard to beleive that the institution will not have sympathy for this position.

    Really, we (the public) need to see how things pan out over the next couple of weeks before getting too excited. Germany, the Netherlands and Finland may be seeking to set the agenda, but they might in effect be isolating themselves. Ireland needs to box clever and box hard over the coming days. James Reilly and Roisin Shorthall should certainly be off their agenda.

  13. Stockmarkets coming off a touch today, but are basically close to all-time highs.

    Bloomberg payed a clip of Europe’s heavy-hitters along with Lagarde in a theatre listening to some sort of um-pah band to celebrate the German finance minister’s birthday. Lagarde made a speech declaring he had handled the European situation spiffingly.

    Here are some pics:
    http://www.zimbio.com/pictures/WiRmv7lPJQl/Wolfgang+Schaeuble+70th+Birthday+Celebration/m1xidAiCAiL

    Remind anyone of Nero?

    Riots in Spain.

    Greece is thought to be €30bn short. They couldn’t raise it if they really really wanted to. Wadda you gonna do Europe?

    Germany is probably going into recession or stagnation as measured by GDP.

    Foreign leaders don’t seem to be bothered about having to tangle with Enda.

    The BRICs are decelerating significantly….

  14. Via FT http://www.efsf.europa.eu/attachments/fi/esm_qa_conference_call_transcript.pdf , some interesting bits from Regling:

    There is some of Irish relevance, and an interesting stop-gap possibility for Spain at the back (below).

    11. Will the ESM retain its seniority status if it provides assistance in the secondary and/or primary market? For instance, should it provide this kind of assistance to Spain, would the ESM renege its seniority status, or would it intend to keep it?

    13. Can the discussed changes to the seniority status and the direct bank recapitalisation of the ESM be decided without a new ratification of the ESM treaty?

    KR: Seniority for ESM loans is a mutual understanding between ESM members and is mentioned in recital (13) of the ESM treaty. Reference is made to the decision of Heads of State and Government in that regard. A repeal or amendment of their earlier statement would therefore also require a decision by the Heads of State or Government. In several Member States it would require support by the national parliament.
    With regards to direct bank recapitalisation, it is our opinion (based on Article 19 of the Treaty) that it would be possible without a treaty change, by a unanimous decision of the Board of Governors. We know that the Governors would not do this without support from their parliaments. Some lawyers even argue that a treaty change would be required.

    KR: It is a mutual understanding of ESM members that ESM loans and other forms of financial assistance will enjoy preferred creditor status in a similar fashion to those of the IMF, while accepting preferred creditor status of the IMF over the ESM. The decision to forego preferred creditor status in the case of Spanish bank recap was one-off in nature, as the FFA was negotiated by the EFSF. This FFA will be transferred to the ESM with all rights and obligations, including the EFSF’s pari passu status.

    18. Will the EFSF continue to issue bonds under the existing programmes for Ireland, Portugal and Greece? Will the EFSF adjust its funding target once the ESM is operational?

    CF: As just mentioned, the EFSF will finance the programmes that started before the ESM became operational. It will therefore continue to issue bonds to fund the programmes for Ireland, Portugal and Greece. As the funding activity remains the same, no adjustments to its funding targets are necessary.

    19. Assuming that one of these countries needs further support than the scheduled €192bn, does this mean that the EFSF could also issue more bonds after 2014 (when the program for Greece is supposed to end)? Or will the ESM take care of that additional financing? However, this would still leave the combined EFSF/ESM lending volume cap at EUR700bn?
    KR: If one of these countries were to need further support, a new programme and a new Memorandum of Understanding would be necessary. Granting such a programme would require a decision at political level. It would in principle not be undertaken by the EFSF, which will not be able to initiate new programmes after 30 June 2013.

    32. Could Spain itself – the sovereign / government – use parts of the EUR100bn support assigned for the banking sector?

    KR: No. The Memorandum of Understanding for the Spanish banking system does not allow any other use. If the full EUR 100 billion earmarked is not required for the Spanish bank recapitalisation, it will be a political question whether the remaining amounts, based on a new Memorandum of Understanding, would be allocated to Spain for other purposes.

  15. Can’t figure out why anyone is surprised and anyway, it’s probably got more to do with delivering messages to Spain than it has to Ireland.

    Nobody in Europe gives a toss about Ireland. They regard us as a non-player with zero need to actually do anything for us and this government makes it even easier for them to do that.

  16. @ MH

    I could not agree more. The other point that cannot be repeated often enough is that sentiment has no role to play in international negotiations and anyone who thinks that it does is going to get a bloody nose. Nothing personal, just business!

    In such circumstances, the questions that must be asked are those relating to negotiating leverage. Ireland has very little. The country’s strongest card is to stick with the programme i.e. confront the domestic political difficulties that this implies. It may be argued that there is an element of “live horse and you will get grass” about such an approach but there does not appear to be any alternative.

    The possibility that the current government would be given a concession on a plate which would help it with December budget has always been a victory of hope over reality. It – the government – seems more and more lost in the “Enchanted Forest” so vividly described in the cartoon by Martyn Turner in today’s IT.

    Gar ocos makes some interesting points above. Either the country is going to sink beneath the waves or it will need a profitable minimum banking system. But the idea of a mechanism “to break the vicious circle between banks and sovereigns” that does so by being funded by states to take risky stakes in banks seems to me to be totally contradictory. If it is not, I would welcome an explanation from any quarter as to why.

  17. @PR Guy

    Nobody in Europe gives a toss about Ireland. They regard us as a non-player with zero need to actually do anything for us and this government makes it even easier for them to do that.

    From rolling over to Trichet’s financial sector coddling ECB on the bond holder rescue to capitulating to Germany’s assorted collection of gold bugs and neoliberals on the Fiscal Compact our political elite have mastered abject surrender and now the unconnected get to reap the rewards.

    As always, since the very beginning of the European component of the global financial crisis, Ireland’s best hope of escape is in escalating the crisis to the extent that it threatens the interests of Merkel’s Germany and wider European financial sector. Neither Germany (and hangers on) or the ECB will change tack until there is the possibility of the crisis escalating to the point it endangers their interests.

    This is why extending the guarantee was a mistake, why signing the Fiscal Compact was a mistake and why Ireland’s policy of suicidal compliance and intentional insignificance was and is doomed to fail.

    Five years of the failed policy of appeasement should be enough. Only the hard of understanding, the deluded or the disingenuous can say otherwise.

    @DOCM

    In such circumstances, the questions that must be asked are those relating to negotiating leverage.

    I am searching in my mind for an occasion in which you have advocated Ireland using its available leverage. Nothing is coming to mind.

    Can anyone else remember an instance of DOCM advocating anything other than compliance/surrender/submission to the ECB/Germany/the banks?

    Help me out.

    The country’s strongest card is to stick with the programme

    Why not list for everyone here the ways in which sticking to the program will help us with the banking debt crisis, since its projected cost remains the major threat to Ireland’s economy and society.

    No rush.

  18. @docm

    “But the idea of a mechanism “to break the vicious circle between banks and sovereigns” that does so by being funded by states to take risky stakes in banks seems to me to be totally contradictory. If it is not, I would welcome an explanation from any quarter as to why.”

    Its the markets’ fault.

    Too much ‘risk-on’ over the last couple of months has got people back into the habit of spouting nonsense. Some ‘risk-off’ will, sooner or later, re-focus policy makers’ attention.

  19. @DOCM

    “…negotiating leverage. Ireland has very little”

    Ireland is still equiped with the nuclear option of leaving the Euro. As per recent reports in Spiegel, via FTAV, the situation in Greece is being painted optimistically by the German government for fear of triggering a Grexit before next year’s elections.
    http://ftalphaville.ft.com/blog/2012/09/10/1152161/german-domino-theory-and-book-cooking/
    If the Germans are tip-toeing around Greece, then an increasingly aggressive negotiation stance by Ireland may bear fruit.

    I’m not naive and I do not believe that it is possible to bluff our way through this. However, in the absence of a meaningful reduction in the bank bailout costs or prom notes, a Euro exit will be the only realistic medium-term prospect for growth and recovery. Therefore the government should put in place a plan for a Euro exit and begin its implementation. If we are serious about going it alone, the US, IMF and ECB will step and ensure a better offer is put on the table. If not, an exit would be desirable anyway.

    We are rapidly approaching the point where we have nothing to lose.

  20. There is a touch of the noble but doomed about the concept of the “DE/FI/NL Finance Ministers’ meeting” . Will it be repeated in 2013, I wonder

    There were 12 in the bed and the markets said roll over
    so they all rolled over and Ireland fell out
    there were 11 in the bed and the market said roll over
    So they all rolled over and Portugal fell out..
    Subsequently France, Belgium, austria ..they all fell out

    Presumably it’s a toss up between NL and FI as to who is next

  21. I have to disagree that “An agressive negotiation stance by ireland will bear fruit.”.

    On its own Ireland is as helpless a new born baby. It has to exploit divisions that are now blatantly evident within the EZ. On the one side we have fiscal rectitude exhibited by Germany, Nl, Finland, Austria Luxembourg. The rest need relief in the form of at least a 15% depreciation of the Euro plus a healthy inflation rate of 3%+. We have wasted four years already it is obvious that an Irish Gov’t is quite incapable of playing any role except doling out the goodies while promising more to come. A Euro made up of the countries that are desperately in need of relief will deliver relief. The countries tied to the Deutschmark will have a strong currency, strong enough to kill German exports. The mere threat of a nascent breakaway will put the fear of strong currency into the German manufacturers. Angela will strive to give them what they want, which is what we want.

  22. It is poker. And we have the best hand of all the peripherals.
    We know we have the oil/energy problem but they don’t. They think we have great Anglo-American connections, solid attitudes and a sound stance on corporate tax.
    We are the one they could fear most because our leaving wouldn’t be due to delinquency – it would be due to a choice. That’s important.

  23. @PR Guy

    Irish bond yields have been pushed to respectable levels not least by Americans lapping up Irish spin.

    EZ politicians have been shown that the bond market can be ‘tamed’ or ‘manipulated’ by an announcement from the ECB.

    Consequently, Ireland appears to them to be not far off debt sustainability and in any case still has kept its high cost / high wages / high pensions / high welfare rates model in tact. Its politicians are not interested in changing that.

    As a PR guy, can you explain to me why, in the absence of generalised financial market dislocation, the core EZ politicians should not be expected to simply say to Ireland “Off you go with your fantastic economic model back to the bond market. For the moment, if you want our money for things we don’t think we can afford for our own voters, you do what you are told.”

  24. @Grumpy
    “Irish bond yields have been pushed to respectable levels not least by Americans lapping up Irish spin.”

    It really is amazing that the Some Yanks buy the spin, particularly that Guy holding 6b of Irish paper. What Happens if he decides to bail out.

  25. @ bazza

    The approach you suggest could be summed up; “hold me back or I will do myself a mischief!” It is not in the realm of the real world.

    Ireland’s debt situation is dire. However, as long as the delusional national debate in terms of what needs to be done domestically to get on top of the budget deficit continues, we cannor expect to be taken seriously by our creditors. It is that simple.

    The irony is that we have, as a country, probably the best possibility of emerging from the emergency ward. If we do, this will have very little to do with the steps taken by the government and everything to do with the natural resilience of any market economy especially one as open as the Irish and as little subject to any serious regulation (as we know to our cost).

    The statement by the AAA Troika had very little to do with Ireland and everything to do with the situation identified in this article by Martin Wolf (which returns to themes which have been a constant element in terms of analysis as far as I am concerned).

    http://www.irishtimes.com/newspaper/finance/2012/0926/1224324427322.html

    There will be no change in the German position until the inevitable downturn in the German economy forces one.

    I am still waiting a volunteer to explin how the “vicious link” between sovereigns and banks is to be broken by having the former take rsiky stakes in the latter. It is a political slogan and like all such slogans, largely meaningless.

  26. @ bazza

    Apologies for the typos. Too rushed to use the spellchecker.

    @ Fiatluxjnr

    It is indeed amazing that someone so gullible could be so rich.

  27. FTSE down 1.5%, today, other markets not too good either.

    Looks like the Worm has turned and will be heading south until the can gets kicked a bit higher in the air.

    Unfortunately Ireland’s road out of this mess appears to have gotten a lot longer and rougher.

    Back to the negotiation table everybody, and this time NO MORE CHESTBEATING until the definitive deal is signed, sealed and delivered.

  28. @ All

    FYI an interesting Reuters report on the state of play on the proposed Banking Union following the debate in the EP.

    http://in.reuters.com/article/2012/09/26/eu-banks-idINL5E8KQ2BL20120926

    Notably;

    “This pledge, made by euro zone leaders in June, appears to be unravelling, however, after Germany, the Netherlands and Finland drew a distinction between future banking problems and “legacy” difficulties – which could mean that problem banks in Spain and Ireland remain the states’ responsibility.

    “This proposal is to allow for the direct recapitalisation of Spanish banks because Spain doesn’t want to put in a normal application (for aid),” said Langen, who is a member of the CDU, the same political party as German Chancellor Angela Merkel.

    “The whole European system of banking supervision is being turned on its head for the sake of Spain. As this thing has been turned on its head, we need to turn it back again,” Langen said.

  29. @grumpy

    “can you explain to me why, in the absence of generalised financial market dislocation, the core EZ politicians should not be expected to simply say to Ireland ”

    … because they can’t say things like that…. it isn’t ‘diplomatic’

    As per usual, what people do rather than say speaks volumes.

  30. @DOCM

    That is not how my position could be summed up. As things stand, if we take the Germans at face value and without an external shock coming from a Grexit or a Spanish banking collapse, we will not get any debt relief. Our debt is unsustainable and we will eventually, after perhaps another 3 or 4 years of depression, unemployment and emigration, be forced into a sovereign default or restructuring. By forcing the issue now, at best we may get a better deal and at worst, we can ditch the prom. notes, saving 20% of GDP and circumventing the need for a costly sovereign default later.

    “It is not in the realm of the real world.”
    Staying in the Euro under the current terms and expecting a recovery is not in the realm of the real world. After 3 years of crisis the government is still basically waiting for help to materialise out of thin air.

    “Ireland’s debt situation is dire.”
    Exactly and that’s why a Euro exit is rapidly becoming our only option.

  31. @ Grumpy

    I don’t get the impression that many of the punters who bought Irish bonds recently are intimate with the facts of where the country is at the moment.
    There would be a good few presumably who didn’t want to miss the rally.
    At the same time perhaps the trading that pushed the country into the ‘bailout” wasn’t warranted either. Although it obviously made a lot of money for certain people.

    Is there a new version of the Efficient Markets Hypothesis that allows for risk on and risk off ?

  32. Gang of Three. I am not aware of any treaty giving preferential status to the rantings of any gang.

    @seafoid
    “lying on the ground with a begging bowl ” ,

    Plus 1
    alas, and well may eireann weep
    Pull out now. Reserve position. The ecb as the turkey creditor can sweat a little.

    @gar ocos
    I interesting but we have ‘committed’ to hand the banks back so that private industry can have another go at recklessness

  33. @ bazza

    “After 3 years of crisis the government is still basically waiting for help to materialise out of thin air.”

    I agree!

    My point is that it – in its current formation – should stop waiting and start governing. On current evidence, the present coterie of senior leaders is incapable of doing so.

    I do not, however, share your view of the likely turn of events as regard Ireland’s membership of the euro. Two-thirds to three-quarters (views vary as to the precise numbers) of the budgetary deficit is attributable to over-spending, not “legacy” bank debt, and the situation is deteriorating by the hour. Radical and urgent decisions to stop the rot are required.

    Quitting the euro would simply make matters worse.

  34. @DOCM

    The major problem is not the deficit. That is within our control and will ultimately have to be dealt with, one way or another.

    The bigger problem is the debt burden. With a broken banking system, huge sovereign debt and huge household debt we are likely to remain in a depression with high unemployment and mass emigration for a generation. The ONLY way such a debt burden can be reduced is through restructuring that can only come in a 2 or 3 ways:

    – The EU/ECB gives us a gift of about 20 bn or else says not to worry about the prom notes. This is what the government is hoping for but is highly unlikely to arrive, unless there is a calamity elsewhere in the EZ.
    – A sovereign default following 3-5 years of depression and debt service (including shoveling billions into IBRC).
    – A Euro exit, allowing us to write off the prom. notes. The resulting currency depreciation would also automatically reduce bank and household liabilities.

    As it currently stands I know which of the above has the best chance of working over the medium term.

    I am also not sure how a Euro exit would make the deficit worse. It would require an almost immediate closure of the budget gap, which would be painful in the short term, but it would stop the relentless dithering of politicians.

  35. DOCM,
    The disintegration of the Euro when it happens will cause a global depression so in that sense, tax revenues will weaken. However, we will be forced to balance the budget immediately by slaughtering the national herd of sacred cows.
    I doubt that euro exit will be discretionary, A collapse is more likely. Where is Merkel? Has Schauble locked her up in some attic?

  36. Both statements could still match, to have a hope

    We need
    1) to close the deficit,
    2) a super great deal on the PNotes ie Near total write off.
    3) to sell our banks to the ESM for 10 billion and let it deal with the pending wave of mortgage defaults/write-offs ie Next recapitalization.

  37. @ Seafoid
    Simple calculation behind bond purchases:
    1: These guys will never default and
    2: They will roll over my 6 year 5% debt with 2 yr ECB debt when it comes due and
    3: When I start doubting this somebody else will still believe it and
    4: Where else am I going to get returns like this?

    Leaving the Euro is actually not the solution but threatening to leave is

  38. Morgan Kelly’s 2011 article was prescient in that he recognized that we would need to reduce our deficit to 0 immediately to successfully spurn the bailout deal. Leaving or threatening to leave the euro is not really the issue here: any such threat is not credible so long as we are running a large deficit. On the one hand we cannot credibly re-introduce a national currency, if our main purpose in doing so is deficit-financing via printing. On the other hand if we did not have a large deficiit, we would be perfectly able to terrorize our fellow europeans by simply threatening to default, without having to leave the euro.

    Every inch of progress we make towards eliminating our deficit improves our negotiating leverage, vis-a-vis reducing the historic debt burden. And there is plenty of time to make such reductions: the debts will not be paid off for decades, so if nothing else works we have all the time in the world to default!

  39. More fuel for the deflation fire. This is now getting serious.

    qz.com/3422/the-last-great-price-bubble-is-dead-2/

  40. @ bazza

    skeptic01 puts the situation confronting the country better than I have been able to although I do not subscribe to his view that our creditors would be in any way impressed by a threat to default while staying within the euro. But he is right with regard to the essential point which I have also been making consistently i.e. that our best – indeed, our only – negotiating strategy is to stick with the programme and rectify the budgetary deficit as quickly as possible. This would strengthen immeasurably our general negotiating position with “official lenders” and with the markets. The latter are unconcerned as to the how and who of debt repayment as long as it takes place.

    This quotation from today’s IT sums up the present state of play rather well.

    “We don’t feel responsible for an expectation we didn’t create, that Ireland will be able to offload all the banks to the ESM in October,” said a German source.”

    A lot of problems can be laid at the door of others in the saga of the crisis but not those attributable to the incompetence and pusillanimity of Irish politicians,

  41. @ John Foody

    Why would the ESM want to buy the banks ? If they were 4 washing machines they’d be dumped by the side of the road in a bog somewhere.

  42. @ bazza

    By the way, this item from the Indo on the property market is pertinent indirectly to the theme of this thread.

    http://www.independent.ie/business/personal-finance/property-mortgages/figures-offer-hope-that-market-has-stabilised-3242118.html

    Notably;

    “That is why the publication of the first national price register, promised to be delivered in days, cannot come too soon.

    The new register should help give young people thinking of buying better information to help them make a decision.

    Some 475,000 are now renting in this country, a rise of almost 50pc from 2006. Many of these are sitting back but strongly tempted to buy, experts feel.”

    A feature of the involvement of the Troika is that it is forcing upon us changes which the same politicians have been either unable or unwilling to make, the vacillation on the introduction of the house price register being a glaring example. Manipulation of the housing market has been a major ingredient in the economic collapse.

  43. @DOCM

    My comment about threathening to default in order to “terrorize our fellow Europeans” is made tongue-in-cheek.

    Attempts to express sarcasm on the web via colorful language are fun but never work. Oh well.

  44. @DOCM

    But he is right with regard to the essential point which I have also been making consistently i.e. that our best – indeed, our only – negotiating strategy is to stick with the programme and rectify the budgetary deficit as quickly as possible.

    Doing exactly what you are told by your opponents is not, as such, a negotiating strategy. (presuming DOCM is on Ireland’s side in any sense)

    It bears repeating that we (and the other non Germany bordering states) have not just different but opposing interests to the German bloc and to a certain extent to the ECB. Our current policy of submission and degradation strengthens Germany’s conservatives (banks ridding themselves of peripheral debt, country almost enjoying negative funding costs, CDU high on other states impoverishment) and the ECB (increased status, probably increased responsibilities, no blame for their part in the crisis) while leaving us with an economy increasingly crippled by austerity and a potentially insoluble long term debt problem.

    We have also, again and again, strengthened the hands of the array of neoliberals and financial sector lackeys who are trying to stick the public with the cost of their errors and then blame the state for not being prepared well enough.

    Krugman has some more here. Do not believe a word out of the mouth of anyone who claims this is primarily a fiscal crisis – liars and fools.

  45. Alphaville have put up bits from a decent JPM note Here’s some more:

    The end of ‘constructive ambiguity’
    Policymakers have been aware of the dangers inherent in this misunderstanding since the day after the
    June Summit, but no one has had a clear political incentive to address it. It has been more convenient to
    have the market buy the Summit headline that the region is acting to ‘break the vicious circle between
    banks and sovereigns’ and leave constructive ambiguity on the details. With crunch time arriving for
    Spain’s banking sector this week, the issue evidently could no longer be left dormant – hence the
    intervention on Tuesday night from Germany, the Netherlands and Finland. Austria has since piledon
    in
    support of the core, and we expect others to follow. What the creditor countries have effectively said is
    that debtors are to be left on their own to deal with their dysfunctional banking systems; the ‘vicious
    circle’ hasn’t been broken at all (but they are committed to ensuring that these problems won’t reemerge
    in the new system they are designing for 2014 and beyond).
    The Tuesday statement from the creditor camp affirmed that ‘ESM bank recapitalisation…can only take
    place once the single supervisory mechanism is established and its effectiveness has been determined’
    and that the purity of this new world will be protected by the fact that ‘legacy assets should be under the
    responsibility of national authorities.’ This, at least partly, reflects the position laid out in the June
    communiqué, which indicated that ‘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 recapitalise banks directly.’ The June statement didn’t make it explicit that legacy assets
    should be excluded from the possibility of ESM burden sharing, but Germany has always interpreted the
    statement that way – that the new system shouldn’t be burdened by the problems of the old. We don’t
    see this as representing bad faith from the European core, but it does reflect poor communications at the
    least.
    The periphery was clearly given a mixed message. Ireland in particular will fill aggrieved if it fails to get
    relief, since the June Summit specifically indicated that the region would ‘examine the situation of the
    Irish financial sector with the view of further improving the sustainability of the well performing adjustment
    programme.’ Not only that, but the Summit agreed that ‘similar cases will be treated equally’, which was
    taken to imply the possibility of relief for every country with a stressed banking system and a credible
    approach to dealing with its fiscal challenges. Politically that was significantly more than many of the
    core countries were prepared to accept, and the statement was substantially unpicked by Finland and the
    Netherlands in the days that followed the Summit, while the Irish Government simultaneously staked its
    reputation on celebrating its ‘great success’. The region then went on to bury the issue, and delivered a
    show of political unity that formed an important part of the background to the ECB’s move in July.

  46. Gang of four. Austria anschussed, again.
    Not much political unity in sight.
    Europe is breaking apart. I doubt that Spain will or can put up with this sh1te for much longer.
    The Girona councillors have decided to put locks on waste bins to stop people rummaging for food.
    The above letter may in time be see. As a significant milestone on the breakup of Europe.

  47. @Joseph Ryan

    I doubt that Spain will or can put up with this sh1te for much longer.

    I don’t see the Spanish central government, at least, doing anything different for now. If the core refuses to support the Spanish banks then Spain’s only alternatives to meekly bailing them out are a) a massive bail-in of the Spanish financial sector, b) a prompt Spanish Euro exit or probably most realistically, c) both at the same time. Any of these would be a big step politically and psychologically, and would take time to prepare for seriously, even as a contingency. From what little I know about Spain I don’t see the Spanish government exhibiting this kind of readiness. More likely it will blunder about for a bit longer trying to avoid the Troika program before collapsing into it. Sound familiar at all?

    Of course the Spain/Ireland analogy isn’t perfect, since even if Spain gets saddled with its’ banks debt, it’s still getting a quid pro quo in the Draghi OMT machine. But again, the policy of blocking bank-debt mutualisation at the front door while permitting OMT at the back door is basically in line with the natural game-plan for the core countries: force the costs of rescuing the EU financial system (and of fiscal rebalancing) onto the periphery in the first instance, and then later, at its own discretion, do just the minimum amount of burden-sharing necessary to prevent the pressure-cooker from exploding outright. The big risk to this strategy now is that the periphery will gain control of the amount of cost-pooling done through OMT, either by winning the fight in the ECB’s wheelhouse or just through playing budget-deficit chicken with it.

  48. @grumpy

    With regards to direct bank recapitalisation, it is our opinion (based on Article 19 of the Treaty) that it would be possible without a treaty change

    Talk about a brass neck. Never mind the ESM treaty, here’s TFEU:

    Article 125
    (ex Article 103 TEC)

    1.The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.

    2.The Council, on a proposal from the Commission and after consulting the European Parliament, may, as required, specify definitions for the application of the prohibitions referred to in Articles 123 and 124 and in this Article.

    Emphasis added. When you put things into this perspective, it’s hard to be surprised to see EU members backsliding on ambiguous commitments in 2am ministerial statements. (For that matter, has anyone forgotten France just last year signing an agreed statement that countenanced Eurozone sovereign default, then coming out immediately afterwards and denying that it would ever be permitted?) It’s even harder not to be amused by the fair number of people who are not simply surprised but upset and offended by that level of backsliding while at the same time they openly demand that EU politicians and public officials trample on TFEU.

  49. Eurozone
    Germany, Netherlands and Finland in reverse gear
    27 September 2012 Presseurop Süddeutsche Zeitung

    “Back to the vicious circle”, announces a worried Süddeutsche Zeitung which reports that a new Northern European alliance is attempting to block direct aid to Eurozone banks – a measure endorsed in the wake of hard-fought negotiations between European heads of state on 28 June in Brussels. The daily reports that on 25 September, German Minister for Finance Wolfgang Schäuble –

    … executed what amounts to a dramatic u-turn in euro bailout policy. In a joint declaration with his Finnish and Dutch counterparts [Jutta Urpilainen and Jan Kees de Jager], he could not have been more clear. Any hope or belief that financially weakened Spanish banks could, as early as next year, directly access the ESM [European Stability Mechanism] euro bailout fund without going through the government in Madrid has now been dashed. All existing liabilities will be the responsibility of national governments. What, at first glance, appears to be a reassuring message for European, and especially German citizens – that we will not pay for other people’s mistakes – quite simply means that with a stroke of a pen, the ministers are attempting to correct and even hijack their government leaders’ decision […] If the Northern European ministers succeed in imposing their about-turn at the next Eurogroup meeting on 8 October – and it is quite likely that they will, given that Germany, the Netherlands and Finland are among the Eurozone’s best financial backers – Spain will have to get by alone.

    http://www.presseurop.eu/en/content/news-brief/2770201-germany-netherlands-and-finland-reverse-gear

    @Shay

    THE rhetorical question of the month! Perhaps the year …

  50. Thursday, September 27, 2012
    The German Economy and the European Crisis
    Even though most economic commentators focus on the deterioration of the periphery and are nervously taking note of how that is coming to impair the core countries, the strength of the German economy is nevertheless seldom questioned outside the Eurozone.

    This Real News Network segment focuses on a generally-overlooked issue: wage suppression and the increasingly precarious conditions that German workers face, and how that plays into Eurozone politics. In July, we provided readers with an important report by Josh Rosner on the state of the German economy. From its executive summary:

    Past Eurozone growth, particularly in Germany, did not come from meaningful improvements in productivity, but rather on the back of household wage reductions and industry-friendly reforms to the labor market – the Hartz reforms – which transferred wealth from the people to the banking and export-driven sectors of the economy.

    While German and French taxpayers are justifiably angry, their anger is largely misdirected. Rather than embracing the false narrative blaming only peripheral nations for requiring bailouts, the anger should more rightfully be directed at:

    • Designers of the European Monetary Union who, at the creation of the EMU, ignored regular and repeated warnings, from noted academics, analysts and policy advisors, that structural weaknesses would lead us to the crisis we now face;

    • Banks, in the core, with weak internal controls and excessive leverage, which were profligate lenders in search of yield, to weak private, corporate and sovereign creditors in the peripheral countries;

    • Those officials and technocrats who failed to properly regulate the domestic banking industry and allowed bankers to treat all sovereign debt as equal regardless of the differing debt capacity of the issuer;

    • Rating agencies that failed to offer meaningful analysis of sovereign credit capacities and also assumed that too-big-to-fail financial institutions ratings should reflect an implied or explicit guarantee by their home country;

    • Political leaders who, since the beginning of the crisis, downplayed its ultimate costs and, thus, delayed its resolution and increased the ultimate costs to taxpayers;

    With this as a backdrop, it logically follows that the German government and central bank are seeking to protect the markets for German exporters and the German banking sector. Accordingly, the German government will be forced to choose either a large share of the costs of supporting a further integration of the European Monetary Union or, alternately, the larger economic and social costs of its failure, including the massive costs of recapitalizing German banks and financial support for German industry Either approach will lead to German debts rising markedly while its economy contracts. The costs will be astounding.

    This report provides a useful perspective from within Germany, particularly on the need to move away from an export oriented economy and the obstacles to achieving that outcome.

    Read more at http://www.nakedcapitalism.com/2012/09/the-german-economy-and-the-european-crisis.html#BlYJFR1q4RLmcWfg.99

  51. So who speaks for Germany now?
    Clearly, anything that Merkel signs is not worth the paper it is written on.

    The logical follow on from the argument that each State is fully responsible for all bank liabilities, is that each State should immediately force its citizens assets inside its borders.
    But it seems the core wants the private peripheral assets, thereby bankrupting peripheral banks, while insisting that it can poach peripheral assets as it wishes.
    This is nonsense.
    Ireland shoud introduce capital controls immediately.

    Let Schaeuble lead his Gang of Four, whereever he wishes, but he should do it without peripheral assets.

  52. @ Joseph Ryan

    Dr. Merkel is the elected chancellor of Germany and speaks for us, precisely as long as the elected representatives of Germany, the Bundestag, feel like it. This is a republic, not an empire.

    And, in remarkable contrast to GIPSI politicians, we stand by our commitments and obligations. When I look at 10-year German bund rates at 1.46%, people pay a deposit fee of about 1% per year after tax and inflation, that Germany holds their deposits safely.

    Schäuble, now 70, serves as a minister, at the pleasure of the chancellor, and it is no secret that he had offered twice his resignation, when he had health problems. And I think Angela was wise to insist on his continued service for the fatherland : – )

    Where did people like you get that idea, that the ESM is some kind of wealth transfer from core tax payers to other countries? Where and when?
    The ESM is designed as a speculator / hedge fund killer, all these Soros/Paulson types. And it is ruled by the people who can put the money on the table, healing a construction error of the ECB : – )

  53. I goofed, embarrassingly, in my comment about Regling, the ESM, and TFEU above. It is of course the ESM’s function as a bailout conduit to EU member-state governments and public bodies that is extremely dodgy under TFEU, and giving up its seniority in making those loans wouldn’t help. But as far as I’m aware there’s nothing (outside the ESM treaty) to prohibit the ESM from giving money – whether as a loan or a grant – to private-sector EU banks (or publicly-owned banks run as commercial businesses) at all. (Apart from competition or state-aid rules maybe?) Please convey my apologies to Klaus Regling. 😉

  54. @genauer – I don’t know of many who object to Angela Merkel speaking as the elected head of Germany, nor Schaeuble speaking as her appointed Finance Minister.

    I do, however, know many who object to the Finance Ministers of a mere 35.6% of the euro area purporting to decide, apparently, to overturn or recuse from a majority decision reached last June.

    The problems facing Eurozone members are at the least pan-European in nature (though probably global as well). They persist in large part due to the twin fallacies that a) the capital shortfalls of any bank are the liabilities of the taxpayer of the country of domicile of said bank and b) no bank should be allowed fail for fear it might threaten creditor banks in other countries, which would trigger a).

  55. @ All

    It will be clear from the IT article and the remarks of Weidmann that the Troika of finance ministers shot themselves in the foot with their unnecessarily trenchant communication.

    Weidmann is showing himself, as Wolfgang Munchau notes, a much better politician than those opposed to his views.

    The man to watch is, it seems to me, Steinbrueck who appears to be the likely SPD candidate for the federal elections.

    http://www.focus.de/politik/deutschland/spd-plant-sondersitzung-des-vorstands-k-frage-entschieden-steinbrueck-wird-kanzlerkandidat-steinmeier-tritt-nicht-an_aid_828655.html

    As Germany has, for the third time, managed to place itself at the centre of an existential crisis concerning Europe, a repeat of the Grand Coalition – when Steinbrueck was Merkel’s finance minister – could appeal to German voters as a way of exiting this role which they clearly do not want.

    His detailed ideas on how to deal with the banks might, in such circumstances, be given more attention. They have, at least, the advantage of being intellectually coherent and to reflect a political conviction. (If Merkel has any convictions, it has yet to be established what they are).

  56. @ Genauer
    Im not so sure it will beat hedge funds. The ESM is actually quite a sinister creation. It has too many powers and no democratic oversight.
    The main problem is that a country like Germany might invest say 1bn, private banking would invest 6bn then the money is lent to say, Ireland. If Ireland starts to struggle with repayments the ESM would have effectively guaranteed the 6bn to private banking. So the ESM will have to put serious pressure on Ireland to repay or Germany would have to make up the shortfall. Bottom line is it keeps the European taxpayer in hoc to the banks.

    Germany cannot afford the ESM either. Your economy has weathered the storm up to now but it’s losing strength. Politically it would be awful for you – you would be seen as ESM enforcers in the rest of Europe.

    The most decent thing Grmany can do now is to step back and view this crisis as a failure of international banking. Take nationalism out of it and let the banks slide.

    I ask you one question. Say you were a banker and j came to you to look for a loan because I wanted to pay my childminder more money – would you give it to me? I don’t think so. But private banking lent to govts in this reckless and unproductive way. The German people should not be commandeered to fight on behalf of stupid banks. This is a banking crisis

  57. @aiman

    What I forgot to write last night, which would have made it clearer: Merkel can fire ministers pretty quickly, if she loses trust in them. Röttgen, the head of the largest group in the CDU, NRW, was gone in 3 days, after he refused to resign voluntarily. This was also some sunny boy dreaming to become chancellor one day and forgot to first show his administration qualities as an energy minister.

    But so can Merkel be gone in a few days, if the German people become unhappy about her giving away our money. This is a little different to countries like the US and France.

    Merkel is the most trusted politician in Europe, for good reason, by such a large margin, that it even surprises me.
    http://euobserver.com/economic/117586
    http://www.pewglobal.org/2012/05/29/chapter-4-views-of-eu-countries-and-leaders/

    And the constant smear by people like Joseph Ryan apparently doesn’t hurt her.
    But at the end of the day, she has to answer only to us Germans.

    The statement of the finance ministers yesterday was for us just a clarification of what the ESM was meant to be and what was agreed on this June (?) summit ( 19 or so ?). But Europe has now got into a habit of making vague, lofty statements at 4 am in the morning, where people then interpret very different things into.
    For us the present crisis is just one of many in the past, where pseudo wealth by inflated property prices lead people to consume beyond their means, pay government wages too high. Not really unusual, as I had to learn from Reinhart/Rogoff and “Equity culture”. The banks are just the transmission mechanism, much more symptom than cause.
    The Irish finance minister /Government made this decision on 9/29/2008 to guarantee all Irish banks, surprising and infuriating people in other countries, in contrast to example Denmark, which lets bank fail. You should have fired your FM at that time, I think there were some 2 weeks before he actually signed the statement. From that point in time the Irish people are on the hook. But why should the Germans pay for that?

  58. @eureka

    I am not sure about the ESM either. Apparently different people see it as a very different beast. Is the “sinister” part of the intimidation purpose, or what will who interpret into those myriads of definition pages? Like with the Maastricht treaty (no bail out, no money printing). German people have become deeply suspicious about European treaties and institutions. The word “leveraging” raises blood pressure. At least the Supreme Court (Bundesverfassungsgericht) has made it clear, that total liability can only be within the limit decided in the German parliament, something I wondered here about, previously, why other nations did not find that necessary.

    The German part of the ESM is limited at 190 b Euro, the Soffin II budget is 480 b, which could replace ALL German banks over a weekend, and this is backed by the full faith and trust of the German people. At about 5 % / 15 % of the German GDP these are very creditable statements, with an annual current account surplus of 5% GDP. Not a bazooka, but a number of artillery divisions, if something like that would still exist : – )

    I am aware, that many folks now try to move Germany into the “enforcer” role. For local politicians it is extremely convenient to shift the blame for local hard decision to somewhere else.

  59. Your banker question.
    I am a physicist, practicing as an engineer, primarily. But I educated me a little bit about the practices of banks, risk premiums, risk management, and the conventional models behind that. I was working for a while on a business idea /software model for how to invest over lifetime wisely. Thinking a lot about why do various people make decisions, I had considered foolish before.

    My understanding is, that of course your potential child minder investment doesn’t provide any “collateral”, but that your credit quality is more often determined by other assets, home, pension entitlements, including potential embarrassment of your relatives, especially if you live in a small town. There is no such thing as “non-recourse” here. Government can go for your (close) relatives to pay for outstanding obligations.

  60. @ Genauer
    Germany is right to be suspicious. Leveraging is awful. I think your potential losses far exceed the 190 bn both economically and politically.
    ESM is just for banks.

    And I don’t think you would lend me that money either. There is really no sense in it.

  61. @Genauer

    I think I understand the German position on rules, treaties etc :- you cannot save your fellow club member who is on fire because the rules are clear – it is against the rules to catch fire and against the rules to be on fire. If you are on fire it is your own fault. You must put your own fire out. There is no rule that forces a fellow club member to help fight fire. The rules are the rules, Article 125 is clear.

    Is that the gist of it?

    Of course, when he puts his own fire out and has sold enough olives and tomatoes for a 10% deposit you will generously and gladly lend him some more money to buy a nice new Huf Haus and a BMW car. When the fire starts again, well…..

  62. at Dead and eureka:

    A lot of people in (eastern) Germany (100 k per year) do personal default upon sums of less than 10 000 Euro, living on pensions substantially below 1000 per month. There is no milk and honey flowing here. And if Germany has some spare money, I want to spend it on my poor people here, living next door to me. And not on Greek folks, who can not accept to cap public pensions at 2400.

  63. And coming to your last point, I do not see this as a banking crisis at all. From my perspective the ESM has very little to do with Ireland. You pay down your debt, Spain theirs, Germany the HRE / Depfa 102 billions, we got from Irish financial supervision, and the ESM is going after people, who try to make some extra profit on countries problems.

  64. @genauer

    “I am testing, aaaargh”

    I think you should know that, this being the interweb and all, we are all picturing you hooked up to an electric- shock internet-forum aversion-therapy machine that you finished building in your garage earlier today, and turned up a bit too high.

    Tagged under: Humour

  65. @ Genauer
    I’m afraid if you can’t see this as a banking crisis we will have to respectfully agree to disagree.
    Was nice discussing this with you

  66. @Eureka

    I’m afraid if you can’t see this as a banking crisis we will have to respectfully agree to disagree.

    And yet when Europe’s great and good agreed on the Fiscal Compact they took the position that neither the European component of the global financial crisis nor the structure of EMU was the cause of the crisis in the Eurozone. This is also the position Ireland’s voters endorsed when they voted for the Fiscal Compact in the referendum.

    How can we expect the majority of Germans to accept the truth when our government is afraid to speak it in public? When many of our right leaning economists think the truth would be an unhelpful barrier to the “much needed reforms” they have always wanted to pursue?

  67. I think they’ll get it – eventually
    Everybody has got to lose something before that. Spain will lose its social cohesion, Greece its security and Germany its friends. Well keep plugging away because we’re like that.

  68. @grumpy

    Humour travels real bad on the internet, unfortunately. That’s why I left the Kevin thing rest the other day, because I was afraid that some obvious jokes about “Kevin und Mandy” and what is associated with that in Germany could really hurt him.

    eureka , shay,

    After I had to hack my prior reasonably coherent statement into many pieces, to get it posted here, I wanted to let it rest with that, like you.

    But I think Shay made a very important point. As long as we don’t speak with each other in different nations, about like the deep rooted fear of most Germans to get screwed by anglo capital markets, this, our Europe will blow into pieces soon, with mutual hatred.

    What many of us see as a pattern: deregulate, privatize the initial gains, and then socialize the subsequent losses, like US S&L crises, etc.

    Like the Balkans, where somebody said: they know each other, and that’s why they hate each other.

    Only partially related, a comment on DOCMs Steinbrück reference here.
    He is clearly the most qualified candidate for the social democrats.
    When he insisted, in vain, 2007 on G-7m meetings etc, as a German finance minister, to get more insight and more control about hedge funds and similar conduits, I remember, I thought, what does he care about POOP, problems of other people. We had to learn with the HRE that it is our problem, our substantial financial loss.

    He served repeatedly as finance and other minister, as a prime minister in NRW, served as (reserve) officer in a tank battalion, he is not shy to let the 7th cavalry ride after the financial villains : – )

    It is time to get the financial sector back into a serving role, and not play the master of nations.

  69. “It is time to get the financial sector back into a serving role, and not play the master of nations.”

    There’s definitely common ground. Just be careful re the Anglo-American financial markets – they are pitting nation against nation.

    I think your insight into Germany’s thinking is really interesting. It looks like there is a common strategy for Europe after all. I think it could be fiscally conservative socialism (only spend what you earn) coupled with your statement re the financial sector. Wouldn’t it be great if we could unite behind that common strategy!

    Imagine this. One day the EU convenes a summit to guarantee that all Europeans living in Greece are guaranteed health care as opposed to having their bonds paid back!

  70. Eureka,

    in order to maybe find more common ground, I just babble a little bit more, it is late in the night, my English skills are deteriorating with that, I know that.

    1. Italy / Greece
    It looks like Monti in Italy could run for a second, real term. I do not like “unelected” heads of government, but when I look at Berlusconi, or the socialist alternative.
    I sometimes ask myself, who would I vote for in other countries.

    Beppe Grillo, pricesless:
    A member of the Italian Socialist Party asked Craxi: “If the Chinese are all socialists, whom do they steal from”?
    Got him banished from public TV, shame on them.

    Who would you vote for in Greece, the silver spoon families, like Papandreou, Venizelos, Samaras/Karamanlis, or the firebrand Tsipras?

    In comparison, it makes me actually feel good about my Germany, that I have even 2 reasonable choices now.

    2. Cohesion
    Your “cohesion” is a word Germans like, a lot. Apparently it is something hard to copy, the US folks wondered about it a lot: Fukuyama, RAND “The virtual Corporation ….”, numerous US military papers about “unit cohesion and the German model” and the like.

    But it is a very deep rooted feeling, which comes to me, like for justice, truth, from the very center of my human being.

    3. Socialism
    The “s-word”. Aaargh. I never forget, when I visited eastern Germany the first time. All this run down, grey houses, infrastructure, factories.

    In the last 2 years we have lost a lot of trust in our European neighbors.

  71. @ Genauer
    I apologise – socialism is not precise enough. Basically a set of values that mean that everyone is entitled to some health care, education up to 17 and assistance in times of hardship e.g. unemployment. Certainly not communism.
    I think health care should be a Europe wide issue. The assistance during hardship would have to depend on local wealth.
    Hope we don’t disagree too much on this. Interesting how there is some common ground even when it didn’t seem like it. European leaders have to start talking about something more than bond markets

  72. eureka,

    LOL, I should be in bed by now.

    there is no need to apologize at all.

    First, we have to be patient with each other, and our limitations in expression and mutual knowledge, I have to ask for that for myself.

    Second, universal health care and retirement insurance are very German core values, since Bismarck, the iron chancellor, 1885.

    “Germany had a tradition of welfare programs in Prussia and Saxony that began as early as the 1840s. In the 1880s his social insurance programs were the first in the world and became the model for other countries and the basis of the modern welfare state”

    http://en.wikipedia.org/wiki/Otto_von_Bismarck

    I think this is a significant part of the social cohesion.

  73. @eureka, shay.

    When I imagine that Greek health care would be paid from my money / bonds, I am angry, in contrast to you.

    I wondered a little bit how best to explain that to you, and I am somewhat sceptical that I can convince you and shay, but lets give it a try.

    Until 10 years ago, German pensions increased yearly with the inflation or a little more, and because of reunification and demographics, the payments rose steadily, and in bad years general money was poured into it, until we arrived at a point with 60 % marginal tax rate and average of 50 % for the whole tax and insurance package. And a such a point more people do not see the value of working more anymore, the rich leave the country, and many people get very creative with cheating.

    We reduced the marginal tax rate to 45%, capped the health insurance at 15%, told the doctors that there are no pay raises for them, and for the public pension system we said, we cap the contributions at 20% of the wages, and whatever is then available, will be distributed strictly linear to what people had paid into it, prior. People collect one point for every year they the average contribution. And because of the demographic that means that the net replacement rate goes down slowly over the years, with a projected 43% in 2035. Not nice, but necessary, and people are told, if they need more money, when they are old, they have to save privately, for example a Riester rente. The unions are still mad, and we have now also repeated discussions whether that should be a little more, at least for some groups, etc. The average pension is some 1100 per month, practically nobody get more than 2000.

    Why do I tell you this in such detail? Because Greece did a little different thing. Every year people got substantially more, often already in their early 50ties, and in 2009 the OECD calculated a net replacement rate of 104%. That was before the whole cheating popped up, I remember wondered a little bit, how they do it, they have the same demographics like us and most EU countries with the well known exception of Ireland.

    Of course now we know it, on credit. Greece was 1985 at about 25% of GDP of Germany, is probably now around 70 %, so a similar maximal, affordable pension would be around 1400, but just one month ago they still refused to cap them at 2500, 80% more. Probably one a few, connected people get that maximum, but that also says something about the distribution below.
    Obviously it is for the ruling class in Greece more important to keep their clientele with pensions and public wages happy than to pay for medicine. They had previously paid suppliers with then worthless greek bonds, and have now again billions in open bills, so now they get the pills only against upfront cash.

    And Greece has a national universal health care system. Just that the doctors etc got used to do their job only for some little extra fakelaki.
    2 Month ago they tried to make another tax amnesty.

    If Greece would get serious about collecting the tax, reduce public wages and pension to levels commensurate to their GDP, make their doctors do, what they are paid for, they would have plenty of money for their health care system, as in all other EU countries, also in their neighbors with much lower GDP.

    The same people, who handed out all the jobs, the pay and pension raises, to completely unsustainable levels, the Samaras ND, Venizelos from PASOK, etc, are still in power, and now try to blame Europe and the Germans on the necessary cuts, apparently pretty successful. And use their population to try to blackmail the rest of Europe into more and more credits, they will not pay back. They think they can live forever as parasites at the cost of the other euro people, because, well, that’s what their political class is actually do at home.

    And a lot are watching, if they get away with it. Many other countries think the ECB can be leveraged for a de facto transfer union and that somehow they can push their debt on the other 300 million euro zone people.
    If any of this works, there would be no holding the line on spending anymore here too, we would all race to the bottom in spending more money on our people, and the euro would end in completely bankrupty, and well reasoned hatred for each other.

    All AAA countries have gone through crises before, some like Finland very deep ones, they had to pledge collateral for their bonds, and giving their money away to people who can bring up the discipline, would fundamentally violate justice and destroy the social cohesion in the AAA’s.

    And that is why everybody will pay down his own debt, including legacy bank debt, there will be no Eurobonds, and ESM comes only with strings attached.

    Your additional points, a decent public education, support in times of hardship like unemployment and disability, classical “social democrat” positions, I thought we have this in all Europe, and that this is consensus in the societies.

    In Germany you can not fall below a level about 20 % below of what people at the 20% percentile have. Intentionally to be high, but giving people incentive to work, and it is means tested.

    This was higher in the 70ties, but then too many people didn’t feel like working anymore. These developments always take some 10 to 20 years.
    Even now we have some clowns, who think they are entitled to some “unconditional base income”, to live without need off their neighbors. In their dreams, before that we lower taxes.

    What I realize here, is that you have a pretty different picture of how things are in Germany, and I begin to wonder how far off my picture of Ireland is.

    I wonder, if you like to describe the social system in Ireland, in just a few words and with respect to your points above, which do not seem to be self as understood as I thought up to now.

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