Bloomberg: German Push to Accelerate Bank Bail-Ins Joined by Dutch

This article on the bailing in of senior bondholders (HT Eurointelligence) has the remarkable sentence:

Senior bank-creditor writedowns in the EU have been rare during the financial crisis, with Ireland refusing to take the step even as it was forced in 2010 to seek an international bailout.

There is also an interesting letter in today’s FT from the Commission’s Jonathan Faull in response to last week’s op-ed by Sinn and Hau – it is here.

42 replies on “Bloomberg: German Push to Accelerate Bank Bail-Ins Joined by Dutch”

I’m not that surprised that the ECB’s insistence that unguaranteed Irish senior bank bondholders be paid can be glossed over like this.

The ECB’s attitude to Ireland in this regard has always been at odds with the tone of public opinions aired by Core EZ politicians – they always talk about bailing-in investors and protecting taxpayers, but what they really mean is protecting their own taxpayers. And when it comes to a choice between protecting taxpayers in a small state like Ireland or protecting large core financial institutions, well, then it is obvious who should pick up the tab.

The fact is that nobody really cares about the Irish case – not European politicians and not the international financial media. Nobody cares that the ECB overstepped its mandate in insisting that the Irish Govt. pay all senior bank bondholders in full, especially now that we might actually exit from the bailout. Sure by definition, wouldn’t that vindicate the treatment of Ireland by the ECB, no matter what the cost to the Irish citizen?

The ECB talk about the support they have given to Ireland but when Ireland had its back to the wall it heaped pain on the taxpayer in return for doing its job (Honohan’s famous quid pro quo). However when Italy was in trouble one year later, it threw the kitchen sink at its banking system with the LTRO. When Spain was then in trouble 6 months later, it paved the way for the radical OMT. Why isn’t Honohan publically talk about these double standards. Why doesn’t the Government take the ECB to court as suggested by CMcC?

The problem is we are small enough to fail. Having representatives who are pushovers such as a Noonan and Honohan compounds the problem. Core politicians will never care about taxpayers in Ireland unless there are democratic checks and balances in place like in the US – and that is simply not going to happen.

As far as I can see the only advantage to Ireland staying the in Euro is the large uncertainty concerning the cost of exit. And that it not really an argument worthy of the name.

Leaving aside for the moment the long-running discussion about who did what to whom – and the curious reversal of roles, as widely understood, implicit in the wording quoted – and concentrating on the argument that Ireland has somehow been treated differently, the following extract is relevant.

“Denmark in 2011 became the first EU nation to enforce bail- in legislation, leading to senior creditor losses after the country’s regulator declared Amagerbanken A/S and Fjordbank Mors A/S insolvent. Investors reacted to the move by temporarily shutting most of the nation’s 120 banks out of funding markets.”

As Denmark is not in the EA, it is not directly relevant. If Ireland has been unusual, there must be other examples within the EA.


I don’t really get your point, but I would note the following.

– Irish banks have been more or less shut out of the funding markets since mid 2010. This situation would not have changed regardless of ECB policy on bail-ins


I don’t really get your point, but I would note the following.

– Irish banks have been more or less shut out of the funding markets since mid 2010. This situation would not have changed regardless of ECB policy on bail-ins.

– Italian banks were shut out of funding markets in 2011 and the ECB responded with LTRO. This was done with minimal fuss and the world is still turning.

The fact is that financial crises in Denmark, Italy or wherever require the central bank to support the banking system. Only in Ireland’s case did the central bank insist the taxpayer remain on the hook.

P’haps Dutch Triple A at stake? A problem.

Supine best boys an girls in class get nowhere. Ireland needs to become a Problem.

@ bazza

“Only in Ireland’s case did the central bank insist the taxpayer remain on the hook.”

Surely, if this were the case, there would be other examples of bail-ins of senior bondholders elsewhere in the EA! The other actions by the ECB are not, as far as I can see, directly relevant to the case. LTRO benefits were not confined to Italy, no more than OMT. You are mixing apples and oranges in support of what, I regret to say, has become the great Irish misplaced grievance in terms of finding an appropriate scapegoat.

Incidentally, Die Welt has recently done a major study into the issue of possible bank recapitalisations by the ESM and has come to the not unexpected conclusion that it would be overwhelmed in the process. Only very limited and extreme cases, in return for conditionality, could be considered. Ireland will, in most probability, qualify.

The interesting aspect of the coverage is that it contrasts the cost to Ireland and German taxpayers and finds that, based on Commission figures, they happen to coincide. (€63 billion). The last time I checked, Germany had a population of 88 million. It is not difficult to do the math!


“Surely, if this were the case, there would be other examples of bail-ins of senior bondholders elsewhere in the EA! ”

Eh, no, that is not the case. I think you need to take a course in logic.

As CMcC as rightly pointed out, the treatment of Ireland is unique in the that a central bank insisted, against the wishes of the democratically elected Government, on taxpayers remaining on the hook for unguaranteed senior bank bondholders in banks that were being wound down (IBRC) and nationalised to continue functioning (AIB), in return for supporting the banking system. That has never happened anywhere.

We don’t need bail-ins of senior creditors elsewhere in the EA to show us that this treatment of the Irish Government is unique and beyond the mandate of the Central Bank.

In any case, we now see that as soon as the boot is on the other foot (in the Dutch case) then senior bondholder bail-ins are top of everyone’s to-do list.

Remarkable maybe, but not exactly surprising (or – forgive me – unforeseeable). That’s how the world works. It’s also especially unsurprising because Schäuble made a similar statement recently.

Brian Lenihan 28/10/2010

“As far as senior bondholders are concerned, I’ve always made it clear that as long as we were in the markets, senior debt was fundamental for Ireland.

“In the course of these negotiations I did raise the issue of senior debt, and the unanimous view of the European Central Bank and the commission was no programme would be possible if it were intended by us to dishonour senior debt because such a dishonouring of senior debt would have huge ripple effects throughout the euro system.”

And also

@ bazza

With respect, you are the one that may need a course in logic. You cannot include in your arguments suppositions with regard to what the ECB did or did not do or with regard to whether or not it has acted illegally.

The point about bail-ins not having happened elsewhere is that this tends to bear out the view of the ECB that such action would be systemically disruptive for the euro system as a whole as it currently operates, a matter for which ALL the central banks in the ESCB are responsible and a matter which is clearly within its mandate.

That the issue of future bail-ins is at the top of everyone’s agenda now is hardly any great surprise. Taxpayers everywhere in the EA are fed up with bailing out their banks. As one of the professors consulted in the Bloomberg article remarked; “No one likes to bail out a bank, but everyone certainly hates bailing out a bank in another country.”

The sooner this penny drops with those holding a contrary view, the better.


“Accelerating the loss-sharing rules would give the euro zone more tools to avoid taxpayer rescues like those provided to Greece, Ireland, Portugal and Spain and sought by Cyprus.”

Not correct.
It would not give the EZ more tools to avoid taxpayer losses. It would give Germany, Finland, Netherlands and countries already not dumped on, the tools to avoid taxpayer losses.
It has nothing to do with the EZ. It is creditor countries shielding national banks, something debtors countries were disbarred from doing.

Still, you have to hand it to the German Foreign Office. Still able to get the message out. The truth of the matter does not count.

There is an interesting FT article today about Iceland. It is no shangri la 4 years on.
Includes this- can anyone verify the numbers ?

“Disposable income for the poorest 10 per cent of workers fell by 9 per cent in Iceland after the crisis and by 26 per cent in Ireland, according to his figures. At the same time, the richest 10 per cent saw their income drop 38 per cent in Iceland and rise by 8 per cent in Ireland.”

Before grumpy gets here, it also has to be acknowledged that the “Ireland refusing to take the step even as it was forced in 2010 to seek an international bailout” account of what happened may not be completely without merit. Even if you take as read Morgan Kelly’s account of the Week of the Bailout it’s not entirely clear that, if the Irish government had been offered two options on a silver platter: one bailout with bank seniors burned and Croke Park torn up, one bailout identical to the one we actually got – it would actually have chosen the first rather than the second of those. However, it also is clear that no such first option was in fact freely on offer to our government, unless the Kelly version is in fact seriously wrong. Which seems very unlikely to me, as it appears to have been based on information from IMF insiders.

It’s also true that the Irish government loves its children AIB and BoI with every fibre of its being, a love which makes its concern for the Irish people look like a pale afterthought, so it seems to have reconciled itself to the idea of having to go on protecting Pillar Bank seniors with remarkable ease.

The Dutch bank rescue last week cost less than 1% of Dutch GDP. If the cost had been, say, 20%, how do you think things would have played out?

‘Senior bank-creditor writedowns in the EU have been rare during the financial crisis, with Ireland refusing to take the step even as it was forced in 2010 to seek an international bailout.’

Refused who?

There have been no bail-ins of senior unsecured bank bondholders (or depositors) in the Eurozone. Denmark chose to bail in, to a limited degree, and was free to do so, a ‘reward’ for staying out of the Euro.

Something’s got to give in Cyprus on the figures, so watch this space.

If there had been, in Maastricht or in the ECB statute, a statement that national treasuries were required to repay unsecured bank bondholders, domestic and foreign, without limit, nobody would have agreed to it. Nobody, not France, not Germany, nobody.

ECB policy has understandably distinguished between TBTF countries (Italy and Spain) and SETF countries. They had little choice at the time. It is the continuing denial that this was done that grates.

Finally, why do people seek mono-causal explanations all the time? ‘Whinging’ at the ECB is not to deny that Irish policy, before and after the guarantee, has been a shambles. The following propositions are both true:

1. The Irish screwed up appallingly.

2. The Irish got rolled over by the ECB.

There is no need to choose between these propositions.


” “No one likes to bail out a bank, but everyone certainly hates bailing out a bank in another country.
The sooner this penny drops with those holding a contrary view, the better.”

I could not agree more.
I am acutely conscious that Irish taxpayers, and unknowing future generations, bailed out the creditors of all Irish banks. A very large percentage of those creditors were banks in other countries.

This is a wake up call. Now is the time to take publish all documentation. In addition, take a case against the ultra vires actions of the ECB, and the compromised independence of the ECB in arriving at those ultra actions.

Lets see what the discovery process turns up.
If Fianna Fail and the Irish PS truly flushed future generations down the toilet, just to save their pensions, then we need to know.
If it was ECB threats, influenced by political pressure for other countries, we need to know.
We need the truth. An independent nation deserves better than being hanged, after a secret trial.

Recently the tune changed about the ECB. Previously the ECB was portrayed by some as an heroic institution taking bold steps, then the same people began portraying the ECB as an institution that only did what it had to do. The change of tune made it sound like someone wanted to get in excuses early 🙂

Because of that I was half-expecting something to blow up and I thought it would be that the ECB would be forced to accept losses on its holdings of Greek government bonds. It seems I was wrong about what actions the ECB would be criticized for and how soon it would happen.

@ seafóid

Maybe David McWilliams?

Another extract;

“Many advocates of Iceland’s approach have held up the virtues of having its own currency, the krona, which fell by 50 per cent against the euro in the aftermath of the crisis. But Mr Egilsson says growth in exports has been “quite limited” and that most companies – save for those in fishing and agriculture – would like to join the EU and then the euro to gain some much-need stability.”

As a public service I have compiled a list of the top 25 posters on the Irish Economy over the last 30 articles. I hope my blogometrics are useful and that posters can use it when deciding whether they should respond to someone or whether that person is a troll.

# Characters Author

91 70619 DOCM
86 38402 David O’Donnell
45 43582 John Corcoran
42 58608 Michael Hennigan – Finfacts
41 31018 grumpy
40 23263 seafoid
29 11146 Eureka
25 8589 Fiatluxjnr
23 75135 Mickey Hickey
22 22151 Joseph Ryan
20 4495 Tullmcadoo
17 9822 Paul W
14 12039 bazza
14 15999 Brian Woods Snr
13 14814 Shay Begorrah
12 18808 Brian Woods
11 6835 Seamus Coffey
10 12372 veronica
9 13367 Gavin Kostick
8 4031 tullmcadoo
8 6729 Sporthog
8 7813 Gregory Connor
8 8690 Bryan G
7 1461 Richard Tol
7 5804 Paul Ferguson

I would note that for those with a lot of free time to post but little expertise or interest in economics that the following domains are free if they want to start their own blog.

My apologies for the cross posting but it is all in the name of saving the Irsih economy.


Bailout Doubts: Merkel Opponent Sets Conditions for Cyprus Aid

Cyprus is badly in need of aid, but skepticism in Berlin appears to be growing. Chancellor Merkel’s opponent in this year’s election, Peer Steinbrück, has set a number of conditions that must be met before his party will support a bailout. There is a growing number of rebels in Merkel’s camp as well.

In an interview with SPIEGEL ONLINE, Peer Steinbrück, the SPD candidate for the Chancellery in this year’s election, said that his party would like to see Cyprus’ “bloated” banking industry, which holds assets many times greater than the country’s annual gross domestic product, be consolidated and “one or another financial institute be liquidated.”

Agreed that sentence is remarkable. It either suggests Ireland made a free choice in late 2010 not to bail in unsecured seniors, even though there were some partners urging it to do so, or it suggests that Ireland’s PR strategy over the last year has been been as some of us have suggested, lacking.

Ireland’s choice to publish nothing and rely on second and third hand opinions that It was forced to act as it did under threat, opinions either from third party economists or
from people so closely involved at the time that they might be open to speculation that that’s just the way they prefer to remember it, appears to perhaps have failed so comprehensively that non-Irish business journalists haven’t even picked up the Irish line. We can assume therefore that the average German voter is a million miles from doing so and thereby clearing the populist obstacle to a proper deal on Irish bank debt.

Who has been advising the Irish side on their financial comma strategy with respect to this aspect – or is the answer that nobody has, and that the only PR strategy has been that run by the NTMA aimed solely at bond issuance marketing?

We know Ireland chose to refuse to even contemplate bailing in seniors throughout 2010 prior to the bailout, hemline was it would undermine perceived creditworthiness of gilts. Where did that curious advice come from? On top of that we have the fact Ireland had bounced everyone else into guaranteeing banking liabilities previously, so the idea Ireland didn’t choose it’s policy on bank seniors, to the outside world, is not the easy sell some in Ireland think it is.

I find it unconvincing that one “trusted” journalist has been allowed to view a letter that he interprets (maybe others wouldn’t particularly) as having put some pressure on. I would expect there to have been all sorts of pressure from many directions, I would be
amazed if there wasn’t. If that is all there is then maybe the decision to keep quiet is strategically justified, but the public deserve to be levelled with. If there is something convincing, then this article should prompt people to urge the government to publish since PR plan A demonstrably hasn’t worked.


Every Tom, Dick & Harriet involved in the political side of the crisis has been interviewed in Der Spiegel – with the notable exception of Ireland which has had zero interviews and Irish case has not been presented. This is some PR – it is abysmal.

My apologies for the cross posting but it is all in the name of saving the Irsih economy.

From what? Flame wars in the comments? It’s the internet; certain problems are inherant to the medium.

The biggest problem with this site (and the country) is the lack of solutions being presented by the economists who write the posts! It’s time for a collection of 5000 word essays presenting blueprints for getting Ireland out of this eternal crisis. Deadline is St. Patrick’s Day. No cogging scripts, and only one graph and table allowed per presentation.

We’re all tired of problems and excuses for them. It’s time for solutions.

@ grumpy

Maybe the simplest way to look at the matter is in terms of the “quid pro quo” referred to by the head of the CB (cf. links posted by Seamus Coffey above). In short, there clearly was a negotiation, the ECB and the Commission were in the driving seat, and kid gloves were not the order of the day (which is hardly surprising given the dimensions of the crisis both for the country and as viewed from elsewhere in the EA).

If there is general agreement on these elements, the question then becomes (i) how tenable is the deal (which is considered as very unsatisfactory by one party, to put it mildly) (ii) to what extent is this recognised by the other parties (the ECB under Draghi is certainly not happy with it) and (iii) what is the best way to go about rectifying the situation.

There appears to have been considerable progress on (i) and (ii) but a large question mark remains over (iii) especially after the pulling and shoving going on in the coalition with regard to the best means of getting a final result. (This has now subsided, which is hardly surprising given developments in Spain and Italy and the sudden jitters in the markets which indicates that the crisis is far from over).

Meanwhile, elsewhere in the forest, the indications are that no leader can now afford to collapse the talks this week on the long-term budget. If this proves to be the case, the atmosphere after the weekend will be very different. Probably a re-run of the movie “With one bound our hero, Europe, was free”.

@ OMF,

I thought they did that two years ago, can’t remember what it was called, however there was a top prize to be given out to the best solution. I think it was advertised on national television as well.

Lot’s of things have come and gone…….the Second Republic, Forum for a new Era and so on and on and a lot more besides etc.

Ireland is changing… but it’s going to take a very very very long time.

Crisis Concerns: Investors Nervous about Italy and Spain

Lately, the euro crisis seemed to have been fading into the background. But corruption allegations in Madrid and the potential comeback of Silvio Berlusconi in Rome have investors nervous. Interest rates on Spanish and Italian bonds have ticked upwards as a result.

…. Rates on Italian bonds rose 12 basis points to 4.45 percent whereas the rate on Spanish bonds climbed 19 points to 5.39 percent.

Might be a good time to toss a little pn-exocet into the mix – to find a solution we must first create a ProBleM! A little declaration of intent to coincide witih Sinn’s moment of fame on PrimeTime? Love it!

@ Shay Begorrah

I was thinking that there was no mention of neoliberal but then I saw the URL!

@ All

One of the problems on the Irish side was that it took so long after the bank guarantee was issued to get a grip on the banking problem, allowing market jitters to grow. The PwC report was a work of fiction and later, the minister had to deal with both the crisis and his illness.

The Anglo legacy is getting a lot of attention this week.

When there was an option of letting it go bust, some of the assets were pledged to the ECB as collateral. It had deposits of over €50bn and senior bondholder debt of €10bn which was down to €4bn at the end of the guarantee period.

Who should have saved the depositors from haircuts?

David Begg, Central Bank director (1995-2010) during a period of catastrophic regulatory failures, will lead a trade union protest on the debt at the weekend.

The Fintan O’Toole-led citizens’ petition has 5 other sponsors — 2 of them were bubble cheerleaders — Brian Lucey promoted the potential of 100% subprime mortgages in 2006 — the craziest year of all.

I have noted in the past how the traditional trade unions have made common cause with their counterparts in the sheltered professions during this brutal crisis, to preserve the status quo.

Here we have demands for radical actions when it comes to Europe but at home, the conservatives of various ideologies, know what butters their bread.

@Robert Browne

HJS interview was indeed surprising.

Of course, his belief that because we have engaged in austerity, recovery is just around the corner is hardly credible. Also his assertion that there are a lot more unguaranteed bank bondholders that can be burnt is not really correct.

His recommendation that IBRC move into default and the prom notes not be paid was outstanding. I don’t think Kenny knew what to say after that.

It is bizarre, but it is just about possible that this message coming from a conservative German economist might just sting the Govt, CBoI and DoF into action. Maybe now they will see just how pathetic their best-boy-in-class, not-taking-people-out-of-their-comfort-zone approach is.

Then again, maybe not.

@ MH

“Here we have demands for radical actions when it comes to Europe but at home, the conservatives of various ideologies, know what butters their bread.”

What would you do, Michael? What do you think would get the country going again ?

@ MH

“Here we have demands for radical actions when it comes to Europe but at home, the conservatives of various ideologies, know what butters their bread.”

What would you do, Michael? What do you think would get the country going again ?

@ Robert Browne

What cat and what pigeons?

Sinn is simply offering the Irish taxpayer the choice between walking into the cannon’s mouth i.e. playing Russian roulette with the economy (as I understand it was put in the Dáil) or suffering it out. In the process, he throws figures around with total abandon and little regard for the truth while at the same time putting across a populist message to the German audience he is really interested in.

It is good to note, however, that he cannot avoid admitting to the assistance that is actually being provided, both by the ECB and other governments, some not even in the EA, even if he overstates it.

A critical interview with Pat Kenny – like being whipped with candy-floss.

The most interesting part was Herr Prof. Sinn’s body language. Figure it out.

@Michael Hennigan

I was thinking that there was no mention of neoliberal but then I saw the URL!

Obviously that list of Internet blog names for regular posters had to reference our favourite apostle of a faith based market solution to a faith based market failure but the list could have been longer:

I thought you might appreciate the table of contributors ranked by frequency of emission. Sometimes the story numbers tell is hard to divine, other times it takes real effort to pretend there is no clear story.


Why don’t you set up to cater for your tastes. Or does the fact that it is no longer United, left or allied curb your enthusiasm.


I wish all the parties of the actual left the best of luck (and perhaps Labour might return to the fold one day) but I am not currently a member of any political party, or any union, and I work in the private sector in an Irish firm.

All you really need to end up on the left of the political spectrum is a rough grasp of the role of chance in life, a disdain for inherited privilege and a touch of human empathy.

How people end up on the right is a much more complex story.

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