Cross-border funding of the Irish banking system

The Central Bank has released a new Economics Letter on this topic  – here.

75 replies on “Cross-border funding of the Irish banking system”

Trolls win again …

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‘… even a fractious minority wields enough power to skew a reader’s perception of a story, recent research suggests. In one study led by University of Wisconsin-Madison professor Dominique Brossard, 1,183 Americans read a fake blog post on nanotechnology and revealed in survey questions how they felt about the subject (are they wary of the benefits or supportive?). Then, through a randomly assigned condition, they read either epithet- and insult-laden comments (“If you don’t see the benefits of using nanotechnology in these kinds of products, you’re an idiot” ) or civil comments. The results, as Brossard and coauthor Dietram A. Scheufele wrote in a New York Times op-ed:

Uncivil comments not only polarized readers, but they often changed a participant’s interpretation of the news story itself.
In the civil group, those who initially did or did not support the technology — whom we identified with preliminary survey questions — continued to feel the same way after reading the comments. Those exposed to rude comments, however, ended up with a much more polarized understanding of the risks connected with the technology.
Simply including an ad hominem attack in a reader comment was enough to make study participants think the downside of the reported technology was greater than they’d previously thought.

Another, similarly designed study found that just firmly worded (but not uncivil) disagreements between commenters impacted readers’ perception of science.

“Germany was the source of approximately 11 billion or 25 per cent of total foreign funding at end-2002. Thereafter, absolute German funding fell quite quickly to below 5 billion, or 5 per cent, by end-2006 and to below 1 billion or 1 per centby end-2007. Pfandbrief banks head quartered in Ireland accounted for nearly eighty per cent of this funding.” Is this narrative being deliberately to obfuscate or to clarify?

And who prey tell, what countries, owned these Pfandbrief banks? Because the narrative offered to the public for common consumption was that we were given a bailout, so as to (a) be able to redeem the bonds bondholders of these Pfandbrief banks (b) enough money for AIB, BoI, Anglo and (c) money to finance the running costs of the state.

@Brian Lucey
With the ECB forcing NAMA to pay back billions in bonds, before they are legally due; meaning NAMA pays the Irish banks and the Irish banks back the ECB ‘liquidity’, the chances of the ESM, a creation of the ECB and fully dependent on the ECB for funds and a full elite club member, even considering acting outside the Troika ‘Think Tank’ was always a pipe dream.

It is time the government grew a pair and jnsisted that NAMA bonds will be paid when legally due, leaving the banks with cheap liquidity funding. ESM, or other , capitalization may not then be necessary as the banks can simply long finger loan loss recognition, as a ALL othe EZ banks are doing.
Equally Ireland must insist on the same ground rules for stress that, from reports, have been heavily influenced by the views of the large banks themselves, somas to ensure that the numbers work out for their balance sheet mix.
I have only scanned through the above CB linked report, but it does not seem to contain the kind of information critical to Irelands understaing of its own banking position right now, particularly vis a vis Ireland’s own ‘national deposit’ base, that could be abrogated and subjected to capital controls in extremis, or even in demi-extremis, such as where we are today.

I see Berlusconi has pulled the plug. In the words of Dubbya ” this sucker is going down” . Over to you Angie.

From EuroIntelligence
Sept 25th
Don’t we wish that EZ low interest rates were costing each of us us Euro 71 per yr..
Is there a teeny smidgin of sympathy for those poor suffering Germans.

FAZ beancounts the costs of low interest rates to German savers

The following is complete nonsense, but we are quoting it anyway because it is the lead story to which readers of Frankfurter Allgemeine’s business section will wake up this morning. The low interest rates cost German households 71 Euros per year, per person, an accumulated €5.8bn a year. The numbers come from a study on wealth by Allianz. The study compared the (nominal!) interest rates currently with the average of 2003-2008, and concludes that it is lower today. FAZ explains to its readers that since the Germans net savers, this would have a negative effect on wealth, and all of this is exacerbated by the high proportion of money Germans hold in savings banks.

There is more, but we better stop here. The FAZ is normally a paper of a quasi-religious support of the free market. So if the rates were too low, why would German households keep their money in the banks and accept negative real interest rates? And given Germany’s savings glut, why is it a surprise that interest rates on savings are low? And why would one compare nominal rates of yesteryear with today, when inflation rates and monetary dynamics were completely different? This article constitutes an extreme form of economic illiteracy, or rather the newspaper’s best effort to exploit the economic illiteracy of its readers.

Jim Grant publishes the Grant’s Interest Rate Observer and is held in high esteem in banking circles.
15 minute audio clip via KWN, first minute ads.

Of particular interest to John Gallaher

Given the Irish BIS bank data that conflated IFSC data with that of domestic banks, it has taken 6 years since the credit crunch for information on Irish bank funding to be revealed!

@ Mickey Hickey

it is surprising that a company like Siemens is not booming.

Is it?

You’re like Madame Defarge in A Tale of Two Cities, doing her knitting on Paris’ Place de Grève!

A big value capital equipment manufacturer should be booming when its key growth markets slow down?? China, Brazil, India?

@ All

For folks who want gloom with substance, here is a video of Reza Moghadam, director of the IMF’s European Department:


“faltering” …. ts ts ts

15 000 out of 370 000, there are not even layoffs in Germany.

Please look at how high this ranks at the Handelsblatt. Hint: start looking from the bottom : – )
And look at the tone! “Löscher sacrificed 7 years ago 17 000 jobs for profit”
with similar structure like today
From a financial newspaper !

This is the normal state of affairs, Siemens is, like its competitors,
in low growth areas, since many years (when I worked there for the first time, 30 years ago, it also had 360 000 employees).

it has 3.3% less revenue per employee, relative, so the plan is for 4% less employees, because some depart with some business. Every new CEO or every 5 years the same.

Same goes for describing the FAZ as religious free market. One of the editors, Schirrmacher, wrote a book about the end of capitalism


since I didnt use “ts,ts,ts” before , I did google it, and that turned up some ugly interpretations in english.

I just meant in German, that “faltering” is really somewhat exaggerating.

On the funny side of things, our splendid president, Gauck, is also full of himself, trying to copy italian Napolitano, and announces 4 eyes talks with the party bosses, because we have such a “crisis”. Yeehah.

The SPD announced that they will demand hard conditions, if at all, and personal decisions come last, but they want to have 6 minister jobs, and this for this guy, and ….

And Greenie Claudia Roth is complaining one week after the elections for the second time, that she still didnt get an invitation from Angela, to tell her that they are not interested in coalition or minister jobs anyways ……, but if, then only ….


I recall B. Lucey, Grudgiev, and P. Summerville cutting down Max Kaiser on VB for connecting exotic financial products with the Irish crisis. According the B. Lucey the Irish crisis was a ‘plain, vanilla banking crisis.’

‘the establishment of the Irish securitisation market provided the opportunity to borrow from foreign creditors through issuance of securitised debt instruments’.

Any thoughts?


The latest figure I’ve seen is we now owe 209billion and rising by xxx. But the other figure I noted is we have a “negative net worth” of 77 billion. Just as well that sovereigns cannnot be put into liquidation although I suppose you could say we are currently in a form of extended examinership.

“At the international level, increased investor confidence and the re-ignition of international investors’ risk appetite will increase the access of the Irish banking system to foreign funding.”

Something will turn up……! What awful crap. Tooth fairy stuff from the Irish Central Bank. Yeah!


re John McManus article
“As each day drags by the case for a further recapitalisation of the banks gets stronger.”

Does it?
The banks got capital to implement some kind of solution to the mortgage issue. But they still sitting with the reserves on their books and nothing done except legal letters ‘issued’.
Some have argued with reason, that the bank reserves should be adequate, so why are people, including John McManus, assuming that they are not, particularly in the absence of any realistic to deal with the issue.

Suppose, for instance, that the banks took legal ownership of all homes, that had arrears in excess of 180 days (approx 16 billion at June 2013), and offered leaseback arrangement for a minimum of 20 years.
The result would be that a dead mortgage book of approx 16 billion, paying very little or nothing, would become a rental book of say 40% of 16 billion or approx 5 billion, paying perhaps 300-400 million per year.
People need to get away from the idea of trying to bring dead high-value mortgages back to life and to focus on creating rental income streams that are alive and paying.

On the same theme Richard Curran, on Sunday’s Independent, was ‘deeply worried’ because NAMA will not make a profit by 2020. He misses the real issue. 2020 is a millenia away in our current crisis.

NAMA in fact has done well. Even by Richard Curran’s own figures, NAMA is generating a rental income of 1.5 billion per year. That is income to the State, that the State badly needs and that the State should hold onto and attempt to grow; and certainly not dispose of assets willy-nilly to please our European masters.
In fact NAMA is generating a good return on assets before impairments. If impairment happen, so be it because a rental income of 1.5 billion per year, in perpetuity, will more than cover the NAMA full asset value of approx 30 billion.
People need to start to look at the potential of the income from the bank/ NAMA assets and not just the impairment of assets issue.
NAMA, after an appalling start is in fact way ahead of the banks on this. It is a shame, however, that they and the government see their role as a debt collector for the ECB, and not that of a State body generating a substantial income stream for the State, leaving the ECB to straight to Hades.

Re Richard Curren article…NAMA issuing a profit warning so far in advance confirms that Richard is right to be worried. It was always the case that the low hanging fruit would be sold off and the crap retained in the hope it would rise in value over time. It’s obviously dawning that low inflation is not going to help.
As regards recapitalization of banks, we we told that they were adequately capitalized in 2008…. Look where that got us. Listened to a tape played by Marian on Saturday where the late Brian was most convincing about the subject. Rental streams won’t solve the problem.


I have a family invested in trains. What I see is not just 15,000 layoffs but half a billion tied up in rolling stock that does not meet customer specification. This is a failure of engineering design, manufacture, quality assurance, or lack of understanding of the agreed to specs. Could also be lack of detailed documentation due on delivery. No doubt the problem will be addressed, but this is a German company and it is reasonable to expect that errors of this magnitude do not occur. The Japanese engineer became a scarce bird, it now appears that Germany is not producing the engineering talent that drove its post war boom. In a case I was familiar with a Vice President was fired for screwing up the documentation on an order worth less than half the amount in this case (also in Germany). It is a brutal world out there with China coming on strong.

Large German engineering companies have been in a Goldilocks economy since 2008. Their competitors for the most part did not enjoy, low cost of funds, low exchanges rates, low cost of skilled labour, foreign markets like China and the USA whose governments engaged in an orgy of stimulus spending. Large engineering projects have lead times of ten to fifteen years from RFQ to contract completion. In downturns it takes years for the projects already under way to reach completion. What I wish to emphasise is that Germany’s vaunted advantage is eroding in the same way that the USA and UK have suffered since Reagan and Thatcher.
The Jim Grant piece caught my ear when he said that the USA economy power ahead in spite of Washington politicians and quantitative easing. A little bit of US exceptionalism that tickled my fancy.

The FAZ piece I expected but not from FAZ. It is a product of the German sense of fairness that grinds exceedingly fine. If borrowers benefit then there should be an equeal offset for lenders is the reasoning behind the piece. Reminds me of all the clauses in contracts that I wrote that I was told to change by lawyers who wanted more offsets so as to give an impression of fairness and equeality. Thus making the contract enforceable in the event of a dispute.

We are actually living in interesting times. Not as tumultuous as the French Revolution but with empires waning and waxing around us.

@ Fiat

McManus mentions positive bond yield status but it is fairly irrelevant IMO.
Filipino bonds are very much in demand as well. Anything with a yield will do.

@Fiatluxjt-down to Q/A 175.
“Thus, the current regulatory treatment is incompatible with the principle of individual responsibility; the market interest rate no longer reflects the riskiness of the investment. I am aware that banks as well as governments are afraid of rising funding costs as a result of ending the regulatory privileges afforded to sovereigns. The argument goes, moreover, that such a regulatory move risks considerable market turmoil. I do not think that this argument should keep us from doing the right thing.”

@ Mickey Hickey

Here again conventional wisdom is wrong.

Germany has one of the highest hourly manufacturing costs in the world.

A global company like Siemens can borrow in dollars and euros at low rates. As for the euro rate, what do you know about its procurement mix and its manufacturing footprint?

Airbus sources 40% of its procurement in the US.

While local issues such as taxes and costs do have an impact, the main factor in success in exporting are firm size and sectors of operation. If the industrial structure of countries like Italy and Spain were similar to that of Germany, the value of the total exports of Italian and Spanish firms would rise considerably – – by almost 40% and a quarter respectively.

As for firm size, the number of medium size firms of 50+ employees is important as well as large firms.

Micro and small firms do not generally have big success in exporting.

@ Robert

securitisation is not an exotic product. Its simply a bunch of mortgages packaged and used as collateral to back up a bond. There are a few tranches of risk within them, but fundamentally its pretty plain vanilla in nature. People who talk about things like the Anglo Irish derivatives book set to blow up (some of you are still on here) generally don’t have a clue how boring the Irish banks are.

@ Seafoid

“McManus mentions positive bond yield status but it is fairly irrelevant IMO.”

Spain was probably within 72 hours of requesting a bailout last year. It didnt, it managed to regain positive bond sentiment, and it is now stabilising and moving towards a recovery situation, though it is still a bit away from there. But positive status impacts on real economic outcomes.

well thats that then…….twas not the frugal Swabian housewife’s after all that done it.
Great paper from the CB quite a few surprises in it.
“Germany was the source of approximately 11 billion or 25 per cent of total foreign funding at end-2002. Thereafter, absolute German funding fell quite quickly to below 5 billion, or 5 per cent,by end-2006 and to below 1 billion or 1 per cent by end-2007. Pfandbrief banks headquartered in Ireland accounted for nearly eighty per cent of this funding.
The relative unimportance of other euro area countries as a source of the Irish banking system’s foreign funding is surprising. This finding is in
contrast to studies showing increasing fi nancial integration among other euro area countries in the 2000s [Waysand et al (2010)].”

here catch…hospital pass….

@BEB its ain’t exotic strips thats the problem,I wonder who Jens is referring to…
“Weak banks invest in high-yield sovereign bonds and refinance at currently low interest rates. Such “carry trades” sustain the low profitability of those banks and postpone necessary adjustments of their business model.”

@francis..ah now whats the story,still obsessed with inflation-interesting survey.
boatload off good speeches just released from BIS-Coeure on bail ins worth a ..
@MH German economy and structural changes here-link below,Jens again.

“If these steps are taken, bail-in rules will be conducive to a better monitoring of banks’ risk behaviour and will thereby lead to a better banking system – a system that fulfils its economic role without creating an excessive risk for society.”

@ Mickey Hickey

Sometimes I get with you and DOCM the feeling like the following joke, I heard about 10 years ago, and don’t find a useful google reference for.

So I write it here for the US / Bush:

Somebody keeps calling Barbara Bush, demanding to speak to President Bush. She tells him politely, that her husband isn’t US President anymore. After about the 10th time, she gets a little mad, and says: “F… off, You are always the same guy here, what part of of ‘not president anymore’ don’t you understand?”

The answer comes: “I know, but I just can’t hear it often enough”

Germany and german companies also only cook with water, and that we have done relatively well after 2008 is also due to the fact that in many fields the competitors in Japan and Switzerland had even more currency appreciation problems.

In a large company like Siemens, there are always some laggard divisions at a time. You just have to make sure, that some of them don’t become chronic.

Siemens has, nearly since its beginning 150 years ago, a big international footprint, with a lot of the folks employed being close to the markets, and therefore much less exchange rate sensitive.

In the moments it is the trains. I don’t know how much of this is due to management, and I don’t care.

They have some other minor problems, DESERTEC with the potential for selling lots of HVDC cables doesn’t work out, because the locals in Africa were just dripping over each other in drawing up wish lists of all they want to get, and zero about how there would be to distribute.

Off shore wind turned up to be more expensive than the German government is willing to subsidize (15 cent/ kWh). Not the fault of Löscher.

@ John G

Mickey is reporting that Münchau is foaming about the FAZ article I cited above. They cite the Allianz Wealth report, DOCM brought in a thread earlier here, which cites for his calculations others, put “losses” in quotation, and basically try a little bit, in a very measured tone, to talk some sense into their risk obsessed readership, “saving” lots of money in zero nominal yield cash.

That Münchau foams about that perfectly reasonable thing, shows just how completely deranged he and his “eurointelligence” has become.
But he has a dedicated followership of “indignated” folks at the Spiegel and the FT, the business model works.

Somewhat related:

“So here is our golden escape clause for today’s U.S. Congress: Instead of the two major parties doing the usual thing, i.e., blaming each other, why not engage in an unusual maneuver?
Instead of endlessly debating whether the United States should honor its financial commitments or not, the distinguished Members of Congress could resort to approving a joint resolution of both Houses. That resolution would condemn the Germany of 2013 for its undeniable responsibility nearly a century ago in triggering the existence of the debt ceiling in the first place.
That way, the Congress, in solemn bipartisan fashion, could wipe its hands of any responsibility for today’s conundrum and place the blame where it properly belongs, with the Germans.
Case closed.“

@ francis

I suggest that you stick to the debate and leave out the grievance peddling.

The issues that I have consistently raised with regard to German economic policy – which is of interest because it impacts greatly on the economic fortunes of the countries of the EU – are those that are now under active discussion in the context of the coalition negotiations taking place in Germany.

As to the FAZ article, it is politically rather than economically illiterate. German savers are, of course, the losers in the context of excessively low interest rates. The question is why these are needed. The answer is, of course, the fact that the euro is not functioning correctly and the outgoing German government has done little willingly to correct this.

I repeat the material I sent you on the thread dealing with the IMF staffers’ paper on the possibility of a fiscal union.

Box 4 at page 25.

“Implicit Transfers. The rates charged on most crisis financing reflect the average cost of funding of creditor countries and the ECB’s lending rate and fall well below the market rates faced by crisis countries. In particular,
liquidity provision through the Eurosystem has allowed the reduction in foreign investors’ exposure to occur without a generalized liquidity or currency crisis. In order to give a sense of the magnitude of the implicit
transfer, we compare actual interest expenses for crisis financing with the hypothetical costs if (i) similar amounts had been raised by crisis countries at current long term yields, or alternatively, at rates reflecting fundamentals (derived from a model, as market rates might have overshot in the current context); or (ii) creditor countries had hedged their exposures at prevailing CDS rates to insure against the risks taken on their balance sheet. The implicit transfer is estimated at between €45 and €76 billion per year for Greece, Ireland, Italy, Portugal, and Spain (see table). Netting out the contributions by these countries to crisis financing, the implicit transfer by euro area net creditors ranges between ¾ and 1¼ percent of their GDP. These are rough estimates of the magnitudes involved. It is important to note, however, that they do not capture the potentially very large costs (longer crisis duration, lower output, and
higher unemployment) that could be associated with the current approach of ex post risk sharing.”

German politicians, anymore than the politicians from the other creditor countries, have not agreed to this out of the goodness of their hearts but because it is in their interest to do so. The difference is that the latter have been making a lot less noise about it and are actively seeking a solution.

It has been known for some time that the Germans were not large (direct) finders of Ireland in the run up to the crisis.

Once the British extract themselves (and most of the other foreign banks in Ireland), it will be difficult to get them back in again (except on a cherry pick basis).

@francis,hi francis thanks for that link very funny.
When i read this i was huh..what happened in the early 20th century……..
“This crisis was not caused by any ordinary cyclical downturn. Its origins lay in the large and unsustainable macroeconomic imbalances that were allowed to accumulate in the first decade of this century: the years that were once somewhat misleadingly known as “the Great Moderation”.
@Paul W,hi Paul its a parlor game in Ireland to apportion blame,it was surprising the low level off german funding to the irish banking sector pre crash.
They took one themselves for the ‘team’ with DEPFA-which was irish regulated.

@ francis/jg

I have an equal lack of sympathy for misplaced grievances irrespective of the country they come from.


And the IMF’s European/Eurozone version (at the end of the presentation).

As to the FT contribution by Weidmann on the rating of sovereign bonds, its logical conclusion would be the introduction of some disciplined issue of eurobonds. Whether he is aware of this or not is another question.

@DOCM-why you dragging me into this………i linked Olli’s speech from this evening, which was quite good.The GS survey is from their asset management division…

“Security for German investors remains about 75 percent remains the most important decision criterion for investment. The biggest risk when investing money in the respondents perceived inflation, followed by the European debt crisis and other political risks.

• The most popular form of investment of the German remains the classic savings account (53.9 percent). Followed by funds, real estate and fixed deposits. German investors, despite historically low interest rates to the income of their investment satisfied (52.1 percent).

• For the next 12 months, two-thirds of respondents believe in a constant evolution of interest rates. The majority of German investor sees when interest rates rise even a positive impact on their financial assets.”
link above.

@ jg

Apologies! No such intent! Just rushed convenience of posting.

As to Rehn’s speech, the key intervention seems to me to be the following;

“As the two largest eurozone economies, Germany and France, together hold the key to a return to growth and employment in Europe. In a nutshell, this calls for economic reforms in the labour market, business environment and pension system to support competitiveness in France, and for structural measures to further reinforce domestic demand and boost investment in Germany.”

Quelle surprise!

@ Fiat

John McManus is probably right about the non Irish banks having deeper pockets and the scale of the mortgage crisis being more than the Honohan stuffing can absorb

Between 2009 and 2011, RBS made “capital contributions” totalling €9.13bn (£7.6bn) to its Dublin-headquartered subsidiary Ulster Bank Ireland. Over the same period, Lloyds transferred £6.41bn to its Irish operation, Bank of Scotland (Ireland), before dissolving the business.
The total – £14bn – amounts to more than a fifth of the £65bn UK taxpayers injected into RBS and Lloyds in 2008 and 2009, and is expected to rise further. Analysts estimate that RBS transferred another £2bn last year.
RBS and Lloyds used the funds to write off billions of pounds of debt loaned to Irish commercial property developers and households in the “Celtic Tiger” boom years.


Spain is still in IC and the bond yield at this stage says more about QE than it does about the health of the economy. Draghi cut out tail risk or so the market thinks but there’s no growth to back up the finance sector jollity. Artificially inflated assets are not going to save the day unless growth turns up.

@DOCM,hi DOCM contrary to what you may be hearing or reading New York is working fine,can you shut down the govt back home…at least one “house” about bite the dust!
No suririses at all I’m surirised people are surprised,when you paying the bills a little input should be welcomed..

@ jg



“Politics must change. It is simply unimaginable for a country to go through the kind of crisis we have, with the devastating consequences it has brought for so many families, businesses and services across the country, without politics making the same kind of fundamental changes others have had to make in their daily lives.”

This is precisely what has not happened. It is the “same old, same old”.

Nevertheless, I am very hopeful with regard to the outcome of the referendum. The Seanad is likely to be abolished “in a moment of absentmindedness”, a comment once applied to the creation of the British Empire.

Or, as another commentator remarked, our esteemed Taoiseach “is going around the country stirring up apathy.”


I was somewhat surprised, that you felt that me cracking 2 jokes is like sounding any “grievances”.

I am happy with my quarterly and overall financial results, which certainly do not depend on fixed income : -)

I was even somewhat deragatory with respect to “stupid german savers”. I have tried it a few times, to talk some sense into some of them either. Complete failure : – )

@ John G
thanks for the 2 links, and mentioning that it was actually Germany, who “took one for the team”

@ all
What the market reactions of the last 2 days actually prove, is that not even the US Congress, and not even to talk about some italian berlusconi clowns can scare anybody any longer.

In the end, everybody will do what he has to do, balance the budget.

Lenin once quoted Hegel: Freedom is insight into the necessity

And the Republic of Ireland will pay for the decisions of the Republic of Ireland. If you dont want to cut exaggerated public wages and evict squatters, who dont pay their mortgage, you pay, and not any other country.

The same goes for any other country, no matter how many weasel words Yves Mersch or similar folks spent.

@ francis

I cannot make it any clearer. The euro is a communal undertaking and keeping it will require a communal effort. Germany, with other creditor countries, is already paying, and will continue to pay, to remedy its defects; at much less cost in human terms than the countries painfully adapting their economies in order to cope with the budgetary disciplines that keeping it imposes.

@francis the rubber is about to hit the road very shortly,irelands NTMA is,is i really have no idea why the Dept. of Finance does not do this,but they are ehm a bunch of highly overpaid civil servants,’running’ the place…
DOCM linked a great FT piece for those w/o access its basically all about this decision,taken by the NTMA who are tenured civil servants and non elected!
What could possibly go wrong…..

“1 October 2013 – The National Treasury Management Agency (NTMA) announced today that in view of its relatively strong funding position it has decided to suspend its monthly Treasury Bill auctions for the final quarter of 2013.
The NTMA has also decided to defer consideration of any further medium/long-term bond issuance until early 2014.”


Back in the day when the German Gov’t had a policy on corruption that went along the lines that when German companies were in Rome they could do what the Romans did. The policy became “when in Rome do what the Dusseldorfers do” after a number of high profile scandals by large German companies operating abroad. Siemens was one among many who had to change their spots.

The depth and breadth of Siemens is on display in the Technology Museum in downtown Munich and the Aviation Museum on the outskirts of Munich. To say nothing about their role at Ard Na Crusha, the project that brought Ireland literally out of the dark ages.

The Siemens I see up close is through public disclosure made to all bidders at the closure of the bidding process. Winner selected but contract not yet signed. Siemen’s partners role in the project is also on display.

The consensus is that Siemens has been cutting into bone for a few years now. Also that their partners have high hopes for change orders. Munchau of FT is well briefed, probably by a competitor.

In the wages that matter for leading edge engineering companies Germany due to its apprenticeship programs has kept wages of highly skilled workers low. Semi skilled and low skilled labour is more expensive in Germany than in some other countries.

It could be of course that the 13th month bonus that gives Germany a 8% buffer when taking losses in a downturn was taken into account when finalising bids.

As for its procurement mix and manufacturing footprint, in the train business the suppliers are well known and manufacturing is largely done in Germany with NAFTA country assembly being done by many manufacturers in one factory in Mexico. Countries tend to insist on local or trade bloc content and the bidders usually toe the line. Outside of Mexico there are specialty factories dealing with streetcars (trams), Subway/Underground and so on.

I am not saying that Siemens will go into receivership in the next ten years,. I am saying that conditions are becoming increasingly onerous for Siemens and all large European engineering companies. For example China insists on technology transfers as part of their tendering process. They are your customer today and within five years they will be your competitor.

One of the surprises in the railway bidding business is a company in Genoa, Italy that is being named in request for quotations as a preferred signalling supplier. Manufacturers usually own a signalling subsidiary or have a preferred partner. The manufacturer in order to comply has to estimate the feasibility and cost of interoperability.

The choices and complexity is driving the market for more and more engineering input.

@ John G

it is just a few months ago, that I heard the name “Wilhelm Röpke” the first time, in this blog.

I recently read his 1932 Crisis any Cycles, for myself in the original german language and fracture typing, and it was the last piece to the puzzle.

In contrast to what Brian Woods SNR said yesterday, this time I ll get this right, these are NOT interesting times, its just boring the same thing all over again.

These 40 year long term mood waves and every 10 year times a somewhat different financial “crisis”, is what we have done all the times, since written history, just with some drastic asset destructions in the 20th century, fueling some longer term demand, just looking at piketty zucman last october.

Most folks just need this, to dance their debt not too far from the edge.

Richard Wagner was famous for being on the run from his creditors : – )

@francis,as always enjoyed the exchange the business/economic cycle does indeed continue,however,the peaks and troughs appear to be getting closer together !
The Irish thrive on blaming ‘outsiders’ for all their woes,personal responsibility is a foreign concept,its all about getting one over on the man!
They consistently reelect pol’s who would quite possibly be in jail in other countries,never mind returned…..catch up soon off for a bite before the entire US of A shuts down 🙂


The whole post after the preamble is from Eurointelligence. The last paragraph which you attribute to me is also Eurointelligence. Frankfurter Allgemeine Zeitung that centre right bastion protecting Hesse from the socialist hordes is one of my favourite newspapers even though if I am off centre it would be to the left.

I see the FAZ article as a product of German fairness grinding finely. Borrowers are benefiting whereas savers, particularly elderly savers and pension plans are suffering. Only in Germany are all sides of the argument on display. Political correctness has permeated the English speaking countries to the point where everything is taken negatively. I am beginning to think you were long enough abroad that you too were not immune.

I will be in Herringsdorf next August for a family gathering, the Germans and the Irish are actually having babies and the women feel the need for a get together. Notice the planning, all German I can assure you. Left to the Irish we would put it together by June at the earliest.

You should know that the Irish are not ill disposed toward Germans, give them the benefit of the doubt and carry on as if there is no ill intent.

@ John G

to blame outsiders, somehow, is a well honed technic, certainly not specific to Ireland, Greece is much better at this, 200 years ago the turks, then the americans, after 1945, and now is our turn.

@john and Francis
Depfa had nothing to do with Germany taking one for the team. It was an international asset infra and PPP type of shop, employing some local Irish and accessing Ireland’ tax rate.

I don’t see it in blame terms, in terms of the Germans or others in the EU. However there are no friendly “allies” either who will do anything for Ireland without their own self interest involved.

Intra Ireland, the transformation to old folks home dependent on EU welfare continues. No pain for those highly paid pol’s and the overpaid end of the PS… will notice the plans leaked today to cap private pensions at 60k…..the attack on private wealth continues to keep their “party” going. Private pensions and deposits above 100k have already been targeted in govt plans……just watch as it unfolds over time…..disastrous in the long term. Final misery will occur when Ireland’s tax rate is taken away (perhaps by a thousand cuts).

The only ones talking about future access to the international markets are mainly the Irish themselves…..and some outside self interested parties. Without the implied EU proxy guarantee, Ireland would not have access….simple as that.

@Paul W,having bit fun…FOT !!!
And the largest bank was in fact the German giant Depfra – a specialist lender to governments and municipalities. Once “as German as sauerkraut” it was now as “Irish as bacon and cabbage.” The benefits were in enormous amounts of global finance sloshing around on Ireland’s shores. The reason it was there, says O’Toole, was not simply the low taxation, but the “lax, and in some cases virtually non-existent regulation.”

We’ll debate Depfa over the next pint. It was recently subsumed into the German bad bank. However the decisions making were bad German banking, by German bankers. Regulated (primarily) by the German regulator (passported in Ireland). I know the story very well. Some vey good, specialist Irish guys worked the mandate, yes. Those guys remain in demand in London (thankfully). Those and the folks at the likes of Dexia Dublin are the underbelly stories of the IFSC that one rarely sees discussed (openly).

It was a well run op….but very illiquid and complex infra and PPP assets, where lending terms became “lite” over time due to intense competition (as with many other asset classes of course).

So, can’t leave Francis off with “Germany is absolutely virtuous” all the time. Their banking system is in shite.

In short, the cross border bank funding model is increasingly defunct. Going forward, and beyond official Troika funding, the capital markets I’ll remain the primary funding source.

Anyone with a great business /business idea should take this on board. Instead of looking to your local bank (manager) for loan funding, people are going to need to get more expert at networking into and accessing such traditional funding sources. Large corps have already done this in recent years….borrowing cheaply in the bond and other capital markets. In future, just as wholesale banking areas have moved off bank balance sheets, non financial institutions will increasingly become funding sources. This fundamental shift is already well under way via the PE sectors but has a long way to run yet. Banks in the meantime are becoming more and more broker in nature……in mortgages, securitization will be back in more conservative forms. Packaging in security form is actually becoming more important, for liquidity reasons. How to control all that will mean that the era of good times for the central banker will continue, as will “bad regulation”……too much CB involvement…..

Not optimistic I know, but it’s already becoming reality.

“Such non traditional funding sources”.

Apologies…..but working! DOCM, John and I want to know how you can spend so much time on here….?

Last thought doe now -ironic that the Irish are hitching their wealth wagon to the domestic banks when the banks will be less important going forward.

@Paul W,all too familiar with Hypo and Depfa,as I’m sure francis is.
Didn’t Charlie have a little bit off legislation passed…
“The Order approves the transfer of the banking business of DePfa-Bank Europe plc to DePfa Bank plc in accordance with a transfer scheme submitted to the Minister for Finance. The effect of the Order is that the relevant provisions of Part III of the Central Bank Act 1971 will apply to the transfer. The Order also makes provision for matters arising from and incidental to the transfer.”

It’s back…

Very interesting John. Can’t see how Irish taxpayer can be caught……?

Ireland will not get bank funding again anytime soon. The Brits are smarting with pain at their Irish losses, the Euro Continent’s banking system is screwed to high heaven……”rescue” (possible debt restructure) for anyone is a long way off (will not be granted unilaterally…..can only be “taken”). People in Ireland think everyone else can and will be willing to pay. Not as simple as that, obviously. It’s not great news anytime soon, as we know. What’s shameful for me to watch is the Irish screwing the Irish. Those pol’s that should be in jail have too free a run and….they are running as fast as they can to accumulate in case (before) things get worse. The governing power is 19th century landlord ism in design. Historically Ireland only had (false) prosperity for a sort 20 years. It takes little for it to be redesignated to relative poverty. It’s one huge supporter, Irish America, is less “leprechaun” focused (were they ever!).

See you soon John. I’m due to visit my German and Dutch brethren again!


Schaeuble fails to mention that the deposit shifting that has occurred and is occurring is emphatically shifting the burden of the past and present crisis to the peripheral states.

The peripheral countries should immediately implement capital controls, with severe penalties for any deposits not repatriated within one month i.e 33% tax, both personal and corporate deposits.

It is time to level the deposit shifting field.

@ mickey

I said “Mickey is reporting that Münchau ….”, I dont think this counts as “attribute”

Münchau is a little idiot, who still doesn’t understand why chancellor Helmut Schmidt was voted out of office in 1982. And after that we had reunification, the fall of the iron curtain, that more additional education doesn’t really work either, the open borders with Schengen as 4 more learning steps, on which Münchau missed out. He is a rare case of that intellectual calcification already happens at age 20.

I don’t know by whom this “consenus” about Siemens “cutting into bone” should be. Maybe you elaborate, where you get this idea from.

Don’t worry about Germans having any ill will to Ireland. We and I can take a lot in stride, and being kind of anonymous here also doesn’t bind me to political correctness : – )

@ Paul W

My “Germany and german companies also only cook with water,” also includes our banks : – )

Does this sound like ““Germany is absolutely virtuous” ?

Global banking is certainly not our strong side, but “shite” I find somewhat exaggerated.

With respect to Depfa, I actually dont know that much detail and roughly go along with your characterization, they went to Ireland for the lack of regulation, and got burned and took to some degree the german taxpayers for a ride.

Well, the Sachsen LB was completely eradicated and stricken from the records, not just a little bit decimated, like underperforming Roman Legions : – )

@ Joseph Ryan

capital controls would be the perfect poison for your ongoing financial (e.g. IFSC) business

I used “shite” very purposely…..HSH Nordbank (39bn alone yet to be disposed), etc, etc…..much “crap” yet to be cleaned up.

You do get very touchy when the shite is on your own doorstep don’t you… exaggeration.

Should also mention some more examples. Hypothekenbank Eurohypo for instance. Now there was a spectacular mess by German bankers.

Beyond the blatantly crocked German banks, there are giants like Pfandbriefbank….CEO recently said (privately) that large parts of his loan book are shite and that the bank would be bankrupt only for their ability to access extremely cheap funding courtesy of the implicit German govt guarantee.

Many, many other examples also……but let me not abuse the point.

So get off your high horse.

@ Paul W,

LOL, maybe … a little bit.

I wonder a little bit myself what our fishheads in Hamburg and around are doing with their HSH.

But as long as they are paying for their shite themselves, it’s their business.

The same goes for other countries and Länder, as long as I dont have to pay.

The times for panic mongering are over.

Germans are not paying (yet). They and their banking system, and the country, are however being “subsidized” via very cheap funding. Hence they have been given an “unnatural” ability to kick their problems down the road. Allows them not to deal with own structural reform, to maintain the status quo (unnaturally).

In terms of paying for their own mess therefore, the objection is that your analysis is too simple ie that virtuous Germany is dealing with its own problems itself. In the macro context, that is not true.

The narrative in the periphery re Germany is mainly wrong though. It has huge problems itself and needs to fix itself before being able to help others. And it has been helping the likes of Ireland via the EU /troika, etc…….within the limits of its need to protect its own national interests. The problem arises in our discussion when Germany’s national interests conflict with the national interests of others. So when we see the Irish and others consider eg debt restructure, pan-European banking and funding obligations, etc, they have a right to do so because it is in their own interests.

So rather than your slant that the periphery is not being responsible in dealing with its own obligations, and that Germany is “virtuous” in its stance, let’s be honest – the debate is actually around the intersection of national interests. In that debate, Germany has a stronger hand than others and is being asked to play the game fairly, in the interests of the wider EU and Euro area. In that, it is “imperfect” ie Germany’s national interests get priority in any solution.

Your German narrative therefore is not always correct either…….

paul w

your are not some superficial idiot like münchau.

I am reading, I am listening, and I am thinking about what you say.

I am union.

@ Paul W

How right you are!

If anyone takes a little time to watch the IMF video presentation I have linked to above, it will be clear that the countries using the euro are locked together in a dance that none can quit. This will either end well or very badly.

The bottom line is that this is not a morality play, a fact with which francis evidently has great difficulty in coming to terms. There are no heroes and villains, just politicians and technocrats trying to find a way out.

Personally, I am very optimistic. The SPD has laid it on the line for Merkel.

Die zweite Großbaustelle ist die Bankenunion und hier insbesondere der Streit über die Abwicklung maroder Geldhäuser. Die EU-Kommission hat klargestellt, wer ihrer Ansicht nach über die Abwicklung entscheiden soll: sie selbst. Das ist bei Finanzminister Wolfgang Schäuble (CDU) und der bisherigen schwarz-gelben Bundesregierung auf wenig Begeisterung gestoßen. Er halte die Entwürfe der Kommission zur Bankenunion für vernünftig, sagt hingegen Schäfer. Es gehe nicht an, dass Merkel wie bisher den Widerstand gegen die Kommissionspläne organisiere.

“Europäische Politik dürfte zum Erliegen kommen”

Ganz grundsätzlich dürfe Merkel ihren Kurs nicht einfach weiterverfolgen, der auf eine Schwächung der Gemeinschaftsmethode abziele zugunsten der intergouvernementalen Methode, also der Zusammenarbeit der nationalen Regierungen. In möglichen Koalitionsverhandlungen werde die SPD auf eine Wende in der Europapolitik hinwirken, kündigt Schäfer an. “Unser Kompass muss sein: Es geht nicht an, dass man die Krisenländer allein zum Sparen zwingt und dadurch kaputt macht.”

I was actually wondering, what kind of “analysis” I was allegedly providing here.

What I see here is that even in such a written context, a lot of folks replace reality with phantasy projections.

If people decide to go bankrupt, they have to consider against whom, and what consequences that has.

I wonder, who ever claimed where that Germany is “virtuous”.

But those, who constantly make false accusations, to justify stealing from the working man here, certainly do not deserve one single cent.

For whatever its worth, I came across today those 2 links:

For some John Kerry

And on light side, after Bayern devastating Manchester

A full frontal attack on people you do not agree with is uncalled for and most unGerman. Walter Munchau is a competent German business columnist, he is well connected and people who compete with Siemens are impressed with his take on it.

When companies lose bids on jobs worth billions they conduct in depth analysis of their own bid and the other bids. Bidding on large turnkey transport projects is something they do every few months. It is not rocket science as they work with tried and true models. The cost of concrete per cubic metre, rebar per metre, glass, track, platforms, rolling stock, signalling are all known. What has been happening with Siemens is that they are bidding at less than cost and nobody responsible for bidding by their competitors has been fired for making bad assumptions. These audits literally get down to the cost of nuts and bolts as well as components on signalling equipment boards.

Now I grant that Siemens may have found the pixie dust that evaporates costs but none of their competitors have found the dust in question.

I get my information from people whose jobs are on the line if their input to the bid was out of line. Of course they scratch their heads as they ponder how Siemens could do it for less. Some bids for billions are won and lost by a couple of hundred thousand dollars. If someone comes in 7 or 8% under a reasonable next higher bid then beyond a shadow of a doubt they will take a loss. Unless of course the company is large enough to shift costs internally in which case appearances can be kept up.

There you go again…

Seriously DOCM, are you paid to blog full time here? Are you PS?

If my short take above is in the right direction, my recurring thought is how mis-directed Ireland’s and the periphery’s strategy /management is….

Unlike in the US where two political parties are so polarized, they no longer really talk, the Germans are still more on to debate and discussion than most….and they are internationally experienced, educated and not fools (particularly when it comes to their own interests). It is in their interest for Europe /the Euro to get on track…but their judgment requires more external information….look at Francis valiantly struggling here…..most wouldn’t try. Certainly not the Irish (nor the Italians or Greeks…not the Spanish I think). More used to milking the welfare system (at all levels). So the Irish view here is a fairly self-interested one in reality. Fine, but not a proper negotiating stance or basis for a realistic, constructive strategy.


I laughed, when I read this Schäfer (who ? : -) developing his phantasies.

Beyond that, at least I personally am not so much into watching long videos.

On the light side, Seehofer is now ok with talking to the Greenies, since Kretschmann is joining the talks. “Der Trttin darf ruhig dabeisitzen, des stört net” on bavarian TV

@ mickey

maybe we have some misunderstanding here. I was refering to a Wolfgang Münchau(sen : -), who engages in general political rablings.

Maybe you shows us, what your Walter Munchau has to say about Siemens?

In general, I am familiar with Cost Structure Analysis.

@ Paul W
Germany is sitting right smack in the middle of a continent, which had a long standing habit of visiting each other frequently, and bang with the swords on each others helmets, to put it nicely : – )
In those times, sitting in the middle was a BAD place.

In times of peaceful commerce, like now, life is good, AFTER re-adjusting to the latest changes in the neighborhood, like low-income competition.

At present, we have land borders with 10 neighbors I think, and since Schengen they are open. That requires it a lot more to know and understand your neighbors.

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