Author: Stephen Kinsella

Charles Forelle writing in the WSJ points out some of the risks peripheral nations like Ireland and Portugal still pose for the Euro area, including the chances of our export-led growth strategy collapsing if the international economy begins to sputter, and the possibility of debt forgiveness and/or restructuring. From the piece:

Beside the government debt, Irish households are also heavily indebted—household debt hit €185 billion last year, or 119% of GDP. That’s down from the €203 billion peak in 2008, but it’s still more than twice household income.

“We are going to have to make a choice: What do we want to restructure”—government debt or household debt? asks Constantin Gurdgiev, an adjunct lecturer in finance at Trinity College Dublin and head of research for St. Columbanus AG, an asset manager.

Much of the debt is mortgage-related, and the government has faced intense pressure to craft a mortgage-relief program for homeowners, something it has resisted. Data show rising mortgage arrears and rising levels of negative equity among borrowers.

It’s a risky move. If too many borrowers with negative equity “strategically default,” the cost becomes huge for Irish banks, which would then have to turn to the government for more help—in effect, household debt would be transferred to the government.

“At a macro level, a debt-forgiveness scheme makes sense because people will be consuming rather than paying their debt,” says Philip Lane, professor of international macroeconomics at Trinity College Dublin. “But the scheme has to be surgically targeted so only the people most in need use it.”

…is here. Minister Howlin’s speaking notes are here.

Comments later, here’s a wordle of the document.

Morning Ireland this morning carried an interesting exchange with Minister Rabbitte and his interviewer Cathal Mac Coille. At about 8 minutes in, talking about the EU-wide debt situation and Enda Kenny’s meeting with Dr Merkel, the Minister says the following:

Rabbitte: …. The Minister for Finance has hinted at areas where we are trying to alleviate the burden of debt that is on Ireland as a result of the legacy and the circumstances we’ve inherited from the last government and within the terms of the Memorandum of Understanding. I think he has set that out for example in maybe not explicit terms but significantly explicit terms in respect of the promissory notes arrangement entered into by the previous government where in excess of 30 billion debt—private debt—is expectedto be born by the government here. In the general arrangement, you know, it is a circumstance that this burden was placed on Ireland in order not to infect the banking system of the Eurozone. Now that is a very unfair burden and given the way we have complied with the strictures on us we are looking for alleviation on that.

The interview continues:

Cathal MacCoille: What about Treaty change? What is our position? It seems to be getting closer and closer, and the Germans are talking harder and harder about it.

Rabbitte: …no Irish political party wants a referendum, but I don’t think we shouldn’t dismiss sight unseen. I’ve great confidence in the common sense of a majority the Irish people. If there was a pathway out the morass we find ourselves in now, and if there was a significant alleviation in terms of the debt burden promised as a result of whatever Treaty changes might be contemplated then we would have to look at that situation very seriously. We’re not looking for a referendum we don’t want a referendum  but I’m not prepared to dismiss the idea of a referendum out of hand without knowing the context and without knowing what it would offer the Irish people.

Cathal MacCoille: It sounds like the money terms would need to be right.

Rabbitte: Debt sustainability is still an issue, but yes.

Is this the new talking point? Is it that case that Ireland’s promissory notes are the price of a ‘yes’ from the government to a possible Treaty change? If so: what should the ‘discount’ be? Karl (and indeed Lorcan) have been spending quite a bit of time on the promissory note story, and given the sums of money involved, it’s something we should keep an eye on.

Hoisted from the comments (ht Michael Hennigan), here’s Colm McCarthy in today’s Sunday Independent writing on the Eurozone crisis. It’s worthy of reproduction in its entirety on the site but I’m not sure the Indo editors would be happy about it. So head over and read it there, and head back to comment. This piece usefully advances the debate we’ve been having in another thread, so I’ll close that one and hope commenters will move up to this one. From the piece:

If the eurozone is to become a credible currency union for the long haul, assuming it survives the efforts of its rescuers, there will have to be treaty changes. It is foolish to dismiss the possibility that sensible treaty changes, worthy of support even from countries damaged by the bungling response to the crisis, cannot be envisaged.

These treaty changes could involve a loss of fiscal sovereignty for Ireland. But Ireland has lost its fiscal sovereignty already.

There is, in any event, no cost in accepting a regime of fiscal discipline to which any sensible country would willingly subscribe.

The real issue is whether Europe can create a proper central bank and accountable decision-making authority to go with its premature currency union. If this can be achieved, the euro is worthy of rescue.