Rte reports that private investors will put €1.123 billion into Bank of Ireland in exchange for a large(ish) stake in the company, given the size of their investments. The Department of Finance press release is here. Is this a good deal for the taxpayer? Non-Nazi related comments most welcome.
Reuters report Minister Noonan as saying:
“There is a commitment that if countries continue to fulfill the conditions of their program the European authorities will continue to supply them with money even when the program is concluded,” Noonan told Irish state broadcaster RTE.
“The commitment is now written in that if we are not back in the markets the European authorities will give us money until we get back in the markets.”
In the event that the State cannot fund itself on the open markets, this statement would seem to imply the Minister readily expects more cash than previously agreed with the EU, IMF, UK, and Sweden. But apparently that’s not a new bailout.
Presumably this statement was intended to reduce uncertainty about Ireland’s post-2013 funding position. But these statements inject more uncertainty.
The Minister expects there will be more cash if we are good boys and girls. Ok, I can accept that. But there are important follow on questions: That’s more cash, for the same terms? On different terms? Cash from whom, using what mechanism (EFSF/EFSM/IMF/Something else)?. When, if not in 2013, will Ireland return to the markets? Is there a Greece-style road map somewhere for Ireland?
Can we see it?
These are just some of the questions raised, on the night at Macgill Summer School we hear the Taoiseach proclaiming Ireland’s intention to repay all of its creditors. which, if we’re Greece 2.0, wouldn’t be correct at all.
Colm McCarthy writing on these, em, pages, a few days ago explained that Europe’s Plan A–no banks will go under, no states will default on their debts, fiscal consolidation plus recapitalisation will see us through–is being quietly dropped in favour of Plan B. Today at the EU Debt Summit we got a glimpse of what Plan B will look like. (updated to official version).
Briefly, Greece is being allowed to selectively default, but this won’t harm Greek banks (nor their French owners) because the greek bonds will be guaranteed by an enhanced European Financial Stability Facility (EFSF) that can intervene in secondary markets amongst other new powers. Other debt-laden member states, including Ireland, will have access to cheaper funds from the uber-EFSF at longer maturities.
The markets liked it too, with bank shares enjoying a nice bounce. There’s some evidence the bounce we saw on the markets was just short equity positions being cleared out, so I wouldn’t take that too seriously as an indicator of how well this new plan will go down. I don’t think many people were surprised at Greece’s default. As macroeconomic events go, the default was pretty well expected, hence the lack of jitters when it was announced.
It is to be welcomed that the Greek default is somewhat orderly and buttressed by other member states’ guarantees to reduce (or avoid completely) balance sheet contagion. What’s not so welcome are some of the phrases used in the draft document. They are vague enough to allow lots of leeway should policy makers require it, but precise enough to guarantee action of some shape or form. All this does is move debate away from ‘what will they do’ to ‘how are they going to do it’, which is unhelpful given the seriousness of the situation. This is, after all, the tenth time EU leaders have met to sort the problems in Europe out ‘once and for all’.
Paragraph 7 of the draft contains the following rather ominous sentence:
To improve the effectiveness of the EFSF and address contagion, we agree to increase the flexibility of the EFSF, allowing it to:
– intervene on the basis of a precautionary programme, with adequate conditionality
That is really worrying language. Does it mean, for example, that the EFSF can require states to implement austerity measures without negotiation with the sovereign? The language is vague enough to be quite scary.
The composition of the new beefed up EFSF isn’t reported. The only place Italy is mentioned in the draft is to get a pat on the back for its recent fiscal consolidation. Is Italy, in its current fragile state, expected to keep its share of the EFSF up? Look at the table on page 1 of this document from the EFSF showing the contributions of member states. Italy is expected to pony up up to 78 billion euros if required. More information on just where this money is coming from would be most welcome.
Another slight worry is that Ireland has agreed to talk about the common consolidated corporate tax base (ccctb), meaning that perhaps there has been a movement in the government’s position on this issue, though agreeing to talk does not mean that Ireland’s corporation tax rate (a different beast) is under threat just yet.
All in all, a lot to discuss in today’s announcements, but I don’t personally feel the EU has solved its problems to the satisfaction of all, though commenters may of course disagree.
This is a bit of an experiment following on from discussions with various commenters about open threads. There’s no set topic, discuss what you think is important for the Irish economy, I’ll close the thread tomorrow evening.
But, to make it more interesting, why don’t we agree to put in a link in each comment for further reading, with a blurb for why others should read this particular piece? I find link roundups very useful. It’s got to be one (roughly) Irish economics-themed link per post though, or the software will just think it’s spam and queue it for me to look at.
NamaWineLake gets right into details about the repayment of our bondholders. The sheer detail involved in constructing this post merits a careful reading.
Comments open, no particular theme, share (and discuss) links you like. Let’s see how this goes.
Oh, and ZOMBIE MARX! Because, well, just because.
Colm is at his best in this Sindo column. Best bits:
Plan A has failed to create circumstances in which the three ‘rescued’ countries can return to the markets, the over-riding objective of any programme of official support. Their traded debt has collapsed in price and all three are rated junk by at least one of the bond-rating agencies. They will not be graduating from the programmes of official support anytime soon and the verdict of the markets, the only verdict that matters, is that Plan A is also junk.
The essence of Europe’s Plan A, as first applied to Greece, is to pretend that the problem is less serious than is actually the case, avoid any element of debt relief and insist that budgetary stringency alone will do the trick.
Persistence with Plan A and blaming the markets and ratings agencies is not a viable option should Spain and Italy go under. The game is up. Plan A is being quietly abandoned. In this sense, this has been a good week for Ireland...Minister Noonan should now be seeking European support for an end to payments to holders of bonds, guaranteed or unguaranteed, in the Irish banks. Every cent paid to them is at the expense of the holders of Ireland’s sovereign debt, who have been treated in quite cavalier fashion at the behest of the European Central Bank and apparently in response to threats from this unique organisation.
ECB officials come and go but sovereign states need sovereign credit forever. It would be an unmitigated disaster if Ireland’s act of faith in Europe were to result in the first-ever default on the sovereign obligations of the State.