Category: European politics

McCarthy: Brussels Plan A is Junk and that’s Great News for Us

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.

IMF: “Nothing to see here, keep moving”

The European Commission, European Central Bank, and International Monetary Fund have passed Ireland with flying colours in their latest quarterly review. I’ll post audio of their press conference when it’s available (commenters please drop the link if you see it). The IMF press release is here.

The statement reads that bank reforms are on track, fiscal consolidation is on track, structural reforms are to come, and it’s all good. Lots of touchy-feely language. Those pesky bond markets, and the burning of senior bondholders, weren’t looked too kindly upon in questions, but overall the message seemed to be: Nothing to see here, nothing at all, no to burning senior bondholders, but guess what lads, the next review will be tougher. Stick with the programme.

On twitter, NamaWinelake reported a divergence between the EU and IMF, with Ajay Chopra of the IMF saying he expected to see a more robust approach to burden sharing, while the ECB representative said no, that wouldn’t be happening.  Although much can be made of comments like this, the review exercise seems to be, on balance, a qualified success. The government did meet its agreed targets. Whether the exercise enhances our credibility to the point that Ireland can wean itself off EU and IMF funds without a second loan package is another question entirely.

Currency (Mis)Pricing: An appreciation

The pre-2007 Irishman abroad in Europe had a little swagger to him. He thought his economy was a Tiger. When abroad in Europe, he spent like crazy, and generally annoyed his European counterparts with his brash ways. (Of course I’m not thinking of anyone in particular). The reverse is happening at the moment. We’re humble little chappies. My French and German friends are sending me emails with pictures of the Book of Kells saying ‘please take care of our investment’ and ‘are you enjoying your bailout?’ and ‘we’re still waiting for the thank you card’.

They’ll be waiting a while longer. When I say our European friends should be thanking us, they assume it’s a throwback to the hubris of pre-2007 Ireland or something to do with keeping eyes off the balance sheets of German and French banks. It’s not, and here’s just one reason why.

Continue reading “Currency (Mis)Pricing: An appreciation”

Steinbrück: Admit Greece will need restructuring

Given the recent discussions of  the views of Professor H-W Sinn on this site it seems only right to point out that there are also other opinions in Germany. A number of current and former German politicians (Helmut Schmidt, Joschka Fischer) have been critical of the leadership provided by key politicians. Now the former finance minister Peer Steinbrück (still an active opposition politician) has found some clear words: “Greek default is inevitable – lets call a debtors conference.”

Lorenzo Bini Smaghi

LBS’s many fans on this Blog will want to read about the controversy surrounding his continued membership of the ECB’s Executive Board. If he does not step down Nicolas Sarkozy is threatening to block Mario Draghi’s accession to the Presidency. The Financial Times account is here.

Silvio Berlusconi has called on him to step down, although no definite decision has been taken to offer him the post as head of Banca d’Italia in succession to Draghi.

According to the Corriere della Sera LBS had ‘no comment’ about the issue on leaving the palazzo Chigi. However, La Repubblica quotes him (on leaving a conference in the Vatican) to the effect that he cannot be removed before the end of his eight-year term. He underlined that ‘personal independence is one of the doctrines on which the independence of the Bank rests.’