The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

[Bogball XV]

http://www.independent.ie/national-news/anglos-drumm-i-did-not-act-alone-2383012.html

And another one says that their actions were carried out in the full knowledge of both the Central Back and the Financial Regulator. We have to assume he is including the deception of the markets by moving €7Billion from IL&P into and back out of Anglo. That means that both of the CXs at the time claim the authorities knew and it seems inconceivable that they didn't tell their bosses, Cowen and Lenihan, especially at the time of the guarantee.

I feel a conspiracy theory coming on. Maybe these discredited CXs are saying they told the CB and FR because they are more interested in protecting bond holders than the irish state.

Maybe they say they had the approval of the CB and FR because no two CXs in their right minds would have been involved in the movement of the €7 Billion to Anglo to deliberately deceive the markets, unless they had received some comfort from above, would they?

I don't remember exactly, but had this type of window dressing not been going on for quite a while?  I thought that ILP had received a similar assistance at one of their quarter ends and I'm fairly sure that Anglo and INBS had been involved in some sort of reciprocal arrangement for a number of years - but that may just have related to directors loans

[muppet]

http://www.independent.ie/national-news/anglos-drumm-i-did-not-act-alone-2383012.html

And another one says that their actions were carried out in the full knowledge of both the Central Back and the Financial Regulator. We have to assume he is including the deception of the markets by moving €7Billion from IL&P into and back out of Anglo. That means that both of the CXs at the time claim the authorities knew and it seems inconceivable that they didn't tell their bosses, Cowen and Lenihan, especially at the time of the guarantee.

I feel a conspiracy theory coming on. Maybe these discredited CXs are saying they told the CB and FR because they are more interested in protecting bond holders than the irish state.

Maybe they say they had the approval of the CB and FR because no two CXs in their right minds would have been involved in the movement of the €7 Billion to Anglo to deliberately deceive the markets, unless they had received some comfort from above, would they?

I don't remember exactly, but had this type of window dressing not been going on for quite a while?  I thought that ILP had received a similar assistance at one of their quarter ends and I'm fairly sure that Anglo and INBS had been involved in some sort of reciprocal arrangement for a number of years - but that may just have related to directors loans

The directors' loans were concealed in an arrangement with INBS. I believe that is why lots of people believe Fingleton will never ever be touched as Anglo may not be the only ones to have had such a facility. Over on p.ie they describe Fingers as the man 'who knows where the bodies are buried'.

While there may have been smaller movements of money prior to Anglo year end of Sept 2008 I don't believe anything came remotely close to the €7 Billion moved to deceive the markets.

[seafoid]

I was back in Ireland last week and the way they were talking on RTE about the upcoming budget cuts was sort of surreal. Is it 4 or 5 or 7 billion sure aren't they only numbers.  The spin is impressive, I must say. What is  €4 billion going to mean. How about €2,000 paid by every family in the country. How would that look to people?   I don't think a lot of the presenters have the depth required to discuss what is going on.  You need people who can stand up to Lenihan and co and challenge, challenge, interrogate, find out what is driving them.  Michael Noonan saying the 2014  date is fixed and that is it. I wonder what sort of level of unemployment would make him shift his position. If things go arseways and they quite possibly will what will the new spin be? 

The country is paying the price for an out of control property boom that has left many tens of thousands of people living in homes that are worth less than 60% of what they paid for them.    That seems to be one of the greatest mistakes made during the Bertie years. The other was eviscerating the tax system. 

And reading the Sunday Independent was a real eye opener. What a bizarre newspaper that is. What happened to Sir tony's business acumen ? What is independent news and media trading at ?

[seafoid]

So 15bn it is. And what if that doesn't work?
Nothing else has worked.

[Zapatista]

So 15bn it is. And what if that doesn't work?
Nothing else has worked.

Is that your final answer? How many life lines has Lenihan left?

[seafoid]

It may not be the final answer. The deficit is expressed as a % of the size of the economy. The total debt owed stays fixed even if the size of the economy decreases. So if they take too much out of the economy to reduce the deficit they will trigger a deeper recession which will lead to higher unemployment and reduced tax income. This would have the effect of increasing the deficit. 

It's like a team , say Mayo who are in an all-Ireland final against say Kerry and they are say 5 points down. So they need to score 5 points. And they go up the pitch and faff around with the ball for 15 passes and then one of the forwards drives the ball wide. And Kerry win a kickout  and get it down the far end and score a goal. And now the deficit is 8 points. And it is only 20 minutes into the match. 

Ireland is in a mathematical nightmare. 

I wouldn't have Lenihan managing Mayo..   

[Zapatista]

Has the decision to limit it to a four year plan been questioned? Who came up with this figure and why?

So far it seems to me that the EU mentioned it and it is guess work regarding growing confidence in the bond market. Why not 2015 or 16? The last time we went to the bond market it was over subscribed.

[seafoid]

Zapatista

It was oversubscribed but the rate paid was over 6%. There comes a point when it becomes too expensive to borrow. If Ireland paid 10% on bonds there would be massive oversubscription. This wouldn't mean anything.

Take the cuts. They want €15bn over 4 years. Ireland has to borrow €19bn next year. Call it €20bn. At 4% that's €800m in interest per year. At 6.5% it's €1.3bn. Paid every year. Over 4 years the difference is (1.3-0.*4= €2bn
So you see how important the interest rate that Ireland pays is.         

[Zapatista]

Fair enough but when they told us the cuts would have to ammount to 7bn it was over a 4 year period now that this has more thwn doubled it's still over 4 years. Surely they could have said at the start that it's 7.5bn over 2 years if they thought it was for the best? What difference will 7bn over 4 years be to 15bn over 8 years?

[Denn Forever]

It doesn't get any better.

What the feeling on all the parties getting together to work on the 4 year budget (?) submission to the EU.  Does it mean we'll just keep digging but with more/different people to blame?

Seafoid, as a Galway man you would surely want Lenihen managing the Mayo team.

[Bogball XV]

Has the decision to limit it to a four year plan been questioned? Who came up with this figure and why?

So far it seems to me that the EU mentioned it and it is guess work regarding growing confidence in the bond market. Why not 2015 or 16? The last time we went to the bond market it was over subscribed.

I think they have to pretend it's going to be 4 years, it seems as though that won't be possible, but for the time being we have to keep europe happy and adhere to the 4-year plan.
As seafoid points out, the impact on employment and subsequently tax revenue (and increase in welfare expenditure) will mean that there is zero chance of the deficit being bridged in the time scale outlined.

Personally, I think 15bn is a bit on the optimistic side, but i've never been known for my sunny personality

[seafoid]

Zapatista

The difference is in the interest. The longer the period of repayment the more the country has to borrow and the more it ends up paying in interest.  The problem is the government has a budget deficit of €19bn it has to borrow for. The danger is that the lenders won't stump up the cash to met the deficit in taxes.  It is no different  to the many families in trouble who are turning to moneylenders for Christmas presents. They extract their pound of flesh and so do the bond markets.   

This is a FF economics nightmare. Taxes were far to low for too long and the banks were unregulated and Government spending lost all links with what the country could afford.

Back in 1987 total government spending was £8.7bn. Last year 22 years later it was €71bn.   In 2009 Ireland spent €6bn on alcohol. Something has to give. 

[Declan]

Lads we were initially told that it would be 7 billion over the 4 years now it's 15 over 4 years and 7 in the first year. They haven't a clue and yet we merrily rumble along quoting figures that are frightening.
I'm sick of saying this but the people who got us into this mess are incapable of getting us out of it yet every time I turn on the radio or TV I still have to listen to the same gobshites spouting the same nonsense be they politicians, economists or political commentators.  Though here's one that I enjoy reading

Gene Kerrigan: Don't mind me, I've got a moustache
Even those of us who know nothing about economics realise this Government is barmy, writes Gene Kerrigan


IN these perilous times, it's always good when an economics professor comes on the radio. Professors know things. They spend years studying to be a professor.

After that, they keep studying, so there's nothing they don't know about their subject. It's a serious business, the oul' professoring.

This column has never hidden its deep ignorance of economics -- an ignorance shared with probably 95 per cent of the citizenry.

But, these days, politics is buried under the debris of the economic collapse. If we give a damn about where this country is going, then we need to struggle to understand what's happening to the economy -- even if that means reading endless screeds of impenetrable jargon.

Otherwise, politics is meaningless and democracy is redundant.

We citizens depend on independent experts to at least map out the economic terrain, so we can make informed political judgements.

So you can imagine my relief when Professor Alan Barrett turned up on Morning Ireland on Thursday. The good professor and his mates at the Economic and Social Research Institute have done a bit of extra-deep studying on the economy and the figures are startling.

I moved closer to the radio, ears pricked. I got out my pen and jotter, eager to learn. And if his figures were startling, the professor's next comments were astonishing.

The professor and his ESRI mates considered the impact of the Cowen Government's austerity policies.

Austerity is the second of the Government's twin-track strategy. The first track involves pouring billions into the banks. (That's the entirety of the policy. Just keep pouring until the banks say "when".)

There are reasons for this. It will "get credit moving", apparently -- except it didn't and it won't. Not to worry. Mr Lenihan's a nice guy, right?

The second track is to impose austerity policies on the citizens, which will cut everyone's standard of living. It will also destroy the quality of life for many of the old, the sick, the handicapped and the dying.

It will ruin the life chances of bright, determined young people who depend on state supports to climb out of a hole. It will damage the health of many and prematurely kill some -- precisely as austerity policies did in the 1980s.

These are what Mr Cowen calls "tough decisions".

Why do this?

Well, because Mr Lenihan has to "convince the markets" that he's in control of the budget deficit. And because the EU Commission has something called a 'Growth and Stability Pact'. This pact says the budget deficit must be down to 3 per cent by 2014. The 3 per cent and the date are arbitrary.

Germany and France broke the pact when it suited them, but we're not allowed do so.

Professor Barrett and his mates have studied the figures and they concluded that if Mr Lenihan does what the EU wants, it will mean €15bn in cuts over the next four years, not €7bn.

They're worried about the "potential negative impact on the economy of this scale of adjustment over this period of time".

To translate -- cutting billions of euro out of the economy in such a short time will lead to disaster. Mass unemployment and further harsh budgets will persist for maybe 10 years -- or, as some of us fear, indefinitely.

The ESRI people apparently even murmured about driving the economy past the "tipping point", then backpedalled.

Now, there's absolutely nothing new in this. The leftwing website Progressive Economy, for instance, has been saying this for ages. But it's easy to dismiss lefties. After all, what do they know about economics?

Trade union leaders issued similar warnings, but some of them wear beards -- and for rightwingers, this is conclusive proof that they lack intelligence.

Even this economically ignorant column twigged from early on that if you deflate the economy in a recession, you risk sending it into a downward spiral. But the serious people said nothing mattered more than giving billions to the banks and cutting the deficit -- and let the economy look after itself.

So, following the cuts that pushed up unemployment and failed to control the deficit, we're to get even worse cuts. And the ESRI is finally worried about government policy.

And you can't just dismiss the ESRI -- these are all impeccably learned types who share the ideological assumptions of the politicians. (Besides, Professor Barrett is clean shaven.)

He says the ESRI fears that government policy will "damage the potential of the economy to grow its way out of recession". (Translation -- this will screw us for a generation.)

And no one has challenged his figures. It seems we're all agreed that what the Government is about to do risks seriously damaging the economy for at least a decade -- but they're going to do it anyway.

Why? To preserve their alleged "credibility" with the financial markets and the EU.

And here's where it gets truly astonishing.

Having alerted Morning Ireland listeners to the folly of what the Government is doing, the professor hastened to add a few words.

"Let me hasten to add," he hastened to add, "that we've been wrong, our economic forecasts have been wrong on occasions."

Admirable modesty. But this is the first time I've heard such a learned man so quickly undermine his own work. Professor Barrett told Morning Ireland of his "hunch or sense" that government policy will lead to "a prolonged period of subdued growth".

I think "subdued growth" means "10 or 20 years of mass unemployment, forced emigration, widespread poverty and persistent social unrest".

I was completely taken aback at the notion that a professor would reach conclusions based on a "hunch". In fact, we know the professor is a very learned man who reached his conclusions on hard figures and facts. And these figures are unchallenged.

Why the modesty? Some context is needed. The ESRI has been rightly criticised for not warning long before the collapse that the Celtic credit bubble was dangerous. And now, the figures show that government policy is about to make things massively worse -- and the ESRI could not ignore that.

They had to put their concern on the record.

"Yes, we've expressed concern," said Professor Barrett, adding: "I think it's important that we did that".

And, having expressed this concern, the professor hastened to add that we should feel free to downplay his work. Ah, don't mind a word the ESRI says, Taoiseach, sure aren't we always getting things wrong, so we are. Or words to that effect.

The ESRI know the facts and figures, but they're realists. They wrote into their report their belief that "the 2014 deadline is unlikely to be changed".

The professor's backpedalling was a simple acknowledgement of the fact that it doesn't matter what anyone says, it doesn't matter what the facts are, the Government will not be diverted from its lunatic course.

The opposition can hardly point to the ESRI figures and demand changed policies -- because they've on board with the government targets. Likewise the media and the commentariat.

For these elements, the scale of the radical response needed is -- literally -- unthinkable. This foolish policy is apparently as unstoppable as the foolish policies that caused the crash.

The consensus among these people seems to be that we'll cut the guts out of the economy -- depressing demand even further. And by some magical process show that Mr Lenihan is on top of the problem.

Then, when the markets and the EU have patted him on the back, he'll ask if he could maybe stretch the target date out to 2016, please sir, if you could see your way . . .

Seems to me to be the politics of Toytown and the economics of Daftville. But, of course, I hasten to add, I could be wrong.I a

[seafoid]

Has the decision to limit it to a four year plan been questioned? Who came up with this figure and why?

So far it seems to me that the EU mentioned it and it is guess work regarding growing confidence in the bond market. Why not 2015 or 16? The last time we went to the bond market it was over subscribed.

I think they have to pretend it's going to be 4 years, it seems as though that won't be possible, but for the time being we have to keep europe happy and adhere to the 4-year plan.

You couldn't make it up.  By all means Ireland has to be kept out of the IMF/EU treatment room. but it is not looking good. A slip up by Ireland would probably draw Spain and Portugal into the vortex. And then?   

In order to facilitate a bailout scheme for countries in trouble the Lisbon treaty will have to be revisited. This will take  at least 2 years and will require another referendum !!! Because the Maastricht treaty had a NO BAILOUT clause.
And a new bailout regime it is the only way out for the Eurozone, in all probability . And what are the chances of Ireland voting through Lisbon 2 on the first go ?   

[Bogball XV]

This is a FF economics nightmare. Taxes were far to low for too long and the banks were unregulated and Government spending lost all links with what the country could afford.

Back in 1987 total government spending was £8.7bn. Last year 22 years later it was €71bn.   In 2009 Ireland spent €6bn on alcohol. Something has to give.

Long term spending (primarily public sector wages) was based on short term income, that short term income was mostly generated from the property bubble and included stampt duty, capital gains, vat, payroll taxes and even VRT and was never sustainable in the long run. 

Re the 6bn, what percentage of that was imported and what percentage was govt duty, it's an impressive figure alright, but it needs to be broken down and looked at in detail before we can blame alcohol for all our economic woes