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

[give her dixie]

http://globalresearch.ca/index.php?context=va&aid=21997

Europe`s Monetary Crisis: Ireland's "Suicide Pact" With the E.U.

Ireland could be the next Lehman Brothers. That's what has the markets worried. If Irish leaders refuse to accept a bailout from the EU's new European Financial Stability Facility (EFSF), then bondholders will be forced to take haircuts on their investments which will leave banks in Germany and France short of capital. Bonds yields will rise sharply slowing activity in the credit markets. An Irish default will trigger hundreds of billions of dollars in credit default swaps (CDS), which will push weaker counterparties into bankruptcy and domino through the financial system. Contagion will spread to Portugal, Greece, Spain and Italy widening bond yields and forcing governments to increase their borrowing at the ECB. Business activity will sputter, unemployment will rise, and growth will shrink. It will be a second financial meltdown.

But no one believes that will happen. Most people think that Ireland will "take its medicine" and spare bondholders any losses. Irish leaders would rather accept a decade of EU-imposed austerity measures and the loss of sovereignty, then leave the euro and start fresh. It's disappointing. The euro is not designed to meet the needs of the smaller, less industrialized countries like Ireland. They need their own, flexible currency to ease the effects of cyclical downturns. But Irish leaders are still captivated by the idea of a united Europe. So they will cast aside the independence they earned through centuries of struggle for a pipedream and the elusive promise of prosperity.

At present, the Irish government is underwriting the toxic debts of its main banks. Unfortunately, those debts far exceed the revenues of the state. According to BBC's Robert Peston, the liabilities are "equivalent to an oppressive 700% of GDP when banking, public sector and private sector debts are added together." So far, the ECB has helped to keep Irish banks operating by providing 130 billion euros of emergency liquidity. But the wholesale markets no longer accept Irish debt as collateral and bond yields are in nosebleed territory. Irish politicians still maintain they have sufficient funds to get through the middle of next year, but that does not include funding for the banks. In fact, if the ECB stopped lending to the banks today, the system would crash overnight.

So the situation is tense and getting tenser. Even so, everyone expects Ireland's Finance Minister Brian Lenihan to cave in and accept a bailout. That will shift all the losses onto Irish taxpayers.

But what would happen if Lenihan balked and decided to restructure the debt instead of borrowing the money from the EFSF?
Journalist Robert Peston mulls-over that posibility in a recent article for the BBC. Here's an excerpt:

"Anglo Irish Bank and Allied Irish Banks, would probably have to be declared insolvent. And...many billions of euros that Irish taxpayers have already pumped into these banks would have to be written off....

What would then be triggered would be enormous payments by underwriters of credit default swaps (CDSs), the debt insurance contracts taken out by lenders and speculators. These payments would generate enormous losses for the financial institutions, including banks, which provided the CDS cover....

Even without the CDS loss multiplier, the impact of debt haircuts would be painful for British and international banks. According to the Bank for International Settlements, total lending of non-Irish banks to Irish banks is around $170bn, of which British banks provided $42bn, German banks provided $46bn, US banks $25bn and French banks $21bn." ("Ireland: How much punishment for British and international banks?", Robert Peston, BBC)

If Ireland quits the euro, all hell will break loose. The government will have to issue a new currency knowing that their debts will still be denominated in the higher priced euro. That will increase their debt-load. And, they'll be blocked from the raising capital via the bond markets until they've settled old claims. At best, it would take decade or more to dig out and to reestablish their credibility with the markets. On the other hand, they would have shed the euro straitjacket and reestablished their sovereignty. That's got to be worth something, but how much is it really worth?

Journalist Peter Oborne takes a look at the sovereignty issue in a recent article in the Telegraph. Here's an excerpt:

"It cannot be denied that Ireland has lost its status as a sovereign nation. Thanks to its disastrous entanglement with the euro, it has lost any independence in domestic, foreign and above all economic policy. The Irish nation is the creature of Brussels and the European Central Bank. The Irish prime minister has effectively been turned into a pro-consul dispatched to Dublin from Brussels. Brian Lenihan, the finance minister, is like an overseas manager of a Brussels subsidiary. For those of us who love Ireland, this is miserable and demeaning – but it needs to be borne in mind that a similar fate awaits a number of other European countries. Greece already does what it is told by the IMF and the ECB; the same will shortly apply to Portugal and in due course Spain." ("Ireland has lost its sovereignty and is now the creature of Brussels – thanks to the euro", Peter Oborne, Telegraph)

Oborne is not alone in thinking that Ireland is making a mistake by staying in the EU. The Telegraph's Ed West sees things the same way, but describes the EU/Ireland alliance in even darker terms, as a "suicide pact":

"Ireland has a historical attachment to continental Europe, as liberator from British rule, but it perhaps goes even deeper than that, back to its monks' preservation of Western civilization during the Dark Ages. Ireland, more than most countries, feels itself profoundly European and its Catholicism was always a part of that. It is not entirely a coincidence that as Christianity faded Ireland adopted a replacement ideology – the dream of Brussels. Or the world's biggest suicide pact, as I think of it....

Why spend 800 years trying to overthrow the Brits just to come under the sway of the EU? Having said that, almost no one in Ireland goes anywhere as far as UKIP or many Tories in opposing the EU altogether....

The European Project was and is a Utopian idea, based not on practical logic but on an idealistic vision, and it has only one aim in mind – total political union. Along the way its architects have consistently lied to the public about its aims, especially so in the creation of a single currency, which logic suggests requires political unification." ("Ireland's smug, Euro-loving elite has led their country to ruins – 'Little Englanders' saved ours", Ed West, Telegraph)

The financial crisis has stripped away much of the pretense surrounding the 16-country EU. No one is blabbing about ending wars and shared prosperity anymore. The focus has shifted to belt tightening for workers and golden parachutes for bankers and bondholders. In other words, elites are waging the same relentless class war they always have, only this time it's behind the facade of European unity. Does Ireland really want to be a part of that charade?

It's time for Ireland to leave the EU and deliver a blow to the ill-conceived Uberstate. In fact, they should have left years ago.

[stephenite]

Most I knew were farmers Zap-stupid cnuts lost the rest when they got in over their heads and now have nothing.
The ones that stuck to what they know best are doing OK.

[bcarrier]

Agree with Stephenite and Turlough.

We might have got way with gombeen politicians if we didnt also have gombeen civil servants -  ( the  permanent government)  and especially the department of finance. These are the  same folk who have been leading the " official level" discussions with IMF and ECB.

And why has the " good bank" idea disappeared off all radars. Revoke the guarantee, put 20bn into a new good bank and it will be the in the bondholders in the banks who have the problem. Beware of germans bearing gifts and all that.

[Declan]

http://www.youtube.com/watch?v=zqx4E5tq1Bo&feature=player_embedded#!

About time - Gurdgiev was right and also Karl Dieter on Prime time

[Hound]

Wall St Journal on 12.5% rate:

Targeting Ireland's Corporate-Tax Rate May Backfire
The Wall Street Journal, Heard on the Street
By Richard Barley
November 18, 2010

European politicians tempted to take aim at Ireland's ultralow 12.5% corporate-tax rate might want to think again, and not only because their Irish counterparts seem willing to defend it to the death.

While other Irish taxes may have to rise to rein in the yawning deficit, raising the corporate-tax rate could damage not only Ireland but its partners, too.

First, Ireland doesn't even have the lowest headline corporate-tax rate in the European Union; that distinction goes to Bulgaria and Cyprus, both at 10%. Headline rates can be misleading. A European Commission study from 2009 found that Ireland's effective corporate-tax rate was higher than the headline, in particular due to real-estate taxes, while in many European countries it was lower than the headline rate.

Second, Ireland's low corporate taxes are crucial to its economic strategy. Corporation-tax revenue as a percentage of gross domestic product has been consistently higher in Ireland than the average in the first 15 EU members, according to the Organization for Economic Cooperation and Development, or OECD. They also are needed to help create a thriving export sector. Exports account for 80% of GDP, of which some 70%, or €110 billion ($149 billion), depend on foreign direct investment, according to Ireland's IDA investment-promotion agency.

A one-percentage-point rise in the corporate-tax rate could lead to a 3.7% drop in foreign direct investment, the OECD estimates. Nor would the investment necessarily go elsewhere in the EU. Ireland competes, for example, with Switzerland and Singapore for foreign direct investment.

Of course, Ireland has other attractions beyond its tax rate. It has a youthful, highly educated population, good infrastructure and benefits as an English-speaking country. It has moved from being a labor-intensive manufacturing economy to a more high-tech and services-focused model, with tremendous productivity gains.

But as a small country, it has to offer something more than the big economies at the heart of the euro zone. That is something other European countries should bear in mind as they prepare to hand over billions of euros in loans to the Irish government.

[seafoid]

Regardless, it is the Gov who adopt and execute the IMF inspired programs so that the  state of the country´s economy passes the IMF reviews  and is fit for the next loan installment. The next loan installment is the dangled carrot which the country does not actually get to eat.
How long before the people realise this not going to work?

Gurdgiev pointed out something tonight:

€100 Billion at 5% would mean an extra €5 Billion off the budget needed just to pay the interest never mind pay them back.

Me head is wrecked. How could that work?

there is nothing wrong with your logic, Muppet.
The EU is doing everything to protect bondholders but it may be beyond them at this stage. The State has done all it could to save the banks and it wasn't enough. Their balance sheets were simply too big for Ireland. The damage was done in 2005 and 2006 when it could have been stopped. 

If the banks need €100bn the state won't be able to pay the interest.

AIB is probably going to be broken up anyway. Ireland is no good to investors if it can't repay its debts.

  "The liquidity and capital assistance that Dublin is exploring with the European Union and International Monetary Fund could break the circle – but only if Ireland promises to use it properly. It is time for tough love, pour encourager les autres. For starters, Dublin should force AIB to come clean about its risk exposures. Then it should break up the bank, salvage only the viable parts, and either sell the rump (unlikely), or put it into Nama-managed run-off (more likely), even if that takes 20 years. Taxpayers have funded this bank charade for long enough."

http://www.ft.com/cms/s/3/adc41bce-f324-11df-9514-00144feab49a.html#axzz15iWACLA9
 
Anyway the sharks are going to go after Spain shortly so the game will get ratcheted up another notch.   

[ludermor]

A warning from deserted ghost estates
October 1, 2006

Posted in Articles | Banks | Ireland | Property | Sunday Business Post by David McWilliams 19 Comments
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Driving around Westport in the rain the other day, I was struck by the number of empty houses. Large clusters of 'holiday homes' were dotted all around the coast, creeping out from the town and towards the sea.

Westport isn't alone. All over Ireland, 'ghost estates' are enveloping many of our towns. Driving back from the West, these spooky ghost estates emerged out of the mist announcing places like Termonbarry, Frenchpark and Edgeworthstown. Anywhere there is a tax-driven scheme, there are ghost estates. You don't have to be a child or believe in Halloween to find that scary.

There are an estimated 230,000 vacant properties in Ireland, according to Davy Stockbrokers. This figure is substantiated by this year's reports from the census gatherers, who found a surplus of vacant houses for which nobody answered the census. Following discussions with local estate agents, neighbours and postmen, they concluded that many properties had never been lived in or were long-term vacant.

On the day of the 2002 census, it was estimated that there were just over 140,000 houses vacant across the country. In the past five years, this figure has increased by over 50 per cent, to about 230,000.

Today,13.5 per cent of the total housing stock is vacant. The ESRI did a study on this in May 2005 and found that traditionally Ireland has had a high vacancy rate, but that phenomenon was explained by emigration where houses were left when the people moved to Britain or the US.

However, today – when inward migration is running at 70,000 per year – the emergence of new ghost estates is worrying.

Even if we accept that Ireland might have a slightly different history, are you comfortable with the fact that in Britain – which has a similar home owning and holiday home buying culture, the corresponding figure is 3.2 per cent of all houses? Here one house in seven is empty; over there it is one house in every 31.

There I was thinking all along that we had a housing crisis, with prices rising at double digit rates because we didn't have enough houses.

All the estate agents told me the reason prices were rising was that demand outstripped supply and we needed more houses. Well, it is crystal clear that the opposite is the case. It is not that we don't have enough houses – we have too many.

Here is the problem. With 13.5 per cent of all houses vacant and an estimated 40,000 more ghost houses being built as I write, what is keeping their value up?

Normally, value is some derivative of what the asset earns. But if the asset is earning no income, how does its price continue to rise in the aggregate?

The last time we saw assets being priced with no reference to their underlying yield was in the dotcom boom. Remember that?

Companies with no earnings were being valued at hundreds of millions. Remember Baltimore Technologies?

Back then, everyone believed that the new economy had such massive growth potential that today's borrowing would be turned into gold tomorrow. All the investor had to do was ask no questions, come along for the ride and live the dream.

At least the dotcoms had the vague, if naively plausible story that they were at the front of a technological revolution, that all the old rules had been thrown out of the window and a brave new world awaited the adventurous.

This Messianic message fell on fertile soil, financed by low interest rates. Nobody shouted stop. Nobody pointed out that the dotcom emperor had no clothes. If we check out our property boom where 13.5 per cent of our assets yield nothing – either financially or practically – it is not hard to see that we are dealing with a similar confidence trick.

The confidence trick has become so embedded that last week, a spoof plan for a Dubai-inspired development of Dublin Bay resulted in local politicians receiving angry calls to oppose the mega-development.

Anyone who believed that Dublin Bay could be turned into a space-age investor's paradise, complete with offshore golf courses and giraffe-only zoos, could only have taken leave of their financial senses.

Yet this delusional carry-on continues, despite evidence that only 15 per cent of top-end houses sold at auction this week.

In the past few days, auction houses have been empty, leaving not only estate agents worried but also all the other industries which depend on the property pyramid scheme remaining intact, such as newspapers and their glossy property supplements.

Jeremiahs like myself have worried about this for years, and our concern is not that prices go up and down or that huge amounts of money get diverted/wasted into construction, which has no long lasting impact on the productivity or human capital of the society.

Our concern is more driven by what happens when prices stop going up and begin to come down again. What happens to our banking system, which could be fairly (from examining Central Bank figures on the destination of credit) described as a huge leveraged bet on Irish property?

What happens to the hundreds of thousands of people who have borrowed based on exaggerated property values?

We have examples of other countries that went through the same cycles. Finland in the early 1990s offers an interesting example.

The first thing that happens when the bubble bursts is bank shares slide rapidly.

This is made easier because, in Ireland, they are the most liquid stocks and most brokers will write options against them – hoping that at some price the banks will buy their own shares back, thus putting a floor on the fall.

In a stampede, this strategy typically backfires. In Norway, again in the early 1990s, following a run on the major banks, the state had to issue a national bank bond to recapitalise its banking system. This means that the citizens of the country bail out the banking system.

If our interest rates are rising at this time, the financial crisis is more damaging.

In a country where the construction industry is operating at full tilt, where 50 per cent of our new builds will be bought to be left vacant and when strains are appearing in the frothy auction market, the existence of ghost estates of vacant houses is a very bad sign.

In the years ahead, these ghost villages, like our famine villages, may stand testament to a great tragedy which, although predicted by concerned observers, was never fully appreciated until the morning the crops failed

[Declan]

And Bertie told him to go kill himself

[seafoid]

http://www.youtube.com/watch?v=zqx4E5tq1Bo&feature=player_embedded#!

About time - Gurdgiev was right and also Karl Dieter on Prime time

IMO Karl Deeter is a spoofer. He wants to sell mortgages on houses and he can't sell them . He was moaning about the banks' new arrangements for people in mortgage trouble on Wednesday. He wants all such mortgages waived. The banks are proposing to cap interest payments to 66% and waive capital repayment for up to 5 years but it wasn't enough for him. who does he think is going to pay for his bailout? 

[Bogball XV]

http://www.youtube.com/watch?v=zqx4E5tq1Bo&feature=player_embedded#!

About time - Gurdgiev was right and also Karl Dieter on Prime time

IMO Karl Deeter is a spoofer. He wants to sell mortgages on houses and he can't sell them . He was moaning about the banks' new arrangements for people in mortgage trouble on Wednesday. He wants all such mortgages waived. The banks are proposing to cap interest payments to 66% and waive capital repayment for up to 5 years but it wasn't enough for him. who does he think is going to pay for his bailout?

I caught that bit of Prime Time alright, whilst I think that some form of forgiveness will probably be pursued, it's hard to listen to someone with such obvious vested interests as Karl advocate it.  I don't know what the solution is, but kicking it down the road will not solve the problem, unless inflation does take off or we're fcuked out of the euro (not inconceivable).

[Declan]

I

MO Karl Deeter is a spoofer. He wants to sell mortgages on houses and he can't sell them

it's hard to listen to someone with such obvious vested interests as Karl advocate it.

Agreed but I tried to separate that from his last sentence which basically said that we should show some backbone and stand up to the banks and the ECB. That's what I was agreeing with and also my "politics" would be at odds with Gurgiev but he spoke a lot of sense about the bail out for the banks as well.
However don't get me going about Jim Power - did you hear him about the moral hazard of debt forgiveness on the mortgage holders - moral hazard me arse his company's new tag line is Friends First People Second.

[Bogball XV]

I just hope that people do wake up and not vote for FF again. My Dad is a Fianna Failer his whole life and swears Charlie Haughey was a great man. I asked him the other day what now?, and he swears that only the people who got us into the mess can get us out of it. I don't like to swear at my own father but I was close to it. God I hope people finally f**king wake up.

I think it might be different this time, younger voters bought into FF last time round because they were the party of the tiger, good times, jobs, holidays....., not because they were anti treaty.  I think FF will struggle to come back from this, they might never achieve top dog status again. 

[seafoid]

I just hope that people do wake up and not vote for FF again. My Dad is a Fianna Failer his whole life and swears Charlie Haughey was a great man. I asked him the other day what now?, and he swears that only the people who got us into the mess can get us out of it. I don't like to swear at my own father but I was close to it. God I hope people finally f**king wake up.

I think it might be different this time, younger voters bought into FF last time round because they were the party of the tiger, good times, jobs, holidays....., not because they were anti treaty.  I think FF will struggle to come back from this, they might never achieve top dog status again.

I agree. I think people in their 20s and 30s will never forgive FF. It's all about locking in the youth, after all ,so very hard to see FF getting over this.    They are a shower of chancers. Look at their media performances over the last few days. authority shot. Totally out of their depth.

[An Gaeilgoir]

Fianna Fail will be back - probably after a stint of FG and Labour - because at the end of the day the people are Fianna Fail. We have been a one party state for so long and when FF mess up they still get elected, forgiven, with the usual comments "sure if the other crowd got in they'd be just as bad." The people are FF and the people are idiots. It was the farmers with land who were out with big brown signs pointing down bohareens only cows had ever been down before, proclaiming: "Development Land". Then you had every Tom, Dick and Harry who was now suddenly a building developer, bogman Donald Trumps, throwing up ugly housing everywhere, with their American names: Crystal Hollow and all that shite. And the farmers who sold the land - their own fathers had broke their backs on - were buying property in Florida and New York and Portugal, enjoying the status of having an "investment property". And because they were stupid, they overpaid there, just as the wannabe developers overpaid them. You had county councils getting money for every useless house that was built and so planning permission was granted without any thought of the consequences. You had local chambers of commerce, local newspapers, local politicians, priests and other lobby groups campaigning for soulless hotels to be built in some of the most natural scenic wonders in the world and if you dared try and stop it, you'd have been shot. There was uproar in Roscommon when Taisce stopped a big ugly hotel being built near the shores of Lough Key after Roscommon County Council granted permission. Thank God. That Canadian Company - Newfound Consortium went bankrupt recently - and we'd have been left with the whole place destroyed and a big ugly heap of concrete shite for future generations to view. Unfortunately this country is full of cowboys and they don't care what they destroy - whether it be a prehistoric monument or our children's future. However our cowboys are the Blazing Saddles type compared to the cowboys out in Europe and when they rode into town there was only one winner. Their stupidity was laid bare for all the world to see. They actually succeeded in doing what the likes of the racist Punch Magazine was never able to do: makes fools of Paddy on the world stage.

Turlough, that is a fantastic post.

Thats it In a nutshell. Great post.

[An Gaeilgoir]

I just hope that people do wake up and not vote for FF again. My Dad is a Fianna Failer his whole life and swears Charlie Haughey was a great man. I asked him the other day what now?, and he swears that only the people who got us into the mess can get us out of it. I don't like to swear at my own father but I was close to it. God I hope people finally f**king wake up.

I think it might be different this time, younger voters bought into FF last time round because they were the party of the tiger, good times, jobs, holidays....., not because they were anti treaty.  I think FF will struggle to come back from this, they might never achieve top dog status again.

I agree. I think people in their 20s and 30s will never forgive FF. It's all about locking in the youth, after all ,so very hard to see FF getting over this.    They are a shower of chancers. Look at their media performances over the last few days. authority shot. Totally out of their depth.

I have to agree, My house growing up was FF house and i always voted FF, but never again, i personally can never forgive them for the shambles that our country now finds its self in. As for my parents they feel the same way, FF are finished as a party i reckon, as in 30 years time, young families like mine will still be paying off the legacy of this debacle, although listening to the radio yesterday it was said that over 1500 people were out canvassing for them in Donegal, most of them were from outside the county, lemmings and a cliff spring to mind.