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

[seafoid]

Also from irish economy

29.   remnant Says:
December 1st, 2010 at 10:06 pm

"The strongly held belief among our European partners is that any move to impose burden sharing on this group of investors would have the potential to create a huge wave of further negative market sentiment towards the eurozone and its banks system. That apprehension was confirmed by Professor Honohan in an interview last Monday when he said there was no enthusiasm in Europe for this course of action."

Of course, there's no enthusaism -that's the typical naieve europhilic "group think" within Irish politics/overnment/academia who have never played in the real geopolitical sphere-they would rather that the four million of us foot the bill for what is, essentially and by your admission, a "public" good for the 320,000 million residents of the Eurozone. And remember - that "public good" is costing us 20,000 per head but spread accross the EZ would total a mere 200 euro per citizen.
What we have here is the concept of Mutually Assured Destruction - where Ireland and the "EU" have options to threaten each other but where a zone of mutual benefit exists and should form the grounds for agreement.
In return for us using 50% our GDP to keep the holders of "Total Debt Certificates (including bonds)" in Eurozone Banks in faraway countrues- currently totaling 6,462.8 Billion euro- comfy and happy- we get what? An interest rate "subsidy" worth 3 Billion per year (which we wouldn't have needed if it wasn't for the guarantee in the first place).
The last time I checked, the Irish bank bailout was going to cost Irish taxpayers 2/3 of the cost of the AIG bailout and that was not foisted on just 4 million taxpayers of, say, South Carolina.
"There is simply no way that this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the ECB. Those who think we could do so are living in fantasy land."
Or how about this - there's no credibile way that the ECB can shut off liquidity to our banking system because to do so would create a significant risk of a eurozone bank run - beginning in the peripheral countries and destroying the EZ banking system.
All for a measly 250 euro per EZ citizen? Or printing a bit of money? Or a few weeks of criticism in Bilt. Sarko and Merkel are politicians - NOT insane.
The answer - renegotiate a way to either socialise the senior bondholders at the EZ level or else haircut. Better still, do it in concert with a few other players with similiar interests.  The "Europeans" won't be "enthuastic" about re-opening what was a superb deal for them but neither did the Soviets/Americans like dealing with each other!!!
Churchill said "courage was the most important political virtue because it guaranteed all of the others." This'll take guts but it needs to be done - particularly while some non-ECB people have major exposure to BOI/AIB.

[Bogball XV]

The banks are the problem and turning on the unions is what FF want everyone to do. The Irish elite has failed the people and the unions are being blamed. This is insane.

What's funny is how the unions and ff are turning on each other now after having been in bed together for the last 20yrs.  I have absolutely no time for unions or union leadership, they have behaved disgracefully for the most part and appear to me to be self serving in most instances too.

They're all part of the cartel of vested interests that people were happy to allow control this country, mianly because very few people had any vision beyond the next 12 months, or at best 5 years being the next election.

December 1st, 2010 at 10:12 pm
@ All
"sheltered" sectors? welfare rates, taxes on the rich, nurses pensions. Blah Blah blah.

Is this an Irish thing - the central EZ countries are in the process of extracting 60% of our GDP out of our country- and we're not doing anything about it? Rather we focus on how our neighbour might be paid slightly more than us.

i'm not worried about the bailout, because I think we've moved on past that, imo we will not have to pay banks money back, because we cannot pay that back.  They can talk shite all they want about negotiations etc and the ECB/EU can talk all they want about how the deal is in place etc etc, all in an effort to avoid contagion and shore up the euro.
In about a year or so they'll have no choice but to revisit the Irish problem and if the markets have calmed down (absolutely no guarantee on that btw), they'll restructure it the way they should have done.

Seriously, I haven't seen one independent economist who thinks that the current deal is a solution, it cannot be anything other than a stop gap.  As I said earlier, the simple fact is that we cannot make the repayments that Lenno has left us with via his guarantee.  We will default or restructure, or whatever you want to call it simply because it's the only course that can be followed.

[muppet]

http://www.youtube.com/watch?v=nD2Vr7lb-D4

Class.

[bcarrier]

I have now given up trying to understand what is going on . No bank left behind seems to be the order of the day yet there is some suggestion that the banks have been filtering cash released through US & UK QE to  hedge funds / their own investment wings to target the EU periphery and force the ECB/ EU into a similar policy. The banks will eat themselves and the rest us before they are finished. Reading Pestons latest piece the ECB seem to have been complicit in giving portugese banks funds at base which were subsequently used to mop up portugese bonds. Its all mad.

[seafoid]

The banks are the problem and turning on the unions is what FF want everyone to do. The Irish elite has failed the people and the unions are being blamed. This is insane.

What's funny is how the unions and ff are turning on each other now after having been in bed together for the last 20yrs.  I have absolutely no time for unions or union leadership, they have behaved disgracefully for the most part and appear to me to be self serving in most instances too.

They're all part of the cartel of vested interests that people were happy to allow control this country, mianly because very few people had any vision beyond the next 12 months, or at best 5 years being the next election.

December 1st, 2010 at 10:12 pm
@ All
"sheltered" sectors? welfare rates, taxes on the rich, nurses pensions. Blah Blah blah.

Is this an Irish thing - the central EZ countries are in the process of extracting 60% of our GDP out of our country- and we're not doing anything about it? Rather we focus on how our neighbour might be paid slightly more than us.

i'm not worried about the bailout, because I think we've moved on past that, imo we will not have to pay banks money back, because we cannot pay that back.  They can talk shite all they want about negotiations etc and the ECB/EU can talk all they want about how the deal is in place etc etc, all in an effort to avoid contagion and shore up the euro.
In about a year or so they'll have no choice but to revisit the Irish problem and if the markets have calmed down (absolutely no guarantee on that btw), they'll restructure it the way they should have done.

Seriously, I haven't seen one independent economist who thinks that the current deal is a solution, it cannot be anything other than a stop gap.  As I said earlier, the simple fact is that we cannot make the repayments that Lenno has left us with via his guarantee.  We will default or restructure, or whatever you want to call it simply because it's the only course that can be followed.

Very Zen, bogball.

I agree on the restructuring. Has to happen. But the deal is a sickener because it shafts the taxpayer and once the 20bn is flushed down the toilet of AIB there won't be any chance of a return.

[seafoid]

http://www.eurointelligence.com/index.php?id=581&tx_ttnews[tt_news]=2973&tx_ttnews[backPid]=901&cHash=484db55c3a

[muppet]

Here is the IMF document:

http://www.scribd.com/doc/44490364/EU-IMF-memo#fullscreen:on

[Maiden1]

So is FG, Labour, SF or anyone coming out and saying that we should reject this loan and planning to do anything different e.g.  Not pay the bondholders and only guarantee the deposits of people in the bank if/when they get into government.  If they aren't offering anything different and are just hoping that it is all done and dusted and FF take the rap then what is the difference between FF and the rest?

[muppet]

So is FG, Labour, SF or anyone coming out and saying that we should reject this loan and planning to do anything different e.g.  Not pay the bondholders and only guarantee the deposits of people in the bank if/when they get into government.  If they aren't offering anything different and are just hoping that it is all done and dusted and FF take the rap then what is the difference between FF and the rest?

That is a bit like Roy Hodgson asking what would the pundits do any better. The answer is: it doesn't matter you are sacked.

[Declan]

what is the difference between FF and the rest?

We'd need a separate thread for that topic

[armaghniac]

Seriously, I haven't seen one independent economist who thinks that the current deal is a solution, it cannot be anything other than a stop gap.  As I said earlier, the simple fact is that we cannot make the repayments that Lenno has left us with via his guarantee.  We will default or restructure, or whatever you want to call it simply because it's the only course that can be followed.

This is so blindingly obvious that you have to wonder if this is not the plan. Give Ireland a 9 year loan at a high rate  while planning for a comprehensive Euro solution which means that we would never have to use most of this loan as currently constituted.

[Zapatista]

Probably only fined on his per diems.

It says a lot that many Irish are identifying with the eurosceptic British reps.

It doesn't say much. It says many Irish can agree with someone who makes a good point. There is nothing more to it. If he said Kilkenny are a good hurling side I'd have to agree there too.

[muppet]

Probably only fined on his per diems.

It says a lot that many Irish are identifying with the eurosceptic British reps.

It doesn't say much. It says many Irish can agree with someone who makes a good point. There is nothing more to it. If he said Kilkenny are a good hurling side I'd have to agree there too.

I'm not having a go, I thought it was a good speech too. It is just that I would have run a mile from people like that a few years ago. Just shows how much the world has changed.

[Declan]

Tried to post a link but didn't work so here is the story:
It is one thing to know that someone you love is terminally ill; their death still comes as a shock.



I certainly don't want to compare the arrival of the EU-IMF team in Dublin last week to a bereavement. But I was surprised at how upsetting I found it, given that it came as no surprise. It had been clear for a long time that the blanket guarantee given to the liabilities of Ireland's rotten banks, in September 2008, had saddled the State with a debt that was too big for it to handle. Ten successive quarters of declining real GNP, and one attempt too many to draw a line under the losses of our banks, made our exclusion from international capital markets inevitable. But to know something is one thing; to see it actually happen is something entirely different.

I am not alone in feeling this way, it seems. The economics editor of the Irish Times, Dan O'Brien, wrote that"nothing quite symbolised this State's loss of sovereignty than the press conference at which the ECB man spoke along with two IMF men and a European Commission official. It was held in the Government press centre beneath the Taoiseach's office. I am a xenophile and cosmopolitan by nature, but to see foreign technocrats take over the very heart of the apparatus of this State to tell the media how the State will be run into the foreseeable future caused a sickening feeling in the pit of my stomach.

This is not to say that we would be happy to have our country's affairs managed by the current, disgraced, government. I yield to no-one in my loathing of the men and women who have done this to my country. What has been the intellectual low-point of the last couple of years? Was it the cash-for-clunkers stimulus package (Ireland does not produce any cars)? Or the statement by our Finance Minister that Ireland need not fear a bank run, since Ireland is an island? Or the biggest Irish joke of them all, which underpinned the bank guarantee in the first place: that if we wanted investors to retain confidence in the creditworthiness of the Irish State, we needed to make sure that nobody who invested in our (private sector) banks ever lost a penny?"



The latter decision is the one that sank the country. It was the last great act of hubris of the Celtic Bubble, and was immediately denounced by one of the heroes of the crisis, my old UCD colleague Morgan Kelly.  On the night the guarantee was announced, Kelly pointed out that while it was the right policy if the Irish banks were facing a liquidity crisis, it was a terrible policy if they were insolvent, which was in fact the case. As they always do when confronted with someone smarter than them, the Dublin establishment circled the wagons, and Kelly was dismissed as an irresponsible young troublemaker of no consequence. He has been proved right, of course, but the establishment is still at it, making the

same fundamental mistake of thinking that a solvency crisis is just a liquidity crisis. Now, however, the establishment is European as well as Irish, and it is the State rather than the banking sector which is insolvent.



The week started on an optimistic note. The general reaction was one of relief – at last, the Indians had come to sort out the cowboys. (The Indian in question was Ajai Chopra, head of the IMF mission to Dublin; there are no prizes for guessing who were the cowboys.) But the atmosphere soon changed, as it became clear that a substantial portion of the bailout funds would be earmarked, not for vital public services, but for the black hole that is the Irish banking system. At one stage there seemed to be the prospect of some relief for Irish families: the Irish Times was reporting that the EU-IMF team would deliver the loss-sharing with bondholders that our own government had been too craven to insist on. This would have been a good-news story that could have transformed the mood of ordinary people, and proved that the European Union was on their side. That hope was dashed over the weekend.



The finger of blame was clearly pointed by the Minister of Finance, Brian Lenihan, and several of his colleagues: it was the European Central Bank and the Commission who had vetoed the proposal to force some of the bank losses back onto the bondholders. This interpretation is generally accepted in Dublin, although many observers also blame the Irish negotiating team for caving much too easily into pressure from Brussels and Frankfurt. The implication is that the IMF were the good guys: an unusual position for them to find themselves in, perhaps, and one with political implications in a country whose relationship with the European Union has been uneasy in recent years, and which has conserved close ties with the United States. On Monday night, an opposition spokesman made it clear that he would be much happier negotiating with the IMF, who are reasonable people, than with our European partners. The fallout from this will be toxic.



The reaction to the news that Irish taxpayers are to be squeezed while foreign bondholders escape scot-free has been one of outraged disbelief and anger. At the start of last week, it was possible to make the argument that 'burning the bondholders' was irresponsible, since it would inevitably lead to contagion, and the spread of the crisis to Iberia. That argument has at this stage lost all validity, since contagion has happened anyway. Besides, the correct response to the possibility of contagion was never to engage in make-believe, but to extend taxpayer protection to other Eurozone members as required. Swapping debt for equity in a coordinated fashion across Europe would show ordinary people that Europe is on their side; but like the PLO of old, the European Union never misses an opportunity to miss an opportunity. It could have provided a means of kick-starting a new post-crisis growth strategy based on investment in the infrastructures we will need in the future; instead it has transformed itself into a mechanism for forcing pro-cyclical adjustment onto countries that are already sinking. It could have led the way in reining in an out-of-control financial sector; instead it now embodies the discredited principle that banks must never, ever, default on their creditors, no matter how insolvent they may be.



To make matters worse, it is simultaneously preparing a new scheme which will be able to handle sovereign defaults within the Eurozone from 2013 onwards. Presumably Ireland will be one of the first clients of this new facility, assuming of course that default can be avoided before then. To shrug one's shoulders and accept that sovereign default down the road is preferable to private sector defaults now seems astonishing, but such are the depths of irresponsibility to which responsible opinion is now sinking.



Who knows what the political consequences of all of this will be? The southern Irish are a conservative lot, and dislike direct confrontation (we leave that to our Northern brethren). This means that political change in normal times is slow; but when it does come, it may come in a rush. If we had a national list system, a Labour-Sinn Fein coalition would be a possibility at this stage. However, our multi-seat constituency system makes it difficult for rising parties to translate support in opinion polls into seats in parliament. Even so, we are about to have a general election, and if Brussels thinks that this deal is not going to be the big issue in that election, then they are even more out of touch than we already think they are. It is no longer even certain that the budget will be passed in December. Brussels may not have a Plan B, but they had better prepare one nonetheless.



Irish citizens may bring down the bailout of foreign bank creditors by voting at the ballot box, but if they do not, they will bring about a default of some kind by voting with their feet. We now face a negative spiral in which austerity causes emigration, which increases the burden of the debt, which ultimately leads to more austerity. We need a game-changer to break the cycle, but what might it be? Since the fundamental problem is that Ireland is insolvent, the smart thing to do is to tackle our debt burden head-on, but the Europeans have vetoed this.



Changing our politics might help, by creating a shared sense of national purpose that people can buy into. Unfortunately, it is hard to see the prospect of a Fine Gael-Labour government encouraging young people to tighten their belts and stay home for the good of the country: at this stage, the country needs radical change that can give people a sense of hope. There is a huge desire for such change, but no coherent vehicle to translate that desire into action.  One immediate focus should be constitutional reform that everyone can buy into, since people inevitably differ about the policies needed to bring about a recovery.

Iceland is an obvious model for us. In a referendum, her voters have already rejected a proposal to pay back their banks' creditors, who will take major losses. Now they have elected a constitutional assembly charged with drafting a new constitution. Ireland probably needs this more than does Iceland; I wish I were more confident that we will follow the latter's example.

[Zapatista]

Probably only fined on his per diems.

It says a lot that many Irish are identifying with the eurosceptic British reps.

It doesn't say much. It says many Irish can agree with someone who makes a good point. There is nothing more to it. If he said Kilkenny are a good hurling side I'd have to agree there too.

I'm not having a go, I thought it was a good speech too. It is just that I would have run a mile from people like that a few years ago. Just shows how much the world has changed.

i hope it's a trend for the Irish. We have a habbit of ruling out what someone says for reasons other than what they acttually say. It's narrow minded and easy to be taken advantage off to often.