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

[seafoid]

Populist shite, seafoid, with all due respect. Unfortunately, the PAYE workers, due to their (albeit dwindling) numbers, are the only sector with anywhere near the wherewithal to contribute anything significant to deficit reduction and the dependant sector, sadly likewise and for the same reasons of scale, the only ones worth targeting for hairshirt measures. Apart from the fact that "taxing the rich" wouldn't make a blip on the radar screen of debt, penalising the providers of employment and industrial investment would not only drive them out but would possibly do the same to inward investment from foreign corporations. But it would make Fintan O'Toole, Sinn Féin and the last surviving stickies ecstatic.

It's worse than that Hardy. Ireland won't get any bond restructuring without some flesh in return.

This buck is a bond strategist at Soc Gen in Paris 

Ireland, like the EU generally, has a high level of wealth and income. It can still pay off the debts acquired by the previous administration over the next generation, if it wants to. Very painful, but possible; painful especially for a public that has become addicted to high expenditure lifestyles so very quickly (with quite a number of raised eyebrows from foreign visitors to Ireland, even now).

http://www.irisheconomy.ie/index.php/2011/03/13/colm-mccarthy-terms-of-the-bailout-deal-are-not-unfair-they-are-impractical/#comments

The bondwallahs don't care where the money comes from. PAYE will only go so far.

# Michael Hennigan - Finfacts Says:
March 13th, 2011 at 9:00 am

The Quinn Group is effectively owned by the people; it and the family owe €3bn to Anglo and over €1bn to bondholders and it has properties across the world.  There's more like it and the Government must be eager to assess when NAMA can start selling more overseas properties.


http://www.irisheconomy.ie/index.php/2011/03/12/kenny-returns-from-brussels/#comments

[lawnseed]

http://www.independent.ie/business/irish/nama-to-pocket-euro150m-profit-on-uk-property-deal-2571390.html
NAMA is in line for a profit of almost €150m on a property deal in central London, as the agency begins offloading some of its trophy assets in the UK market.

A property in the affluent Grosvenor Square area, near Oxford Street, is the asset at the centre of the deal.

The loan used to buy the property was originally given out by Michael Fingleton's Irish Nationwide, but was transferred to NAMA last year, making the agency the legal owner of the loan.

It is understood a UK consortium behind the property, at 20/21 Grosvenor Square, has now paid the entire loan back to NAMA, leaving the agency sitting on a major profit.

NAMA declined yesterday to comment on the details.

According to a report in the UK trade journal Estates Gazette, the consortium will pay NAMA back the entire loan Irish Nationwide originally gave out, about €290m.

However, it is understood NAMA only paid half this amount when it bought the loan from Irish Nationwide. If that is the case, it means a profit of almost €150m for NAMA.

It is estimated that 25pc of NAMA's assets are in the UK, which means it has access to assets worth €19bn there.

The UK market has recovered strongly in the past two years while the downturn here has been more severe.

As a result, NAMA is likely to do a number of deals in the UK this year as it tries to break even or make a profit by the time it is wound up in about 10 years.

Until recently, the Grosvenor Square building was the headquarters of the US Navy in Europe, but is far better known from the 1940s when it was the European headquarters of Dwight Eisenhower, supreme commander of the Allied forces.

The building is close to the US Embassy and some of the city's most upmarket restaurants, including one owned by celebrity chef Gordon Ramsay.

The prime location is likely to mean the consortium was able to pay off NAMA by doing a refinancing deal with another bank.

NAMA refused to comment on suggestions it has also won the right to a 'claw back' arrangement, where if the property is sold in future to another buyer at a higher price than NAMA was paid, it will get a share of the proceeds.

The agency is also negotiating to sell its interest in a property in Mayfair. In this case, the original loan was advanced to developer Derek Quinlan.

NAMA disclosed its latest performance last week, showing that 75pc of its loans are "non-performing", meaning they are in arrears of some kind.

However, it is planning to restructure many of these loans with developers -- the interest rates on loans will be lowered and the term of the loans extended.

As a result of this, the proportion of so-called "non performing'' loans will drop.

Development

While NAMA is selling off loans on prime property, the land and development assets it owns are likely to be kept off the market for some time.

The amount of loans the agency is taking will also fall.

This week, opposition parties said the agency would get no further loans, despite the IMF/EU insisting that those worth less than €20m should be moved into the agency.

- Emmet Oliver Deputy Business Editor

i'm not entirely sure it is possible to 'own' a property in grosvenor square, i think you can only buy or sell a lease as far as i'm aware all properties belong to lord grosvenor a direct decendant of gros'venor  roughly translated 'great hunter'/ bringer of meat who was awarded the land/properties by the king as he was the kings hunter..

[Declan]

KARL WHELAN
OPINION : €150bn debt-for-equity conversion could facilitate sale of banks and help the State avoid a much-mooted sovereign default
THE KEY thing to understand about the current Irish economic crisis is that it's mainly about the banks. Even without the banks we would have a large fiscal deficit. However, without the banks, we'd also have a debt-GDP ratio of about 80 per cent and a sovereign wealth fund worth about 15 per cent of GDP, a situation that would be sustainable.
It was banking problems that triggered the EU-IMF bailout deal. Despite having sizeable cash balances, the Irish Government did not have the money to provide the liquidity support to banks that were haemorrhaging deposits and other sources of funding. Instead, the banks were being propped up by massive amounts of funding from the ECB as well as emergency liquidity assistance (ELA) from the Irish Central Bank that required assent from the ECB Governing Council. Ultimately, it was the ECB's decision to make further funding for the banks conditional on Ireland seeking a bailout that triggered the EU-IMF agreement.
Back in November, the plan to fix the banks was to get the Irish State to put in up to €35 billion (half of this borrowed from the EU and IMF) to recapitalise the banks. It was hoped that this would restore market confidence, thus allowing the banks regain access to market funding and repay the fortune they owe the ECB.
The availability of these funds to recapitalise the banks has not had the desired effect. Large amounts of deposits have left the Irish banking system since November to be replaced by yet more Central Bank funding. The six banks guaranteed by the State now owe about €150 billion to central banks, with about €70 billion of this owed to the Irish Central Bank in the form of loans that were guaranteed by the former minister for finance (without, to my knowledge, any consultation of the Oireachtas).
Consider the magnitude of this funding. Irish GNP is projected to be €128 billion this year. So if every Irish person gave all their income this year to the banks, it would still not be enough to pay back the ECB and the loans due to the Central Bank.
It is possible that the stress tests to be announced at the end of this month could, in conjunction with recapitalisation, restore international confidence in the Irish banks. Possible but unlikely. Stress tests are somewhat discredited at this point with most investors believing they are usually rigged to produce a positive assessment.
Given the apparent failure of this approach, the EU authorities have focused on an alternative approach: deleveraging. That's a big word for Irish banks selling off their loan books and using the proceeds to pay off the ECB and Irish Central Bank. The problem with this idea is that the scale of such a sale would be enormous relative to the market demand for these kinds of assets. Put simply, there just isn't much interest out there in buying €100 billion in Irish mortgage loans. A sale of this sort would probably see the Irish taxpayer losing a fortune and push the State that bit closer to sovereign default. I suspect some of our European partners are slowly beginning to accept that this plan simply can't work.
So how is the €150 billion supposed to be paid back? In the absence of the banks raising private funding of anything close to this amount, I believe the answer is that the Central Bank loans need to be converted to equity. The problem is that many suspect the banks are insolvent but the scale of the insolvency hole is simply unknown. Under these conditions, it is hard to expect international stock or bond investors to hand over their money. However, if the €150 billion in funding from the ECB and Irish Central Bank is converted into equity, then these banks will immediately be solvent beyond even the doubts of the most pessimistic observers and, at that point, they could be sold into private ownership.
This equity conversion could work as follows. The European Financial Stability Facility could issue €80 billion in bonds, loaning these funds to the Irish banks, who would then pay off the ECB, allowing it walk away unscathed. The EFSF would then convert its €80 billion loan into an equity stake. Similarly, the Irish Central Bank would convert its ELA loans into equity with a legal promise from the Minister for Finance that any losses on the equity share would be covered by the State. The banks would then be owned by the EU and the Irish State but would be prepared for sale to private ownership.
The conversion of the €150 billion to equity would not represent a great investment for either the Irish or the European authorities. For example, suppose the true underlying value of the Irish banks turns out to be minus €30 billion. The equity stake would then turn out to be worth €120 billion, with losses shared between Ireland and the Europe. The Irish ELA loans of €70 billion would end up as €56 billion of equity and the ECB's loans of €80 billion would end up as €64 billion in equity held by the EFSF.
This kind of proposal will hardly be popular with our European partners. However, it would achieve many common goals. It would restore the credibility of the ECB, who would hopefully learn a few lessons about lending to insolvent banks. It would restore the Irish banks to stability without seeing defaults on senior bank bonds, which has been a high priority for the European authorities. And it would give the State a chance to avoid a sovereign default, which should be in everyone's interests.
The Irish banking crisis has rumbled on for 2½ years. The ability to resolve this situation without inflicting massive losses on taxpayers has been lost because of a failure of Irish policy-makers to deal promptly with insolvent institutions – we nationalised Anglo in 2009 – and because the ECB continued to supply the funds that allowed insolvent banks pay off private bond investors.
For this latter reason, the European authorities share much of the blame with Irish regulators and politicians for the situation that exists today with the Irish banks. The time has come for them to share in creating the solution.


So to put it in perspective:
•   the estimated cost of Japan's recovery is provisionally pitched at €130bn /
•    Our projected GNP this year is projected at€128bn
•   The six banks guaranteed by the State now owe about €150bn to central banks 
•   So if every Irish person gave all their income this year to the banks, it would still not be enough to pay back the ECB and the loans due to the Central Bank

[muppet]

http://www.bbc.co.uk/news/business-12755569

Portugal hit by debt downgrade from ratings agency

The ratings downgrade will probably make it more expensive for the Portuguese to borrow money.

Moody's has downgraded Portugal's sovereign debt rating, citing the country's need to cut debt and its poor growth prospects.

The ratings agency cut Portugal by two notches from A1 to A3 and kept the rating on a negative outlook, suggesting more downgrades may follow.

Meanwhile, Portugal's main opposition party has announced it will oppose the government's austerity plans.

The prime minister has warned the country could face a bail-out.

"The consequence of a political crisis would worsen the risks for our economy and lead to intervention," he said.

Portugal is burdened with high levels of debt and is struggling to avoid an international bail-out, similar to those of Greece and the Republic of Ireland.

Political deadlock
Prime Minister Jose Socrates' government unveiled the latest in a series of austerity measures last Friday.

The plans, which included cuts to health and welfare budgets, were meant to reassure investors and fellow European Union members that it can meet its debt obligations without the need for outside help.

However, the austerity package has met with fierce opposition, and the prime minister has warned that if the measures fail to win support, his country may be forced into a bail-out.

The main opposition party has now decided to formally oppose the plans, which could lead to political deadlock.

This could bring down the current minority government, forcing a general election.

"I have been fighting to avoid this scenario for six months," Mr Socrates told Portuguese television.

Negative outlook
Despite Moody's two-notch downgrade, the agency still rates Portugal as "investment grade" and the country remains several notches above the more risky "speculative grade" ratings it has given to Greece.

"The cost of market funding is likely to remain high until the deficit has been reduced to a sustainable level and the prospects for economic growth have improved," said Moody's in a statement.

The downgrade is likely to make it even more expensive for Portugal to raise money on the international debt markets.

The country's 10-year cost of borrowing hit a new high of nearly 8% last week, and has remained above 7.5% since.

The bad news came a day before Portugal is due to raise up to 1bn euros, via a 12-month treasury bill auction on Wednesday.

Moody's has also given a negative outlook on the new rating, which means its rating could be downgraded further.

This indicates that Moody's is unsure that the Portuguese government will be able to deliver on the reforms it has recently announced.

Standard and Poor's, another ratings agency, recently announced that it is also reviewing Portugal's A- debt rating - equivalent to Moody's A3 rating - for a possible downgrade.

[seafoid]

Austerity is no use without some movement on debt restructuring.
Portugal is going to get sucked in . And the EU/IMF bailout is no solution.

[muppet]

Austerity is no use without some movement on debt restructuring.
Portugal is going to get sucked in . And the EU/IMF bailout is no solution.

http://www.bbc.co.uk/news/business-12828405

Portugal bail-out looms as government nears collapse

Portugal's opposition parties have withdrawn their support for austerity policies that may lead to the Lisbon government's collapse on Wednesday.

The government's expected defeat in a parliamentary vote is likely to trigger an international financial rescue.

The vote comes on the eve of a European Union summit where leaders hope to finalise a eurozone debt crisis plan.

Kevin Dunning, analyst at the Economist Intelligence Unit, told the BBC that this is "crunch time" for Portugal.

"This could be the week when they have to activate the bail-out fund," he said.

Last year Greece and the Republic of Ireland had to accept massive rescue packages after markets lost faith in their governments' efforts to deal with their debt burdens.

Portugal's financial collapse would likely spark another round of nervousness in financial markets and may revive concerns about the larger Spanish economy.

Opposition parties say the austerity plan - cuts in welfare, tax rises, and increases in public transport costs - go too far.

Prime Minister Jose Socrates has said he will no longer be able to run the country if the package is rejected.

Major international lenders have been wary of Portugal's attempts to avoid tapping eurozone bail-out funds by raising money in the debt markets.

The yield on Portugal's 10-year bond was at 7.4% Tuesday, close to recent records, an indication of investors' concerns about the country's ability to pay back its debts.

On Thursday eurozone leaders begin a two-day summit at which they hope to finalise details of a "grand bargain" to deal with the 17-nation group's debt burden.

[muppet]

Ireland 10 year bonds : 10.05% http://www.bloomberg.com/apps/quote?ticker=GIGB10YR:IND
Portugal: 7.63% http://www.bloomberg.com/apps/quote?ticker=GSPT10YR:IND

[seafoid]

Ireland 2 year bonds are worse. It is all coming to a head.

[muppet]

Ireland 2 year bonds are worse. It is all coming to a head.

Spailpín suggesting 2 tier. That's where my money is too. What do you think?

[seafoid]

I don't think Merkel and co are in control any more.
The Irish debt is unsustainable.  Maybe 2 tier but it could go any way.

[rossie mad]

What will portugals situation at the moment bring to the mix?

Are we looking at a debt forgiveness mechanism down the line to stave off bigger economies like spain and itay joining the line?

[Ulick]

Time for us to sit tight and watch EU partners squirm

By David McWilliams

Thursday March 24 2011

Have you ever heard the expression "marry me now, the love will come later"? In the old days when a couple was forced together by the matchmaker, this gradual process of emotional osmosis was supposed to happen as time and loneliness took their course.

Often it didn't and, as a result, Ireland was a country of silent homes, filled with psychological terror, violence and sadness.

Watching the depressing 'Ballroom of Romance' on TV the other night, I couldn't help thinking of the dilemmas facing the architects of Economic and Monetary Union (EMU). The crisis facing the euro is one of a loveless marriage where the marriage itself has amplified differences that were evident from the start.

When assessing risks that might derail this bizarre construct, central bank economists focused on the risk of governments using the monetary union to borrow all they wanted. Therefore, the rules were drafted to prevent politicians of poorer countries -- those without much access to capital -- taking advantage of the monetary union to increase borrowing.

The economists forgot about the banks and the private sector and EMU became a financial crackhouse for large delinquent banks in the core of the union and their mini-wannabes in the periphery.

Take Ireland today. German and French banks only hold €10bn of our sovereign debt. But they hold €74.5bn of Irish bank debt. It is no wonder that the Europeans (led by the French and the Germans) are so keen this week to stop Ireland defaulting on the bank debt.

Anyone who pointed out this banking faultline in the early years of the 2000s was told that they "didn't understand". Well we understood, only too well.

We knew a monetary union without a supporting political union was a hopeful matchmaking exercise. Given that the single currency had no provision for divorce, the hope was that the unaccustomed newly-weds would learn to love each other and co-operate.

Fast forward a decade and we are now in the middle of the first monumental row of the marriage and there has been little sign of love and many indications of increased acrimony.

There is a fundamental faultline in the euro because, as it is designed at present, it means there will be periodic defaults and there is absolutely nothing the guardians of the system -- France and Germany -- can do about it other than threaten the weaker countries with supposed sanctions.

There is no mechanism to force the exit of one country. So the likes of the ECB's Jean-Claude Trichet and Juergen Stark and all the others are stuck in the inconsistency of their own grand delusions.

On Monday, Trichet said he thought that Ireland could pay all its debts; it begged the question why was he so sure, when the markets thought the opposite? Yesterday, the yield on two-year money in Ireland moved above 10pc -- that is above long-term yields.

There are many reasons for this but none of them would amount to any player in the market agreeing with Trichet.

We are in a serious crisis for the euro and all Trichet can do is repeat mantras. He knows, and we know, that we are caught in a debt trap. With no exit from the currency, there is nothing that the Germans and French can do but face a slow car crash of progressive defaults.

The other players in this tragedy are the markets that are shorting all peripheral markets in the expectations of a blowout. The more they sell short, the more accentuated the crisis. And it's not just Ireland.

According to the latest figures from the Bank of International Settlements, French and German banks between them are owed €763.8bn by Ireland, Greece, Portugal and Spain. The French and Germans realise they are on the hook so they are desperately trying to rewrite history -- a history where only the debtors are culpable.

But every capitalist knows that when a company goes bust, the key concept that dictates the receivership and possible subsequent rebirth is co-responsibility, where the lender and borrower are both culpable.

Every capitalist who knows a bit of economics also knows that, if you have a system where a bust country can't pay its private debts, it will endure years of deflation and high budget deficits, which will ultimately get so big that they will have to be defaulted on and the last lender will lose everything.

There is no way out of this because the EMU architects never allowed themselves to think the unthinkable. Well, the unthinkable has happened and over the next few days our negotiators should just hold tight in the knowledge that we are all in this loveless marriage together.

There is little point in France's Nicolas Sarkozy flying off the handle and demanding more dowry in the form of corporate tax reforms. It won't make a jot of difference. We are now together and the only way out of this is a divorce or a two-speed Europe with default, restructuring, repudiation or whatever you'd like to call it.

The only other way out is full political and fiscal union, which the people don't want; or the Europeanisation of all liabilities in the form of a huge, bumper European bond market, which Trichet and Germany have ruled out. Well you can't have it every way, lads.

Our boys should just sit tight at the summit and watch the others squirm for a change.

[seafoid]

Real GDP down 1.0% on 2009
Q4 down 1.6% on Q3
Q4 2010 down 0.7% on Q4 2009

[Fear ón Srath Bán]

Real GDP down 1.0% on 2009
Q4 down 1.6% on Q3
Q4 2010 down 0.7% on Q4 2009

Exactly as predicted by some, except those that had the power to do something about it: take so much out of an economy that is already in trouble and there's only one way it can go.

[Declan]

More confirmation that the whole house of cards is about to collapse:

FIRST, NCB
Irish Q4 2010 GDP
• Irish GNP grew 2.0% q/q in Q4 2010 and GDP fell by -1.6% q/q, to leave the annual declines at -2.1% and -1.0% respectively.

• The really important point from all these figures for us is the size of the economy. The nominal level of GDP at €154bn is €3.3bn less than Budget 2011 had been
expecting. This has implications for tax take and the denominator in debt/deficit to GDP calculations.

• This pushes our deficit to GDP to -5.5% of GDP in 2014 (previously -4.6%) and our debt to GDP ratio in 2014 to 117.8% and still increasing (previously 112.6% and stabilising). This is the NCB base case where €22.5bn is injected into the banking system. ( this is an extra fig based on the expected stress tests next week )..


THEN GOODBODY's...
With Ireland already in the firing line, yesterday's confirmation of a seasonally-adjusted fall of 1.6% in GDP in Q4 2010 looked, at first glance, to provide another reason to write off the
economy's prospects.

Although the economy is weak, it is not nearly as weak as that headline number suggests. In fact, GNP increased by 2.0% in the quarter. So, which is the correct number? Once again, the volatile nature of the data can be attributed to the large multi-national presence in Ireland; exports and inventories subtracted from GDP (likely to be dominated by multi-nationals), while this meant there was lower profit outflows from those foreign multinationals (there was also an increase in profit repatriations from Irish companies abroad), thus contributing to a rise in GNP. One can get confused with the volatility, but what does it all mean for the economy's prospects in 2011.

The data confirm once again that Ireland has a two-speed economy. Domestic demand continues to be weak, albeit in line with expectations, falling by 5.5% yoy in Q4 and 6.5% for the full year, as investment in particular continued to drag. That component of the economy has now fallen by 65% from the peak.

On a more positive note, the export sector continues to perform very well. In the full-year, exports grew by 9.4%, with imports up by 6.6%. We believe these trends will continue. Our previous forecasts suggested that GDP would grow by 1.1% in 2011, while GNP would be up by a neglible amount. On the basis of the weaker Q4 GDP result, we are likely to bring down our estimate for GDP growth to close to the GNP estimate. This only serves to underline the challenges that Ireland faces, but with bank stress tests due next week, the immediate concern is for debt sustainability. With growth being an important ingredient for debt sustainability, these figures simply don't help.