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

[muppet]

I don't understand how the Euro is still so strong against sterling.

Is sterling considered in a worse state than the Euro.

I assumed the Euro value will be in meltdown long before now.
Can anyone explain to me why?

Another summer of expensive holidays

My limited understanding of it would be that the UK, via quantitative easing, has been printing money at a higher relative rate to Europe hence devaluing Sterling.

The Germans are reluctant to go down that route to avoid inflation.

Raising interest rates in the Eurozone while Sterling remains unchanged will probably exacerbate this.

[Bogball XV]

I don't understand how the Euro is still so strong against sterling.

Is sterling considered in a worse state than the Euro.

I assumed the Euro value will be in meltdown long before now.
Can anyone explain to me why?

Another summer of expensive holidays

The ECB interest rate was raised today, the first in a long run of hikes.

And yes, in general the UK is in as bad a state as the rest of europe.

[muppet]

http://notesonthefront.typepad.com/politicaleconomy/2011/04/there-is-one-argument-in-the-current-bank-bail-out-debate-that-is-getting-tiresome-it-goes-like-this-if-we-do-some.html

Frightening the Children with the Broken-ATM Argument

There is one argument in the current bank bail-out debate that is getting tiresome. It goes like this:

'If we do something the ECB doesn't like they will cut off loans to our banks and the ATMs will dry up by the morning. Therefore, we have no alternative but to do what we are doing.'

This broken-ATM argument comes from the 'frighten the children' stable. It is used to counter any alternative to the current Fianna Fail/Fine Gael/Labour strategy. We can't do a or x or z because the ECB will cut us adrift. This argument limits options and debate, requiring nothing more than assertion. Ultimately, it justifies political inertia.

At its core, this broken-ATM argument requires us to assume that the ECB is irrational. We are told the ECB won't tolerate anything that would result in cutting even one strand of bondholder hair for fear of the contagion it would cause throughout European finance. Then, in the next breath we are told that if we do alternative x, then the ECB will cut off our bank funding.

Imagine what would happen if they did this? Of course, our banks would meltdown but there would be more losers than just us. The first loser would be the ECB itself. It would have to write off billions it loaned to the banks (yes, those assets are backed up by 'assets' – what chance those assets would compensate for the losses). So the ECB loans billions to our banks and then pulls out the rug ensuring that it can never be repaid. Sound rational?

The second set of losers would be those financial institutions – primarily German, French and British banks – exposed to Irish banks. They would realise massive losses which their governments would have to make good. I'm not sure that Nicholas and Angela would be impressed with the ECB's precipitous action.

Another set of losers, and this is all intertwined, is the impact on the banking systems of the peripheral countries. As Karl Whelan points out, the markets would start gambling on which country would be next for an ECB cut-off – sending their financial systems in a tail-spin, multiplying the impact of the Irish bust.

The ECB's actions to date are predicated on preventing contagion, or even the hint of contagion, from seeping out from Ireland into the wider Eurozone. Yet, if the ECB withdrew their funding it would be contagion squared and then squared again. And it wouldn't even take the ECB to go this far. Even the hint that they might do this would be enough to start a chain-reaction. Which is probably why no ECB official as ever averted to this possibility. This is why the markets have not factored in this extreme possibility – because it is so far-fetched (even for the most delusional and irrational investor) that it is not part of the risk-landscape.

Except: in the Irish debate. Only here does the threat of ECB withdrawal get thrown around with abandon. Lucky for us international markets don't pay much heed to our political debates. What might help get the debate back to some semblance of reality would be for a TD to ask the Minister for Finance under what conditions the ECB told the government that they would withdraw liquidity funding for Irish banks. The answer would be instructive.

The broken ATM argument rests on a highly irrational assumption. This is not to say that the new Irish government can tell the ECB to get stuffed. This line of action also has unforseeable risks - and risk is the one thing we are trying to remove.

But between these two extremes there is a range of options and alternative strategies. The Irish room for manoeuvre is limited; but it is not non-existent. It will take hard work, creative work, a bit of risk, a lot of calculation and, most of all, an open and honest dialogue with the public; but there are options. In other words, it will take politics and the art of the possible.

So the next time you hear a new Government Minister, taking over from Fianna Fail, using the broken-ATM argument – just remember: this is not a description of reality. But it may be an admission that the coalition parties didn't have a strategy entering into Government (beyond election rhetoric); have not had time to come up with their own; are just tinkering with the old Government's strategy; and are afraid of where a new strategy might take them if it starts from the wholly reasonable and rational proposition that the state shall not be obliged to honour private debt.

Sometimes it is safer and easier to frighten the children.

[muppet]

A few months old but this blog article explains why the Germans are pissed off with Ireland. Well worth a read.

http://golemxiv-credo.blogspot.com/2010/11/who-bankrupted-ireland.html

[Declan]

Good article alright- Sobering reading for those defenders of the IFSC model as well

[Bogball XV]

Good article alright- Sobering reading for those defenders of the IFSC model as well

I didn't think it was great, a bit short on facts and fairly high on speculation and innuendo.  I don't think the IFSC model has a great deal to do with what german banks were getting up to in any case. 
If they weren't basing themselves in Dublin they'd have been elsewhere, there are plenty of locations where regulations are lax.

It's a bit rich for the german to claim lack of regulation in Ireland caused their banks problems, proper and effective regulation should account for subsidiaries and all potential exposures of the parent bank.
Their problem was greed and shortsightedness in believing that, this time, risk had finally been done away with....

[Declan]

I don't think the IFSC model has a great deal to do with what german banks were getting up to in any case. 
If they weren't basing themselves in Dublin they'd have been elsewhere, there are plenty of locations where regulations are lax

The IFSC model is precisely that - light touch regulation etc, wild west of financial world. It had everything to do with it .

Their problem was greed and shortsightedness in believing that, this time, risk had finally been done away with....

Agree but didn't the last paragraph not say that anyway??

I thought the article showed exactly why the Germans shouldn't be whinging about the Irish but should be looking in the mirroe as well.

[Bogball XV]

I don't think the IFSC model has a great deal to do with what german banks were getting up to in any case. 
If they weren't basing themselves in Dublin they'd have been elsewhere, there are plenty of locations where regulations are lax

The IFSC model is precisely that - light touch regulation etc, wild west of financial world. It had everything to do with it .

I'm not disagreeing that Dublin wasn't light touch, I'm just saying that there a multitude of places from which exactly the same operations can be and were run from - i hardly think for example that London or NY were shinings light when it came to regulation, and that's without mentioning offshore.

[Main Street]

A few months old but this blog article explains why the Germans are pissed off with Ireland. Well worth a read.

http://golemxiv-credo.blogspot.com/2010/11/who-bankrupted-ireland.html

I found that blog article very interesting.
I read some english language articles about that from a german perspective, a couple of years ago
Afair the pissed off bit was regards the info from the Irish FSA about the status of Depfa before it was bought by Hypo.
I assume the FSA information was blushingly glowing as to the current healthy status of Depfa.
Merkel was reported to be angry when Hypo went belly up, but in the scheme of things, a German would equally be angry if they found out that 2 sugars were put into their coffee instead of one.
You can take it that Merkel was doing the tried and trusted political art of deflection and scapegoating. The German people just as much as the French, do not understand that they are the lender of the last resort for their dodgy banks or do not understand the significance of it.

Afair, the Ormond Quay set up was a dodgy branch of a 'bona fide' German Bank, the manager was suckered into bad deals and went chasing the losses in a demented wild gambling spree.

[muppet]

McWilliams just tweeted a link to his latest article but when you click on his site you get an interesting message:

http://www.davidmcwilliams.ie/

[Croí na hÉireann]

McWilliams just tweeted a link to his latest article but when you click on his site you get an interesting message:

http://www.davidmcwilliams.ie/

It was working grand half an hour ago, the ECB must be closing in on him, it was just a link to here http://www.channel4.com/news/ireland-bank-sector-shake-up-as-bailout-bill-hits-61bn

[Bogball XV]

McWilliams just tweeted a link to his latest article but when you click on his site you get an interesting message:

http://www.davidmcwilliams.ie/

I wish I got that message when I logged into my paddypower account some time!!

[Smokin Joe]

McWilliams just tweeted a link to his latest article but when you click on his site you get an interesting message:

http://www.davidmcwilliams.ie/

I just did that, and my AV software gave me a virus warning 

[Farrandeelin]

The government seem to have given up hope listening to them on the news haven't they.

[Evil Genius]

A few months old but this blog article explains why the Germans are pissed off with Ireland. Well worth a read.

http://golemxiv-credo.blogspot.com/2010/11/who-bankrupted-ireland.html

Interesting article, certainly, with some thought-provoking insights etc.

But I'm not sure he is justified in drawing his central conclusion, thus:
"I can't say and neither can you, if the losses are Irish or German. But we can say, the losses never were, and should not ever be,  yours and mine. We, the people, who were told nothing, were not asked nor consulted, whose laws were either ignored, set aside or re-written, we should not be expected to pay for those losses now."

For when the Republic's Government opened the doors to its nice, shiny new Casino IFSC and said "Come on in" etc , it wasn't just being sociable towards German bankers et al  for the sake of it.

Rather the Government was knowingly colluding in the "Regulation Arbitrage" so attractive to such people and pocketing the 12% Corporation tax etc, thank you very much.

Now of course the ordinary Irish citizen had no idea of the details of what was going on and I genuinely don't want to seem to be sticking the boot in on all such people who must now be extremely fearful for what the future holds.

But in the end, it was crooks like Charlie Haughey and Bertie Ahern etc who were arranging* all this, with the consistent and enthusiiastic endorsement of the Irish electorate at election after election.

And if that electorate is honest with itself, not only did they know that such people are/were out-and-out rogues, but it was precisely their roguery (aka "cute hoordom") which got them elected in the first place.




* - No doubt for a suitable "Arrangement Fee"  for themselves