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

[Bogball XV]

Varadkar yesterday mentioned that Ireland would not be able to return to the bond markets by 2012 and that we'll most likely need a second bail out by then - no big news there I think all readers and contributors to this thread would agree.

Well, wrong, because apparently he's in deep shit with the party, he's issued a statement bullshitting about hypothetical situations etc and trying to retract what he said.  Now, Noonan has come out and said this:

http://www.irishtimes.com/newspaper/breaking/2011/0530/breaking6.html

Minister for Finance Michael Noonan said he is hopeful the State will be back in the bond markets "in some small way" by end of 2012 despite an apparent suggestion to the contrary by Minister for Transport Leo Varadkar.

Speaking at a meeting of the Mid West Society of Chartered Accountants in Limerick today, Mr Noonan said categorically there will be "absolutely" no second bail out for Ireland next year.

Why do governments feel the need to keep people in the dark, do they think that the markets haven't already sussed this out, why do they have to repeat the mistakes of their predecessors, can they not remember poor auld Dermot Ahern's denials.

[seafoid]

Most viewers of the RTE Six One news probably don't know about what the 11% bond yield and hence the market is saying. 

The role of the Government is to give off an air of competence before they go over to the sports news.
It is all politics at this stage.

I wouldn't give any credibility to  any Government assurance.  Not unless the 10 year goes back down to 5%. 

[Bogball XV]

Most viewers of the RTE Six One news probably don't know about what the 11% bond yield and hence the market is saying. 

The role of the Government is to give off an air of competence before they go over to the sports news. It is all politics at this stage.

I wouldn't give any credibility to  any Government assurance.  Not unless the 10 year goes back down to 5%.

Classic 

Though I disagree a bit, I think the ordinary punter now knows quite a bit about defaults, restructuring (agreed defaults), bond rates and the like.

[Declan]

Meanwhile in the real politik wolrd our masters concentrate on real stuff
Gravy train still stops at all the right stations

Ivor Callely will get €63,000 a year for the rest of his life yet Richard Bruton targets the poorest workers

WHAT IS the price of a litre of milk? How much does a sliced pan cost? Are baked beans cheaper in Aldi or in Dunnes? What's the typical bus fare between a working-class city suburb and an industrial estate?

There are people who know the answers to these questions and there are those who don't. And the most nauseating sound in Ireland is the people who don't, pontificating about the people who do. It is smug, sleek people who live in a bubble of comfort and self-satisfaction deciding that the problem in this bloody country is that the women who clean their offices are paid too much.

This is a State in which Ivor Callely, who is so smart he couldn't quite figure out where he was living, is due to get more than a quarter of a million euro from the taxpayers over the next year as compensation for the fact that he can't get elected anymore. For the rest of his life, which could be about 40 years, Ivor will get a pension of €63,000 a year. With his lump sums that's a total of about €2.75 million.

Now let's consider a contract cleaner, whose feathered-bedded status apparently keeps Richard Bruton awake at night. She gets up before dawn or leaves home after dusk to scrub toilets, polish floors and pick up the mess of people she'll never even see.

I've never worked as a senator, so I can only imagine the stress that Ivor would have been under trying to work out all those complex expenses claims. But I have worked as a contract cleaner. It is miserable and soul-destroying, and I'd stick my neck out and say it's a lot harder on the human spirit than waffling in the Senate while doing a bit of property development on the side.

Under the wage-setting mechanisms that Richard Bruton sees as such a problem, the contract cleaner gets €370.50 a week and no pension. That's €770,000 over 40 years.

In other words, Ivor will get more than 3½ times for doing nothing at all what the cleaner will get for doing a miserable job in unsocial hours. And which of them does Richard Bruton see as a problem for Ireland, as the one whose over-inflated sense of self-worth must be brought down to size if we are to face reality? Not Ivor, apparently.

But then, Ivor, however repellent, is an individual. He's a person. He has a name. Contract cleaners don't have names. They are not people. They don't have kids. They are "units of labour cost".

They belong to what Charles Dickens in Hard Times calls "the multitude . . . generically called 'the Hands' – a race who would have found more favour with some people if providence had seen fit to make them only hands."

What do the Hands need with Sundays? There was a time when it suited the powers that be to grant them Sundays for their spiritual and moral edification. But now that time is gone, Sunday should be just another day for the Hands. Not, mind you, for the Brains who have important things to do on Sundays, like being with their kids or visiting their parents or going to a match or taking a walk.

But since the Hands do none of these things, it is clearly extortionate that they should demand extra money for giving up something that couldn't possibly mean anything to them.

What is the agenda in all of this? Ostensibly, it is to create jobs.

But as the Kevin Duffy-Frank Walsh report on the subject found, there is simply no evidence that attacking the wages of low-paid workers will lead to a substantial increase in employment.

The notion that the Irish low paid are living high on the hog is ludicrous. Hourly labour costs in the hospitality sector, for example, are already the third lowest in the EU. And the evidence shows that workers in the sectors covered by the system are just as likely to have taken wage cuts as those who are not; so much for the need for "flexibility".

Is the agenda, then, to do with the crisis in the public finances? Clearly not: wage cuts will cost the State revenue. According to the think tank Tasc (whose council I chair), the direct cost to the exchequer of cutting a worker from €9.27 an hour to the current minimum wage is €1,865 a year per worker. This is without considering the indirect costs of reduced economic demand and the growth in demand for social services as workers and their families struggle to cope on poverty wages.

So if it's not to do with jobs and it would make the crisis in the public finances worse, why are we even discussing wage cuts for the low paid? Because the crisis is an opportunity to dismantle the minimal protections that vulnerable working people have gained over the last century. Because the elite will sacrifice anyone to protect itself.

And because it allows sleek, smug people to look tough while the gravy train still stops at all the right stations.

[Bogball XV]

The notion that the Irish low paid are living high on the hog is ludicrous. Hourly labour costs in the hospitality sector, for example, are already the third lowest in the EU.

Is that true I wonder?  I'd be extremely shocked if it was.

[Rossfan]

The prices remain among the highest in the EU so th'oul profit margins must be fairly padded 

[ludermor]

What prices? Im sure i read somewhere that hotels in ireland are now amoung the lowest in europe ( i dont know where i read this)

[Rossfan]

Nama ones perhaps.
However how much is the bit o' grub?
Eating out , even basic pub grub is outrageously expensive in this Country.

[Rois]

As someone who stayed in hotels in Dublin city centre from Jan 2010 to April 2011 on a very regular basis (and oddly enough, valuing loans for NAMA), I found that the price of hotels was probably reasonable enough when compared with London and Amsterdam (my only other comparators).  Loads of city centre hotels regularly booked out though - if you owned the Hilton down by the canal you'd be laughing all the way to the bank.  Of course the Hilton family already is...

As you say though, the expense comes with the food.  Price is in general so much higher than London.   

[Bogball XV]

As someone who stayed in hotels in Dublin city centre from Jan 2010 to April 2011 on a very regular basis (and oddly enough, valuing loans for NAMA), I found that the price of hotels was probably reasonable enough when compared with London and Amsterdam (my only other comparators).  Loads of city centre hotels regularly booked out though - if you owned the Hilton down by the canal you'd be laughing all the way to the bank.  Of course the Hilton family already is...

As you say though, the expense comes with the food.  Price is in general so much higher than London.

Feck sake Rois, I hope you weren't one of the four members of staff seconded to nama at 60K per week, if you were, you better hope the president doesn't get to hear about it

[seafoid]

http://www.ft.com/intl/cms/s/0/1a61825a-8bb7-11e0-a725-00144feab49a.html#axzz1Np0CTswP

check out the graph showing intra eurozone debt and also the one with Central bank and Sov debt as % GDP

Events have, in short, thoroughly falsified the premises of the original design. If that is the design the dominant members still want, they must remove some of the existing members. Managing that process is, however, nigh on impossible. If, however, they want the eurozone to work as it is, at least three changes are inescapable. First, banking systems cannot be allowed to remain national. Banks must be backed by a common treasury or by the treasury of unimpeachably solvent member states. Second, cross-border crisis finance must be shifted from the ESCB to a sufficiently large public fund. Third, if the perils of sovereign defaults are to be avoided, as the ECB insists, finance of weak countries must be taken out of the market for years, perhaps even a decade. Such finance must be offered on manageable conditions in terms of the cost but stiff requirements in terms of the reforms. Whether the resulting system should be called a "transfer union" is uncertain: that depends on whether borrowers pay everything back (which I doubt). But it would surely be a "support union".
The eurozone confronts a choice between two intolerable options: either default and partial dissolution or open-ended official support. The existence of this choice proves that an enduring union will at the very least need deeper financial integration and greater fiscal support than was originally envisaged. How will the politics of these choices now play out? I truly have no idea. I wonder whether anybody does.

[seafoid]

Comment from Irisheconomy

BTW: Dan O'Brien as a piece today on the tax take to date. The positive €600 million increase over January-May 11 compared to the same period last year, is a figure worth reflecting upon. It is at the lower end of estimates for Tribunal legal costs. Note to Chopra et al.

[Declan]

A selection of random headlines and articles from todays and yesterday's papers that shows how this country really works:

IT'S HARDLY surprising that Nama is continuing to attract some of the best brains in the estate-agency business given that a) the property market is dead and b) Nama salaries are astonishingly attractive. The latest recruits to Nama include Paul McNamara, a former director and head of valuations at Lisney; Marcus Wren, formerly director and retail expert at Bannon; and Robert Fay, an associate director and office specialist at HT Meagher O'Reilly.
All three will be badly missed by their respective firms, but who can blame them for defecting, given the handsome wages the State asset-management company is paying? Nama's chief executive Brendan McDonagh is believed to be on a salary of around €500,000 while 16 of his team earn more than €200,000 a year.
A further 22 earn between €150,000 and €200,000, while 65 earn between €100,000 and €150,000. According to another recent report, a further 200 earn up to €100,000.


Taoiseach's top advisers to be paid salary of €170,000
By Mary Regan, Political Correspondent
THE Taoiseach's top two advisers have been awarded salaries of almost €170,000 each – the same wages paid to senior Government ministers.


Crucial witnesses refuse to aid Anglo probe
By Seán McCárthaigh

MORE than 10 individuals are still refusing to co-operate fully with the long-running investigation into the collapse of Anglo Irish Bank.

[the Deel Rover]

David McWilliams: Too much regulation will stifle our banking sector

Wednesday June 08 2011

Yesterday the IMF published its fifth review of Iceland's economy since the crisis began. The IMF declared Iceland's economic progress "impressive" and disbursed a loan tranche of $225m (€136m).

Now if this sounds weird to you, it should do. This is the Iceland that defaulted on all its bank bondholders and this is the Iceland that the IMF warned would be cut off unless it paid all its foreign bondholders. Yet just two years later, the IMF declares that Iceland's progress has been "impressive" and lends the country money!

Does this sound strange to you? Did not our establishment laugh at the Icelanders and warn that Iceland was a "basket case"? We were told that we were going to be "protected" by the euro in the crisis. Nothing could be further from the truth. The fact is that the euro is now a straitjacket and, without room to manoeuvre, our economy will not recover. Meanwhile Iceland has its own currency, gave two fingers to the bondholders and is moving ahead "impressively".

Back in that period when the Irish establishment was smearing Iceland as a basket case, I decided to visit the country to see what exactly a "basket case" looked and felt like. The first thing I noticed in March 2009 -- six months after the crisis -- was that the only people who appeared to be really worried in Reykjavik were English bankers in the foyer of the Hilton who were looking for their money back.

I put this to the acting finance minister of Iceland and he retorted: "We have no money, it is all gone." Then he paused and looked up at me and quipped without irony: "But we can give them fish, if they like."

He wasn't intending to be funny. Here was a man who had reached the point where he knew where his negotiating position was. The money was gone, they weren't going to borrow any more to pay old debts and it was up to the creditors to realise that, in the future, Iceland was going to depend on its own resources, and the bondholders -- who owned close to €60bn worth of debt -- would have to line up in an orderly queue and wait to see what they would get. This is normal business practice and this is what they applied.

When they realised how disastrous the banks' balance sheets were, the Icelanders decided that the thing to do with bankrupt banks was to put them into administration. In contrast, in Ireland and in Greece, under the delinquent governance of the ECB, this normal procedure has not been allowed to take place in order to "save" the euro.

So Ireland and Greece have tied themselves up in knots and condemned their people to deep recessions in order to save the currency that was supposed to give them protection.

Rather than allow capitalism take its route we, due to some sort of bizarre Euro-corporatism, are being penalised to save a currency. If the currency is made stronger by penalising its weaker members, how can such a currency be in the best interests of the whole European family?

But this is where we find ourselves. So what should we do?

Regular readers of this column will know that I have believed and written for over six years now that Ireland would be much better off outside the euro, but given that the establishment will never countenance such a move towards economic sovereignty, we must accept that we are locked into this currency arrangement until it blows apart, undermined by its own contradictions.

We must first accept that the Irish banks are bust. They might not function as proper banks ever again and we should stop propping them up.

There is guff being spread again by the establishment that a default on the banks' debts would destroy the banks. But this is nonsense and yet another example of voodoo economics.

The banks are in this moribund position not because of what they are doing now but because of what they did between 2004 and 2008. The problem is still the mad lending which went on in the boom. A default on the bondholders is the consequence of the banks being already bust -- not the thing which will cause the banks to go bust.

Not for the first time, the Irish mainstream has got its analysis back to front, spinning like mad in order to protect its own interests. In this sham, they are aided and abetted by the European elite.

But if we defaulted on the bondholders as Iceland did and let them fail, what might replace them?

Obviously new banks would replace the old banks. The new banks would have new capital, which would be safe and unencumbered by the mistakes of the past. If a new bank set up tomorrow, who wouldn't put their deposits in it?

But -- and now here's the snag -- a new bank must have a licence to set up. But how does it go about it? It applies to the Central Bank. However, the Central Bank is, at the moment, caught in the after-effects of its own failings. Having failed to regulate the banks in the boom, it is now in danger of over-regulating in the aftermath.

What I mean here is that it is over-compensating now for its previous failures by making capital requirements too high. This over-regulation is a mistake, the mirror image of its under-regulation mistake in the boom.

Over-regulation means that there are barriers to entry for new players, which are sufficient to deter them from coming in. But the over-regulation is unnecessary. It is a classic example of the generals fighting the last war. What we need now is to be open to business for new incumbents rather than saddling them with regulation, which is more about the Central Bank being prudent after the event.

This leaves us in the worst of all worlds: we had too little regulation when there were too many banks operating in Ireland and now we have too much regulation when there are too few!

Thus the credit crunch, to use a Bertieism, gets crunchier, amplifying the inappropriateness of the euro as our currency, weakening the economy and in so doing, from a political point of view, weakening the very European integration commitment our membership of the euro was supposed to enhance!

[Evil Genius]

David McWilliams: Too much regulation will stifle our banking sector

Wednesday June 08 2011

... Back in that period when the Irish establishment was smearing Iceland as a basket case, I decided to visit the country to see what exactly a "basket case" looked and felt like. The first thing I noticed in March 2009 -- six months after the crisis -- was that the only people who appeared to be really worried in Reykjavik were English bankers in the foyer of the Hilton who were looking for their money back.

I put this to the acting finance minister of Iceland and he retorted: "We have no money, it is all gone." Then he paused and looked up at me and quipped without irony: "But we can give them fish, if they like."

Hmmm.

I wonder did McWilliams think to ask the Finance Minister about "Icesave", an Icelandic Bank which attracted billions of pounds from ordinary British and Dutch savers (i.e. not wealthy bondholders), by offering especially lucrative interest rates, so that these savers might save up for a house, or educate their kids, or plan for their retirement etc?
For the FM surely knew about Icesave, seeing as there was such a kerfuffle when it went bust, and the (ahem) Icelandic Finance Ministry decided that as guarantor for Icesave, it would reimburse Icelandic savers, but not British or Dutch ones...

He wasn't intending to be funny. Here was a man who had reached the point where he knew where his negotiating position was. The money was gone, they weren't going to borrow any more to pay old debts and it was up to the creditors to realise that, in the future, Iceland was going to depend on its own resources, and the bondholders -- who owned close to €60bn worth of debt -- would have to line up in an orderly queue and wait to see what they would get. This is normal business practice and this is what they applied.

Really? [bold]

For had McWilliams asked, the FM would have had to disclose that when the British and the Dutch put the squeeze on Iceland for its completely unlawful and discriminatory attempt to evade its responsibility towards all  of Icesave's investors, Iceland's Government agreed to borrow over £3bn from the international markets, so as to repay the British and Dutch Governments the sum they (Governments) had by now reimbursed to to their own nationals who had lost their savings in Icesave...

When they realised how disastrous the banks' balance sheets were, the Icelanders decided that the thing to do with bankrupt banks was to put them into administration. In contrast, in Ireland and in Greece, under the delinquent governance of the ECB, this normal procedure has not been allowed to take place in order to "save" the euro.

Regardless of the rights and wrongs of the ECB's approach to the Irish Republic and Greece, I imagine it (ECB) would point out that not only is Iceland not in the Eurozone, but it's not even in the EU. Therefore when the Icelandic Government was deciding its reaction to its own crisis, once it had discharged its legal obligation towards EU savers, it did not have any further responsibility towards the Euro. Whereas the ECB did have to consider the consequences towards the Euro when addressing the Irish and Greek crises.

It seems to me that McWilliams is cherry-picking the evidence which supports his own position, whilst wilfully ignoring that which does not suit.

A bit like the ECB, really...

http://www.zimbio.com/Icesave/articles/irCfjWlD82s/Iceland+Agrees+Repayment+Icesave+Funds