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

[seafoid]

- http://www.ft.com/cms/s/0/aa3bbb64-91a4-11e0-b4a3-00144feab49a.html#ixzz1Oh6TylFL

The German government wants Greece to offer all holders of its sovereign bonds a seven-year extension of maturities as a condition of more financial aid from Berlin, Wolfgang Schäuble, finance minister, said in a letter to his European Union colleagues

[Bogball XV]

- http://www.ft.com/cms/s/0/aa3bbb64-91a4-11e0-b4a3-00144feab49a.html#ixzz1Oh6TylFL

The German government wants Greece to offer all holders of its sovereign bonds a seven-year extension of maturities as a condition of more financial aid from Berlin, Wolfgang Schäuble, finance minister, said in a letter to his European Union colleagues

sure with a bit of hyperinflation that'll suit the greeks down to the ground.

[bcarrier]

Some interesting stuff over here about honohan on VB last night

http://www.irisheconomy.ie/index.php/2011/06/11/patrick-honohan-on-vincent-browne/


colm mccarthy post ( he of the report) hits nail on head ( imo):
June 11th, 2011 at 10:05 pm

John,

if the ECB screwed the Irish government in November, which is what I understood Patrick Honohan to be saying, they were screwing the sovereign bondholders. It is part of the deal with the troika that Ireland is to return to this market, implicitly in size, at a sustainable interest rate and at a reasonably long maturity, inside eighteen months. Let's say €5 bill for ten years at 5%. There now appears to be no realistic prospect of this happening.

If they did what the governor says they did, they deliberately (and I must assume consciously) subverted their own declared policy objective (return to the market) in order to avoid facing a resolution of the banking mess up front. All of this presumably at the behest of the French and German governments. I agree with you that Ireland did not have attractive unilateral options in November. But a resolution of the European banking crisis has been deferred through increasing sharply the risk of sovereign default in (at least) three Eurozone countries.

This is a shambles. So far as I know, the last European sovereign default was in 1952. All of this is being done to avoid explaining to continental European taxpayers that some of their banks are f****d, were poorly supervised and that the bill is due.

[Orangemac]

Ireland have been completely screwed by the ECB. Paying a higher interest rate than Greece who seem to have done frig all to rein in their deficit. We would have been safer going to the IMF on their own.

This will all come to a head long before 2013.

On the other hand Ireland still has a deficit of 17/18 bn despite all of the budget adjustments. Again there is talk of income tax increases and social welfare cuts. By all means there is a bit of fat that can be trimmed but ordinary people cannot be squeezed much more. If pockets are hit spending is down and so on.

No gov in Ireland has the balls to look at real reform. HSE,FAS, Quangos and probably the biggest of all, local councils. Cut the number of these by 30% and the number of councillers on those left by 30% to start with.

[muppet]

Ireland have been completely screwed by the ECB. Paying a higher interest rate than Greece who seem to have done frig all to rein in their deficit. We would have been safer going to the IMF on their own.

This will all come to a head long before 2013.

On the other hand Ireland still has a deficit of 17/18 bn despite all of the budget adjustments. Again there is talk of income tax increases and social welfare cuts. By all means there is a bit of fat that can be trimmed but ordinary people cannot be squeezed much more. If pockets are hit spending is down and so on.

No gov in Ireland has the balls to look at real reform. HSE,FAS, Quangos and probably the biggest of all, local councils. Cut the number of these by 30% and the number of councillers on those left by 30% to start with.

This is where the problem is.

[seafoid]

Greece downgraded by S&P
http://www.ft.com/cms/s/0/fc261efe-95de-11e0-ba20-00144feab49a.html#ixzz1PBzVvcpO

Standard & Poor's cut Greece's long-term sovereign credit rating by three notches to triple C, a sign the rating agency thinks it will be forced to downgrade Athens to default – or D – as private creditors are likely to be involved in the country's next bail-out.


Greece is now the lowest-rated sovereign in the world, below Ecuador, Jamaica, Pakistan and Grenada

And Roubini reckons the Euro will break up. Even a default wouldn't help competitiveness


http://blogs.ft.com/the-a-list/2011/06/13/the-eurozone-heads-for-break-up/

Nouriel RoubiniJune 13, 2011

The eurozone heads for break up

The muddle-through approach to the eurozone crisis has failed to resolve the fundamental problems of economic and competitiveness divergence within the union. If this continues the euro will move towards disorderly debt workouts, and eventually a break-up of the monetary union itself, as some of the weaker members crash out.

The Economic and Monetary Union never fully satisfied the conditions for an optimal currency area. Instead its leaders hoped that their lack of monetary, fiscal and exchange rate policies would in turn see an acceleration of structural reforms. These, it was hoped, would see productivity and growth rates converge.

The reality turned out to be different. Paradoxically the halo effect of early interest rate convergence allowed a greater divergence in fiscal policies. A reckless lack of discipline in countries such as Greece and Portugal was matched only by the build-up of asset bubbles in others like Spain and Ireland. Structural reforms were delayed, while wage growth relative to productivity growth diverged. The result was a loss of competitiveness on the periphery.

All successful monetary unions have eventually been associated with a political and fiscal union. But European moves toward political union have stalled, while moves towards fiscal union would require significant federal central revenues, and also the widespread issuance of euro bonds — where the taxes of German (and other core) taxpayers are not backstopping only their country's debt but also the debt of the members of the periphery. Core taxpayers are unlikely to accept this.

Eurozone debt reduction or "reprofiling" will help to resolve the issue of excessive debt in some insolvent economies. But it will do nothing to restore economic convergence, which requires the restoration of competitiveness convergence. Without this the periphery will simply stagnate.

Here the options are limited. The euro could fall sharply in value towards – say – parity with the US dollar, to restore competitiveness to the periphery; but a sharp fall of the euro is unlikely given the trade strength of Germany and the hawkish policies of the European Central Bank.

The German route — reforms to increase productivity growth and keep a lid on wage growth — will not work either. In the short run such reforms actually tend to reduce growth and it took more than a decade for Germany to restore its competitiveness, a horizon that is way too long for periphery economies that need growth soon.

Deflation is a third option, but this is also associated with persistent recession. Argentina tried this route, but after three years of an ever deepening slump it gave up, and decided to default and exit its currency board peg. Even if deflation was achieved, the balance sheet effect would  increase the real burden of private and public debts. All the talk by the ECB and the European Union of an internal depreciation is thus faulty, while the necessary fiscal austerity still has – in the short run – a negative effect on growth.

So given these three options are unlikely, there is really only one other way to restore competitiveness and growth on the periphery: leave the euro, go back to national currencies and achieve a massive nominal and real depreciation. After all, in all those emerging market financial crises that restored growth a move to flexible exchange rates was necessary and unavoidable on top of official liquidity, austerity and reform and, in some cases, debt restructuring and reduction.

Of course today the idea of leaving the euro is treated as inconceivable, even in Athens and Lisbon. Exit would impose big trade losses on the rest of the eurozone, via major real depreciation and capital losses on the creditor core, in much the same way as Argentina's "pesification" of its dollar debt did during its last crisis.

Yet scenarios that are treated as inconceivable today may not be so far-fetched five years from now, especially if some of the periphery economies stagnate. The eurozone was glued together by the convergence of low real interest rates sustaining growth, the hope that reforms could maintain convergence; and the prospect of eventual fiscal and political union. But now convergence is gone, reform is stalled, while fiscal and political union is a distant dream.

Debt restructuring will happen. The question is when (sooner or later) and how (orderly or disorderly). But even debt reduction will not be sufficient to restore competitiveness and growth. Yet if this cannot be achieved, the option of exiting the monetary union will become dominant: the benefits of staying in will be lower than the benefits of exiting, however bumpy or disorderly that exit may end up being.

[Declan]

Debt freakshow run by phoney lion tamers
Government's submissiveness to the 'troika' rewarded with the contempt that utter subservience deserves, writes FINTAN O'TOOLE

THIS WEEK, the Government marks 100 days in office and zero days in power.

The American writer Michael Lewis described the Irish bank bailout as a process of "normalising a freakshow". This is still, at heart, the Government's job. In the last year of the Fianna Fáil/Green administration, the freakshow was starkly evident. Everybody, including most of the cabinet, knew that the government was involved in a surreal pretence. The cries of "crisis, what crisis?" were Blatteresque in their absurdity. The only thing that's changed now is that the absurdity seems normal.

The effect of the general election was to send out the clowns and bring on the phoney lion tamers. The new Coalition has a whip in one hand and a chair in the other. It prods the bedraggled lion of State into doing a few half-hearted tricks of fiscal discipline while letting out the odd yelp of protest about punitive interest rates. But it's still essentially the same circus with the same ringmasters from the European Central Bank.

It is a relief to have a Government with some energy and decency and with good intentions in most areas. Fine Gael and Labour still get enormous public credit for the simple act of not being Fianna Fáil. But their complete capitulation to the ECB – the abject abandonment of any pretence at renegotiating the "troika" deal – makes good intentions largely irrelevant.

Let's remind ourselves what the big story is. Boomtime Ireland was a debt junkie and the international financial markets were the pushers who fed this country's addiction to cheap money. Because they got greedy and bought into the Celtic Tiger hype, German, French and British banks have an exposure to Ireland of $510 billion (€355 billion).

To put this into perspective, let's look at another country that had a mad property bubble and is now in deep trouble: Spain. The Spanish population is over 10 times that of Ireland. But the exposure of those same German, French and British banks to Spain is $620 billion. Proportionally, the big EU banks are on the hook to Ireland almost 10 times more than they are to Spain.

If this is the problem, the "solution" is similarly disproportionate. The German, British and French banks want to escape the consequences of their own greed and folly. The primary purpose of the so-called "bailout" is to allow them to do this by turning the Irish State into a giant debt-servicing agency, regardless of the social or economic consequences for Ireland itself. In order to achieve this, each citizen in Ireland has to carry a share of this private debt that is vastly out of proportion to anything that has ever been attempted in a developed economy.

Again, let's remind ourselves of the figures. The State has mobilised an astonishing amount of resources to shore up a failed banking system and ensure it can meet its obligations to foreign bankers and investors. There's €70 billion to recapitalise the banks; €33 billion to buy up their bad property loans through Nama; and €70 billion in liquidity borrowed on their behalf by the Irish Central Bank. That's €173 billion: €96,000 for every worker in the State. Most of this – €10 billion of the recapitalisation and all of the Nama funds and liquidity – is expected to be repaid. The fact remains, though, that in the midst of a deep economic crisis, every worker is underwriting close to €100,000 for the banks.

If anyone had suggested three years ago that this could – let alone should – be done, they'd have been awarded honorary citizenship of la-la land. Yet it is now almost beyond discussion. It is simply the way things are.

In my most pessimistic predictions after the election, I suggested that the new government would be given the token concession of a 1 per cent cut in the interest rate on the so-called bailout and fobbed off with promises of a future review. It seemed unimaginable that the troika would not feel obliged to make some formal gesture of acknowledgment that there had been a democratic election in which people had voted overwhelmingly for a renegotiation.

But it didn't. The Government has now given up even on the pathetic hope of being given a sympathetic pat on the head and a lollipop to keep it from screaming. Its submissiveness has been rewarded with the contempt that utter subservience deserves and inevitably receives.

The Government's only response to this freakshow is to avoid talking about it – hence the panic when Leo Varadkar stated the bloody obvious. The new line is that the Government will wait patiently until 2013, when the Germans have promised a new regime for the resolution of banking crises. The problem is that by then we will have shelled out vast amounts of money we don't have.

By the end of this year alone, another €12 billion of unguaranteed, unsecured senior bank debt will have been repaid by a Government that is imposing obscene conditions on carers, the sick and disabled and vulnerable children.

That's what it means to be administering a country on behalf of the ECB.

[Main Street]

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.




A bit like the ECB, really...

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

David Mac's article is very good and his analysis which included a concise and simplified overview of how Iceland dealt with the private bondholder debt.

The other issue which you refer to is the fallout from the Icesave deposit scam carried out by Landsbanki in the UK and NL (Netherlands)
The law has not been broken by the Iceland state in relation to Icesave scam. The old Landsbanki has assets in the UK and NL which will cover the deposit insurance payment.
The payments from the bankrupt Landsbanki estate have of course no real effect on whether the state guarantee is required, at least not in the legal sense.
The question of Icesave will be determined by the EFTA Court and the Icelandic Supreme Court, based on how they interpret legally the EC Directive and the Icelandic laws that apply, respectively.
But, while these cases are winding their way through the courts, for the next few years, the Landsbanki estate will likely proceed to pay out the bulk of the deposit guarantee amounts back to the UK/NL governments as priority claimants. So those payments will have the practical effect of leaving the courts to decide only the potential damages and interest, should Iceland end up loosing their case.
That is the  worst legal outcome scenario for Iceland
If on the other hand Iceland wins their case, there will of course be no damages and/or interest payments required. The Landsbanki estate payments will then be the only ones that the UK/NL governments will receive. So in the end, those payments can therefore end up mattering quite a lot for the UK/NL.

[whiskeysteve]

Keep an eye on the news on Greece tomorrow, the parliament is holding 1 final vote on whether to agree to the latest bailout terms or not.

2 outcomes of this: Rejection and immediate default or acceptance and more savage austerity.

As this will coincide with a general workers strike and a mass protest outside the parliament buildings, this could get violent.

There are widespread internet reports of foreign workers being hired in to clear out an old evacuation tunnel from the parliament buildings, quite conceivable when you consider that Argentian politicians had to be evacuated from their own building by helicopter during their economic crisis.

Also behold the plundering of their national assets: http://online.wsj.com/article/SB10001424052702304906004576369572348921238.html

[muppet]

http://fiscallyresponsiblefairytales.blogspot.com/2010/06/emperors-new-tree.html

[seafoid]

This was on irish economy. What a joke FF were in government

1.   hoganmahew Says:
June 14th, 2011 at 5:51 pm
@Michael Hennigan
My understanding of the 'conversation' with M. Trichet was that a phone message was left on the DoF answer machine on the Saturday as M. Trichet couldn't get through to anyone. Mr. Lenihan was at a FF fund raiser at the races... this from Mr. Lenihan in an RTE documentary.

http://www.youtube.com/watch?v=WDN7NiEdNJ0

[armaghniac]

http://www.rte.ie/news/2011/0615/anglo-business.html

Finance Minister Michael Noonan has said Ireland will go to our European partners with a plan to impose significant losses on some senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society.

He was speaking in Washington after meeting the IMF and the US Treasury Secretary Timothy Geithner.

Mr Noonan said the Government will seek to impose losses on some senior bondholders in Anglo Irish Bank. He said that around €3.5 billion in senior unsecured, unguaranteed bonds issued by Anglo Irish Bank and Irish Nationwide Building Society should have losses imposed on them.

Mr Noonan said he had discussed this with the IMF, who supported the strategy.

The Finance Minister said these banks are no longer normal entities and are more like warehouses for bad debts. In that context, he would be going to our European partners to propose significant cuts in the money to be paid to the bondholders.

Mr Noonan also revealed that he had asked Mr Geithner to support Ireland's effort to cut the interest rate paid on the European parts of our bailout programme. He said Mr Geithner agreed to support Ireland's effort and would speak to the French in connection with this.

[muppet]

He said Mr Geithner agreed to support Ireland's effort and would speak to the French in connection with this

This is interesting. I can't find a quote from Geithner though.

[seafoid]

Private eye from 2008 but still good today now that the markets appear to have recovered from worries about Greece...

World stock markets today staged a massive rally/nosedived spectacularly as a massive injection of Government money into a failing bank/fears that a failing bank could have to be propped up with Government money signaled what most observers agreed was the beginning of the end of the credit crunch/the beginning of the real credit crunch meaning that we can now look forward to the complete recovery of the global economy/the end of the world as we know it

[muppet]

Private eye from 2008 but still good today now that the markets appear to have recovered from worries about Greece...

World stock markets today staged a massive rally/nosedived spectacularly as a massive injection of Government money into a failing bank/fears that a failing bank could have to be propped up with Government money signaled what most observers agreed was the beginning of the end of the credit crunch/the beginning of the real credit crunch meaning that we can now look forward to the complete recovery of the global economy/the end of the world as we know it

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