The IMF are coming?

[DrinkingHarp]

Why the Irish Crisis is Going Global

ShareretweetEmailPrintRick Newman, On Tuesday November 16, 2010, 5:49 pm EST
You may not have to worry about Ireland in a week, or a month. But at the moment, the Emerald Isle is causing global investors a whole lot o' anxiety.

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On the surface, it's reminiscent of the problem Greece had with its unmanageable federal debt early this year, which shook world markets, ended a global rally in stocks and ultimately led to a $146 billion bailout by the European Union and the International Monetary Fund. Greece spent more money than it took in for years, papered over the gap, and essentially became insolvent when it could no longer borrow the money needed to finance its debt.

Ireland is on the brink of insolvency too, which has helped drive down the S&P 500 stock index by nearly 4 percent over the last few days. But unlike Greece, Ireland is a relatively wealthy country, with per capita GDP of nearly $38,000. That's 21 percent higher than per capita GDP in Greece, and in the top third for European countries. Low corporate tax rates and a skilled workforce have made Ireland a haven for some of the world's biggest companies. And its public debt, about 65 percent of GDP, is far below Greece's crushing load, which is 126 percent of GDP. Ireland's debt levels are even lower than those in France, Germany and the United Kingdom.

But Ireland has one huge problem that may soon make it a supplicant to its European brethren: A failed banking sector that Ireland's government can no longer rescue on its own. Ireland is in the midst of a real estate bust that could trump even the ruinous downturns that turned parts of southern California and Nevada into suburban ghost towns, with home-grown banks stoking it all. Now, those banks are trying to manage catastrophic losses. The Irish government has effectively nationalized the nation's biggest banks by guaranteeing their debt, which would be akin to the U.S. government taking over Citigroup, Bank of America, J.P. Morgan Chase and Wells Fargo.

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That means the Irish government is also on the hook for the losses those banks endure--which have risen far beyond initial estimates, and may have a lot farther to go. So far, the Irish government is obligated to cover losses amounting to 175 percent of Irish GDP, which is becoming an unsustainable burden. "If the Irish banks go down, the Irish government also goes down," says economist Jacob Kirkegaard of the Peterson Institute for International Economics.

As estimates of Irish bank losses have gone up, pressure has mounted on Ireland to do something decisive--and panicky markets may now force a solution. Ireland wants the European Central Bank to continue lending money to Irish banks at low interest rates, but the ECB has different ideas. Inflation has been creeping up in Europe, and the central bank said recently that it wants to end its program of pumping liquidity into banks, not continue or expand it. Cutting off those loans to Irish banks could force defaults, which the Irish government would have to cover or essentially be in default itself. Germany, meanwhile, wants to hurry a bailout of Ireland, to prevent worries about sovereign bonds from spreading to Portugual or Spain, which would be a much bigger problem.

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A European bailout of Ireland would be manageable, and probably cost less than the Greek rescue. But Ireland doesn't want it, because the EU and IMF would force austerity measures onto the island nation that could effectively end its appeal as a business-friendly nation with a high standard of living. Since Ireland is wealthier than other European nations that would essentially be lending it money, social programs would end up gutted, and taxes would soar. And Ireland's 12.5 percent corporate tax rate--one of the lowest in the developed world--would almost certainly go up, taking what's left of the roar out of the Celtic Tiger. If multinational businesses abandon Ireland, it could fall quickly down the list of Europe's most prosperous nations.

The standoff is what worries the markets, since a protracted bailout battle darkens the clouds over Europe's other deeply indebted nations. Portugal and Spain aren't in serious danger of default at the moment, but as Ireland's cost of borrowing goes up, so does the cost of borrowing in similarly stressed nations. That gets passed through to businesses operating in those countries that do need to borrow money--and they could face more urgent funding needs than their own governments in the weeks ahead. That's how Ireland's problems ripple outward to other indebted governments, the real economy and ultimately to the global stock markets.

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A bailout might seem tough to swallow in Ireland, but it would most likely calm global markets. Moody's Analytics points out that there's plenty of money available for a bailout, and also that the ramifications of a sovereign default are so severe that even nationalistic politicians would never let it happen. "We still believe the probability of default by a euro zone member state within the next two years is not significant," Moody's wrote in a recent analysis.

Kirkegaard of the Peterson Institute sees three possible options. One is that a large bank, probably in Asia, could sweep in and buy up the Irish banks, if it got sufficient guarantees against losses by the Irish government. Prognosis: Unlikely. There's also a tiny chance that the European Central Bank will change its policy to accommodate Ireland. But that's even more unlikely.

What's most likely is some kind of Irish bailout, with tough negotiations over when it happens and the conditions Ireland must agree to. Ireland will fight hard to put off a bailout--at least until parliamentary elections on Nov. 25--and to retain its right to make its own fiscal decisions. But Ireland's luck may be about to run out, with other European nations likely to insist that Ireland face austerity measures at least as tough as those in Greece. Maybe tougher. "That would have very signficiant long-term growth implications for Ireland, and other euro zone countries know that," says Kirkegarrd. "But given the politics of bailouts, that simply doesn't matter." After all, there may be other bailouts that need to be addressed.

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[viiv]

What exactly is a Quango??

quasi non-governmental organisation

[Rossfan]

Greens, IMPACT, SIPTU etc. our government, vested interests and the unions.

No mention of the Bankers/Speculators/Builders/Rip off merchants  etc I notice.
I suppose you think the Gorta Mór was the fault of tenant farmers growing spuds. 

[muppet]

What exactly is a Quango??

quasi non-governmental organisation

quasi autonomous non-governmental organisation.

Bertie and Mary Harney, between them, have appointed over 600 people to quangos. Not a lot of people know that.

[Bogball XV]

What exactly is a Quango??

quasi non-governmental organisation

quasi autonomous non-governmental organisation.

Bertie and Mary Harney, between them, have appointed over 600 people to quangos. Not a lot of people know that.

But it is a lot of people to know!!

Ahern : Well, you know, all I can say on that, they didn't and never did they ask me. Em, they were not people that ever tried to get me to do something. I might have appointed somebody but I appointed them because they were friends

[An Gaeilgoir]

Greens, IMPACT, SIPTU etc. our government, vested interests and the unions.

No mention of the Bankers/Speculators/Builders/Rip off merchants  etc I notice.
I suppose you think the Gorta Mór was the fault of tenant farmers growing spuds. 

I thought vested interests would have covered your first point.
As for the Gorta Mor as you put it, Ireland exported tons of grain during those years, while people died. Who does the blame lie with the government of the time and their vested interests. What would have happened if our current Govenrment with all their "pals" were in charge in the 1840's i wonder.

[seafoid]

What exactly is a Quango??

quasi non-governmental organisation

quasi autonomous non-governmental organisation.

Bertie and Mary Harney, between them, have appointed over 600 people to quangos. Not a lot of people know that.

Bertie and Mary have lots of friends. And they are all so capable.

[muppet]

What exactly is a Quango??

quasi non-governmental organisation

quasi autonomous non-governmental organisation.

Bertie and Mary Harney, between them, have appointed over 600 people to quangos. Not a lot of people know that.

Bertie and Mary have lots of friends. And they are all so capable culpable.

[Pangurban]

So the loansharks of the IMF are coming to bail out the Irish economy. Not of course in the interest of Ireland or its people, but too protect the wealth of the speculators in the Bond Markets. They should be told to go and get stuffed. The Irish people should pledge to honour their sovereign debt, but immediately default on the Bank gurauntees, which should never have been offered in the first place. Any retaliation from the Bond Markets should be met with a threat to withdraw from the Euro. Such a threat would lead to the collapse of the whole Euro project, and they dare not allow that to happen.. we would quickly find ourselves being courted and wooed by the Markets. On the domestic front Ahearn,Cowan, et al, along with the regulator, Bank Directors etc. should be arrested and charged with reckless endangerment of the Nations economy, if not actual treason. While it may not be possible to obtain a conviction, we should at least be able to have them debarred from ever holding any form of public office again. Serious adjustments to their obscene pension pots should also be possible.  The choice is stark, hold on too our sovereignity, or surrender our Health and Education systems, along with our childrens futures, to the Billionaire vultures of the Markets. Do you want to live in a third world, banana republic, rearing your children for the emigrant Boat. The time is now too choose

[highorlow]

Something dosn't appear right over the last few months.

Does anyone else think that the lads (FF) have something up thier sleeve?

My theory is there is an offer on the table for an Irish Bank coming from possibly China or the Middle East; one would imagine that the DOF were trying to offload a bank over the last year or so and maybe they have a conditional offer on the table.

What are all these 'high level' talks about?

The last thing the Brits or rest of Europe want is a state from outside the Eurozone taking over a bank in the Eurozone.

If my theory is correct then we are in a very strong bargaining position with the ECB / IMF etc hence the 'enforced' 'bailout'.

Also if you think about what has happened over the last week also with NAMA closing in on MacNamara, this seemed very odd.

Please excuse my ignorance on economics if the above theory appears completely mad. I just think its a kind of obvious one? Sometimes the most obvious ones are overlooked.

[seafoid]

So the loansharks of the IMF are coming to bail out the Irish economy. Not of course in the interest of Ireland or its people, but too protect the wealth of the speculators in the Bond Markets. They should be told to go and get stuffed. The Irish people should pledge to honour their sovereign debt, but immediately default on the Bank gurauntees, which should never have been offered in the first place. Any retaliation from the Bond Markets should be met with a threat to withdraw from the Euro. Such a threat would lead to the collapse of the whole Euro project, and they dare not allow that to happen.. we would quickly find ourselves being courted and wooed by the Markets. On the domestic front Ahearn,Cowan, et al, along with the regulator, Bank Directors etc. should be arrested and charged with reckless endangerment of the Nations economy, if not actual treason. While it may not be possible to obtain a conviction, we should at least be able to have them debarred from ever holding any form of public office again. Serious adjustments to their obscene pension pots should also be possible.  The choice is stark, hold on too our sovereignity, or surrender our Health and Education systems, along with our childrens futures, to the Billionaire vultures of the Markets. Do you want to live in a third world, banana republic, rearing your children for the emigrant Boat. The time is now too choose

Pangurban

There is one flaw in your cunning plan. It isn't just billionaire vulture tossers who hold those bonds. Your own pension fund has them as well, if you work in the private sector.   

[boojangles]

What exactly is a Quango??

Ireland in 2006 had more than 800 quangos, 482 at national and 350 at local level, with a total of 5,784 individual appointees and a combined annual budget of €13 billion

Ah come on now. 800 quangos spending 13 Billion. I know its Ireland we'r talking about but surely that can't be right???

[whiskeysteve]

Apparently true!! Note this was 2006 he's talking so things have undoubtedly changed, but it is some illustration! Im assuming AG referred to this article (from oct 06)?

http://www.timesonline.co.uk/tol/news/world/ireland/article616806.ece?token=null&offset=0&page=1

There is a summary at the bottom of the article:

IRELAND'S QUANGOCRACY

How many? One study says more than 800.

What do they spend? About €13 billion a year.

Are they accountable? Are you kidding?

How many quangocrats? There are an estimated 5,784 appointments to the 482 national bodies

Best paid? Probably Jim Nicholson (Refugee Appeals Tribunal), who earned €780,000 in five years

Worst performing? The Blood Transfusion Supply Board was a shambles

Biggest? The Health Services Executive runs the entire health service

Most obscure? An Choimisuin Logainmeacha, which translates place names

[Hardy]

Something dosn't appear right over the last few months.[/]

Does anyone else think that the lads (FF) have something up thier sleeve?

My theory is there is an offer on the table for an Irish Bank coming from possibly China or the Middle East; one would imagine that the DOF were trying to offload a bank over the last year or so and maybe they have a conditional offer on the table.

What are all these 'high level' talks about?

The last thing the Brits or rest of Europe want is a state from outside the Eurozone taking over a bank in the Eurozone.

If my theory is correct then we are in a very strong bargaining position with the ECB / IMF etc hence the 'enforced' 'bailout'.

Also if you think about what has happened over the last week also with NAMA closing in on MacNamara, this seemed very odd.

Please excuse my ignorance on economics if the above theory appears completely mad. I just think its a kind of obvious one? Sometimes the most obvious ones are overlooked.

I've also been wondering, since September 2008, why this has never seemed to be on the table. The stated reason for the bank guarantee(s) was the need for a working banking system in order to have a working economy. I've no argument with that.

But why do our banking services have to be provided by "Irish" banks and what defines an "Irish" bank? To me it's a nonsensical concept (or was, until the banks became owned by the Irish state). A bank, like any company, is owned by its shareholders and their nationality is a non-issue. And if confidence is the issue, surely a bank owned by the like of Santander or Citi or some Asian bank would command as much confidence in its Irish operations as in the rest of its international interests.

I have never understood why it wasn't much cheaper than squandering billions on the banks to offer a sweetheart deal to a few foreign banks to take over BOI, AIB and ILP lock, stock and barrel and hey presto - we have a banking system. Maybe I misunderstand, or maybe the deal we'd have to offer to convince foreign banks to take over the liabilities of the Irish banks would cost even more than the bailout, but I can't imagine that's so. I certainly can't understand why it has never even seemed to be under consideration.

We manage to transport goods and people in this country without an Irish motor industry. Foreign-made cars work fine. We keep our houses heated without an indigenous oil industry. Why can't we import banking services? Even now?

[armaghniac]

h come on now. 800 quangos spending 13 Billion. I know its Ireland we'r talking about but surely that can't be right???

If the spending included the likes of the HSE and HEA it could be this high, I suppose.