Slugger O'Toole

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Economic crisis blogburst 1: Government in denial of bailout

Mon 15 November 2010, 1:40pm

The sovereign/bank debt story has moved on over the weekend, with the Government denying it was talking about triggering a bailout, and everybody else talking about the likihood that they would. So, with little or no attempt to editorialise, here’s some of the best commentary of the day:

- Dan O’Brien suggests this is no longer a domestic only issue. The question of a bail out for Ireland may be secondary to a larger crisis in the Eurozone

- As Johnson and Boone note, although Lenihan has done everything already asked of him by Europe’s central bankers:

The quid pro quo for this easy ECB money is that the Irish government must protect European creditors who would otherwise face large losses. The ensuing massive bank bailout, plus continued budget deficits and declining nominal GNP, means that Ireland’s debt is ballooning, while its capacity to pay has collapsed.

- At the Daily Telegraph, Peter Oborne suggests a simple route for Ireland (and Greece) to reclaim its national sovereignty

- Meanwhile Finfacts reports a note from Donal O’Mahony (who doesn’t think much of internet bloggers), with a suggestion of how to flip the bond market with a deft use of the State pension fund (NPRF)…

-Here’s thestory.ie who were first to note a back channel route (‘Other Assets’) for funds from the central bank to certain retail banks this Autumn, which is now getting quoted approvingly by the FT’s excellent Aphaville blog (who provide both corroboration and useful context)… The inevitable outworking of that bank guarantee scheme in September 2008?

- And if you think this is all just an Irish problem (and the Coalition is working valiantly to reverse the debt problem in the UK) try Channel Four’s (informed, if highly sensationalist, polemic) Britain’s Trillion Pound Horror Story

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Comments (28)

  1. Itwas SammyMcNally whatdoneit (profile) says:

    Politcally it is damaging for FF to be ‘bailed out’ – but must be good for the country as the losing the ‘economic soverignity’ arguement is not an issue as the EU has already agreed to Irish budget programme over the next 4 years.

    Problem for the opposition, when they assume government is, assuming FG and Labour can agree on a joint approach is that their hands will then be tied by the FF/EU ‘deal’.

    Unionist, ill concealed glee, obvious here and elsewhere at Ireland’s problems should be tempered by the knowledge that the Englezes have been here before and may be again as – the ‘Trillion Pound Horror’ story points out.

    We, in Ireland at least have rich colleagues in the Euro club to help us out whereas Britan can only rely on their ‘independent’ central bank to print more money.

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  2. joeCanuck says:

    Nothing to do with G.Adams of course, but since he is moved by the economic crisis, could Ireland’s woes be cured by robbing the banks and trickling the money back into the economy?

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  3. Mick Fealty (profile) says:

    The sovereignty argument is a bit of a chimera. All countries in the Eurozone have pooled a significant dollop of control over their management of the money supply, not because of this crisis but because of decision to go in in the first place.

    Now there will be pressure to pool even more sovereignty over decisions on tax rates etc. But there is not a discernible point you can pass at which you can say one minute, now we have it; and now we don’t.

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  4. Greenflag says:

    When the international bond traders target any country even the USA or UK then we all see how truly ‘sovereign’ western democracies are ;(

    Of course the USA and UK can print more money and induce high inflation which will make their products more expensive to export longer term despite the short term benefit of effective devaluation .

    President Bush probably ‘capitalism’ with his bailout in 2008 and President Obama continued that policy for the past two years -saving a ‘million’ USA auto jobs by bailing out GM -now being eyed by the Chinese for a minority shareholder stake .

    What thanks has Obama got for saving capitalism from it’s self inflicted suicide attempt ? None . Meanwhile former Pres Bush still doesn’t accept that the real weapons of mass destruction were created in Wall St during his presidency and NOT in Iraq.

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  5. Mick,

    There’s more information than many will be able to understand on the South’s dilemma, here …… http://www.zerohedge.com/article/we-have-clearly-anticipated-early-2010-ireland-about-go

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  6. Itwas SammyMcNally whatdoneit (profile) says:

    “Now there will be pressure to pool even more sovereignty over decisions on tax rates etc”

    It is not clear yet what price Ireland will have to pay for help -and this may explain the current impasse/denials and Ireland may be refusing it’s current dose of medicine unless they have guarantees that any further medicine (tax rates) will not be administered by an alternative route ie non oral.

    Economic Soverignity is really only worth something as long as you are in postion of economic independence ie you are not in hock to the international money markets otherswise you simply end up doing what they require as the price for their finance.

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  7. Greenflag says:

    Thats not information more like obfuscation . Pressure is being put on Ireland because the Spanish and Portuguese are next in line . If Ireland refuses to kow tow to the international bond traders then the entire eurozone becomes a target .

    The best thing Ireland can do is to slog it out until Budget day or bring it forward to see if the ‘international bond traders’ greed can be sated . My bet is they’ll never be sated not until the blood has been sucked from every so called sovereign country among the democracies .

    Ironically little Ireland by it’s refusal to bow to this pressure may do a lot more good for the euro longer term than those who would prefer to continue to appease the crocodiles of the international bond market .

    Mr Ahern needs to tell the ECB to shove it and Lenihan needs to try to bring forward his revised budget sooner .

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  8. Aldamir says:

    “Unionist, ill concealed glee, obvious here and elsewhere at Ireland’s problems……”

    Such as?

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  9. Seymour Major says:

    “Unionist, ill concealed glee, obvious here and elsewhere at Ireland’s problems

    You would have to be pretty ignorant and thick if you did not understand that the Irish debt crisis is a serious problem for the UK. Never mind the fact that it is a neighbouring country, It is a huge worry that UK banks have loaned enormous amounts of money to what are now insolvent Irish Banks.

    We, in Ireland at least have rich colleagues in the Euro club to help us out whereas Britan can only rely on their ‘independent’ central bank to print more money.

    This reads like glee that Britain has its own economic problems. The UK is one of Ireland’s largest export markets but never mind that. The entire Banking system throughout Europe is teetering on the edge. If Italy goes down after Spain, Portugal, Greece and Ireland, that is the end of the Euro.

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  10. Greenflag says:

    And also the end of sterling and the dollar and a worldwide economic implosion which would make the 1930′s look like the good old days :( 80% of UK trade is with the Eurozone countries. If the international bond traders get their way and ultimately forced the euro out of existence that would be a disaster for every country in the EU including the UK and those other non euro members .For then the international bond holders would have a field day playing currency speculation against every little country which did not meet the ‘returns’ required by global investors a.k.a speculators .

    The USA needs to unrepeal Clinton’s repealed Glass Steagal act (1998) which set off the downslide into worldwide financial chaos – and work to bring the banks back to being banks instead of gambling casinos. .

    Angela Merkel the German Chancellor was perhaps stating the obvious a few days ago when she said that the ‘interests’ of international bond holders are not necessarily the same as the interests of political democracies .

    We don’t elect ‘international bond traders’ do we ;)?

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  11. Seymour Major says:

    I believe that is right. If Ireland was to give in, Portugal or Spain would be next then, God forbid, Italy.

    Echos of 1992 and the EEM all over again.

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  12. Seymour Major says:

    I believe that is right. If Ireland was to give in, Portugal or Spain would be next then, God forbid, Italy.

    Echos of 1992 and the EEM all over again.

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  13. Itwas SammyMcNally whatdoneit (profile) says:

    SM,

    That is intended as the counter arguement to the anti-European/Euro brigade.

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  14. Itwas SammyMcNally whatdoneit (profile) says:

    Aldamir,

    Have a glimpse through some of the previous posts on the topic.

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  15. Mack says:

    to see if the ‘international bond traders’ greed can be sated

    Difficult to characterise the refusal to buy a product (less buyers than sells pushes the price of a bond down and it’s interest rate up) as greed Greenflag! Calms their worries might be more apt!

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  16. Itwas SammyMcNally whatdoneit (profile) says:

    Greenflag,

    The idea of some perfidious market plot is I think a bit of a nonsense – money is rightly expensive because Ireland is a basket case becuase of Feckless Fail cheered on by Feckless Gael.

    Pretending that all is well may be politically expedient for Feckless Fail but it is fooling noone.

    Ireland should take the money, hopefully cheaply (contrary to what the Prof. at Trinity suggested last Monday) and batten down the hatches for 3 or 4 years.

    It will let Labour and FG off the hook as they will have to follow the FF/EU deal when they get into power and they can continue to blame FF.

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  17. Aldamir says:

    “That is intended as the counter arguement to the anti-European/Euro brigade.”

    It seems virtually unchallengable that Ireland’s membership of the Euro was a big contributing factor in the banks’ debt situations getting out of control.

    It also seems highly likely that the UK’s situation, bad as it is, would be much worse if it too were in the Eurozone.

    If I recollect correctly you were one of the ones who believed, back in 2008, that the Irish bank guarantee was a nice easy solution to Irish bank insolvency. Well that one didn’t work out as planned.

    What happens if the “anti-Euro brigade” are right?

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  18. Itwas SammyMcNally whatdoneit (profile) says:

    “It seems virtually unchallengable that Ireland’s membership of the Euro was a big contributing factor in the banks’ debt situations getting out of control”

    Lack of bank regulation was the problem – failure to grasp simple economic principle that prices cannot continue indefinitley upwards. ( Britian had low interest rates as well).

    Britian’s non Euro membership may be an issue if they run out of borrowing options. Have you seen the program “Britain’s Trillion pound Horror Story” as recommend by Mick above? Leaving the current arguements aside the bit about Hong Kong/ Asia is really interesting.

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  19. Mack says:

    Business Insider -

    Did Ireland discover a legal loop hole that prevents the need for a bailout?

    http://www.businessinsider.com/did-ireland-discover-a-legal-loophole-that-will-prevent-it-from-needing-a-bailout-2010-11

    Theory that the ECB is pressuring Ireland to take a bailout as the banks are gobbling up available Euro funding. Interesting theory – inverts the power balance..

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  20. Itwas SammyMcNally whatdoneit (profile) says:

    Mack,

    This is an extraordinary story – cutehoors have bankrupted Ireland – but can they take the rest of Europe down with them? lol

    Presumably has at least a grain of truth.

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  21. Greenflag says:

    IWSMWDI ,

    Who’s talking about a perfidious market plot other than yourself ?

    Nobody is saying all is well not even FF. We need to remind ourselves how this financial crisis was started and why. Band aid has been tried with Greece and it appears to be unravelling.

    Anglo Irish came from almost nowhere in the banking hierarchy on these islands and within 15 years were with cheap money helping to promote and spur on the property boom with more than little help from their political friend.. The ECB added to the fire with their cheap money from the time of Euro entry as Alias has oft ‘explained’. Our politicians -of all parties just jumped on the bandwagon . AIB and Bank of Ireland could not of course sit still and watch Anglo Irish become Ireland’s biggest bank on the back of the property boom so they too added to the cheap lending pile .

    Once Lehman Bros were allowed to fail in Wall st then the gates were opened all around the world so that it could be seen perhaps not with the greatest clarity who and which countries had been left carrying the eh AAA + investments of the USA paper export market :(

    In Ireland -Anglo Irish did not come clean on first investigation and we know or should know by now the story of how the banks (all of the banks ) lied to the Irish Government at worst and /or failed to tell the whole truth of their ‘gambling casino ‘ peccadillos .

    Add to the above the fact that even our Central Bank Regulators were too cosy with the banks and our elected politicians had’nt a clue what was going on and that’s why , and how of where we are now !

    Ireland should not take the money but should continue with the policy of implementing the budgetary cuts . I think it (the budget at least it’s main provisions for cutting the public sector deficit will be released soon as per Mr Ahern.

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  22. Itwas SammyMcNally whatdoneit (profile) says:

    GreenFlag,

    ” If the international bond traders get their way and ultimately forced the euro out of existence”

    Thems-yer-words and that sounds like sinister plot-talk to me.

    Ireland didnt regulate it’s own banks lending – it is no use blaming others. That is down to cutehoorism and gombeenery – just because the Germans left a box of matches and some petrol lying around doesnt mean to say that we should pore it over our heads and set fire to ourselves.

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  23. Greenflag says:

    Mack,

    ‘Calm their worries’

    I’m sure the plain people of Ireland and the plain people across the EU won’t sleep a wink worrying about the international investors ..

    If the latter are allowed to have their way then in a few years they’ll be able to choose to invest in really high interest rates in Somalia or they can invest in Switzerland or the USA at minus 10% ! Good enough for them . Governments around the world need to rein in the anti social and perverse world of international financiers by taxing them on every overseas transaction and using the funds gathered to bail out those countries which the banks set up for gouging by their irresponsible lending practices.

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  24. Greenflag says:

    You might think that Sammy but as has been said above by Seymour and others Ireland would only be the lead in for further pressure to be exerted on Portugal and then Spain and then Italy . As of now the EU could cope with Ireland and perhaps Portugal but once the crocs reach Spain or Italy it’s goodbye Euro -hello world economic chaos .

    You may think the world of finance is ultimately ‘rational ‘ and that ‘investors’ would not through greed or ignorance destroy themselves ? Think again . I’ve seen very well educated and ‘intelligent ‘ financial services students pay/bid 28 euro for a 20 euro note :(

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  25. George says:

    Why should Ireland take the money from the EU to pay for its moribund banking sector with all the strings that the EU will attach for such largesse when it can simply keep merrily syphoning off billions directly from the ECB tap for its banking sector with no pre-conditions?

    Perhaps what we are seeing here is that the ECB cocked up with its bailout plan and Ireland is taking full advantage, selfishly and its own national interests.

    No the pressure is one for Ireland to volunteer to take the cash in a way that is to the benefit of the EU, as our fellow Europeans are now telling us.

    And after the experiences of the EMU scenario of the early 1990s mentioned by Seymour Major above, who can blame Ireland if tell them to sling their hook?

    Ireland won’t have any friends left in Brussels at the end of this but hey, them’s the breaks.

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  26. SK says:

    “Unionist, ill concealed glee, obvious here and elsewhere at Ireland’s problems”

    …is completely misplaced given that Northern Ireland remains far and away the most subsidized part of the UK. Spongers.

    Neither side of this island has much to boast about economically at the minute.

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  27. Greenflag says:

    So instead of Ireland begging the ECB it’s now the ECB begging Ireland to take the dosh . How much interest should we charge them for taking it ? say 9.7%;)? ?

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  28. Itwas SammyMcNally whatdoneit (profile) says:

    Greenflag,

    The ‘markets’ are in the business of making money – nothing more than that, they are neither ‘rational’ nor ‘sinister’.

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