“Ireland’s dependence on Europe is a one-way street.”

As the Irish Times reported, the Irish Finance Minister, Brian Lenihan has been in Brussels this week in meetings about the troubled Anglo-Irish Bank.  He’s announced a three-month extension of the Government guarantee for short-term bank liabilities until the end of 2010.  The bank’s longer term future remains uncertain.

Meanwhile, the cost of the Irish State’s borrowing continues to rise

Irish bond spreads widened today and yields inched above 6 per cent, rising above the peaks reached at the height of the sovereign debt crisis in early May.

The spread between the benchmark 10-year bond and the German bund was 372 basis points this afternoon, while the yield earlier rose sharply, by over 30 points, to a new euro lifetime high of 6.011 per cent at one stage, before falling back to 5.98 per cent at 5pm.

This compares with a yield of 5.68 per cent a week ago and is now almost three times higher than equivalent German bonds, the lowest yielding bonds in the euro zone.

Nevermind says the Taoiseach…

…Mr Cowen insisted it was all part of the operation of the market.

“There has been turbulence generally in international bond markets for some time,” he said, describing the rise in the cost of borrowing as part of the ebb and flow of sentiment.

He also tried to calm market fears that Ireland would fail to get its financial affairs in order.

“We are absolutely committed to maintaining our plans (and) imposing the budgetary discipline that we set out with the European Commission,” Mr Cowen said.

Ah yes, the European Commission.  Another good analysis piece from the Irish Times‘ Arthur Beesley

For these reasons, the Minister now finds himself back in the throes of a high-stakes confidence game with investors who, in recent weeks, have driven the gap between the interest charge on Irish and German bonds to record levels.

In so doing he must keep onside his European friends, who learned the hard way this year that a serious deterioration in the fiscal standing of one euro-zone member can place other weaklings in peril and damage the wider currency.

This is a lonely place to be, a point emphasised last week by European Central Bank chief Jean-Claude Trichet when he said it was for the Government alone to resolve the Anglo affair. In so doing, Trichet did not respond directly to the question of whether the bank’s rescue represented an unbearable weight on taxpayers.

Trichet’s remarks belie the extent of help the Government is already receiving from the ECB via special loan facilities for banks and the provision of billions of euros of cash in exchange for Nama bonds. The ECB is also widely reputed to have been a buyer of Irish Government paper after its historic decision last May to purchase debt from euro countries.

All of this means Ireland’s reliance on Europe has never been deeper.

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  • Mack

    All of this means Ireland’s reliance on Europe has never been deeper.

    It really does depend. Private debts made public. Capitalism perverted. Cui bono?

  • Pete Baker

    Do you want to expand on that, Mack?

  • Mack

    Irish banks – private institutions – borrowed from European banks. The Irish public did not assume that risk – these are private contracts between knowledgeable, capable, risk-takers.

    According to Freefall last night – Trichet rang Lenihan and told him to make sure no Irish bank collapsed, at all cost.

    Irish taxpayers are bailing out, and have bailed out (those lucky enough to exit during the guarantee) the (over leveraged) European banks (the bond holders) that lent to the Irish banks.

    This was never an Irish problem alone. The Irish financial regulator – however incompetent, could only regulate Irish financial institutions. They couldn’t regulate European market entrants offering aggressive mortgage multiples (for example – Anglo’s role, well appreciated, as that of the Irish banks). The Irish banks were only able to lend so much domestically, because European banks lent to them. The responsibiliy for this irresponsible lending does not belongat the door of the Irish taxpayer of the Irish taxpayer alone. But the Irish banks were irresponsible in their lending? Yes. So were the German banks. Why does the Irish taxpayer pay?

  • Pete Baker

    Mack

    “But the Irish banks were irresponsible in their lending? Yes. So were the German banks.”

    Yes, but they were banks lending to banks. There was perhaps an understandable expectation of professionalism in granting the end loans?

    Although that doesn’t answer the question of “Why does the Irish taxpayer pay?”

    But the failure of regulation – the responsibility of the Irish Government – might point to an answer to that one.

    Given the effect of a failure of the banking system there

  • John East Belfast

    Mack

    Dont forget either although the majority of Irish Bank Creditors were institutional lenders there was also private individuals and corporates with Deposits as well.

    Life savings being wiped out and corporate insolvencies would have ensued.
    It would have been against company law to favour one type of creditor over another and also against European Law for the Irish Govt to favour Irish retail and corporate depositors in this way also.

    Hence it was bail them all out or bail none with the latter resulting in an Irish Banking collapse and total misery to individuals and corporates providing much more pain than what is in store now. It might have been more instantaneous rather than long drawn out but would have been catestrophic.

    I am still of the view that there was no alternative to guarantee Irish Banks under the circumstances of Autumn 2008

  • Alan Maskey

    Cowen’s problem and the problem of anyone who replaces him is they will not bite the bullet. The two major banks should be amalgamated or sold off. This would be an electioneering disaster, which is all that the politicians care about. So they have to be kept in clover.
    Anglo should have been allowed fall ages ago. Too bad for the shareholders and too bad for companies, many of them speculative, relying on Anglo, which had huge multiples even at the best of time.
    The plain people of Ireland are not innocents in this either. They borrowed money like there was no tomorrow. They speculated like bums in Vagas. Now they are bums in Ireland. And that is as it should be. Karma.
    But these bums have votes and so they must be pampered.
    I see a united Ireland in my time with all the spongers being united behind the green and orange begging bowl. This is a little different from Ho Chi Minh’s iron rice bowl. |But then., the Vn believe in working, not just in flip flopping houses like they were burgers, something the portly Irish are also a little too fond of.

  • A.N.Other

    Mack

    Grow up. Ireland was at the blighted by crony capitalism; with about 150 persons bleeding the banks dry; mainly to pump money into the property markets both North and South. About 75% of these persons now owe in excess of 25m. It would be easy to blame others, but it is simply not the case.

    Update on the Euro crisis;

    http://url.ie/7f35

  • A.N.Other

    Oh and sorry, for those that might like a few basic leads on Ireland’s crony capitalism;

    http://url.ie/7f3b

  • Mack

    Pete –

    There was perhaps an understandable expectation of professionalism in granting the end loans?

    Why should there not be an understandable expectation of professionalism when granting any loans? What absolves the Euro banks which lent to the Irish banks of their responsibilities? Why hold the Irish banks alone to higher standards? The Irish credit / property bubble was in plain sight, visible for all to see. Particularly outside the country where foreigners weren’t caught up in the europhoria. There were articles in the European press, and the banks themselves balked at purchasing Irish banks.

    There was a lack of due diligence at all levels.

    The problem now is that those debts, to protect both the Irish banking system and the European banking system – are being made Irish sovereign debt. The dependence is not a one-way street, we are bailing them out too.

  • Mack

    JEB –

    Dont forget either although the majority of Irish Bank Creditors were institutional lenders there was also private individuals and corporates with Deposits as well.

    The banks’ creditors haven’t lost a red cent. This is not capitalism in action, it’s unconscionable. Bailing out the depositors (up to the deposit protection limit) is fine – that would cost a small fortune but substantially less than bailing out all the creditors. Bailing out risk takers is not ok.

    Btw, General Motors is now profitable again – one of the reasons being that when the US government took them over after their bankruptcy the bond holders took a haircut on their debt via a debt-for-equity swap.

  • Mack

    A.N. Other –

    Telling people to grow up rather than engaging constructively makes you sound like an arrogant and angry 15 year old.

    Cronyism in the Irish banking system does not make loans made to Irish banks by foreigners, the moral responsibility of the Irish taxpayer.

  • John East Belfast

    Mack

    The Bank’s Depositors were its Creditors too.
    The Deposit Protection Scheme (Eur 50k ?) would have helped many but a lot of others would have lost the bulk of their life savings. Corporate depositors would have lost millions as well and they would have gone under along with their jobs.

    I wont deny though that those with most to lose were probably in circle FF backers and other elite

    Irish Banks would have collapsed – do you think all those Bond Holders would have just walked away ? They would have put the Bank into Administration then Liquidation and wound down its loan book in a chaotic way. Calling in Loans and selling property.

    It certainly would have happened very quickly but can you imagine the waste land that would be the ROI now ?

    I appreciate your overall sentiment though and I recall reading somewhere that one of the biggest gainers was AIG (and ultimately the US tax payer) who had underwritten many of these Bonds.

    There is no doubt that the whole country is paying for the recklessness of a few but it was a rock and a hard place stuff for Cowan and given the same set of circumstances I think they would do the same again

    As an aside when the Anglo Irish was touting for Corporate cash I was visited a few years back when we had a spare £1m and I recall saying to the guy “what if you went bust”. he laughed it off and proceeded to show me their latest accounts etc. In the end he convinced me and I had it on with them for a few months at rates nobody else could reach. Thankfully we needed the cash for investment and I was well out of them by October 2008. There is no doubt Greed was the greatest human emotion in this whole period

  • Glencoppagagh

    Slightly off the main topic, were any of the ‘cute hoors’/FF cronies cute enough to get off the property train before it crashed. Surely there must be at least one able to smirk.