Good news. The forces of light are fighting back! Pressures on Dublin have eased slightly after the EU Finance Ministers’ reassure bond holders that burden sharing doesn’t start until 2013. Did all those hot shots not know that? Biffo is doing his best to cool persistent rumours of an imminent bailout. Meanwhile arch jeremiah Morgan Kelly is taken to task by Davy strategist Donal O’Mahoney for spreading contagion, identifying a phoney ” mortgage war” and (as I read it) taking delight in feeding public anger and the schadenfreude of bloggers.
Not this one. Come on Ireland!
The appalling vista this morning is of a recapitalised Bank of Ireland, trying to make its way in the world to support Irish economic recovery, but now with the millstone of 10 per cent (guaranteed), or 13 per cent (unguaranteed) funding costs weighing heavily around its neck.
How depressingly ironic, therefore, to read Morgan Kelly’s recent contention on these pages that “what is driving our bond yields to record levels is . . . the bank bailout”, the Irish authorities having missed September’s opportunity to default on €55 billion of maturing guaranteed bank debt in order to resolve the banking crisis “by sharing costs with the bondholders”.
Those who have wondered aloud about the outcome of a laboratory experiment to assess the impact of an orchestrated default in the Irish financial system now have their answer. Those who advocate bond defaults, but then seek alternative explanations for rising bond yields, betray breathtaking ignorance of bond market dynamics.
THE ARTICLE was equally breathtaking for its thinly veiled attempt to conscript a “powerful political constituency” of 200,000 would-be defaultees to engage in a “Mortgage War”, on the basis that “you too were mauled by the Celtic Tiger after being conned into taking out an unaffordable mortgage”.
Most breathtaking of all, however, is the hubris displayed in second-guessing the “stress-test” findings of the independent financial regulator regarding Irish bank balance sheets. One can only guess at the superior font of knowledge out of which the author sups, as his €42 billion loan loss forecasts are without substantiation, and therefore appear more designed to scarify the readership than to make a genuine attempt to inform.
With the labour market finally stabilising, there are clear grounds for optimism that ultimate mortgage-related losses will fall within the realms of the regulator’s “stress-test” assumptions. On that basis, the surviving and recapitalised Irish banks will have been bestowed with a more than sufficient buffer for the residual loan impairment risks ahead.
If the “Mortgage War” article serves any purpose, it is to highlight yet again the destructive forces wreaked by the politics of anger in this country. The author may protest his innocence in this regard, as will his legion of acolytes, but the upshot of such diatribes is to provide further cheap fodder to the Financial Times headliners and internet bloggers who are apt to display a schadenfreudian delight at Ireland’s current misfortunes. Widespread media recycling of such material at a time of heightened overseas investor anxiety towards the Irish story simply reinforces the pervasive bearish sentiment, and liquidation, that is now playing out in our markets.
TRUE TO ITS nihilistic endeavour, the “Mortgage War” article offers no solution of the author’s own to the nation’s current predicaments. For the author, Ireland’s economic and fiscal sovereignty is beyond repair, such that henceforth “we can only rely on the kindness of strangers”. Thankfully, the economic prognosis begs to differ, with Ireland’s “twin-deficit” vulnerabilities fast receding as the external sector rebalances.
Not all share this guarded optimism. Some would like Ireland to go for the greater good and apply for the bailout and ease bondholders’ pressure on the euro area as a whole. A decision by Ireland to use the European Financial Stability Facility would be a “circuit breaker” for the market turmoil and boost the euro, Emma Lawson, a Hong Kong-based currency strategist at Morgan Stanley, said in a report today.
At the end of European trading today the euro was poised for its biggest weekly loss since August although it climbed today from a six-week low against the dollar.