Reuters: “Talks are ongoing and European Financial Stability Facility (EFSF) money will be used”

Despite the apparent ‘good news’ yesterday, it appears the pessimists may be right after all.  The BBC picks up on a Reuters report quoting “euro zone” sources

Euro zone sources told Reuters that aid discussions were under way, however. One official said it was “very likely” that Ireland would get financial assistance from the EU facility set up after Greece obtained a 110 billion euro bailout in May.

“Talks are ongoing and European Financial Stability Facility (EFSF) money will be used; there will be no haircuts or restructuring or anything of the kind,” one euro zone source said. A second source confirmed the talks.

According to the BBC version

The Republic of Ireland is in preliminary talks with EU officials for financial support, the BBC has learned.

It is now no longer a matter of whether but when the Irish government formally approaches the European Financial Stability Fund (EFSF) for a bailout.

Adds  RTÉ reported yesterday that the talks were on “a ‘what if’ basis”.

In particular, RTÉ News understands, the technical discussions have looked at the possibility of Ireland – should it need help – accessing funds only from the first component; the €60bn from EU funds.

Under Community Law the European Commission could borrow up to €60bn on the international market using its AAA rating.

It is understood that using this option might alleviate certain political and legal uncertainties which could arise if Ireland tapped the €440bn special purpose vehicle.

Update  In the comments zone Mack points to a comprehensive Bloomberg report

Ireland is being urged by European policy makers to take emergency aid to contain a debt crisis rattling their markets, according to a person briefed on the discussions.

In a conference call of European Central Bank officials around noon Frankfurt time yesterday, Ireland was pressed to seek outside help within days, the person said on condition of anonymity. Separately, a European Union official said a request for assistance was likely even as Irish Finance Minister Brian Lenihan told RTE Radio that such a call “makes no sense” as the government is fully funded to mid-2011.

Further update  And there’s this from the BBC business correspondent Joe Lynam

Unlike Greece last May, Ireland doesn’t need to ask the markets for money until next year. But bond traders are not convinced it can cut its deficit by enough by then and have pushed the cost of borrowing to unsustainable levels (8.3%).

Dublin had hoped that by slashing spending and raising taxes in the forthcoming budget on 7 December, it would show resolve and in doing so drive down the cost of borrowing on the bond markets. That hope is now dashed.

Now that talks have begun with Eurogroup officials, Ireland has the embarrassment of pressing ahead with day-to-day management of a country still officially Europe’s third richest – knowing that it will have to join an exclusive but not illustrious group of nations needing to go cap in hand to their fellow eurozone countries for a loan.

Adds  Interesting slant in the RTÉ sub-headline

The Department of Finance has denied foreign media reports that Ireland is involved in talks on an application for emergency funding from the European Union.

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  • Drumlins Rock

    Ironically what may be the biggest story on slugger this year, and no-one comments!

  • Mack

    Cowen forced to deny Ireland on verge of requesting a bailout –

    http://www.herald.ie/national-news/city-news/cowen-forced-to-deny-that-we-are-on-verge-of-taking-an-eu-bailout-2418812.html

    Bloomberg have it that the EU are asking Ireland to take the bailout funds, rather than the other way around. Might make sense as Ireland doesn’t actually need to borrow money until mid-next year.

    http://www.bloomberg.com/news/2010-11-12/cowen-says-ireland-cooperating-with-eu-as-debt-crisis-threatens-region.html

  • Aldamir

    If true, this is really bad news for Ireland and is also destabilising for the entire EU, especially the Eurozone.

    Ireland was doing all that could be done to meet the demands of the market traders regardless of pain to the Irish economy, yet this is where they end up.

    The message that will go out to the other PIGS is that austerity won’t get you out of the hole. The likely consequence of this message is that austerity will be ditched, something which will drastically increase the chances of a chain reaction of national economic collapses across Europe.

    In Ireland it is difficult to see this going anywhere other than back to the days before the post 1990 boom; high unemployment,high emigration, almost total lack of opportunity for those without connections in the political or business elite.

    The most depressing part of the story is that there seems to be little way out. The government going to Europe for a bail out is likely to lead to a collapse of market confidence, thereby increasing the need for the bail out. Ditching austerity is likely to have similar effects too. If there is any lesson it must be that the “cycle of boom and bust” is too powerful for governments to control. The bust must come, government action is merely shifting the economic problems around.

  • Alan Maskey

    Hopefully, a strong austerity package will follow; the dole, unmarried mothers’ perks, nurses’ pay, consultants’ ransoms and the rest will be cut, the banks will be merged, economic migrants will be deported, the pay and perks of politicians and judges will be slashed and lots lots more.
    Bertie Ahern and those who voited for him should, of course, be made pay.
    But if an OIRA government is to come in, why should the German EU spend good money after bad?

  • Drumlins Rock

    auterity hasnt hit Leinster House yet, the PM is still amongst the highest paid in the world, benefits are still more generous than most european countries, the civil servants have barely been pricked. And to top it all they are still planning to spend half a billion on a NI road and over a billion buying NIE.

  • Drumlins Rock

    Alan, I presume there will be a fire sale of assets, ESB, whats left of the Banks, the pickings from NAMA, the Airports, even the roads possibly!

  • Pete Baker

    Thanks Mack.

    I’ve added the Bloomberg report to the original post.

    It does make sense of all the contradictory noises off.

  • Cynic

    Cowlan can deny what he likes. If the market believes this then he has to act by Monday morning. They have been stuffed and this has all the hallmarks of a planned campaign by speculators who have bought large positions that will benefit them. A bit like lions stalking a herd of pigs and picking one off

  • Itwas SammyMcNally whatdoneit

    Sounds like good news, if you are a member of club then you may as well enjoy the perks. Wonder what the impact on Irish borrowing rates will be – presumably in the long term rates will fall as risk is largely removed. Of course the Englezes were bailed out by the IMF and got over it so presumably now crowing from tha quarter.

    Mack,

    any idea why Ireland dont go for a 20 or 30 year bond rather than a 10 year ? Do such ‘instruments’ not exist?

  • Pete Baker

    Further update And there’s this from the BBC business correspondent Joe Lynam

    Unlike Greece last May, Ireland doesn’t need to ask the markets for money until next year. But bond traders are not convinced it can cut its deficit by enough by then and have pushed the cost of borrowing to unsustainable levels (8.3%).

    Dublin had hoped that by slashing spending and raising taxes in the forthcoming budget on 7 December, it would show resolve and in doing so drive down the cost of borrowing on the bond markets. That hope is now dashed.

    Now that talks have begun with Eurogroup officials, Ireland has the embarrassment of pressing ahead with day-to-day management of a country still officially Europe’s third richest – knowing that it will have to join an exclusive but not illustrious group of nations needing to go cap in hand to their fellow eurozone countries for a loan.

  • Itwas SammyMcNally whatdoneit

    So Ireland is faced with the choice of ’embarassment’ or paying over the odds on the money markets.

    Not a very difficult choice.

    If Ireland was not in the Euro we would be in a very difficult place – something the Englezes may find out in a year’s time.

  • Alias

    The extra scandal in this is that the government is stealing the pensions from its own citizens and diverting funds that were intended to provide for their retirement to bail-out the eurosystem instead. It has squandered 7 billion euros of these funds already to prop up the banks, with no prospect of those funds ever being recovered. And if intends to squander the remainder to stall a sovereign default until they have all been squandered in April. The scale of the treason here is unprecedented.

  • Pete Baker

    Adds Interesting slant in the RTÉ sub-headline

    The Department of Finance has denied foreign media reports that Ireland is involved in talks on an application for emergency funding from the European Union.

  • Pete Baker

    Yeah, Sammy Mac

    Everything’s rosy…

  • The Irish economy. Bankrupt. My, whatever next?

  • Alias

    “If Ireland was not in the Euro we would be in a very difficult place…”

    If Ireland wasn’t in the eurozone, kid, it wouldn’t have amassed an external debt of 1.67 trillion euros since it joined it. Ergo, it wouldn’t have traded its Celtic Tiger economy for a credit card.

  • Glencoppagagh

    This is a painful and perhaps deeply demoralising experience for the Irish having until recently laboured under the absurd delusion that they had become the richest people in Europe through selling property to each other at ever inflating prices. However, it isn’t the end of the world: there is still fairly vigorous life in the foreign-owned exporting part of the economy and food production.

  • Itwas SammyMcNally whatdoneit

    David Vance,

    The Englezes have been there before and may be again soon.

    Pete Baker,

    This is a rescue package, if FF are embarassed then good -they should be.

    Ireland needs money and they are going to get it from the EU who have already agreed Ireland’s budgets programme – for 4 years that is good news.

    Britain’s economic policy according to the Tories is determined by the money markets ie if they didnt have the current cutbacks they would be bankrupt as they couldnt borrow the money from the money markets – they would then be calling (again) on the IMF.

  • Glencoppagagh

    It also occurs to me that if Sinn Fein can’t make electoral hay out of this, a united Ireland is now a very distant prospect indeed.

  • Pete Baker

    “Ireland needs money and they are going to get it from the EU who have already agreed Ireland’s budgets programme – for 4 years that is good news.”

    I’ll let Alias deal with that one.

  • Glencoppagagh

    Sammy
    “The Englezes have been there before and may be again soon”
    It’s possible you may be correct but the UK has one huge advantage over Ireland in that UK investment insitutions can’t shun its government debt without exposing themselves to currency risk. Irish institutions can safely fill their boots with German bonds if they want to and they do.

  • Itwas SammyMcNally whatdoneit

    Pete Baker

    “I’ll let Alias deal with that one”

    When it comes to Europe – that’s like asking a vegetarian to review the meat menu.

    I think most of us could write his lines for him by now.

  • Itwas SammyMcNally whatdoneit

    Glencoppagagh,

    That true – but we cant have a run on our currency – if the Tories feck up simply priniting more money wont work the next time. That wont be an advantage then.

  • Mack

    While things are far from rosy, he does have a point. Activating the EFSF isn’t the apocalyptic event that a lot of people seem to think. And borrowing at 9% to lend to the Greeks at 5% just doesn’t make sense!

    Those lower interest rates will come at a price. The government’s room for manouver in terms of choosing spending cuts and tax rises will be limited as the lenders will likely want to approve a plan before handing over the cash. They’ll have their own political agendas & they’re own constituencies to satisfy back home.

    Activating the bailout would make corpo tax vulnerable, Croke Park is likely dead in the water. I doubt there will be time to debate niceties about the progressivity or otherwise of new taxes. Welfare cuts, pension entitlements cut, compulsory redundancies, asset sales, property & water taxes, higher income taxes for everyone, service levels cut and capital projects scrapped. It was going to happen anyway, but prior to any bailout the government (and the Irish people via the pressure they could bring to bear) has a bigger influence, after it, it’s out of their hands to a greater degree..

  • Pete Baker

    Mack

    “While things are far from rosy, he does have a point.”

    Then you can also respond to Sammy’s earlier claim

    Sounds like good news, if you are a member of club then you may as well enjoy the perks.

    But then, you just did

    Those lower interest rates will come at a price.

  • Itwas SammyMcNally whatdoneit

    Mack,

    The EU is already signed up to our budget objectives (15 billion reduction) for 4 years.

    Any idea, as per my earlier question, as to why there are no 20 or 30 year bonds that the Irish governemnet could have availed of?

  • Mack

    Interesting blog post here –

    EFSF, Ireland and a matter of contagion

    let me ask the following question: if Ireland is nearing (or already in – see here) a bailout from the EFSF, what does this imply to the overall Euro area stability? Funny thing – it turns out that a little old Ireland can give a big young Euro quite a headache because of the way EFSF is structured.

    http://trueeconomics.blogspot.com/2010/11/economics-131110-efsf-ireland-and.html

  • Sorry but it is good auld Ireland that is financially bust with junk bond status. The UK stands as a much superior economy now being better managed since the exit of Labour.

  • Alan Maskey

    Ireland is only beginning its crash upon the rocks. In European (ie Franco German) terms, Ireland is nothing. It will soon be less. Fianna Fail has protected the bank incompetents. They are in for a roasting. The major culprit, Bertie Ahern, has walked away to advertise himself in a fridge. The country is awash with unskilled and unwanted immigrants and over paid and under worked nurses and the like.
    Slugger O’Toole gives a good feel of the incompetence: half filled stadiums that were not needed by the people in the first place, stupid conferences supporting stupid professors in UCD. And that is before we get into hospital consultants and the like.
    And then we have the prospect of the lunatics of the Labour Party/SFWP getting power.
    The Reconquest of Ireland has happened – but it is the polar opposite of what James Connolly wished for. Of course, if Connolly, an unskilled labourer was alive today, the only room for him would be either signing on the dole or as a Britsh soldier.
    The riff raff who bought their portfolio of homes to rent to illegal immigrants will now vote Tweedle Dee. Three cheers for Home Rule and Bottled Guinness.

  • Alan Maskey

    The RTE website is as uninteresting as ever: Strictly Come Dancing, Uts grab a draw, the Ford FAI (does anyone support that), £50k for a Fenian flag, some scroungers in Galway complaining about their free cancer service, some Mick killed in Kiwiland, Kenny saying Ireland needs jobs (for the boys?), attempted ATM robbery in Kerry (old habits doe hard), and free entry into Dublin Zoo for reheads.
    The Scrounger mentality is safe. Import more koolies to serve us as we piss the Germans’ latest handout aganst the highly leveraged wall.

  • Alias

    I think I’ll refer that one to his psychiatrist with a note attached to the effect that “patient has suffered a relapse, and can no longer distinguish self-invented fantasy from external reality despite earlier slim but hopeful signs of progress.”

  • Alias

    Actually, that light you see at the end of the tunnel is as a train with “Common Consolidated Corporate Tax Base” emblazoned on the front of it.

    When corporation tax is harmonised with the rest of the EU as a condition of the EU agreeing to loan money to the bankrupt Irish state (which bankrupted itself bailing out the eurosystem), those foreign-owned companies who are only based here because of low rates of corporation tax with all exit to other more competitive regions of the EU. And when they go, 94% of Ireland’s exports will go with them.

  • Alias

    Actually, it isn’t a handout. As the Irish government has made clear, all bondholders are to be underwritten by the state. The money that the ECB used to buy up bonds via the Central Bank isn’t a “bail-out” and neither is the money that the government will seek from the EU when it is forced into sovereign default. They’re all loans. On the other hand, the government is bailing out the EU and eurosystem. It isn’t ‘loaning’ money to bondholders: it is giving it to them as part of the outstanding loans they have retrospectively underwritten – and it is raiding your dear aunty’s pension fund to do it.

  • Itwas SammyMcNally whatdoneit

    The EU is giving Ireland a cheap loan because the mad feckers in FF (cheered on FG) have not regulated the banks and almost bankrupted the country.

    …and the price we have to pay for this generosity is bit of embarassment – looks like we have had a good deal.

    http://german.about.com/od/vocabulary/a/danke10ways.htm

  • Alias

    It’s actually an old-fashioned predator capitalist takeover process of trading help for control, with the only twist being that those offering the help are the ones who engineered the problems in order to gain the control.

  • Alias

    The other interesting outcome, of course, is that Ireland will now celebrate the 100th anniversary of 1916 by becoming the first member state to be ruled directly by the EU. Europhiles will celebrate that achievement, seeing it as another step toward a single EU state but the rest of us can only feel sadness at the betrayal of Ireland by its own political class (with 160 out of 166 TDs voting for the Lisbon Treaty, and five of the TDs who weren’t puppets of the EU were puppets of the British state). We’re a nation of quislings and the muppets that elect them.

  • Dishonest Systems always Fail from Self-Inflicted Wounds

    “The Irish Government has been forced to make a second denial in two days that it is preparing to go to the EU for a multi-billion euro bail-out.” …. http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8131416/Ireland-denies-bail-out-rumour.html

    What does the Irish government imagine the denials will do to their credibility as a force/entity/institution the population can believe in, and whole heartedly support, if the words that they share and which are chronicled and presented by media, rather than being true, are discovered to be just a tissue of self-serving lies to minimise the damage they have caused or has been or is being inflicted upon the nation, if they accept that they have been responsible for leading it?

    Or has someone/something else, other than the Irish government, been leading the people?

    And is honesty also a commodity roundly abused for personal and private advantage and a prisoner of cynical, manipulative expediency in the public offerings from Stormont Assembly members/people’s representatives?

    Oh and if civil servants, rather than elected members are responsible for drawing up policies and budgets, as this post on Mark Devenport’s blog explains ……. http://www.bbc.co.uk/blogs/thereporters/markdevenport/2010/11/stranger_than_fiction.html#P102970032 …… what are the elected members doing for the public money they receive and ensure is available for their additional expenses? Surely it is more than just to appear to TV and radio to tell us all about how bad it is and how it is going to get worse if someone doesn’t drop in and fix them for them?

  • Oops…. sorry, that should be, right at the end, ….”..and fix things for them”

  • Alan Maskey

    Wghen Bertie was Finnce MInsiter, he denied lowering the Irish pound, before devaluing it. If Adams is going to runb in Louth, the EU should twll Ireland to fuck off and let it go down the tube. It will just show the Irish are irreformable.

    Lowry-Callelly- Ferris-Adams

  • Brian Walker

    Pete, Not sure that this development refutes yesterday’s “good news” in that the bond yields were coming down with the clarfication that burden sharing for bondholders wouldn’t start until 2013. My post also ended with a hope that the bailout would go ahead to ease pressure on the euro. But the agenda appears to be moving on. The Irish government have been holding a line of doublespeak. They must be relieved that this part of it at any rate looks like about the end. They’ll still want to stave off the worst of the Morgan predictions like a collapse of mortgages.

  • Mack

    Which wouldn’t actually make much difference to the effective rate of corporation tax paid by Google, for example –

    http://sluggerotoole.com/2010/11/11/how-google-manages-a-irish-corporate-tax-rate-of-2-5/

    I’m not denying the importance of low corporation tax, but in it’s absence we’d still have a resevoir of experienced management talent & professionals – plus wages would likely fall as MNC’s retrenced (or didn’t expand at the same rate). Other advantages, such as Ireland’s (in particular Dublin’s) ability to attract talent would remain in place (higher taxes won’t affect this – I work in a largish multinational which employs lots of immigrants – most are surprised to learnt there aren’t water or property taxes after they arrive).

    The HQ’s may or may not move to lower tax duristictions (not withstanding the ‘Double Irish’ etc), but the experience talent base would still remain here, albeit with probably more competitive expectations on salaries..

  • Mack

    I suspect there’s no market for them at the moment – i.e. no-one would buy them.

    IIRC the government were selling mostly short-term bonds recentlt (i.e. less than 10 years) – so it’s possible there isn’t a market for 10 year new issues either (but it does act as a bell weather, signalling the probability of default or restructuring over 10 years)..