Irish showdown likely in Brussels tonight

The creditors say please take the money, and the debtor says ‘we don’t want it’. It’s very odd..” says one observer of the Irish financial crisis. Dublin is resisting an ECB-inspired bailout because it fears the likely terms will damage their holy grail, the prospects for future growth, by imposing virtually insupportable terms like ending 12.5% company tax. On the other hand, you might think it’s just as peculiar for the ECB to insist on Ireland taking the money when they insist they can manage by themselves.

What the ECB and fellow EU members are demanding now is proof that the Irish really can manage. This is now more about the banks continuing to function more than sovereign debt.  The press outside Dublin are taking broadly the same line, probably inspired by the ECB.  

Market comment is clearly sceptical and other national central bankers are becoming rattled. To appease their critical audience the beleaguered Dublin government is bringing forward its four year budget plan to early next week. There had been an expectation the government would delay publication until after the Donegal South West by-election on November 25. And Brian Lenihan will surely outline it to EU finance ministers on  night.

The problem for Biffo and co is that Irish banks are in hock to the ECB, the full extent of which is explained by Robert Peston, who is one of a number of financial journalists updated last night by the ECB on the extent of Ireland’s indebtedness to it. Will the ECB pull the plug?

From Peston’s picks

The latest published figures, which almost certainly understate the true picture, show that the European Central Bank had lent 83bn euros to Ireland’s domestic banks by the end of September and it had lent 130bn euros to all Irish credit institutions at the end of October.

Or to put it another way, ECB loans to Irish financial institutions were more-or-less equivalent to the current annual value of Ireland’s Gross National Product. To repeat, without the financial support of the ECB, Ireland would be bust right now.

…the moment is fast approaching when the ECB, if it behaves as many would say a central bank must behave to preserve the value of the currency, will announce that it is phasing out liquidity support for those weaker European banks – in Ireland, and Portugal and even Germany – which have become too dependent on it for loans.

But if the ECB were to be true to its central banking instincts and announced a timetable for removing the life-saving funding drip, what could be done to keep Ireland’s banks and economy alive?

The Irish government does not want a new formal bail out. But if there is the faintest sign that the ECB wants to withdraw the succour it has provided to weak eurozone banks, Ireland will no longer have a choice: it will have to go cap in hand either to its EU partners or to the IMF.

Dublin’s case was put to the FT by Prof John FitzGerald, professor at the Economic and Social Research Institute, who believes the economy is improving, pointing to a likely balance of payments surplus in 2011 and recent strong third-quarter industrial production figures.

“Given time, the economy could be got right, but the government doesn’t have time,” he said, describing a bail-out as increasingly likely.

Ireland has arguably taken every step to address its fiscal crisis, but it feels it is not just prey to the exigencies of the market but is a victim of a lack of solidarity from its European partners. “If our European colleagues want us to go down the bail-out route, it is important we are seen to benefit. You can’t resolve the euro crisis at Ireland’s expense,” said Prof FitzGerald.

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  • Alias

    Peston might want to note that those figures be quotes for ECB lending to the Irish Central Bank are loans that are added to Ireland’s sovereign debt. The Irish government seems to be a tad shy about pointing that out, prefering to stick to its gross underestimate of the cost to Irish taxpayers of bailing out the eurosystem when the actual figure is now approaching 200 billion and will surpass it dramatically once the first wave of mortgage and business defaults are no longer hidden on the books by moratoriums and when the value of assets is written down on those books to their actual value. Like the other sovereign debt forced on the state by the ECB, its proposed lending is simply more of the same.

  • Cynic

    “showdown in Brussels tonight”

    Like gunfight at the OK corral but where Brian has a peashooter (blocked at one end) and Jean-Calude has a large canon filled with Euros

  • another

    The Irish are being bullied into taking the loan, on terms (in relation to tax) that will simply destroy the country forever.
    Sacrificial lambs on the European altar.

    But not to worry; when the revolution comes, we can now be sure that Gerry will be at the forefront.

  • Cynic

    Some girls do and some girls dont
    Some girls will and some girls wont
    But the ones I like the best are still
    Those who say they wont
    But you know they will!

  • Drumlins Rock

    what time do the banks open down south? There is talk of rather a large amount of withdrawals being consider by account holders. I would of course have to reassure everyone their money is perfectly safe in Irish banks, just like I did my friends and family with savings in the PMS.

  • pippakin

    We are being bullied by the EU but our government have made it easy for them. If any plan is agreed that goes beyond the date of the next General Election then the government should call the General Election first in order to give the people the right of veto we deserve, anything less would be a loss of sovereignty dress it how they like.

  • john greene

    With the evil Brits stubbing up £5billion (according to Bel Tel) to save the Republic it seems a visit by Queen Elizabeth II next year would be extremely appropriate.
    Biffo and all the Republic’s politicians (including Gerry?) could officially thank Her Government for rescuing them.
    Perhaps then all the Irish nationalist and republican MOPERY would stop?

  • Drumlins Rock

    Pip. an election should be called immediately and a national unity government formed after, but with anyone connected with the shambles excluded.

  • pippakin

    DR

    Agreed.

  • Mack

    I wonder could Ireland approach the IMF directly and by pass the EU entirely.

    We shield their banks from losses on their Irish investments. The government need to show some serious backbone now. They can prize our low corpo tax out of our cold dead hands! (Or maybe it won’t be so bad)

  • Mack

    Both Bank of Ireland and AIB operate under the UK deposit protection scheme. I.e. if they go bust the British government will guarantee the first £50k of your savings prior to 1st of Jan 2011 and the first £80-85k after that date.

    Short of Ireland leaving the Euro it’s unlikely a Euro area bank will be allowed to collapse leaving depositers hanging. If it does happen it would be a thundering disgrace given that Irish government policy thus far on the banks has been to safeguard European bond holders..

  • GoldenFleece

    No-one in Ireland wants natioanl unity government, they just want FF out as far as I can see.

  • “an election should be called immediately and a national unity government formed after, but with anyone connected with the shambles excluded”

    I agree with this suggestion. In fact, so to the majority of Irish people. As far back as January last year, an opinion poll confirmed that 73% supported the idea. The following questions occur

    (1) Is it now too late for a unity Government to be effective? (2) Could a unity Government have achieved anything if it had been formed much earlier?
    (3) At what point should the Government have known the crisis was so grave that they could have called for a unity government?

    In September 2008 the Government decided to guarantee bank deposits. At that time, the property market still had a long way to fall.

    If the Irish Banks had gone belly up in 2008, the international crisis may have been a lot worse so you could argue that the measure bought time for solutions to be found.

    From all that I know, I dont think the Irish Government could have known for certain that they could not have avoided being in the position they find themselves in now.

  • pippakin

    Golden Fleece

    That’s true.

    Thing is would a nat un govt be best now.

  • Aldamir

    I suspect that a unity government won’t happen as it is basically volunteering to share the blame with FF.

  • Munsterview

    Seymour,

    We have a situation in Southern politics where the politics and policies of the two main parties overlap to the extent that had these two parties been commercial companies who were the subject of a third party takeover, the first and most rational thing to do would be to have a merger and single management.

    Elements in Fianna Failure and Fine Gael are actively supporting such a merger behind the scenes !

    There is insider information circulating in elite circles for some months now that elements in Fianna Failure are in negotiations with International financiers to sell the better part of Nama and the Allied Irish Bank. One of the prices demanded for this is a Left/Right divide in Southern Irish politics, this would give a ‘right of centre’ political majority for another generation.

    It could indeed be that all in financial circles are flailing around without answers or it could be that there much more happening behind the scenes that is not in the public domain just yet.