There’s no point in deluding ourselves about what must be done.

This may be a slow burning story which will develop over the next week.

Fianna Fáil have belatedly agreed to hold a Dáil debate and vote on the IMF/ECB arrangement to push commercial bank debts onto the taxpayers at a punitive 5.8% plus interest rate while continuing to deny that such a debate or vote is necessary. Backbench pressure to hold the vote apparently will include at least one, if not more  government TDs voting against the agreement. Some of whom have become decidedly erratic of late, while others are flip-flopping incessantly (and that is just the Greens). Quietly, others are silently filing out stage right in what now appears to be a very orderly queue.

Naturally enough, the IMF have decided against releasing any monies until after the debate on Wednesday 15th December (suggesting that they suspect that a parliamentary vote could be the normal order of business under the circumstances).

Meanwhile, the five Sinn Féin TDs and two Independents, Finian McGrath and Maureen O’Sullivan have now formed a technical group giving them certain rights in the Dáil. This will culminate in the tabling of a motion of no confidence in the Taoiseach around the same time as the debate in mid-week. The main purpose FF are attaching to the vote on the IMF/ECB deal is alledgedly to force the opposition into publicly declaring their positions.

At least, in a vote of no confidence in Brian Cowen, there won’t be any misunderstanding.

, , , , ,

  • Alias

    The government have yet to explain to Irish taxpayers why they should dedicate the rest of their working lives to paying circa 500 billion in extra taxation in order for the state to transfer it to the reckless eurosystem lenders whose losses they have retrospectively indemnified.

    And, indeed, why should they? I can’t think of a single valid reason why they should.

    Why should the Irish nation sacrifice itself to save a monetary system that ruined its economy? As unsuited as the policies of the monetary regime were to the Irish economy before the state acted to bail-out the eurosystem, they will be even more unsuited to the Irish economy now that it has diverged dramatically from the countries for whom the monetary policies are devised, and so we can only go from extremely bad to calamitous under the monetary regime that the europhile government is determined to save.

    Did it never occur to the government that the ECB is dedicated to price stability measured by inflation but not to asset stability that isn’t measured at all? Why would that be, I wonder?

    The Maastricht Treaty declares that “The primary objective of the ESCB shall be to maintain price stability. Without prejudice to that objective, it shall support the general economic policies in the Union in order to contribute to the achievement of the latter’s objectives.”

    Who then did they think would maintain price stability of assets such as property when it wasn’t the policy of the Central Bank that those prices should be stabilised? The Tooth Fairy?

    The Maastricht Treaty declares that “The national central banks are an integral part of the ESCB and shall act in accordance with the guidelines and instructions of the ECB.”

    The ECB is a servant of the EU, dedicated “to the achievement of the latter’s objectives” and the Irish central Bank is a servant of the ECB.

    Bertie Ahern admitted that he never read the Lisbon Treaty, so why would anyone think that he read that Maastricht Treaty when he was Minister of Finance at the time or that Albert Reynolds read it?

    It’s fairly obvious that no one else has read the Maastricht Treaty or the Irish Constitution either, since they would know why the government must take its instructions from the EU and must put the common economic interest before the redundant national interest.

    There is only one way out, and that is to remove the consolidated treaties from the Irish Constitution, i.e. exit the EU. If you stay in then you have to do what you are constituionally committed to doing or you would be acting unlawfully in this state and the Courts will it strike down – just as the EU will make it impossible for you to do other than as they instruct you to do even if it was constituionally possible for you to do so.

    It’s going to take another 1916…

  • pippakin

    FF are right (for once) the debate will show who is in favour of the deal and, more importantly, who is not.

    The technical alliance is also interesting, perhaps it is the start of something more.

  • lover not a fighter

    Its time to do one of those “interventions” i.e. Sit down the Bankers and their political lackeys (FFailure with cheerleaders from FG and Labour). Then they must be urged forcibly to admit that they have/had a gambling problem. We ourselves were remiss not to “intervene” sooner but sadly the day has come that the bankers and their political accomplices must stand on their own two feet.

    Their once loving taxpayer has had enough and now for the good of everyone the purse strings are being cut.

  • aquifer

    This was a failure in banking regulation by governments that were voted in by the people.

    Clearly the people should not have voted for user-friendly idiots and chancers, with or without green white and gold underpants.

    But they did.

    The hope may be that the EU allow the PIGS states to turn banks’ debt into equity, but this will not happen for a while until things stablise some more.

    In the meantime maybe electoral candidates should post their leaving cert or degree results with their nomination papers, and we should scrap PRSTV for something that allows the parties to find us some candidates that know how to run a small country.

    Oh, and an old eastern bloc automaticl under the bed does not qualify you for high office, for anyone who was wondering.

  • Greenflag

    aquifer ,

    ‘This was a failure in banking regulation by governments that were voted in by the people’.

    Not just in Ireland but in the USA , UK , Iceland , and Greece and Portugal etc etc . The ‘anarchy’ began in the 1980’s under the Friedmann ‘Chicago regime ” of trickle down economics and reduced regulation which was then exacerbated by the repeal of the Glass Steagal Act which former USA President Clinton signed into law in 1998.

    From the start of the Clinton presidency his principal economic adviser Robert Rubin persuaded the new president to defer to the debt markets prompting Clinton’s famous reply ” You mean to tell me that the success of my (economic program hinges on the Federal Reserve and a bunch of f***ing bond traders ‘

    James Carville a Democratic strategist of populist bent was moved to comment
    ‘I used to think that if there was reincarnation , I wanted to come back as the president or the pope or a .400 baseball hitter; but now I’d want to come back as the bond market . You can intimidate everybody ‘

    above quoted from Kevin Phillips ‘Bad Money’ pp 44-45

    Clinton and his Harvard/Yale educated advisors in retrospect did not foresee how the repeal of Glass Steagal was the final barrier to be broken down by the banking and Wall St lobbyists which allowed the USA’s financial services sector to go on a domestic and international looting rampage which has brought the world economy to the edge of the abyss and led to 28 million unemployed in the USA , a 13 trillion dollar deficit , two wars paid for by credit card on the US taxpayer , 3 million foreclosures and 25 % of all homes in the USA now in negative equity with more to come .

    Ireland WILL have to eventually default on some of this debt but it won’t be until post 2013 .

    By then hopefully the contradictions inherent in the ‘national governments v the ECB will have been ironed out . If they are not then the ‘euro’ will indeed be so much pressure that the Franco German centre will not be able to hold it together .

    And that would neither be good for Europe -the world or Ireland .

  • Mack

    Part of the problem is there are far too many unknown’s.

    Alias’ comment above is extreme and no matter what course of action is taken unlikely to become reality. The problem is, there is no actual clarity around what the solution is. Europe is handling this on a piecemeal basis as they try to negotiate structural changes (EFSF expansion, e-bonds, mechanism for sovereign debt restructuring).

    The deal on it’s own is a bad one (and in fairness John your post is over negative, the actual terms are bad enough – less than half the funds are earmarked for the banks). But Europe are still providing other supports, and perhaps we will get good support in the future (e.g. under the scheme to restructure sovereign debt in 2013).

    The problem right now is that the stakes are incredibly high. Going to war with the ECB could create another Lehman Brother’s moment – sinking the Euro, the European banking system at a point when most European nations can ill-afford yet another round of bank bailouts and recapitalisations and leaving us ally-less in the Western world.

    On the other hand forcing Irish taxpayers to bailout the bad debts owed to German, British, French and Belgian banks will sink the Irish economy in a debt deflation death trap. And the wider threat to Europe and the Euro will remain. It’s unfortunate that we need answers now, and the danger is that as a small relatively powerless nations that when Europe final agrees on a way through this morass our state is already sunk and forgotten.

    The debate we really need has to happen elsewhere, but do people in France and Germany even care about what happens here?

  • Mack

    Incidentally if Paul or Mick is reading this, one feature I’d like to see, is for an edit button so you can fix typos. Perhaps also with a view history function so that people can’t materially change the meaning of what they said without making it clear that is what they are doing..

  • Alias

    “But Europe are still providing other supports, and perhaps we will get good support in the future (e.g. under the scheme to restructure sovereign debt in 2013).” – Mack

    If you’re referring to the 160 billion that the ECB has spent via the Irish Central Bank to prop up eurosystem banks in Ireland then they’re simply adding to the nation’s sovereign debt without the consent or knowledge of the people.

    Are you aware that the 160 billion is sovereign debt or do you think it is Germany violating the Maastricht Treaty and its own Federal Constitutional Court to bail-out EMU states? All debts are sovereign.

    The constructional arrangement that the government entered into is that the ECB can loan money to the Central Bank at its sole discretion and to promote its interest but that the taxpayers of the this state are 100% liable for the cost of how the ECB uses their money to promote its interests, and, indeed, Ireland transferred its foreign reverses to the ECB when it joined it so they’re already wiped out because the ECB won’t hand them back until it gets its 160 billion loan back.

    It’s incredibly naive to sign a binding legal document on the basis that ‘something better might come along.’ Once you sign, you’re bound by it.

  • Mack

    Alias –

    That €160bn is a combined figure, it’s actually on the low side, we added another €20bn last month. €136bn comes from the ECB, €44bn from the Irish Central Bank.

    I don’t think it is sovereign debt, but the facility exists at the largese of the ECB.

    It’s incredibly naive to sign a binding legal document on the basis that ‘something better might come along.’ Once you sign, you’re bound by it.

    That’s true, the deal isn’t a binding legal document in the sense I think you mean (international treaty). I.e. even if it is approved now, it can be renegotiated later.

    It’s a pretty much an iron law that debts that can’t be repaid won’t be repaid. What is unknown – regardless of which path is taken is how the non-payment of unpayable debts – public and private will pan out.

    Because this isn’t clear, the best course of action is uncertain. If your (extreme) prognosis is correct, the default and withdrawal from the Euro now may be the best course of action. But with Merkel publicly pontificating on sovereign debt restructuring post 2013 and the leaders of France and Germany reaffirming their commitment to the Euro, I think there is some understanding that a lot of this debt will have to be written off. The question is can we find a path that is mutually acceptable to all European states? If not can we ensure Ireland doesn’t bear the brunt?

  • Alias

    “I don’t think it is sovereign debt, but the facility exists at the largese of the ECB.”

    It is sovereign debt. The ECB cannot bail anyone out as that is illegal. What it can do is loan money to national central banks but these loans are carried on the books of the ECB as assets, so they’re a liability on the books of national central bank. That’s how it works. They spend your money for their purpose, and you get to pay it all back.

    “That’s true, the deal isn’t a binding legal document in the sense I think you mean (international treaty). I.e. even if it is approved now, it can be renegotiated later.”

    Sorry, did we have another referendum to pass the IMF deal? I must have missed that one. IMF contracts are watertight. True, we don’t know the details of it yet, and it may contain a clause that allows the government to default on its commitment but I doubt it. After all, the IMF is the lander of last resort so if you default to the IMF then who do you seek a loan from?

    You won’t be able to renegotiate a thing. You’ll have given tens of more billions to eurosystem banks and that is the purpose of the deal, i.e. to bail-out bankers, not Ireland.

    “It’s a pretty much an iron law that debts that can’t be repaid won’t be repaid.”

    Really? So when do you expect this ‘iron law’ to kick in? Unless you think Ireland can repay 500 billion I’d say it’s already void as law – maybe it’s a rubber law? It’s an iron law that Ireland doesn’t have any say it

    “Because this isn’t clear, the best course of action is uncertain.”

    It is absolutely certain. Irish people need to overthrow a regime that is colluding with those who are promoting the EU’s interests at the direct expense of the national interest. If they don’t then your Fairy Godmother (the EU) and the wealthy elite its serves isn’t going to give you a 100% discount on your circa 2 trillion euro external debt just because you showed a willingness to be thrown off a cliff by the quisling political class you elected…

    “If not can we ensure Ireland doesn’t bear the brunt?”

    Sure you can. Go to Brussels and use your wee Irish diplomatic charm. That has worked wonders so far, hasn’t it? One word of caveat, however, avoid Sarkozy as he seems to be particularly disenchanted with the lovable Irish.

    By the way, did you know that when Brian Lenihan was told by Jean-Claude Trichet to bail-out the eurosystem that it would be unconstitutional for Mr Lenihan to have proffered any advice to him about what policy might be helpful to Ireland or to advise that the ECB policy might be destructive? That’s an iron law because it is in the Constitution…

    Article 130 (ex Article 108 TEC):
    “When exercising the powers and carrying out the tasks and duties conferred upon them by the Treaties and the Statute of the ESCB and of the ECB, neither the European Central Bank, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other body. The Union institutions, bodies, offices or agencies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the European Central Bank or of the national central banks in the performance of their tasks.”

  • Greenflag

    Mack ,

    Your posts above at 5.46pm and 7.23pm show the parameters within which this issue will eventually be resolved imo .

    ‘The debate we really need has to happen elsewhere, but do people in France and Germany even care about what happens here?’

    The short answer is no -their media have written us off as being almost Greek in our governmental fiscal management

    But then that suits the French and German bankers and the British and diverts attention from how the French & German banks operated outside their countries in recent years . Here’s a quote from an Icelandic source which brings out the bigger picture .

    ‘Although Germany and France have, in terms of their banking sector, been a model of restraint their banks have been unrestrained abroad. German and French banks, as well as UK and American banks, have gone on a lending spree abroad, lending to the countries that are now so crisis-stricken. There is a lot of anger here in Ireland towards the EU for forcing Ireland to save its banks so as not to wreck havoc for French, German and British banks. It’s always easier to be upset with others, in Iceland the anger has been vented against the IMF, but there is an element of truth in this that especially French and German banks did in some ways go abroad to do things they couldn’t do at home. – The German and French banks are like kids who at home behave impeccably but who take out their pen knifes and cut up the furniture when they are visiting their friends.

    The full story is at

    http://uti.is/2010/12/the-clear-correlation-between-crisis-and-corruption/

    Alias is ‘premature ‘ in his extreme prognosis . German Finance Minister Schauble has vowed to defend the Euro and has warned markets not to underestimate Berlin’s resolve to protect the Euro .

    The Eurozone will eventually need some form of federal system to transfer money from fiscally sound to struggling countries and that would make for a more viable currency union . If the Germans and French baulk at that ‘integration’ then the Eurozone won’t last or it will shrink to a group of five or six countries .
    It seems that the Germans have ‘discovered’ that the ‘euro’ has been to their economic advantage particularly for the countries still very strong ‘Mittelstand’ companies who are behind the export drive which has helped the economy to grow at a faster rate than other major economies bar China and other emerging countries.

  • Greenflag

    Alias,

    ‘One word of caveat, however, avoid Sarkozy as he seems to be particularly disenchanted with the lovable Irish.’

    He’ll probably not be around . The next French president is likely to be Strauss Kahn the Socialist leader . Sarkozy is below 30% in support from French voters .

    At the end of the day there will have to be re-negotiation of the ‘terms’ just as there was for Germany post Versailles . If not then widespread political instability will result and that will spread and that’s not to the EU’s longer term benefit .

  • Alias

    Greenie, the euro was an advantage to German exporters in that the ECB flooding consumers in a large part of the EU with cheap credit help boost demand for German goods. However, the downside is the debt that those consumers ran up. Those exporters know that those folks who spent the last 10 years buying their Mercs, Huf Haus kits, et al, will now have to spend the next few decades paying for them and so won’t be buying any more of them. The party is over, and Germany knows that the euro is no longer an advantage to it. The euro helped turn the EU into the world’s most debt-laden region, with 15 of the world’s 20 most indebted countries being EU countries. The demented euophiles, as ever, will try to keep their political currency alive and even try to argue that political union is now the only option. The reality, however, is that it is bankrupt.

    Wherever you look at this ridiculous political project masquerading as an economic project you can see fatal design flaws in it, some fatal for the ECB and other fatal for member states. For example, Mack mentioned that the ECB’s loans to the Irish central bank have now risen to 186 billion. I just checked that out with the Central Bank and now see that their latest figure for Ireland’s gross external debt has risen to a whopping great 2.5 trillion. The design flaw for Ireland is that the ECB can loan money to the Irish central bank (which is part of the ESCB and under the executive control of the ECB) which are then added to Ireland’s sovereign debt. The Irish nation has given the sovereignty to the ECB to lumber them with huge debts in promotion of the EU’s political agenda.

    And that design flaw leads to another design flaw. What the ECB is doing is using its marginal lending facility (AKA discount window) to offer low cost loans to eurosystem banks based in Ireland in its role as the currency’s lender of last resort. Nothing particularly wrong with that other than the discount window is only offered to banks that provide collateral. So what is the collateral? You guessed it: the assets of the shareholders of the banks, i.e. the state. So where is the design flaw? Well, apart from luring a state into offering itself as collateral to the ECB via ownership of eurosystem banks, it lured the eurosystem banks into taking risks in lending to each other that they wouldn’t have taken if the marginal lending facility was not made available to them by the ECB, thereby greatly increasing the risk of systemic failure if the losses were ever greater than the amount of funding that could be made available to troubled eurosystem banks via the marginal lending facility.

    But from the ECB’s point of view, it encouraged inter-lending among eurosystem banks as another way to promote monetary expansion. And as we all now know, most consumers and businesses mistook monetary expansion for economic expansion….

    In regard to whether Kahn ass will taste sweeter than Sarkozy’s to kiss: if kissing ass is your thing, then good luck to you. However, the reason you now have to kiss it rather than kick it is because you surrendered your sovereignty to your new rulers.

  • fullhouse2011

    We’ll soon see what minor technical reason FG and Labour can come-up with not to back the IMF/ECB deal, another fudge on their part is likely. Can none of the major parties do the maths? Smart economy, not!
    Roll on the general election and let true reforms take place…
    full-house

  • aquifer

    So we didn’t really afford those Mercs and Beemers after all.

  • HeinzGuderian

    Couldn’t really afford……….ermmmmmm,no !!

  • Mack

    Alais –

    ECB loans to the Irish banking system are not sovereign debt.

    For a start they’re a typically issued at around 1% compared with 8-9% yield on the 10 year sovereign. They’re also backed by collateral from those banks (however impaired). The ECB is primarily providing a liquidity function i.e. it is enabling Irish banks to turn illiquid assets into cash so they can continue to meet due liabilities. What you are suggesting is a misrepresentation of the facts, during negotiations they wanted to replace their liquidity function with sovereign debt (i,e. replace a 1% loan with funds costing many multiples).

    Also, note that if Germany leaves the euro, possibly a relatively benign scenario for Ireland. The rest of the eurozone will likely inflate away that debt (which is owed in no small measure to the other extended German banks). The euro would fall against the d-mark making Italian, Irish, Spanish firms more competitive with German’s within Europe and the rising d-mark would facilitate competition from US, South Korea, Japan, Britain & the eurozone with German companies within the Brics.

    There is a pretty good article on the mechanics of leaving the euro on the Economist website at the moment..

  • Mack

    @Alias –

    So what is the collateral? You guessed it: the assets of the shareholders of the banks, i.e. the state. So where is the design flaw? Well, apart from luring a state into offering itself as collateral to the ECB via ownership of eurosystem banks, it lured the eurosystem banks into taking risks in lending to each other that they wouldn’t have taken…

    I think this is appropriate

    Without the facility we’d be experiencing Gt Depression Mark II in Europe, with scores of bank failures, depositors losing everything, and credit completely unavailable on the continent.

    As for state assets as collateral? That whole argument is a word game. Individual banks can use their own assets, they can’t deposit shares in Bord Gais or the ESB at the ECB..

  • another

    Bankers Gone Wild in Ireland AND Germany:

    http://url.ie/8ggg

  • another

    “It doesn’t matter that we struggled for 800 years to achieve independence, that millions died in the process; it doesn’t matter that the folk memory of harsher times is still very much alive; none of this mattered to the few generations that have dismantled our country institution by institution and thrown the Irish people to the wolves….. Our political system is in ruins. The people have lost all faith in their elected representatives. They feel that welfare for the wealthy, bailouts for crooked corporations and rewards instead of punishments for embezzlement and thievery is the rule of the land. … Our independent republic is less than a century old and already it’s in smithereens — we’re in the gutter and being dictated to by the UK, Germany, France and the IMF. Mr. Ajai Chopra is our new vice-chancellor, our new Taoiseach, our new overlord and big boss and we’ve just been recolonized, first by our own brood of inbred gangsters and now by international bankers….”

    http://url.ie/8ggh

  • Greenflag

    Alias ,

    Here’s Gordon Brown setting out the parameters .

    http://www.bbc.co.uk/news/uk-11951014

    You can see fatal design flaws in it. Design flaws yes but not necessarily fatal . Germany’s world trade is dependent on the Euro at around it’s present value plus or minus a few per cent . Nostalgia for the mark is just that .

    ‘as we all now know, most consumers and businesses mistook monetary expansion for economic expansion’

    As well as overseas and bank investors particularly from France , Germany and the UK not forgetting our own domestic shower . The USA also went and is still going through similar with no end in sight .

    Now you might think that the IMF and ECB via Franco/German forced the Irish Government to ‘guarantee’ all monies invested in the Irish banking system as the first step in the French and Germans putting their own banking systems in order -You know that 25 to 50 leverage multiple favoured by those countries presumably to stimulate business expansion and where better to send the dosh than to the fastest growing economy in the EU -1995 through 2005 or so ? and you might be right but we won’t really know for another year or so as Mack says above the ‘uncertainty’ in the system is too much at present and as Gordon Brown says above any possible changes will be discussed behind closed doors for obvious reasons given the market’s ability to transfer trillions in funds around the world in a few minutes .

    Ultimately this will be a political issue and it’ll come down to probably the Germans & French and a few others to decide what kind of Europe /EU they want . Have they the political will to fix the present contradictions or will they opt for a two speed Euro Zone . In retro we can see that Greece should probably not have been admitted as a member back then and Ireland should have postponed membership until such time as our Government had prepared by monetary or other legislative means how to prevent the kind of property bubble that seems in hindsight to have been an inevitable outcome of millions of Euros flooding in a little over 2% into an already fast growing economy which had an interest rate of circa 5 or 6 % at the time .

    The major players in the EU and the major economies world wide have a major job on their hands and just as there is no one size fits all in the Eurozone as we have seen, then the same and more will be true of the building currency conflict between the established economic world powers and the BRIC economies.

    Of course if it all goes belly up and we have to go back to living a more communal life on a acre or two plot of potatoes and a piggy well we can handle that too .

    On the other hand if the Wall St/CIty/ECB and other masters of the economic and currency universe cannot and won’t get their act together soon then other less patient and more disruptive forces will take over and theres no knowing where they will start or could end . We know from the history of Europe that some of these forces while initially based on resolving widespread economic and social ills -end up as tyrannies of the right or left in which millions perish .

    The risen people even if put down will rise again and again and no banker or politician or ECB or IMF bureaucrat will stop them . Politics of a sort not necessarily will win out over ‘economics’ if push ever comes to shove . Even the mad mullahs of the Middle East know that .

    http://www.youtube.com/watch?v=SNocyz1NRjA

    So Messrs Obama , Merkel , Sarkozy , Cameron and their Chinese , Indian , Russian and Brazilian better start getting their fingers out and make the necessary reforms to international banking and their own domestic banks before we are all back to bartering .

  • Greenflag

    error above

    Politics of a sort not necessarily

    Should read

    Politics of a sort not necessarily democracy will win out etc.

  • John Ó Néill

    Mack – I actually think I’m being overly positive – the bottom line (no matter how it is spun) is still that commercial bank-to-bank lending is being bailed out by pressure from the bondholders forcing their governments into leveraging the debt onto Irish taxpayers. State-owned industries are also going to be sold off to fund this (and the pension reserve fund handed over).
    If you forced the banks alone to deal with the bondholders the state wouldn’t be shut out of the bond markets by punitive lending rates (while they would still put pressure on, it would be at 5% rather than 9%).

  • Mack

    John – At this stage in the game, I don’t think that is correct.

    1. A lot of senior bond holders purchased in the last 2 and a bit years – i.e. under the guarantee.

    2. Some portion of those purchased in the last couple of months under the new forward looking guarantee (at least €55bn in September)

    3. The structural fiscal deficit is also huge

    4. Existing sovereign debt is large

    5. National pension reserve fund has already been worn down.

    There is no magic bullet here. The banks have been experiencing a bank ‘walk’ (in the words of Paul Krugman) in recent months, they are being kept alive by the ECB. There is no way in hell we can burn senior bond holders without the support of the ECB in doing so and expect anything other than a financial / economic meltdown that would make the last 2 years seem like a picnic.

    That’s not to say, depending on what actually happens that that might not be better than what will happen. But we don’t know yet. Better to continue to negogiate, and persuade our European partners..

  • Alias

    Mack, you’re speaking from a position of utter and total ignorance. Normally you reverse from that position when the facts are presented to you but on this occasion your head seems to have become stuck in the ground.

    Fact 1: The debts of Irish Central Bank default to the Irish state. Therefore its debts are sovereign debts.

    Fact 2: The majority shareholder in the Irish eurosystem banks is the Irish state.

    Fact 3: The ECB can increase the debt of the Irish Central Bank at its sole discretion and for its sole interest, but it is the Irish taxpayer who is ultimately pay for it.

    Fact 4: The ECB’s marginal lending facility exposed the banks to systemic risk.

    Now, Mack, this is what will happen to the 186 billion that the ECB has loaned to the Irish central bank to bail out the eurosystem. The banks will default to the central bank. The central bank will call on the shareholders to make good the losses. The shareholders are the state, so it is the taxpayers who will pay for it. If the shareholders default, then the central bank must still repay the ECB. Since the sentral bank is owned by the state, it is the taxpayers again who will pay for it.

    Do you not grasp that you are talking shite? The debts of the central bank – 186 billion – are the responsibility of this state.

  • Alias

    And for your further edification, Mack, the Minister for Finance is the sole shareholder in the Central Bank under Central Bank Act, 1942. So the loans by the ECB to the central bank are loans to the Irish state that are ultimately the responsibility of the Irish state.

    But in Mackworld, apparently, the eurosystem banks will generate 186 billion in profits to repay the loans so the taxpayers will never have to pick up the bill. The Minister for Finance is the shareholder in most of those eurosystem banks, so the debts of the banks default to the Minister for Finance as the shareholder before they default to the Central Bank and then default to him as the shareholder in the Central Bank.

    What has occurred is that the infantile Irish gave the sovereignty to the ECB to run up huge debts at the Irish Central Bank to prop-up the eurosystem but all of these debts belong to the state-owned Central Bank and will ultimately have to be repaid by the taxpayers of the state.

    Your so-called “European partners” have arse-fucked you but you’re probably into that….

  • John Ó Néill

    Mack – I don’t think that it is sustainable to claim that the majority or a significant number of senior bond holders to the Irish banks came in after the guarantee. The dysfunctional lending policies pre-date the guarantee and the guarantee itself was based on inaccurate data supplied either misleadingly or incompetently by the banks (which should have voided the guarantee in itself since ignorance is never a defence under the law).
    There are 1.6m workers in the economy in the Republic of Ireland at the moment (double the figures from 1998), with record exports – hardly signs of a basket-case economy. There was a systemic absence of due diligence within the Irish banks and the international banking networks which they interacted with.
    I suspect the guarantee and its implications will be a major election campaign issue next year.

  • Mack

    John –

    I really don’t know what this means

    “I don’t think that it is sustainable to claim that the majority or a significant number of senior bond holders to the Irish banks came in after the guarantee”

    Are you saying that large numbers of new bondholders didn’t come on board after the guarantee?

    Or that they should have known better than to rely on it?

    I have some sympathy the later argument, the former is just incorrect. It is difficult to credibly argue that loans taken out under the guarantee wouldn’t be regarded as sovereign debt (borrowings support by the government to ensure the banks continue to function) by the markets. You may be able to draw some distinction between that and actual government bonds, but unilaterally imposing losses on senior bond holders would likely result in retaliation by the ECB that would mean the state would have to raise funds elsewhere to capitalise the banks / ensure they continue to function. I think it is self-delusion to think that under those circumstances the markets would be willing to lend to the Irish banks at all (or to the state to recapitalise those banks).

    “I suspect the guarantee and its implications will be a major election campaign issue next year.”

    Yes, probably. But what we do now matters much more than the forensic examination of could’ve / would’ve / should’ve from 2 years ago.

    There is a bigger picture – the survival or failure of the European banking system and the Euro, as well as the survival of the Irish economy. I get the impression that what some people mean by burning the bond holders – includes burning recent bond holders (which makes it a sovereign default) – one alternative is for an actual sovereign default managed on an EU basis (under the institutions and procedures hinted at by Angela Merkel recently). The later may or may not be less painful than the former.

  • Mack

    @Alias –

    In Mackworld it is the responsibility of the central bank as lender of last resort to provide those supports to the banking system for as long as they are needed.. But we’ll see what happens.

  • John Ó Néill

    Mack – the lending by the Irish banks that did the major damage pre-dates the guarantee. That guarantee appears to have been based on misleading information supplied by the banks. I think it is premature to claim that the only option is adopt a Year 0 policy and move on, meekly accepting what is the current status quo:
    – the banks lend without due diligence and no consequences (indeed, if you are in AIB, a nice bonus for the period in question)
    – the banks secure money on the markets which in turn fail to perform due diligence without any consequences
    – the banks obtain a blanket government guarantee by not disclosing the real extent of their exposure, without any consequences
    – the government offers a guarantee and borrows on the markets to fill the black hole created by a cycle of incompetent lending, consequences are the IMF/ECB deal (which the Dail could still, technically, reject), likely electoral armageddon for FF and the Greens and the formal conversion of commercial debt to sovereign debt owed by the taxpayer of the Republic of Ireland.

    Mack – my position on this is partly based on the absence of any sort of write down on the part of the bondholders – the government (and the incoming administration if Joan Burton’s shrill ‘we will negotiate’ comments are anything to go by) wouldn’t put fear into anyone. A threat to burn the bondholders is the only initial negotiating position that the taxpayers of the Republic of Ireland can reasonably adopt (surely Business Negotiation 101). People keep making the point that all of this could collapse the euro etc. So what if it did? Neither the euro, or the international financial services that trade it appear fit to purpose. Market forces kill off inept or uneconomic industries. Thats what the current financial system is, so time to start again. Angela Merkel and others are hinting that small changes may be needed, in reality, the origin of this collapse is that too many products and too distant futures are on the market. Its time to wind them back. The market exists to serve the wider fiscal mechanisms required for international finance, it is no longer doing that.

  • Mack

    @John –

    Liquidate the bankers, liquidate Europe, liquidate the euro then!

    So it sounds like your position is that ‘burning the bondholders’ is a negotiating position rather than a definitive course of action that should be unilaterally embarked upon?

  • Dewi

    What have you got left to flog off? That’s usually step 1….

  • John Ó Néill

    Mack, I do occasionally touch base with the real world. I do believe there are huge systemic flaws in the international monetary system, largely evidenced as an increasing range of loosely regulated products hedging against hugely unpredictable future gains. This has been painfully evident since Lehmans and no-one wants to touch it. National governments are currently serving the market’s needs when it should be the other way around (even down to the fact that market is always faceless and nameless – the actual bondholding institutions never get profiled). If burning bondholders over the Irish sovereign debt (or preferably bank-related debt) is a first step to system reform, then it is a valid one.
    If Spain, or Italy, goes down though, the Republic’s woes are going to look like a mere fiscal amuse bouche.

  • Greenflag

    ‘I suspect the guarantee and its implications will be a major election campaign issue next year.’

    It will be the ONLY campaign issue.

    ‘There is a bigger picture – the survival or failure of the European banking system and the Euro, as well as the survival of the Irish economy.’

    And you can throw in the survival of the world economy as well which is why the Euro will continue even if the current Eurozone is ‘reduced ‘ into a two tier arrangement.

    @ Alias

    ‘Since the sentral bank is owned by the state, it is the taxpayers again who will pay for it.’

    In the final analysis the state is the people and the people in extremis will do what people everywhere will do when it becomes necessary . It may involve telling certain institutions to GFT accompanied by gunfire no doubt .

    Que sera

  • another

    Ah, common sense beyond the EU scaremongering black propaganda:

    “Irish Debt Default Far From Armageddon: Kevin Hassett”

    http://url.ie/8gqg

  • Mack

    @Another –

    Unfortunately that article gives zero detail on which form of default and how would be least costly to Ireland. It could be summed up as ‘it’s not the end of the world’.

  • Mack

    Some relevant stories –

    German’s soften stance on collective Euro bonds –

    http://www.finfacts.ie/irishfinancenews/article_1021232.shtml

    BBC report on mechanism for default on sovereign debt post 2013. May require another treaty referendum in Ireland.

    http://www.bbc.co.uk/news/business-11978495

  • Mack

    Another quick round up of the options –

    1st up Wolfgang Manchau of the FT in the Irish Times a couple of weeks back detailing how default might work (note he prefers the e-bonds solution Germany appears to be warming too).

    http://www.irishtimes.com/newspaper/opinion/2010/1202/1224284564382.html

    NB – he says Ireland will be shut out of the debt markets for a while. This means closing the fiscal gap instantly (an absolutely massive adjustment)..

    In the comments section Finfact’s Michael Hennigan argues this option should be kept in reserve for a couple of years..

    Next up Ronan Lyon’s argues that the fiscal deficit – ignoring interest payments will be bridged by 2013 under the austerity program.

    http://www.ronanlyons.com/2010/12/08/dude-wheres-my-six-billion-perspective-on-budget-2011/

    This would make a sovereign default in 2013 relatively painless..

    In brief, the “non-debt” government deficit is expected to improve substantially next year, from €11.7bn in 2010 to €5.5bn. The “non-debt deficit” here means the gap between all government revenues and all voted current and capital expenditure. Indeed, the non-debt balance could be €2bn in surplus as early as 2013 by current trends.

  • Mack

    John Fitzgerald a lot more upbeat in the SBPost. Arguing that the EU/IMF facility can be used like a backup overdraft allowing the NTMA to leverage cheaper short-term funding (duration for a couple months perhaps with interest rates a good bit less than half of those of the EFSF – IMF facility).

    http://www.thepost.ie/commentandanalysis/euimf-bailout-contains-significant-hidden-benefits-53378.html