Ireland and the Anglo debt: “Would the ECB like to have even one success?”

Extract from Vincent Browne putting the ECB under some pressure. He asks a simple question to a European central banker who has just finished praising the Irish public’s understanding of the economic crisis. Browne pays him the compliment of asking him one of the more awkward questions in the current playbook: ie, why are Irish taxpayers paying off the debt of a bank (Anglo Irish) that is effectively bust?

Klaus Masuch answers it by saying (but not saying) that it was a job lot to bail out the whole of the Irish financial sector. He answers as though the ECB were the lender of last resort for the European banks, but most surely not to the constituent nations of the Eurozone.

It’s also worth reading Colm McCarthy, in yesterday’s Sunday Independent, who, no lily-livered fiscal liberal suggests the ECB is simply not thinking through the consequences of its policing of Ireland’s eye-wateringly tight debt repayment schedule:

The European Central Bank continues to insist that reimbursements in full be made to those who hold bonds issued by Anglo Irish — bust many times over, closed down and under garda investigation — at the expense of an insolvent State. This will in time come to be seen as one of the strangest episodes in the history of central banking.

The ECB has chosen to persist in regarding the insolvency of an EU member state as a minor sacrifice in the great cause of pretending that Europe does not have a banking crisis. The policy is now entirely pointless and failing to achieve its unexplained but presumed objective, continued access to the bond market for European banks.

Nobody at the ECB appears to understand that this policy is increasingly seen as an act of straightforward hostility towards this country, notwithstanding Ireland’s errors and failings in the stewardship of its banking system.

The policy does not even enjoy the justification of succeeding on its own terms, since hardly any European banks can any longer sell bonds into a market thoroughly disenchanted with the myriad failures of the European response to the crisis.

There are three eurozone member states in bailout programmes. The programme agreed for Greece in May 2010 has failed and Portugal is unlikely to exit its programme on schedule. Would the ECB like to have even one success?

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  • Harry Flashman

    For every foolish borrower there is an equally foolish lender.

    As a firm believer in the capitalist system I believe there is only one answer to the bondholders of Anglo-Irish debt; “go whistle for it sunshine”.

    The Irish have put up with this nonsense for too long, they cannot bankrupt future generations just to prove what good Europeans they are. The Irish government did not borrow the money, it was a free and fair exchange between commercial organizations who were fully aware, or should have been, of the risks they were running.

    “Not a cent more!”, should be Ireland’s stance, they have a proud history of standing up to the bullying and threats of larger neighbours, they need to rediscover that trait.

  • Mick Fealty

    Except that the reason the bondholders have some considerable defensive rights in the matter relates to promises that were hopefully made on 28th September 2008.

  • Zig70

    There is no example of a nation become rich by paying its debts.

    http://greylining.com/2012/01/16/why-doesnt-the-whole-damn-planet-default-addendum/#more-6663

  • JR

    All this money eventually found it’s way into the Irish Economy. When Anglo lent Joe Blogs €400,000 to buy a two up two down in Ranelagh from P O’niell. That money went into P’Oniel’s Bank account. That is real money that went into the Real Economy.

    On principle it should be paid back.

  • consul

    All this money eventually found it’s way into the Irish Economy. When Anglo lent Joe Blogs €400,000 to buy a two up two down in Ranelagh from P O’niell. That money went into P’Oniel’s Bank account. That is real money that went into the Real Economy.

    On principle it should be paid back.

    Joe Bloggs should be accountable for the €400,000 he borrowed from Anglo, but expecting him, and everyone else, to cover Anglo’s borrowings from banks in France, Germany and elsewhere is a bit much. How many times should you be expected to pay back the same money. Of course you can point to the Bail-out Deal signed between the Banker’s puppets in Ireland and the continent and say well it’s all legal and above board. So legally as we stand it must be paid back, shame the task isn’t remotely possible. On principle however, I’m not so sure.

  • Mick Fealty

    Indeed. That’s where Vincent has a point. But was he losing his temper with the wrong guy? As McCarthy notes, the Irish government (and some of the opposition) also need to clarifiy what their position and pitch is going to be on these matters.

  • consul

    The politicians will continue as they are until people on the ground decide they’ve had enough of the status quo. This will take a couple of years. At the moment people don’t want to, as they see it, jump from the frying pan into the fire. Another year or two and they may recognise that they’re in the fire and need to hop back into the frying pan. Default, possibly leaving the Euro or even the EU are all stuff of the unknown. No one can say how difficult some or all of those options would be. Eventually, as we continue on this current path, we’ll likely find ourselves in a spot where these choices may start looking like the lesser evil.

  • Alias

    “All this money eventually found it’s way into the Irish Economy. When Anglo lent Joe Blogs €400,000 to buy a two up two down in Ranelagh from P O’niell. That money went into P’Oniel’s Bank account. That is real money that went into the Real Economy.”

    And where is it then? If it was in said gentleman’s bank account it would be an asset of that bank. In case you didn’t notice, those banks have a liquidity crisis so the money seems not to be in the banks.

    And how could it be? It was invested into assets that were inflated in price by expansionist monetary policies that caused too much money to chase too few investment opportunities and the resultant rapid deflation has now caused most of the borrowed money to be written off as a loss.

    If you borrow (import) one trillion euros (and Irish borrowers had borrowed 1.84 trillion of them at the time of the guarantee) then you have a debt of one trillion euros plus interest. Your “real economy” then has to invest that money so that it is able to repay (export) the debt and interest within the term of the loan.

    If the assets are worth 10% of what was paid for them then your “real economy” has to generate the missing 900 billion plus interest from activity not related to the borrowed money in order to repay it.

    That is your real debt in your “real economy” – and good luck trying to generate that level of wealth in a domestic economy that is in rapid economic decline.

    All that is occuring is that the state is giving away all of its assets and reserves to foreign lenders, and will have no assets or reserves to borrow against when the ECB (alreasy massively overlveraged) stops funding it. That’s when your dear old granny will be lining up for a soup kitchen with no soup in it – and a lot sooner than you think.

    “On principle it should be paid back.”

    It should be repaid by those who borrowed it, not by those who didn’t borrow it. Of course, the reason the EU has forced the state to underwrite it is because those who did borrow it couldn’t repay it. If the old principle fails cover your commercial risks, introduce an entirely new one after the deal goes bad.

  • Zig70

    Crisis of management over leadership in the Irish government? or the accolades of the EU leaders to Enda a heady pill? Maybe more likely public sector attitude to/ fear of risk as relates to the previous NGO/DRD thread. €1.25bn in unsecured loans getting paid out is a mystery to me. No private sector business would entertain it.

  • wee buns

    “On principle it should be paid back.”
    What should be paid back – makey-up money written in promissory cyber space note paper? It’s unreal; vast quantities if that ‘money’ never existed – so on which nonexistent principle should it be paid back?
    Vincent = a hero of mine; as for the dark haired woman on the panel : enough of the slithering please!

  • Mark

    Browne did himself no favours with his dithering but you can understand where he’s coming from . The Geeeerman thinks paying the Irish compliments about our economic understanding lightens the blow and he’d be right .I heard someone say over the weekend that ” we ( the irish ) are great for the way we’ve reacted to all these nasty auserity measures whereas those Greeks cant do frugal without running amok etc etc ….

  • JR

    Consul,

    The money only gets paid back once.

    I may be wrong but as I Understand it.Anglo borrowed the money from Germany and lent it to Joe Blogs who in turn gave it to P’Oniel.

    P ONiel then Bought a €40,000 car from Bill Cullen which paid a salesmans salary for 2 years. (money goes into real economy)

    P’ONiell then Bought half an acre from Old Mc Donald for €200,000 (The real value of this half acre was only €10,000) Now Old Mc Donald can spend €50,000 on a new tractor. Give Bob the Builder €40,000 to build a new shed. Etc etc etc….

    Now because Joe blogs can no-longer meet his repayments Anglo cannot repay it’s debts and goes bankrupt. The Government took the decision to Guarintee the Bank’s liabilaties to prevent a collapse in the banking system and in that move promised to give back the money to everyone who originally lent Anglo the €400,000. My point is the €400,000 made it’s way through the entire economy. On Principle it should be paid back.

  • JR

    Wee Buns,

    The problem with that is that 90% of all money was conjured from thin air. Unless it is treated as real it all disappears back to thin air. That includes all legal tender and the numbers you see on your ATM screen

  • consul

    Now because Joe blogs can no-longer meet his repayments Anglo cannot repay it’s debts and goes bankrupt.

    You’ve got it backwards I’m afraid. The reason Joe can’t pay his loan is he’s roped into paying Anglo’s. The billions of euro of charitable donations, taken out of the economy to save to defunct banks is the reason half a million Joes now find themselves in trouble. They are finding it difficult to pay their loans because it has been decided that first they must pay someone elses. The banking crisis was not caused by the economy tanking, the economy tanked when the banks started receiving charity.

    I may be wrong but as I Understand it.Anglo borrowed the money from Germany and lent it to Joe Blogs who in turn gave it to P’Oniel.

    P ONiel then Bought a €40,000 car from Bill Cullen which paid a salesmans salary for 2 years. (money goes into real economy) … and the rest

    That like me saying well Wee Buns lent me €100, I lent you on €50 and you used that to make a bit of money. Then I lose me shirt at the bookies, I can’t pay WB back, but never mind, I can always rope you into paying back the €100 with interest, first and foremost, and if that interferes with your prospects of paying me back the €50 you owe me, that’s your problem. But just don’t be complaining about it , you wouldn’t have got your loan and made money without me, so you’re obliged to pay off my debts as well as yours. On principle you owe the money so shut up and pay it. All of it.

  • Mark

    JR ,

    I’d love to know just exactly how much went into local communities that you spoke of above . What % went towards local business and what % left the country and was used to buy land in foreign countries such as Spain and France . I was in both countries recently and they reminded me of Dublin in the 80’s with the half bulit apartment complexes and empty unrented houses . And what amount went to the Irish building firms who bought and then half bulit many unfinished sites around the country . Why do we have to pay that back ….

  • wee buns

    JR :
    The big question is WHERE did that money go? IF indeed the money ever existed….
    Loans are essentially promissory notes – that’s what created the bubble.
    If the bubble burst before those notes were made flesh, so to speak; not the fault of the borrower but of the financial & banking systems – because it was they who speculatively set the size and parameters of some imaginative, theoretical market – and wrongly so.

    Mark :
    The German is playing an old fashioned offensive = the ‘issue of self worth’ card – which my mother remembers well, in rural life where the highest compliment a person could be paid (esp. a woman), was that she ‘never complains.’
    Values may have changed. Not according to Lonely Planet Guide 2012 – our self esteem is dubious – but let us see, when septic tank charges in particular hit home, the state of the nation’s mental health.

  • Mark

    Wee Buns ,

    The stress and worry that people have have to contend with in the last three years could have an adverse effect on people’s health in the coming years . Stress is a killer and there seems to be plenty of it about . I think the gravity of the situation is only starting to dawn on folks now .

  • JR

    Consul,

    The reason Joe can’t pay his loan is he’s roped into paying Anglo’s.

    Then where did Anglo’s problem come from? I think you will find that it was loan defaults.

    Also the thing you miss in your analogy is that Wee Bun’s name is printed on the bank notes. Another is that the end result of all this cheap money coming into the country was an increase in the salaries of Guards, teachers, Nurses, civil servants etc who could all buy more goods and services from everyone else.

    Everyone was happy with the consequences of cheap credit as it become available. I think they should have to pay it back.

    I think a country is like a business. If the Union keeps voting for pay rises and shorter hours (analogy for better wages and services) all paid for by the Banks money sooner or later it should be paid back.

  • Harry Flashman

    “Except that the reason the bondholders have some considerable defensive rights in the matter relates to promises that were hopefully made on 28th September 2008.”

    That “guarantee” was a unilateral act by the Irish government and had nothing to do with the original loans, I’m sure the bondholders must have been delighted to receive it, long after they’d signed the original deals, but it was not part of the original deal.

    The Irish feared in Sept 08 that not paying Anglo’s bondholders would lead to a crash in the Irish banking system. That threat has been contained, the Irish banking system did de facto collapse but in an orderly way and under the control of the government. There’s nothing the bondholders can do now.

    The guarantee was made unilaterally and without conditions, it should simply be removed now and let the bondholders do what they will.

    They took the risk when they bought the bonds, if it had paid off they’d have earned handsomely, they lost, it is no business of the Irish taxpayer at this point.

  • Alias

    “They took the risk when they bought the bonds, if it had paid off they’d have earned handsomely, they lost, it is no business of the Irish taxpayer at this point.”

    True, and with few exceptions, they also insured their risk with a third party via a credit default swap. If a default occured, they’d claim from the third party insurer. It is those third party insurer who are actually being protected by the state effectively paying out on their behalf while they continue to make huge profits from CDS policies that will never be claimed against. In effect, a risk-free risk insurance business – and money for nothing.

  • JR

    Bond holder sell money just as Soudi Arabia sells Oil. There is no differance. Would it be OK for the government to take a decision not to pay Soudi Arabia for Oil the country has bought and Burnt over the past 10 Years?

    On Principle I don’t think so.

  • Harry Flashman

    If the government borrowed the money JR you would be absolutely correct, however the purchase of Anglo-Irish debt was entirely a private, commercial transaction, the Irish government had no involvement in the deal until it decided later to offer a guarantee, a guarantee it is under no obligation to honour as it bore no relation to the original transaction.

    If an Irish supermarket chain bought a shipload of pork bellies off a Chinese supplier in a private deal would the Irish taxpayer be liable to pay the Chinese supplier if the supermarket subsequently went bust?

  • tuatha

    I remember FF’s Ice Queen having the gall/balls (sic! unlike her ‘male’ colleagues so kudos for that) to canvass housing estates in Donegal Town during the long postponed SW Donegal by-election in 2010.
    Either through born-to-rule hubris, or ignorance I’m not sure but she tried to tell me that it was necessary to bail out Anglo to ensure pensions were paid.
    DID NOT COMPUTE then, never has, never will.
    It was a pleasure to see her dismissed with the rest of her unlovely ilk last year.
    If ALIAS’s figure of 1.84T is accurate then that’s about a miiion per taxpayer. As i didn’t borrow a cent, then someone has my million “share” and, as far as I am concerned, they can pay it back. Or not but don’t come knocking on my door.
    It’s an old tune, but none the less true, that 80%+ of the money in any soi disant capitalist system is FIAT, ie it doesn’t exist, on any known planet, it was conjured out of the pleached mutual obligations, the toxic spawn of which was CDOs/CSO and other insanities/obscenities.
    DEFAULT NOW!

  • Harry Flashman

    Is it even a question defaulting?

    The Irish government has, as far as I know, no problem in servicing the debt incurred by the Irish state, they have a moral and legal duty to repay that money.

    Anglo-Irish was a private company involved in private business transactions with other private companies.

    It’s debt is no business, or shouldn’t be, of the Irish taxpayer. The Irish government should simply say that after mature reflection it has decided to rescind the guarantee which had no legal obligations anyway.

    If they’re feeling generous they could make a swap, ten pence in the pound in cash and all the equity the bondholders can handle in Anglo-Irish bank, the government would be happy for them to take it off their hands.

    Take it or leave it.

    They lent the money to a bunch of shysters, they should have done their due diligence, it’s big boys’ rules in the bond market as most bond purchasers are well aware.

  • consul

    Then where did Anglo’s problem come from? I think you will find that it was loan defaults.

    Oh you’re damn right it was loan defaults but not from the likes of Joe Bloggs. It was high net worth individuals who took out loans of 10s of millions at a time, such as the likes of the Golden Circle, who took Quinn’s stake after he’d gambled and lost. If he would have come up trumps with the CFDs, do you think he would have been minded to share the proceeds out with the people, on principal like, or would he have taken the view that he borrowed the money, he took the risks, so he alone should reap the benefits. Which do you think? Personally I have no problem with with people making astronomical sums, if they have the talent fair play to them. But if it all blows up in your face don’t come crying to me like I owe you.

    You keep coming out with this rubbish about because these people created some jobs in the process of making themselves extremely wealthy, that somehow ordinary people, because they got some of the crumbs that fell from the big player’s tables, are now morally obliged to cover their arses. Many of these people were perpetually in debt, by hundreds of millions, in some cases into the billions, rolling over loans with the next big deal. And then the music stopped, they were caught with their pants down. They were not regular Joe Soaps because Anglo didn’t deal with any ordinary Joe Soap, certainly not in the latter years.

    Also the thing you miss in your analogy is that Wee Bun’s name is printed on the bank notes.

    Didn’t miss it at all. I’m aware that we’re living in the German Union. Check back and you will see that I noted we may eventually have to consider leaving the union if they take the position that screwing the likes of Ireland is going to be permanent policy.

    Everyone was happy with the consequences of cheap credit as it become available. I think they should have to pay it back.

    One of the reasons they didn’t ask too many questions was that they hadn’t actually borrowed it and therefore came to the crazy conclusion that they would not have to pay it back.

    I think a country is like a business. If the Union keeps voting for pay rises and shorter hours (analogy for better wages and services) all paid for by the Banks money sooner or later it should be paid back.

    Actually, although there are certainly some issues on day to day spending in Ireland that need to be talked about, they wouldn’t have, on their own, threatened the solvency of the state. It’s only when we find ourselves saddled with other people’s astronomical debts that it becomes hard to pay for a functioning society.

    If you think that, on principle, there are any conceivable circumstances where it is morally right that a loan should be covered by anyone other than the individual or entity that took out the loan, then maybe you should reassess your principles. They certainly don’t coincide with mine.

  • Zig70

    None of this really addresses the issue of paying the bonds without a whimper in the country. You would think postponing payment until after we see the Greek settlement fallout or even until Ireland sees how much it has left after the ecb bailout. Most sme’s will know that getting paid on time can be a real torture. Many business drag out payments for various reason. Not necessarily moral but it’s business. Another view is that paying these bonds ensures the debt crisis continues and actually damages the market and the euro’s chance of survival. That’s a risky game and the current Eu setup can’t do risk. Nor have they the cohoons to face down Enda if he said he wasn’t paying every debt.

  • wee buns

    On the eve of the next 1.2 billion to a dead bank, FG is talking about the ‘bigger prize’ of renegotiating promissory notes. When groveling for slight cut in chastisement becomes a ‘prize’ you know we are in trouble here.

    The Danes had the audacity to burn senior bond holders last month, with no negative consequences, yet FG scaremongerers remain unaffected by this fact – see tonight’s V Browne.