Pritchard – Background raw facts on Ireland debt solvency NOW.
Dublin has played by the book. It has taken pre-emptive steps to please the markets and the EU. It has done an IMF job without the IMF. Indeed, is has gone further than the IMF would have dared to go.
It has imposed draconian austerity measures. The solidarity of the country has been remarkable. There have no riots, and no terrorist threats.
Yet as of today it is paying 5.48pc to borrow for ten years, or near 8pc in real terms once deflation is factored in. This is crippling and puts the country on an unsustainable debt trajectory if it lasts for long.
Yet Greece is able to borrow from the EU at 5pc and from the IMF at a staggered rate far below that (still too high for the policy to work, but that is another matter). These were the terms of the €110bn joint bail-out.
To add insult to injury Ireland is having SUBSIDIZE Greece to meet its share of the rescue fund.
I am sure you can all see the absurdity of this. It has moral hazard written all over it, and shows what happens once a dysfunctional system twists itself into ever greater knots rather confronting the core issue.
Yes, I know that the Irish and Greek maturities are different but the fact is that Greece has extracted better terms by letting matters get further out of hand.
George Papandreou’s PASOK has benefitted from dilly-dallying on the first set of austerity measures, and – not to be too diplomatic about it – by insulting the Germans with demands for war reparations. Hotheads also set fire to downtown Athens and Thessaloniki, improving the effect.
If I were Irish – (and I suppose in a sense I am: Sir John Parnell was my great, great, great grandfather) – I would be a little annoyed.
Zerohedge on IRELand.
ANON – ANGLO
Re “But, why is the taxpayer bailing out the Anglo loans from their interbank lending, any ideas?”
You have to probe the Anglo archaeological strata, probe layers down to a secret and protected layer called the “Commercial Sensitivity/Right to Privacy Layer”. This is a ledger that has detail of who the interbank lenders are, the transactions made, the liabilities. There is another similarly secret layer for the Anglo 10 billion plus lenders. We need to know the detail of their transactions, where the money went, evidence and proof of compliance with the law. We know only a small bit of this information. Then there is the most secret layer of all, the depositor layer. Who are these depositors, large sums only? The money is gone, but who/what institutions make up the Anglo depositor base, Irish pension funds! Any whistle blower ready to publish and be damned?
I’ve asked these q’s before. So delighted to see Colum Kenny of Sun Independent, p30, echo similar q’s in his article, ‘Where have all those billions gone? It is a legal obscenity to allow the chancers whose recklessness got us into this mess to hide behind privacy laws’
Before the fall of the Berlin Wall we would point to the lack of freedom of speech, transparency, hidden bureaucracy, lack of information from behind the iron curtain.
Here we are fed a new unwritten concordat for taxpayers, socialism for the banks and an iron curtain to prevent us seeing their books except through filtered propaganda from the new bankers’ secret police of Lenihan, Dukes, Cowen & Co.
Do you believe they are trustworthy? Welcome to the world of secret negotiations, secret deals, cover ups and propaganda. Best practice for dealing with the banking crisis is to be as open and transparent as possible, instead we are now out to freak the markets!
Discussion on ANGLO Irish Economy blog
BY; Brian Lucey on ANGLO.
That there are significant additional losses to come from Anglo is undoubted. The Government and its proxies continue to assert, without placing in the public domain any detailed analyses, that the losses will be capped at €25 billion. This is the same process that has successively asserted that the losses will be €4.5 billion, €12 billion, etc. Why are we expected to believe them now, when they have proven to be wildly inaccurate in the past? Analysts inside and outside Ireland believe Anglo’s losses will be at least €35 billion – with potential for €40 billion-plus.
Anglo, like all banks, is funded in five ways: deposits; borrowings /deposits of a short-term nature from other banks and central banks; longer-term borrowing (senior debt); longer-term borrowing with less protection (subordinated debt), and by shareholders. The question that arises is simple: which of these should be protected in full, and which in part? It is startling that, as of now, only the most junior party, the shareholders, have been asked to take the full consequences.
Some subordinated debt has been (voluntarily) renegotiated, but there remains some €2.5 billion of subordinated debt in Anglo. This should now absorb the next €2.5 billion of losses. It is unfortunate that the Government has guaranteed some of this, but this is a legislative act and can be unwound.
Beyond that, we are into the realm of senior debt holders. Anglo has borrowed some €14 billion from such investors, of which some €7 billion is repayable in September. It is now beyond time that these investors be informed that their investment is not fully payable. There is more than enough in the subordinated and senior bondholders to absorb even the most pessimistic estimates of losses to emerge from Anglo. We can, and I say we should, consider this.
We are told by the Government that to do so would be a sovereign default. This is palpable nonsense. Anglo Irish is a private institution, which has some elements of its capital structure guaranteed by the Government. It is not the State. The reason the guarantee was given was the fear that allowing Anglo to be wound down in 2008 would have precipitated a cascade of Irish bank failures. While this is debatable, we are now in 2010. The taxpayer has paid enough.
Governments have a genuine concern that if a state defaults, it may not be able to re-access bond markets. But even if we allow the fantasy that Anglo is the same as the State, assertions that this chimera would be “locked out” of the international bond markets are false, and are pedalled as a scare story to frighten the taxpayers and citizens into ponying up sovereign money to bail out private investors.
Bond investors look forward – what they are interested in is the risk that they will not be repaid. A history of default will of course impact on the amount of money they will lend, and the price they will charge. But the evidence is that even serial defaulters can gain funds on an ongoing basis.
Academic evidence, including papers from the International Monetary Fund, indicates absolutely no evidence that sovereign investors are permanently excluded from the international capital markets after a default. Even in the rare cases of temporary exclusions, in the sense of not being able to issue bonds, this rarely lasts for more than two years. In addition, the evidence is that any increase in sovereign debt costs is short-lived and transitory. We have to decide: is the price for the taxpayer of any increased cost of lending if we discontinue support to Anglo, less than the cost of continued support?
There is in my mind no question now but that there is a moral, political, economic and social need for the subordinated and senior debt holders of Anglo Irish Bank to bear the remaining costs. There is a timing problem, however – any announcement of the intention to force these losses on the senior bondholders would have to come prior to the renewal of the guarantee at the end of September. Thus, the next three weeks are critical.
There is an argument that this decision to withdraw the guarantee should be taken in conjunction with another. The State is now paying more for money than it would if it were to access the EU stability fund. The judgment of the bond markets is that the combined banking and fiscal crises are such that Ireland is no longer a sound bet. A very large part of this is the increasing concern that there is not the political will to deal with either of these problems, never mind both.
Pulling the plug on further taxpayer involvement in Anglo may best be done at the same time as announcing that we are to seek the assistance of the EU in restructuring our fiscal position.
It is time to seek to place ourselves in the hands of people who can run the State effectively – and in the long-term interests of the citizens. Political or indeed national pride should not stand in the way of this.