NEWS ITEM OF THE DAY:
> This TASC link contextualizes the FT editorial and frames the hidden interests pushing for all energy and focus on cut’s as Irelands salvation.
BY FT – EDITORIAL ON IRELANDS DILEMMA / FULL ARTICLE BELOW
>Brian Cowen’s “hoarse” performance in a radio interview has led to calls for the Irish prime minister’s resignation. But this is the least of his mistakes, or the country’s problems. It would be better if Irish deputies focused less on his alleged tipsiness, and more on his misguided strategy for dealing with the country’s banking sector.
Confidence in Ireland’s creditworthiness has slumped. At a debt auction on Tuesday, Ireland was forced to pay more than 5 per cent for four year bonds – about what it would pay were it to access the European Financial Stability Facility. Weakening growth has pushed the country off-track in its fiscal consolidation, leading the central bank governor, Patrick Honohan, to call for further cuts in public expenditure lest Ireland misses its deficit reduction target.
The Irish public has already taken plenty of pain in the form of spending and wage cuts. Before asking for more, Mr Cowen should change a perverse policy that pushes up interest rates and crimps growth. Ireland was not highly indebted before the crisis, with sovereign borrowings of just 25 per cent of GDP. Private sector analysts now fear that gross public debt may reach up to 136 per cent in 2014, once Dublin’s guarantees and estimated losses are added to its sovereign borrowings. Much of this reflects the state’s acceptance of open-ended exposure to private liabilities across the banking sector – a policy that unnerves markets and jacks up sovereign rates.
Ultimately, given the government’s determination to shrink the primary deficit, the main determinant of debt sustainability will be the interest rate. Getting market rates down will therefore be more important to control the deficit than cutting a couple more percentage points of GDP from public spending (a course that anyway might further harm a growth path that looks set to lag the government’s own projections).
Mr Cowen should cut the umbilical chord to the banking system by making it credible that bondholders will no longer be protected against all losses. This could only be done after enacting a special resolution regime such as the one the UK has adopted. It might mean an Irish banking system with fewer liabilities and more foreign ownership. But it would cut sovereign yields and set the deficit on a sustainable path.
The Irish public has been stoical about austerity but anger is now crystallising around the banks. Mr Cowen has a sobering choice: to allow a wipeout of creditors or face wipeout at the next election.
BY – ANON
BELOW IS AN ANSWER TO A QUESTION ON WHY ECB BANK ROLLING IRELANDS BOND ISSUANCE.
>Because a very large percentage of the money that was lent to Anglo and the other banks came from German banks. If the Irish tax payer does not pour money into the Irish banks, the loser will be the German banks, so they are doing everything they can (and the Germans have huge influence with the ECB, basically they are the ECB at this stage). The German banks are doing everything they can to make sure they will get paid back. Basically the ECB is not providing a backstop to the Irish bond market for our good or because they like us. As David says, the sooner this is stopped the better.
BY ANON – IRELAND / ANGLO HEADLOCK
There is another way. We are talking about a fairer, more equitable, more just society. But we have aligned ourselves with such forces and people that is virtually impossible to redistribute or get out of the self-imposed head lock, especially with the continued and utterly insane bailout of Anglo and soon, AIB and BOI. There is no way we can raise the corporate tax rate, corporations whether we like it or not are a source of much needed revenue and more importantly, employment, to touch that now would be disastrous