Yes, this may not be popular at EU/ECB level, but it comes back to natinal interests trumping international co-operation. I'm not saying the Irish are being selfish, I suspect they are simply taking advantage of an obvious business opportunity which will be highly profitable.
I think there was near panic in Irish Government circles when the banks went into freefall, so this is probably more a case of a national Government being able to act much more quickly than the EU when national interests are seriously threatened.
The banks are being very silly and short-sighted if they now seek to use this for competitive advantage vis a vis other banks. The Irish Government will come under extreme pressure to restrict the guarantee to bank accounts set up in Ireland or by Irish residents or in some other way to prevent a tsunami of money washing over Ireland and leaving everyone else high and dry.
The US has the advantage of having institutions - like the FED - which can act very dramatically and rapidly in response to a crisis. The EU Commission and Central Bank are a joke by comparison. The Irish Government probably had little option but to act quickly - but now needs to modulate its response more finely.
In the meantime the EU needs to come up with a more concerted response - or else national interests will take priority.
What a fine mess the US got us all in! However if it results in a more dynamic EU decision making structure and process then some good will come of it. Lisbon is beginning to look inadequate and unt of date already! Vote McCain for war without gain
IHT: Ireland 'blank check' to banks raises questions (October 1, 2008)
That Irish blank check amounts, in a doomsday scenario, to a maximum estimated liability of €400 billion (US$560 billion) -- just to repay the debts and deposits of six banks. That's double the country's annual gross domestic product, nine time the national debt and €95,000 ($135,000) per citizen. But Ireland's government leaders themselves have stressed that they made the unprecedented promise only because they calculated, by doing it, shares would rebound, foreign capital would flow in, and they would never have to spend a cent of taxpayer's money bailing out a bank. Prime Minister Brian Cowen said he had "not handed over any money to any bank. I have provided the reputation of this state to the banks."
But Ireland's government leaders themselves have stressed that they made the unprecedented promise only because they calculated, by doing it, shares would rebound, foreign capital would flow in, and they would never have to spend a cent of taxpayer's money bailing out a bank.
Prime Minister Brian Cowen said he had "not handed over any money to any bank. I have provided the reputation of this state to the banks."
I think that Globalization just ended. And unless the ECB steps in to clean up the mess, I think that the single market just got torn into several dozen pieces. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
European officials squabbled over how to respond to the global credit crunch, with Germany opposing a coordinated approach and the Netherlands calling on states to set aside funds to help troubled banks. French President Nicolas Sarkozy distanced himself from comments by his finance minister Christine Lagarde over the need to set up a ``rescue fund.'' Luxembourg Prime Minister Jean- Claude Juncker told DeutschlandRadio today he didn't ``see the need'' for an effort to emulate the $700 billion rescue package that U.S. senators passed yesterday. ... Lagarde told the German newspaper Handelsblatt in an interview today that a ``rescue package'' was needed to help ``smaller'' European states ``threatened with a banking failure.'' Germany opposes the proposal ``based on its current assessment of risk,'' said Finance Ministry spokesman Stefan Olbermann.
French President Nicolas Sarkozy distanced himself from comments by his finance minister Christine Lagarde over the need to set up a ``rescue fund.'' Luxembourg Prime Minister Jean- Claude Juncker told DeutschlandRadio today he didn't ``see the need'' for an effort to emulate the $700 billion rescue package that U.S. senators passed yesterday.
...
Lagarde told the German newspaper Handelsblatt in an interview today that a ``rescue package'' was needed to help ``smaller'' European states ``threatened with a banking failure.'' Germany opposes the proposal ``based on its current assessment of risk,'' said Finance Ministry spokesman Stefan Olbermann.
In addition, central bank intervention of a failing retail bank can be swift. They just didn't have stomach to do their job. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
Zaptero has got into the act, and Santander looks to be playing a major role in pressuring Brown into doing the right thing.
That and the possibility that the City of London may re locate to Dublin if he doesn't act. Wouldn't that be ironic given the talk about keeping the City happy? And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
I expect this to trigger an "Illegal State Aid" procedure from the Commission... Stoopid bank executives... A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
THere's also the danger that they'd cause a chain reaction and end up nationalising the lot, which isn't obviously better than the current plan.
Just wait... A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
I think it is because if they nationalised them, they might not have to guarantee the debt on top of the deposits. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
if they nationalised them, they might not have to guarantee the debt on top of the deposits
I agree, ironically; if the government "nationalizes" the 6 "national" (charter, i.e. licensed) banks, meaning purchase equity or bonds, the government will in deed own the banks' debts. The government need not "guarantee"; it is obligated to repay the banks' debts. In general, in legal terms, any "guarantee" otherwise is not executable.
Irish Times:
Tuesday's guarantee offered by the Irish government to its six national banks to safeguard €400 billion of deposits and bank debt
The ratio of deposits (retail plus commercial) to debt is not given. I assume there is a government sponsored agency that reports this aggregated data to the public.
The correspondent implies two distinct insurance mechanisms. One guarantees the banks' demand depositors in the fashion of the FDIC; premiums paid by banks may be calculated to some ratio of non-borrowed level of funds. The second guarantees the banks' debts, their borrowed funds, in the fashion of the Bailout Bill or commercial, monoline insurance of third-party transactions.
It is the latter case rather than the former, I imagine from which arises claims of competition, especially "first mover" advantage across the pond. As you know, all depositors, foreign and domestic, to US FDIC-insured banks are protected, so to speak.
I'm embarrassed to say that I am surprised that EU banks don't offer depositors insurance. As for debt (bond) insurance, is it possible the government merely means to imitate the US Bailout Bill by offering an extra-layer of protection and incentive to firms to preserve their deposits in Ireland? Diversity is the key to economic and political evolution.
Most EMU countries have a simple cap at 20k€.
France has a cap at 70k€, I think it's the highest in the EMU. It doesn't need changing I think (and actually sarko has only done talktalktalk, no actual legislation or decree has passed that would raise the cap). Pierre
Britain still does not have a comprehensive system of deposit insurance for retail depositors, let alone some temporary guarantee for wholesale depositors as announced yesterday in Ireland
So this PR is a truly about legitimizing insurance for brokered deposits and €400B is estimated flow of money markets through these banks? Diversity is the key to economic and political evolution.
I think it's about 2:1. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
CDS Spreads? A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
This market is broken, with only near-bankrupt firms selling protection (backed by over-collateralization from their remaining assets, performing or not), to other near-bankrupt firms seeking regulatory arbitrage (protect your risk-weighted assets from a downgrade of your asset, by having it protected by someone who, you hope, will be downgraded only somewhat later).
But still, distressed banks including my own have spreads, for what they're worth, of a few % of protected amount. This spread is a fee that the buyer of protection has to pay each year. Hence a "market" price of 10 B€/year. Over 5% of Irish GDP, which is now closer to 200 B€ actually according to Wikipedia. Pierre
Although the gains and volumes were not as high as yesterday, Irish banks stocks enjoyed strong gains by mid-afternoon with Anglo Irish Bank adding 16.7 per cent to €4.48, bringing its shares back to levels held on September 22nd. Irish Life and Permanent was also higher, adding 72 cents to €5.35, a rise of 15.8 per cent. Bank of Ireland added 52 cents to €4.47, a rise of 13 per cent while AIB added 25 cents to €6.15, a rise of 4.2 per cent.
Although the gains and volumes were not as high as yesterday, Irish banks stocks enjoyed strong gains by mid-afternoon with Anglo Irish Bank adding 16.7 per cent to €4.48, bringing its shares back to levels held on September 22nd.
Irish Life and Permanent was also higher, adding 72 cents to €5.35, a rise of 15.8 per cent. Bank of Ireland added 52 cents to €4.47, a rise of 13 per cent while AIB added 25 cents to €6.15, a rise of 4.2 per cent.
