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"The vast, vast majority of the Irish government debt is illegitimate, taken on in the process of bailing out insolvent German banks."

Now that is uttermost nonsense. Ignoring the role of the irish banks,their irish creditors, their french, british, american creditors. Or do you want to claim that the average irish bank had no deposits at all?

The vast, vast majority of irish debt was taken on in the process of coping with the results of the bust of the property bubble. Like in the UK or the US. It is a legitimate as any other countercyclical borrowing.

I am really dealing with nationalistic myths here.

by IM on Sat Feb 5th, 2011 at 07:37:24 PM EST
[ Parent ]
Ignoring the role of the irish banks,their irish creditors, their french, british, american creditors. Or do you want to claim that the average irish bank had no deposits at all?

No, but the depositors are not illegitimate claimants. The interbank lenders are. Depositors should never lose their shirts - interbank lenders should.

The vast, vast majority of irish debt was taken on in the process of coping with the results of the bust of the property bubble.

This is simply false. Contrary to fact. Not true.

And even if it were true, it would not help your case. Because if it were true, the ECB should be carrying it at 0.0 % interest - a major point of having a fiat currency is to permit unrestrained countercyclical spending.

Either the debt is from the bailout - and then it should be defaulted on as a matter of principle, or the debt is from countercyclical spending, and then Ireland should not be paying 5.7 % interest to the ECB for having the ECB do its fucking job and print money to fund countercyclical spending.

Either way, Trichet, Weber and Stark need to STFU and start the printing presses already. And Merkel especially needs to STFU with her neoliberal "debt brake" garbage.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 07:58:10 PM EST
[ Parent ]
See, another idiotic claim.

"should not be paying 5.7 % interest to the ECB"

Nobody is paying 5.7% to the ECB. The ECB is lending to the banks, not to the state at 1.75%.

And the ECB can hardly to anything about the fact that the Irish state has since independence but especially in the last years at 3, 4, 5% at the capital markets. They get,perhaps, 5.7%.  

by IM on Sun Feb 6th, 2011 at 12:18:35 PM EST
[ Parent ]
the ECB can hardly to anything about the fact that the Irish state has since independence but especially in the last years at 3, 4, 5% at the capital markets.

And that would be wrong.

As a central bank issuing a non-redeemable currency, the ECB can and should fix the price of any sovereign bond.

Sovereign bonds are interest rate policy instruments, not fiscal policy instruments - there is no excuse for allowing the international money markets to constrain fiscal policy, and there is no excuse for allowing the international money markets to set policy rates.

The ECB is derelict in its duties as a central bank because it isn't buying Irish bonds at above market value. The Irish need to put the thumbscrews on the ECB. Which means putting the thumbscrews on Mrs Merkel. Which means making German banks insolvent, since that is apparently the only thing Mrs Merkel gives a shit about. She certainly doesn't give a pot of piss for European solidarity or the plight of Irish widows and orphans.

And if taking the German banking system hostage to get Mrs Merkel to stop screaming bloody murder whenever somebody tries to get the ECB to do its fucking job results in some collateral damage to German savers... well, you can go take it up with your own neoliberal CDU/FDP government that precipitated the crisis in the first place by insisting that the ECB can't do its job.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 07:14:41 PM EST
[ Parent ]
JakeS:

Sovereign bonds are interest rate policy instruments, not fiscal policy instruments - there is no excuse for allowing the international money markets to constrain fiscal policy, and there is no excuse for allowing the international money markets to set policy rates.

The ECB is derelict in its duties as a central bank because it isn't buying Irish bonds at above market value. The Irish need to put the thumbscrews on the ECB. Which means putting the thumbscrews on Mrs Merkel.

The problem with this is that the ECB is not doing this out of its own volition, it's right there in Article 123 of the Lisbon Treaty. Of course, one can collude one's way around that.

The irony of the situation is that Merkel is pushing for treaty change to solidify the Austrian Economics shock therapy drivel by adding her "competitiveness agenda" to the constituent treaties. There is a need for treaty change, but the needed treaty change is not more German-inspired nonsensical macroeconomics, but for instance a repeal of Article 123.

As you can well realise, this is either recipe for gridlock assuming (big if) that a coalition of member states can be assembled around the demand to not only not accept Merkel's competitiveness pact, but rather more difficult, roll back what Germany (I'd bet good money that Article 123 was written by the Bundesbank) has already written into the EU constituent treaties.

So such a coalition can only lead to gridlock. Germany might even take its marbles away in a huff. I'm not sure they wouldn't if some other member state's default crashed their banks.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Feb 8th, 2011 at 04:32:12 AM EST
[ Parent ]
The problem with this is that the ECB is not doing this out of its own volition, it's right there in Article 123 of the Lisbon Treaty. Of course, one can collude one's way around that.

That would be a lot more persuasive if the ECB were actively telling people how mind-numbingly stupid Art. 123 is. But in fact they are doing the opposite.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Feb 8th, 2011 at 05:05:58 AM EST
[ Parent ]
From the other thread:
"Mr. Trichet is a European civil servant. He's a very important European civil servant and any civil servant will of course always stick to the plan that is there at the moment, just as he will stick to the plan that is renegotiated when it is renegotiated."
(sez someone in the Irish Labour Party)

Frank Schnittger:

There is a view in Ireland that we are seriously pissing off all the people who matter in the EU
However, Buiter haz observed that
President Trichet of the ECB is already so far down the road of telling governments what to do and what not to do in the fiscal and structural reform domains, that one is hardly surprised by yet another lecture on budgetary policy from the Eurotower.  Traditionally, continental European central bankers speak very little about monetary policy in public, and are often unwilling to engage in public debate or answer questions about their monetary duties, but carry on endlessly about budgetary and structural reform matters.  It's always easier to speak about things you have no responsibility for, that are not part of your mandate and about which you probably don't know very much.


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Feb 8th, 2011 at 05:26:09 AM EST
[ Parent ]
Well, the thing is, even when the ECB tries to workk within the rules it gets sabotaged from within by the hawks.

European Tribune - Non à Weber!

Quatremer points out that Trichet has been criticised by both Chirac and Sarkozy for "rigidity and obsession with inflation". However, Trichet is now recognised as being more flexible - Quatremer credits him with this:

BCE: après Trichet, à qui le tour ? - Coulisses de Bruxelles, UEECB: after Trichet, whose turn? - Backstage Brussels, EU
Dans la nuit du 9 au 10 mai, pour sauver une zone euro au bord de l'explosion, le président de la BCE a convaincu le conseil des gouverneurs de jeter par-dessus bord l'un de ses dogmes et a obtenu de pouvoir racheter sur le marché secondaire, celui de la revente, les obligations d'États de la zone euro attaqués par les marchés afin de casser la spéculation et stabiliser les cours.During the night of 9 to 10 May, to save the eurozone at the brink of explosion, the chairman of the ECB convinced the governing board to throw overboard one of its dogmas, and obtained the right to buy on the secondary market (where bonds are sold on), eurozone sovereign bonds attacked by the markets, so as to break speculation's back and stabilise prices.

Quatremer also credits Trichet with the decision not to take ratings agency notation into account when eurozone bonds were offered as collateral for borrowing from the ECB. Axel Weber, (and Jürgen Stark, the ECB's German chief economist) were both opposed to these measures and got in Trichet's way time and again -- and publicly:

Le président de la Buba n'a pas hésité, dès le 11 mai, à faire connaître publiquement son désaccord avec la décision de la BCE, rompant ainsi un principe pourtant imposé par l'Allemagne lors de la négociation du traité de Maastricht, celui du secret des délibérations. Désaccord depuis répété sans relâche, Weber allant même jusqu'à plaider pour le retrait des facilités de financement accordées aux banques et pour une augmentation des taux d'intérêt...The Buba chairman didn't hesitate, 11 May, to let it be publicly known he disagreed with the ECB decision [re secondary market buying], thus breaking a rule that had all the same been imposed by Germany in the Maastricht Treaty negotiations, that of the secrecy of ECB deliberations. The disagreement has not ceased since, Weber pushing it as far as to argue for withdrawal of financing facilities extended to banks, and in favour of an increase in interest rates...



Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Feb 8th, 2011 at 05:33:50 AM EST
[ Parent ]
I am really dealing with nationalistic myths here.

From the Icelandic-irish-greek nation?

(Soon to be Icelandic-irish-greek-portugese nation.)

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!

by A swedish kind of death on Sat Feb 5th, 2011 at 08:02:54 PM EST
[ Parent ]
Not to mention their Danish-Swedish-English-Spanish fifth column...

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 08:42:46 PM EST
[ Parent ]
Don't forget the commie USians!

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Feb 5th, 2011 at 10:46:32 PM EST
[ Parent ]
But you are buying in to nationalistic conspiracy theories., letting Ireland, neoliberal example Nr. 1, of the hook. That is policy moral hazard: The neoliberal policies are defended and Ireland can go on merrily on its neoliberal road.

That is not a good example, not for Ireland and not for "our" countries

by IM on Sun Feb 6th, 2011 at 12:24:42 PM EST
[ Parent ]
Did you miss the point that in the Irish domestic debate it's the neoliberals who are pushing for Ireland to honour its bogus debts?

Default would be a bloody nose to the Irish neoliberal agenda. It would be a bloody nose to "the markets." And it would be a bloody nose to Mrs Merkel and her neoliberal agenda.

Why is it more important to punish the Irish for electing neoliberal assholes last decade than it is to discredit the policies and ideology of neoliberal assholes in this decade?

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 07:21:01 PM EST
[ Parent ]
I see you claim this, but I still find it strange. I do not need any nationalistic conspiracy theories (indeed, I have not read any) to think it would be better for Ireland and Europe if Ireland does not do follow the Shock Doctrine.

Your argument is so similar to that of regular contributor redstar in regards to Iceland, that I will quote some.

redstar:

Look, we can talk about odious debts and whatnot all we want, but the thing is, Iceland is a representative democracy, arguably the oldest on the planet, and I've not read that this is changed and in fact a red/coalition is now in charge.

Its economic elites who managed the banks which have bankrupted the country (and make no mistake, the Icelanders are still in denial on this point, but their country is, in fact, bankrupt, playing by normal rules)  were overseen by regulators put in place by the people they elected. And so, any malfeasance is ultimately on the people. Understandably no one wants to admit they put in place people who gambled their money and now they are on the hook for 4 or 6 months salary in debt....but..they are.

If they had taken steps to put some bankers in jail, or better, served them to the English for UK-style Daily Mirror-reported justice, you know, I'd think this a mitigating factor excusing Icelander's shirking of their responsibility. Or, a complete middle finger to Europe, the UK and NL and withdrawal from Schengen (let's be consistent), making Iceland the Cuba of Scandinavia. Or both.

But this attitude of "screw of Dutch and the British" (because that is what they are doing) without any thought of real financial consequences (bye bye IMF guarantees, EU accession, Eurozone membership, bye bye favorable trade treaties allowing Iceland export to Europe virtually tariff-free) and also without assuming responsibility regarding punishing the guilty...fine Iceland, you can have the butter (renounce your debt) and the money from the butter (punish no one and pretend to be "independent") but et's see how Icelandic living standards are after a Cuba-style credit and tariff embargo for a couple of decades.

redstar:

The political objective of all of this would to put sanctions on what frankly amounts to lawlessness, and which has damaged the interests of citizens of the EU which had been granting the law-breaking country special status and trade rights. You can simply think of it as fairness. And it was EFTA's trade treaties with the EU which made Iceland's theft possible - their banks couldn't be kept out, so damn straight that's how it should play. (Assuming Brussels has balls...big assumption...)

This isn't about getting a small nation to repay its debts, it's about getting the elites who ran that small nation into the ground  to repay money they stole. There's a difference. A big one. And of course it's up to the Icelanders to figure out how to make those who are guilty pay. Sounds like property expropriation, punitive progressive taxation and jail time would be in order but again, that's up to them.

I am somewhat bemused by your defense of the Icelander's behavior, seeing them as some sort of small hero against the evil, imperial EU. The EU didn't bankrupt them, their elites did. And now, the same political tendencies which facilitated the looting are at the heart of the campaign to screw depositors in the UK and NL by rejecting the deal. With this, you seem ok. As long as Iceland is standing up to the big bad EU and large NL and UK, they are the hero, even if they are essentially robbing from the poor and middle classes (the depositors they largely screw by reneging on this deal) to bail out their own wealthy elite's responsibility for this mess.

I'm not following how that is heroic, myself...

My argument is and was that it does not work like this, in fact the austerity is the other side of the neoliberal policy. First you expand credit and fuel a bubble where everybody gets a little but the elite get a lot, then when it explodes you cut back social services and support for the poor. And the worse the external pressure, the more austerity for the poor.

Also this essentially applies another moral standard to small nations that can be blackmailed then to large nations (like France in the case of redstar). Perhaps shortest put in this comment:

A swedish kind of death:

Bomb bomb bomb Starve starve starve externalized scape goat.

So to turn it around: How much do you think the german people need to be pressured in order to elect a more leftwing government? Are you calling for a boycott of german goods?

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!

by A swedish kind of death on Mon Feb 7th, 2011 at 04:14:42 AM EST
[ Parent ]
Yes, starve, starve starve, And the externalized scapegoat is the EU, and in the case of Iceland the Netherlands and the UK. The Icelandish scheme, to put the assets and the domestic deposits in the new bank and leave all foreign deposits with the empty husk of the old, was fraudulent. As redstar pointed out, you agitated for the rescue of the Icelandish oligarchs at the cost of dutch and british tax-payers. Indeed, the Icelandish neoliberals thrown out of government, retreated to their positions in the press and engineered this famous referendum to weaken the new left-wing government.

And you supported this neoliberal swindle as some progressive movement. And now you propagate the same model: >Defend "our" oligarchs against the foreigners< for Ireland.

redstar had good arguments. Still posting?

Boycotting german goods: Well, you can buy more Scania and less MAN. That will impress VW mightily. In the age of the multinational company...

by IM on Mon Feb 7th, 2011 at 10:05:21 AM EST
[ Parent ]
The Icelandish scheme, to put the assets and the domestic deposits in the new bank and leave all foreign deposits with the empty husk of the old, was fraudulent.

No, that's not fraudulent. That's how you resolve an insolvent bank: You take all the assets and all the depositors and put them in a new bank, and let the liabilities stay with the old bank, which then gets a 100 % equity share in the new bank. The non-depositor creditors then get to eat shit and die, because they invested their money in an insolvent institution. That's called "taking a bank into receivership." It's a perfectly ordinary process that happens every month somewhere in the OECD.

And it is actually in no way unusual that it's foreign creditors who get to take the biggest haircut: The less able a bank is to fund in its home market, the greater its incentive to fund abroad, among banks who have less detailed local knowledge (and among a wider set of banks, thus ensuring a larger chance of finding a sucker). So quite often the most junior debt of an insolvent bank will be foreign. And the most junior debtholder gets to eat shit and die an a bankruptcy. That's the whole point of bankruptcy: Letting the bondholders eat the losses so you can salvage a going concern at the end.

Now, the Icelandic case was special because the Icelandic banks' assets plus the Icelandic depositor guarantee fund weren't even sufficient to cover their depositors. This is highly unusual, as deposits are normally only a smallish fraction of an insolvent bank's total liabilities, and a single bank is normally only a smallish fraction of the deposits covered by the guarantee. But because there were only three Icelandic banks, and because they had been abusing the lax bank regulation in the UK and Netherlands to conduct € and £ carry trades via depositors (as opposed to the usual case of conducting carry trades via interbank loans), the depositors ended up having to take a haircut.

In the Icelandic case, there's plenty of blame to go around. The Icelandic central bank should have killed the € and £ carry trades stone cold dead ahead of time, by devaluing the currency in proportion to the volume of carry trade (this creates a negative feedback loop that chokes the carry trade). The British and Dutch, for their part, should never have allowed a bank to take deposits from their citizens without forcing it to participate in their own deposit guarantee schemes. So there really weren't any innocents in that game.

Now, given that there were no obvious innocents, why should the Icelandic government protect Icelandic depositors first? Quite simple, actually: Any government has a duty to its own citizens above and beyond any duty to foreign creditors. Foreign creditors have their own governments, who may be presumed to look after their interests, and who are able to bail them out if they need to be bailed out.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 7th, 2011 at 12:57:42 PM EST
[ Parent ]
JakeS:
IM:
The Icelandish scheme, to put the assets and the domestic deposits in the new bank and leave all foreign deposits with the empty husk of the old, was fraudulent.

No, that's not fraudulent. That's how you resolve an insolvent bank: You take all the assets and all the depositors and put them in a new bank, and let the liabilities stay with the old bank, which then gets a 100 % equity share in the new bank. The non-depositor creditors then get to eat shit and die, because they invested their money in an insolvent institution. That's called "taking a bank into receivership." It's a perfectly ordinary process that happens every month somewhere in the OECD.

The general public is in dire need of education on Bank resolution. Refer to VoxEU
VoxEU.org is a policy portal set up by the Centre for Economic Policy Research (www.CEPR.org) in conjunction with a consortium of national sites.
In particular, Zombie solutions: The Good Bank vs Bad Bank approaches by Willem Buiter, 14 March 2009
Zombie banks need fixing. Good Bank and Bad Bank solutions are the leading contenders. This column reviews the implications for distributional, incentive, and financial stability effects. It argues that too-big-too-fail bank should immediately be taken into public ownership and restructured decisively through a mandatory debt-to-equity conversion or debt write-down. The Fed and Treasury have been captured by save-unsecured-creditors reasoning pushed by special interest groups.

...

The Bad Bank solution

Under the Bad Bank approach, the authorities either purchase toxic assets from the banks that made the toxic investments/loans, or they guarantee (insure) these toxic assets.

  • Toxic assets are assets whose fair value cannot be determined with any degree of accuracy.
  • Clean assets are assets whose fair value can easily be determined.

Clean assets can be good assets (assets whose fair value equal their notional or face value) or bad assets (assets whose fair value is below their notional or face value). When the authorities acquire the toxic assets outright, they establish a legal entity to manage these assets - the Bad Bank. The publicly-owned Bad Bank either sells these toxic assets as and when they cease to be toxic and a liquid market for them re-emerges, or holds them to maturity.

The Irish NAMA is a bad bank solution.
The Good Bank approach

Under the Good Bank approach, the state creates a new bank, the Good Bank, which gets the deposits and the clean assets of the old banks. The old bank gets compensation equal to the difference between the (known) value of the clean assets it loses and the value of the deposits it gives up. The state may also inject additional public capital into the Good Bank, or it may invite in additional private capital. Government financial support is given only to new lending, new investment, and new funding by the Good Bank. The legacy (ex-)bank has its banking license taken away and simply manages the existing stock of toxic assets. The legacy (ex-)bank does not get any further government support.

The good bank solution is analogous to the bankruptcy of General Motors, which led to the creation of a new solvent "General Motors Holdings" and the renaming of the old GM as "Motors Liquidation Company", an entity dedicated to liquidating the bad assets (Wikipedia).

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Feb 7th, 2011 at 01:16:42 PM EST
[ Parent ]
The key is in the word "deposits", though
The Icelandish scheme, to put the assets and the domestic deposits in the new bank and leave all foreign deposits with the empty husk of the old, was fraudulent.
In this case the issue hinges on the different between a branch of a foreign bank, and a subsidiary bank of a foreign entity. Subsidiary banks are regulated by the host country and covered by its deposit guarantee, as they are incorporated in the host country. Branches need not be regulated or insured by the host country. In the case of Icesave, the controversy is around whether it was covered by a UK deposit insurance scheme called "passport" which allowed branches of foreign banks to buy into British deposit insurance for a fee.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Feb 7th, 2011 at 03:04:06 PM EST
[ Parent ]
>The British and Dutch, for their part, should never have allowed a bank to take deposits from their citizens without forcing it to participate in their own deposit guarantee schemes.<

But after Iceland was a member of the EEA, other governments had no input in that. Eu-member or in this case EEA member and your banks can operate everywhere. meanwhile they are still regulated and deposit-insured by their national states. And that, as as Iceland and up to a point Ireland shows, is a problem.

And once you have opened for savers out of other EU-countries, they are as senior as your domestic savers and you have to treat both the same way.          

by IM on Tue Feb 8th, 2011 at 10:05:17 AM EST
[ Parent ]
Eu-member or in this case EEA member and your banks can operate everywhere. meanwhile they are still regulated and deposit-insured by their national states.

As Iceland demonstrates, that is a bad rule.

and up to a point Ireland shows, is a problem.

No depositors have so far been in danger in Ireland - only bondholders who should lose their shirts.

And once you have opened for savers out of other EU-countries, they are as senior as your domestic savers and you have to treat both the same way.

No, they really shouldn't.

The British depositors can still petition their own government for restitution. Since the British government is more likely to cover British depositors than Icelandic depositors, the Icelandic government is justified in giving domestic depositors preferential treatment.

Management and bondholders should, of course, lose their shirts no matter their nationality.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Feb 9th, 2011 at 01:07:01 AM EST
[ Parent ]
Wikipedia: Deposit guarantee in the Icesave dispute
The Directive imposes a minimum guarantee of €20,000 per depositor; moves to increase this minimum to €50,000 or even higher had been agreed politically before the Icelandic crisis, but had not been incorporated into EU law, much less into EEA law. The Tryggingarsjóður guarantees 1.7 million krónur on the basis of a fixed euro-króna exchange rate, equivalent to €20,887.[62] The Netherlands and the UK have higher guarantee levels, €100,000 and £50,000 (approx. €60,000) respectively; Landsbanki was a member of the Dutch and British compensation schemes for the purposes of guaranteeing this difference in cover, an arrangement known in Britain as the "passport system",[66] and commonly used by banks throughout the EEA. In addition, the UK Treasury has exceptionally guaranteed retail deposits in excess of £50,000 which were held in Icelandic-owned banks in the UK at the time of the crisis, at a cost of some £1.4 billion (€1.7bn).


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Feb 9th, 2011 at 02:18:29 AM EST
[ Parent ]

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