Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.

From Donegal to Default

by Frank Schnittger Sun Nov 28th, 2010 at 12:00:04 PM EST

The Donegal South West bye-election resulted in a resounding win for Sinn Fein in a Fianna Fail (ruling party) stronghold. A nationwide opinion poll just out reinforces the message that the public is taking a very different view on the possibility of a debt default than the Government.

Default! Say the people - National News, Frontpage - Independent.ie

A SUBSTANTIAL majority of the Irish people wants the State to default on debts to bondholders in the country's stricken banks, according to a Sunday Independent/Quantum Research poll.

The finding that 57 per cent favour and 43 per cent oppose default reflects a growing view among policymakers and opinion formers that the State simply cannot support the debt burden it has taken on.

The telephone poll of 500 people nationwide has also found that a majority of around two-thirds opposes the headline measures in the Government's four-year plan.

Following Fianna Fail's loss of the by-election in Donegal last week, the findings will add to political uncertainty as an austerity Budget approaches on December 7.

As Ireland awaited the fine details of the international bailout, which are expected tonight, it was learned last night that the Irish delegation negotiating with the EU-IMF last week raised the issue of default.

"The Europeans went completely mad," a senior government source said.



According to the Irish Independent the Irish electorate are taking a very sophisticated view of how the the default should be timed and implemented...or perhaps the writer (Jody Corcoran) has over-interpreted the findings..

Default! Say the people - National News, Frontpage - Independent.ie

But whatever interest rate is eventually agreed -- it is expected to be closer to 6 per cent -- the State will be burdened with a colossal annual interest payment of around €5bn over nine years, if or when the bailout is drawn down.

This effective doubling of the interest payments that are already being made has helped to convince the public here that there must now be a default on a portion of the debt -- specifically, the portion lent to Irish banks, including senior bonds.

If that was to happen, it would be likely to cause a severe shock to the financial system worldwide and raise the risk of an international meltdown. However, advocates of a default say it is no longer in Ireland's national interest to prevent senior bondholders taking a hit.

The argument goes that a bailout from the EU-IMF will effectively neutralise the argument that default on bank bonds would cause investors to stop lending money to the Government.

If Ireland is forced to default, there is a view that it should happen after the financial system has been restabilised, reformed and restructured, so that it can absorb the losses without the risk of meltdown.

So what conclusions can we draw from the hard evidence presented by the Donegal South West bye-elections?

Donegal South West by-election, 2010 - Wikipedia, the free encyclopedia

Donegal South West by-election, 2010
[6] Party            Candidate                 % 1st Pref Count 1 Count 2 Count 3 Count 4
Sinn Féin Pearse Doherty[12] 39.85 13,719 13,736 15,488 16,897
Fine Gael Barry O'Neill[1] 18.66 6,424 6,442 7,313 8,182
Fianna Fáil Brian Ó Domhnaill[13] 21.33 7,344 7,358 7,636 8,069
Independent Thomas Pringle[14] 9.99 3,438 3,491 3,763  
Labour Party Frank McBrearty, Jnr[15] 9.78 3,366 3,375    
Independent Anne Sweeney[16] 0.39 133      
Electorate: 62,299   Valid: 34,424   Spoilt: 484   Quota: 17,213   Turnout: 57.39%

Some key points to note:

  1. Donegal South West is just one of 43 constituencies for the Dail - the Irish Parliament.  It would be more rural, conservative, and nationalist than the average.

  2.  Traditionally it is a Fianna Fail stronghold.  At the last general election FF got 50% of the vote and 2 of the 3 seats - including one for the Tanaiste - deputy Prime Minister -  Mary Coughlan.

  3. The turnout, at 57%, was very high for a bye-election, particularly as a general election is expected in the next couple of months - which means all three seats will be up for grabs.  This cannot therefore be considered a freak result caused by a low poll.

  4. FF and Fine Gael, the two conservative parties got a combined vote of only 40% of the vote. Traditionally they would have won c. 90% of the vote and all three seats between them.

  5. If the bye-election result is repeated in the general election, Sinn Fein, FF and FG will win one seat each.

  6. Labour's vote is up from 3% (in the last General Election) to 10% - which is not enough to challenge for a seat  - unless they get the bulk of SF's Surplus (which is SF's vote of 40% less the 25% quota for election in a 3 seat election = 15% and also the Bulk of the Independent Thomas Pringle's 10% of the vote - assuming the Labour candidate manages to poll more votes than him next time around. It's a long shot!

  7. However Labour traditionally has virtually no presence in the very rural North West of Ireland, so this result is not necessarily representative of how it would do throughout the country in a General election.

  8.  A huge amount depends on whether the Budget is passed, how it is passed (with or without FG abstention) and how the Budget and 4 year plan is perceived by the electorate.  However present indications are that the Government is being held directly responsible for the fiasco and will suffer a devastating defeat. FF lost 30% of its first preference vote in Donegal SW, nationwide polls have been showing it in the low 20's compared to its traditional strength in the mid 40s.

There will be blood.  Hopefully most of it will be metaphorical. But how might this all play out?

It looks likely that the Government will agree a deal with the IMF/ECB and try to spin it as a good deal for Ireland. It will then try to pass a draconian budget as the first step towards Ireland fulfilling its part of the bargain. That Budget will likely be defeated unless Fiue Gael, the conservative opposition party abstain. If they do, they are likely to be tainted with the fall-out and Labour could well end up as the largest party at the General election to be held early in the new year. Labour will then lead a Government and try to negotiate a better deal - using the threat of default as a lever to force the IMF/ECB to be more flexible. The ECB/IMF will call foul, but a new Government elected on a new mandate may not consider itself bound by the undertakings given by its predecessor - particularly the undertakings given by Brian Lenehan that bond-holders would have their investments guaranteed in full.

Display:
Posted as a diary by special request.  Unfortunately I will be out of internet range for three days now, so I will not be able to contribute further for some time.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Nov 28th, 2010 at 12:20:11 PM EST
If Ireland is forced to default, there is a view that it should happen after the financial system has been restabilised, reformed and restructured, so that it can absorb the losses without the risk of meltdown.

Waiting would be a mistake. The default needs to happen as fast as possible, so the hysterical children on the money markets have time to calm down before Ireland needs to fund its next deficit budget (assuming the ECB insists on continuing its sabotage). Ireland is fully funded through the next year, right? Then the correct time to default is "as soon as practically possible."

Yes, that will probably cause widespread panics on the Continent. That's Frankfurt's problem.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 28th, 2010 at 12:44:09 PM EST
Given the predatory nature of much of international finance having their manipulations blow them up in an international meltdown would be a blessing to all but the top 0.1% of the population of "Western" countries. The problem is the nature of current international finance and the best opportunity to fix it is when it has most clearly broken. This could start in Ireland. If it did it could provide the basis for a new book: How the Irish Saved Representative Government. Thomas Cahill might not like the title, however. Obama wasted the '08 GFC. Ireland should not make the same mistake.

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 Sun Nov 28th, 2010 at 10:03:26 PM EST
[ Parent ]
Yes but is there any party in Ireland thinking along these lines other than Sinn Fein or these folks? And how far could Labor be pushed that way?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Mon Nov 29th, 2010 at 02:58:00 AM EST
[ Parent ]
What meltdown? This is nothing that regulatory intervention/restructuring of failing institutions cannot fix, and any system-critical institutions, financial or nonfinancial, that need to be made whole can always be resolved with a "good bank" model, or like GM was in the US, with the central banks providing the cash to make them whole if necessary.

General Motors Chapter 11 reorganization - Wikipedia, the free encyclopedia

The United States government-endorsed reorganization plan enabled the NGMCO Inc[2] ("New GM") to purchase the continuing operational assets of the old GM.[3][4][5] Normal operations, including employees compensation, warranties, and other customer service were uninterrupted during the bankruptcy proceedings.[3] Operations outside of the United States were not included in the court filing.[3]

...

The "new GM," is formed from the purchase of the desirable assets of "old GM" by an entity called "NGMCO Inc." via the bankruptcy process.[59] NGMCO Inc. was renamed to "General Motors Company" upon purchase of the assets and trade name from "old GM," with the claims of former stakeholders to be handled by the "Motors Liquidation Company."[46][55] The purchase was supported by $50 billion in U.S. Treasury loans, giving the U.S. government a 60.8% stake. The Queen of Canada, in right of both Canada and Ontario, holds 11.7% and the United Auto Workers, through its health-care trust (VEBA), holds a further 17.5%. The remaining 10% is held by unsecured creditors.[60] On July 10, 2009, GM reported 88,000 U.S. employees, and announced plans to reduce its U.S. workforce to 68,000 by the end of 2009 after filing for bankruptcy.[61]

On July 10, 2009, a new entity, NGMCO Inc. purchased the ongoing operations and trademarks from GM.[59] The purchasing company in turn changed its name from NGMCO Inc. to General Motors Company, marking the emergence of a new operation from the "pre-packaged" Chapter 11 reorganization.[12][46][55]

Under the reorganization process, termed a 363 sale (for Section 363 which is located in Title 11, Chapter 3, Subchapter IV of the United States Code, a part of the Bankruptcy Code), the purchaser of the assets of a company in bankruptcy proceedings is able to obtain approval for the purchase from the court prior to the submission of a re-organization plan, free of liens and other claims. It's used in most Chapter 11 cases that involve a sale of property or other assets. This process is typical of large organizations with complex branding and intellectual property rights issues upon exiting bankruptcy.[62][63][64][65] The new company plans to issue an initial public offering (IPO) of stock in 2010.[66]

The remaining pre-petition creditors claims are paid from assets of the Motors Liquidation Company (stock symbol MTLQQ), the new name of the former General Motors Corporation.[12][66] The directors of Motors Liquidation Company have stated that they believe shares in the company (the "old" GM) will have no value since the company has far more debts than assets.

For banks, the process doesn't take 6 weeks, it takes a weekend. But it still preserves the operations of the bank just like the operations of GM were preserved.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Mon Nov 29th, 2010 at 04:48:45 AM EST
[ Parent ]
What meltdown? This is nothing that regulatory intervention/restructuring of failing institutions cannot fix

Frankfurt seems to be politically opposed to regulatory restructuring of failing banks.

But, like I said, that's not Dublin's problem.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 29th, 2010 at 03:03:29 PM EST
[ Parent ]
European Tribune - From Donegal to Default
According to the Irish Independent the Irish electorate are taking a very sophisticated view of how the the default should be timed and implemented...or perhaps the writer (Jody Corcoran) has over-interpreted the findings..

Default! Say the people - National News, Frontpage - Independent.ie

The argument goes that a bailout from the EU-IMF will effectively neutralise the argument that default on bank bonds would cause investors to stop lending money to the Government.
See last week's story by Colman: The word from the Serious People
This may be the best summary of the conventional wisdom I've seen, from Dan O'Brien, the economics editor of the Irish Times:
There are very powerful arguments to support the default view, and the strongest argument against it, from Ireland's perspective, evaporated last week - that argument was that any default on bank bonds would cause lenders to stop giving money to the Government to fund its deficit. That has now happened anyway.


Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Mon Nov 29th, 2010 at 04:38:22 AM EST
FT Alphaville » Irish government debt needs you
Around €12bn is held by European banks, while non-bank (although also European, probably) investors hold a further €40bn. The non-Irish, non-ECB holdings have likely been reduced by around 20 per cent, or €15bn, recently, Fransolet adds.



"People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them." - Jean Monnet
by Melanchthon on Mon Nov 29th, 2010 at 11:00:27 AM EST
Do Sinn Fein have a credible view on the economy ? During the 70s they were of a revolutionary marxist bent, I wonder if that has evolved  into something more Krugman-like ?

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Mon Nov 29th, 2010 at 01:51:18 PM EST
I suspect this may be like the 2008 US Republican primary, where the assembled dunces managed to make Ron Paul sound sensible.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Mon Nov 29th, 2010 at 02:27:29 PM EST
[ Parent ]
Sinn Féin are more straight-down-the-line neo-Keynesian these days.  (This puts them well to the left of the Irish Labour Party, but it's hardly Marxist).  There are more radical left elements in the party but they are not at leadership or policy making levels.

SF were the only large party in the Republic to come out against austerity sadomasochism and propose some stimulus of the indigenous economy which has been contracting at 10% p.a. for the last couple of years.

by Pope Epopt on Mon Nov 29th, 2010 at 05:03:17 PM EST
[ Parent ]
"If the bye-election result is repeated in the general election, Sinn Fein, FF and FG will win one seat each."

Which is baffling when on count 4 Sinn Fein got more votes than the other two put together! It seems the system is well rigged to favour the right...

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Tue Nov 30th, 2010 at 07:26:28 AM EST
Well, it depends if Sinn Fein risked running a second candidate - it's not a list system, remember. If they run a second candidate they risk splitting their vote and having other candidates make quota ahead of them - you vote for candidates, not parties.
by Colman (colman at eurotrib.com) on Tue Nov 30th, 2010 at 07:40:24 AM EST
[ Parent ]
See my response to a similar point made by Mig in the original open thread discussion

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Dec 1st, 2010 at 01:47:03 PM EST
[ Parent ]
Looks like the only credible and reliably socialist party over there these days.

Labour/Sinn Féin looks like a winner to me.

by redstar on Sat Dec 4th, 2010 at 02:59:48 AM EST
...Sinn Féin isn't exactly a family tradition, as people here who know a little Irish history might recognise by my name (John Edward Redmond, and yes, related)...
by redstar on Sat Dec 4th, 2010 at 03:19:02 AM EST
[ Parent ]
I didn't realise you came from such a distinguished lineage.  How did you end up in Exile?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Dec 4th, 2010 at 10:58:14 AM EST
[ Parent ]
Though I suspect struggling to start a family in Wexford in the 1930's and 1940's being one of the last of 14 children and therefore no land played no small part. (The famous John Redmond is his uncle, but of course he had many uncles too!)

He didn't see much of America, died of an aneurysm in 1952, 14 years before I was born, but he was not a young man then, though at 60 not exactly elderly either...

It's funny, wherever I go there are Redmonds, there are many in Quebec and the rest of Canada, there are many here in Paris, in the UK, in Australia (which I just visited), Argentina....and my dad's extended family is in all of these places, I've met many too, living here in Europe. Testament to the diaspora as well as to a certain genetic....shall we say...propensity to procreate?

by redstar on Sat Dec 4th, 2010 at 05:46:14 PM EST
[ Parent ]
It would be interesting to read your take on the Redmondite tradition of Parliamentary politics from your current political position...Fine Gael would appear to be the more direct line of descent...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Dec 4th, 2010 at 06:30:17 PM EST
[ Parent ]
I am proud of being a wild goose and french, and I vote here proudly, especially as I know, as you ably remarked, the south are a conservative lot (and what's more, almost indistinguishable from each other, the major difference being who was for or against partition...throwing in some dishonesty from de Valera....) As for FG that would be a family thing but again my family (immediate anyway) isn't really Irish anymore and that for 60 years. But FG...no don't think I could do, socially I am pretty conservative but their economics plan...well...no.

You see a politics like that from afar and your realise that even if the people may be movings towards (slowly) secularism they are also still hidebound in their voting intentions and I see from the polls that who knows you may have a FF/FG national unity government bent upon destroying the Irish taxpayer to bail out the banksters and their corrupt political patrons.

I am sort of proud though that the nationalist mantle is being pulled away from FF by SF, and I think it fitting that Gerry Adams sit in the Daiil rather than the House of Commons. Good on him.

by redstar on Sat Dec 4th, 2010 at 07:08:02 PM EST
[ Parent ]
I could see an FF/FG coalition being possible in perhaps 2 elections time, but right now no one would want to coalesce with toxic FF - not even they with themselves!

After that an FF/FG coalition is conceivable,but I could never see FF agreeing to an FG/FF coalition - they would go into oblivion rather than let FG run their show...

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Dec 5th, 2010 at 04:15:06 AM EST
[ Parent ]
I've just learnt that Thomas Pringle, the Independent who picked up 10% of the vote, is ex-Sinn Fein.  I don't know how deep the rift was, but if they were to nominate him as a second candidate they would be almost guaranteed a second seat on these figures as the combined Sinn Fein/Independent vote is 50%.  A little bit of vote management - to bring Pringle closer to Doherty on the first count, and two seats for Sinn Fein are almost guaranteed.

The third seat then would likely go to Fine Gael as the eliminated Labour candidate's second preferences would tend to favour Fine Gael over Fianna Fail.  Having had 2 seats out of 3 and 50% of the vote last time out, Fianna Fail would be left empty handed, with Tanaiste Mary Coughlan losing her seat - unless she can still command extraordinary personal loyalty and get elected despite her party's free-fall.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Dec 4th, 2010 at 06:41:22 PM EST


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]