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Irish pushback strategy - we get mail

by JakeS Thu Feb 3rd, 2011 at 09:59:57 PM EST

Apparently our suggestion that Ireland should stiff some bondholders are being considered. I got a mail from a lurker, asking for more concrete suggestions. I'm posting the exchange here (with permission, and only minor edits), so the regulars can supplement and poke holes in my recommendations.

Hi Jake,

I hope you don't mind getting an email on your eurotrib post.

I agree with you - we are sheep here in Ireland.

We are in the middle of an election for our next government, and all the main political parties are doing is tweaking the spending allowed by the IMF/EU loan, in order to take the same amount out of the economy this year. Nobody is addressing the terms of the loan - the fact that the amount of the 'bailout' (not for Ireland, for the banks who lent to us!) of €67.5bn (not counting €17.5bn we are contributing - decimating our pension reserve fund) is not going to allow us to proceed  an 'orderly restructuring' (aka default) in 2014. In fact we will need in the order of €152 bn to get to 2014.

Nor is any politician questioning the terms of the loan which will see the stripping of our national assets, which would give us a foundation for growth.

We are in dire straits. We cannot borrow money in the markets. The ECB gave the ok to our Central Bank in December to print €51bn euro. I am not sure if this relates to the amounts disclosed in a newspaper last week.

Our government continues to pay the bondholders of the banks on foot of the guarantee given in 2008 (after Trichet left a message on the Minister for Finance's phone that we had to save our banks, and Irishman Peter Sutherland of Goldman Sachs etc said don't burn the bondholders). Last Monday €750 million was paid out to unsecured bondholders who were not covered by the guarantee.  The December quarterly report of the Bank of International Settlements showed that foreign bank exposure to sovereign debt in three of the peripheral EU member states was reduced by 14% (some say by 18% in Ireland - I cannot extrapolate the figures)

Nobody is saying 'we repudiate this deal', because without it there is no money.

We have abundant , but undeveloped, energy resources. The EU needs our agreement to make the EFSF permanent (we require a referendum on that, something our government and the EU will try to avoid)

You say threaten to publish data on the solvency of the surplus countries private banks unless the ECB its doing its job. What do you expect the EB to do? It is already overexposed to Ireland, and no doubt, will expect us to borrow to buy back some of  our dodgy bonds.

[...] Our current trajectory would leave us with no resources but the people, no growth and nothing left to sell.

What would you do? What terms would you seek?

[signature, etc.]

My response is below the fold.


I'll start by responding to the specific question regarding the stress tests, then outline general negotiation strategy for sovereign defaults, and finally discuss possible objectives for such negotiations for the case of Ireland in particular, and the European Union in general.

First, on the subject of publishing the results of stress tests, it is my impression that this is mainly an option for Spain. Spain is large enough (and has large enough sovereign and interbank debts to the banks of major creditor nations) that the domestic Spanish bank stress tests should have given them a reasonable basis for guessing the solvency (or not) of the banks of major creditor nations. Ireland may or may not represent a large enough part of their balance sheets that you can pull the same trick. But it's certainly worth looking into. If you decide to pursue that strategy, my advice would be to gang up with as many of the other €-zone debtor nations as possible, to get the most complete picture you can (and to avoid being the only country to incur the wrath of the powers that be when you stick it to Frankfurt and the City).

Second, on general negotiation strategy for sovereign defaults, it's actually fairly simple. You make a list of all your domestic creditors and all your foreign creditors, ranked in order of importance for the real economy (so manufacturing firms and bank depositors below € 100.000 go on the top of the list, private pension funds somewhere in the middle and hedge funds and other bookies go at the bottom). Bond transactions should be notarised, so assembling this list should be no major problem (if bond transactions aren't, for some reason I fail to comprehend, notarised, you can always just give creditors a month to present proof of ownership and automatically default on everybody who fails to come forward).

Then you make two lines on each of the two lists: One line between people you really, really want to save (ordinary bank depositors, industrial firms, etc.) and people you kinda sorta want to save if you can (private pension funds, non-toxic investment banks - if you have any of those left - etc.), and another line between the people you kinda sorta want to save and the evil people who should take a long walk off a short pier (bookies, toxic investment banks, everything with a business address on Canary Wharf).

Then you mix the lists like this:

Domestic need-to-save
Foreign need-to-save
Domestic want-to-save
Foreign want-to-save
Evil (foreign and domestic)

All the people on the 'evil' part of the list should ultimately end up losing their shirts completely. Whether you want to unilaterally default on them before even entering negotiations or you want to pretend that they're negotiable for the sake of keeping up appearances will depend on your diplomats' assessment of what gives the best deal. I'm not a diplomat (as you'll have noticed if you've followed me on ET), so I'll defer that part to the professionals.

Then you decide what level of debt you will realistically be able to honour (be pessimistic - the EU could well be looking at a Japan-style lost decade). And then you save people from the top down, until you hit that limit. Three things can happen once you're done:

a) You are able to save all or part of the "foreign want-to-save" list. This is good. The people on that list are your bargaining chip in negotiating with other countries.
b) You are able to save all or part of the "domestic want-to-save" list, but none of the foreign "want-to-save" list. This is bad. Now you approach other countries from a position of weakness.
c) You cannot even save all the people you really want to save. Then you're screwed, if you'll pardon my French. You will be coming hat in hand to other countries.

By far the most probable outcome in the Irish case is a) - the bulk of your debt was recently incurred in a botched bank rescue, which means it's likely to still be located on the "evil" list.

OK, so now you have your some idea about your bargaining position. Then you need to know your objectives. This is where it gets political.

Ireland is somewhat unique in the €-zone for having a genuine debt crisis. Greece, Spain and Portugal (and soon Belgium) are experiencing currency crises (similar to the one that caused the UK to leave the ERM back in 1992). So if you are negotiating in the narrow national interest of Ireland, you have no incentive to pursue structural reform of the €-zone. Ireland runs a respectable trade surplus w.r.t. the rest of the €-zone, so in the medium term, the current surplus-friendly setup works in favour of Ireland's narrow self-interest.

The narrow self-interest objective is to secure liquidity until the hysterical children in the international money markets are done panicking about your sovereign default (this takes a year to a year and a half). So your negotiating posture is basically "see all these nice creditors we have on this (foreign want-to-save) list? Would be a right pity if something went and happened to them. In other news, we need the ECB to guarantee that it will fix the price of Irish bonds for the next three years, in order to calm the money markets so we can roll over our remaining bonds in an orderly manner."

If, on the other hand, you want to negotiate for the interest of the European Union as a whole, your demands should be

a) Repeal of the misnamed Growth and Stability Pact
b) A change of the ECB's mandate, away from inflation targeting, towards having a supervisory role over the private banking sector, to prevent credit bubbles.
c) Repeal of the prohibition on direct ECB purchase of sovereign bonds, and a mandate to purchase sovereign bonds at a price no less than [the one corresponding to] the Frankfurt overnight rate plus some politically fixed acceptable yield curve (the precise shape of which is beyond the scope of this missive).
d) Creation of a Eurobancor, which creates, ex nihilo, new € in the amounts required to balance intra-€-zone current accounts deficits, and deposit them with the deficit countries, earmarked for industrial policy focused on reducing the intra-€-zone imbalance.

The specific Irish needs are contained in bullet c) above.

Note that, perversely, prevalent attitudes in the core EU members mean that negotiating in Ireland's narrow self-interest is going to be considerably easier than negotiating in the wider European interest. So if you decide to negotiate in the wider European interest, you will need to assemble a coalition. The obvious place to start is the list I mentioned under the discussion of the stress tests. But to have a winning coalition, you will need to switch France from being aligned with Germany to being aligned with Spain. This should not be an insurmountable task, as France's current stance goes against their narrow national self-interest.

- Jake

PS: If negotiations break down, and Ireland becomes faced with having no € with which to pay her civil servants, you can always use the nuclear options: Default on all foreign debts, and issue scrip to pay your domestic creditors and operating expenses. (See, e.g., the Wörgl experiment) However, this amounts to a de facto exit from the €-zone. And while leaving the €-zone beats an IMF/ECB structural adjustment programme, it would not be in Ireland's medium-term interest. So handle with care.

Display:
Hope this makes it into the Irish press. Frank?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 4th, 2011 at 01:28:07 AM EST
Failing that, or, in addition to that, it should be emailed to everyone who should be concerned with these matters. Should liven up the election.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 4th, 2011 at 01:29:46 AM EST
[ Parent ]
Anyone with actionable connections with the Irish press could try to convince some paper or other to translate and reprint the following article from Die Zeit
Nothing like a hopeless recession to get people to undust the past.

Last December 28, Die Zeit published the following piece about a topic dear to our hearts...

Historisches Experiment: Das Wunder von Wörgl | Wissen | ZEIT ONLINEHistorical experiment: the wonder from Wörgl
Wie bekommt man das Geld zum Zirkulieren und in hoffnungsloser Rezession die Wirtschaft in Schwung? Ein österreichischer Bürgermeister wagte 1932 ein erstaunliches ExperimentHow does one get money to circulate and the Economy going in a hopeless recession? An Austrian mayor carried out an astonishing experiment in 1932.
Ideally this should not be in connection with discussing this plan for Irish default, but just to plant in people's minds the idea to
issue scrip to pay your domestic creditors and operating expenses
Also, it doesn't hurt that the villain of the Wörgl story is the Austrian Central Bank, which thought nothing of aborting a successful economic development to protect its own monopoly over money.

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 Fri Feb 4th, 2011 at 04:48:56 AM EST
[ Parent ]
This discussion is an order of magnitude too advanced to be comprehensible or acceptable by an Irish newspaper editor unless it is accompanied by a reputable imprimatur by an economic or political "authority".  To have a chance of being published it would either have to be re-written as a 200 word LTE (hardly possible without trivialisation) or a 1000 word op ed - signed by (say) the ET editorial team - as representatives of a wider discussion taking place throughout Europe.

Jake's correspondent is well informed - presumably an economist - but I'm surprised that he does not aver to a growing discussion on the topic of renegotiation of the ECB/IMF plan which is moving centre stage in the political debate as the main point of difference between Fianna Fail (no significant renegotiation possible) and the opposition parties whoo are making a renegotiation a central part of their platform.

A political discussion TV programme last night (Tonight with Vincent Brown) had an extended and vociferous discussion between Antoin Murphy (TCD economic professor) who basically took the FF line, and Philip Mathews (Fine Gael Candidate, ex banker), Constantin Gurdiev (TCD Business School) and Paul Somerville (Financial consultant and Independent candidate).  The latter three argued vehemently for a renegotiation based on the infeasibility of the ECB/IMF plan, the false assumptions it was based on, and the recognition that this was as big a problem for the Eurozone as it was for Ireland.

The political argument is about what is renegotiable, what cards Ireland holds, and what the best strategy is - so Jake's comments are apposite.  I had been wondering why Ireland wasn't making common cause with Greece, Portugal etc. and Jake's comments go some way toward clarifying that, but I still think a political alliance will help to create the perception of a systemic problem throughout the Eurozone that requires a systemic response.

The deposit flight from the banks is ongoing (I wonder is my overdraft safe with Allied Irish Bank?) and Ireland is facing down the barrel of the ECB threatening to withdraw the liquidity tap which is keeping them afloat.  This has been the bargaining card which has enabled the ECB to "force" the Irish Government to Guarantee the banks and turn private debts into public liabilities at a time when the gravity of the situation wasn't apparent to key decision makers (that's another story!).

Basically any OP ED which outlines a negotiating strategy which a new Government could adopt - especially one endorsed by a pan-European discussion forum - will add credibility to the opposition case and improve the chances of those candidates and and parties that are making that case.  Basically Irelands's electorate feels that it is being bullied by hugely powerful forces threatening to close it down and doesn't understand what bargaining chips it does have.  I suspect most would settle for even a 1% reduction in the interest rate - until the next instalment of the crisis.

What we must do is explain how a much more radical strategy is possible, even if it is ultimately watered down in whatever euro-compromise ultimately emerges.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 4th, 2011 at 06:09:46 AM EST
[ Parent ]
Frank Schnittger:
I had been wondering why Ireland wasn't making common cause with Greece, Portugal etc.
Because everyone is busy saying "we're not like the other guys".

Let's face it, default is dishonourable if you're poor.

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 Fri Feb 4th, 2011 at 06:16:06 AM EST
[ Parent ]
A default is the unilateral imposition of ANY change to the terms agreed upon in the loan document that are to the detriment of the creditor. This happens all the time. When the USA unilaterally ceased to redeem Federal Reserve Silver Certificate currency in 1971 that was a default. In the last two years China has unilaterally refused to honor obligations on futures contracts, claiming that the market had been manipulated. Both of these are examples of sovereign default.

A vigorous investigation of the relations and cash flows between FF ministers and TDs in the years leading up to the infamous government guarantee of the Irish bank's bad bets will almost certainly turn up some legal violations. This can be the basis for repudiation of the debt as odious debt. Then all obligations that flowed from that source would be up for renegotiation on terms much more favorable to Ireland.

The German people don't want to "bail out" peripheral nations even when it was recklessness and bad behavior by German banks that led to the debt. The Irish should be similarly adamant that they will not bail out German or British banks for making bad loans to Irish banks believing (correctly) that they would be bailed out by the Irish Government and people when the loans went bad.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 4th, 2011 at 11:06:57 AM EST
[ Parent ]
But waht about the loans to the irish government?
by IM on Fri Feb 4th, 2011 at 11:17:40 AM EST
[ Parent ]
Allegedly the Irish government claimed to be cash-funded until mid 2011.

Of course we don't know the actual figures, but they weren't planning to issue any new government bonds until then.

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 Fri Feb 4th, 2011 at 11:25:50 AM EST
[ Parent ]
Same deal. If the original bailout wasn't legal, the government debt isn't binding. Putting Cowen in jail would help make that point.

If the UK etc didn't practice due diligence in assessing the creditworthiness of the Irish government when there were obviously questionable deals happening - and no one sane is going to argue that taking on the private debt was a necessity - the foreign banks shouldn't be surprised by a haircut.

Of course they were loan sharking and profiteering. So sympathy will be in short supply.

Internationally, they can't do much to a sovereign state except kick Ireland out of the Euro - which will be threatened, but isn't likely in practice - and refuses to lend in future.

As Jake says, their idea of future times out after 18 months or so, as Argentina, Russia, Iceland and others have proven already.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 4th, 2011 at 11:27:23 AM EST
[ Parent ]
Look, Cowen wasn't a dictator. They also had a dail decision.  
by IM on Fri Feb 4th, 2011 at 11:46:58 AM EST
[ Parent ]
Odious debts have odious debtors
But. Odious debts don't just happen to happen from time to time. Somebody has to agree to borrow the money.

So it is clearly a necessary (but not necessarily sufficient) condition for repudiating debt as odious that somebody in the defaulting country goes to prison. In the case of countries emerging from colonial or otherwise repressive governments, it is fairly simple to tell who needs to go to prison: The dictator or colonial magistrate, sometimes his family, usually a number of military people too.

In the case of a country that has been shock therapied by the IMF, it is less clear who needs to go to prison. But the people who precipitated the crisis that caused the IMF to bail out foreign lenders seem like good candidates. And the politicians who signed up for the IMF programme should arguably serve some time too.



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 Fri Feb 4th, 2011 at 11:50:15 AM EST
[ Parent ]
to this thread, and - again circumstantial evidence - you seem to be a bond-holder in defense of his/her 'asset'.

You mention lack-of-evidence/data at one point. There's plenty offered, but I would ask, where's yours? All that I read is something to the effect that a bond is sacred.

As pointed out, re-negotiations due to conditions - present or past - are common among the 'players'. The Russian experience is also instructive, because it demonstrates that the mental toughness of leadership and the size of the economic entity play an important role. Ireland is small; therefore, it can be bullied - even though, as pointed out, it's real economy (manufacturing) is still healthy.

It seems to me that your running commentary goes nowhere and adds nothing to the original point of JakeS' article, which was to formulate an OpEd. For that, folks, I'd say that the original diary, minus references to JakeS' correspondent and gratuitous sarcasms, would work very well. Can we get a draft? Will ET 'editors' sign on?

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Fri Feb 4th, 2011 at 12:37:20 PM EST
[ Parent ]
God no. I am anything else.

A bond is not sacred. Equality before the law is sacred. So a default or partial default has to treat all bond-holders of the Irish state the same way. The strategy outlined here - let the wrong type of creditors bleed -can't work.

I mentioned the 100 billion owned by Irish banks to the ECB. That is not a hedgefund. Nor even really foreign. And the considerable sums that the Irish governments already put in the banks is a fact too.

I think that is offered here is a illusion. Bankruptcy without the pains of bankruptcy. Make the foreign evils pay.

The problem in Ireland is the neoliberal policy of the last irish governments, supported by a substantial part of the Irish voters. The mentality now - we will keep the mansion but shed the debt is not real helpful.  

by IM on Fri Feb 4th, 2011 at 01:04:19 PM EST
[ Parent ]
The 100 billion lent by the ECB is collateralised debt. We're talking about a default on unsecured debt.

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 Fri Feb 4th, 2011 at 01:40:53 PM EST
[ Parent ]
collateralised debt

Well yes. Collateralised by the worthless assets of the irish banks.

by IM on Fri Feb 4th, 2011 at 02:04:19 PM EST
[ Parent ]
No, collateralised by "eligible collateral" by the ECB's own definition.

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 Fri Feb 4th, 2011 at 04:11:45 PM EST
[ Parent ]
You see, the worthless assets have been packaged into NAMA and sold to the irish government.

The good assets, those that there are, are being repo'd at the ECB's discount window.

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 Fri Feb 4th, 2011 at 05:02:58 PM EST
[ Parent ]
collateralised debt

Well yes. Collateralised by the worthless assets of the irish banks.

That is not the Irish public's problem. Any creditor who accepts crap collateral accepts the risk of a haircut. That's the whole point of the term "due diligence" when applied to collateral. The haircut can go all the way to 100 % if the collateral turns out to be worthless. That is not a problem. That is a perfectly normal bankruptcy, such as which happens every day somewhere in the OECD.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 12:56:01 AM EST
[ Parent ]
The ECB is accepting more and more worthless collateral nowadays as lender of last resort and as quantitative easing.
 The ECB is not a creditor. It is a central bank, in this case the Irish central bank. You don' lecture your own central bank about due diligence at time when it helps your banking system existing.
by IM on Sat Feb 5th, 2011 at 05:55:24 AM EST
[ Parent ]
Conducting monetary policy through the discount window is not an excuse for bailing out insolvent banks. Insolvent banks should be put through bankruptcy. Keeping them alive is not "helping."

And anyway, this isn't about the Irish banks anymore. It's about the Irish government debt. Why is this so hard to understand?

Incidentally, if the ECB were doing its job as a central bank and fixing the price of government bonds, then we wouldn't be having this discussion in the first place.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 06:07:04 AM EST
[ Parent ]
In this case, the ECB should just end lending to Irish banks.

What exactly are you propagating here? Austrian economics?

by IM on Sat Feb 5th, 2011 at 06:32:34 AM EST
[ Parent ]
No, the ECB should not "just end lending to Irish banks."

The ECB should resolve those banks which are insolvent. That means reimbursing their depositors, up to the limit of the deposit guarantee (say, € 20.000), and then attempting to recover whatever value can be recovered from their assets. Any value that can be recovered from their assets beyond what is needed to cover depositors is then paid out to their creditors, in order of seniority. The remaining creditors get to fuck off and die.

The ECB should lend at the discount window to those banks which are solvent. That does not involve taking on crap collateral. If the bank is not able to post collateral that is not crap, then it isn't solvent and should be resolved.

The Irish state should spend money in order to support demand and restore full employment. The ECB should support this policy by purchasing all newly issued Irish bonds at the ECB's policy rate of 1 %.

The Irish state should attempt to claw back the money that was unjustly paid out to the creditors of insolvent banks. To the extent that money was ever actually paid, this is going to be hard. But I'm betting that most of that money was never actually paid, in the sense of being moved from one reserve account at the ECB to another. I'm betting that most of the money "paid out" in the Irish bank bailout was actually just the Irish government buying the debts of Irish banks using newly issued Irish government bonds. In which case it is a matter of supreme simplicity to declare those bonds void. Bonds are numbered and notarised, after all.

The Irish state should not, under any circumstance, engage in austerity. Not now, not ever.

But what is actually happening is that the ECB is telling the Irish government that the ECB will not support a sane Irish recovery policy, because the ECB is concerned about the Irish national debt. Instead, the ECB will only refinance Ireland's existing national debt, and only if Ireland engages in certifiably insane macroeconomic policies.

The logical response to that - indeed the only sane response - is to say "well then, fuck the national debt." If there is no national debt, then there is no need to refinance, and then the ECB cannot impose its austerity insanity.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 06:49:33 AM EST
[ Parent ]
That actually makes some sense. There is a little problem, though: The ECB doesn't have the legal authority to resolve anything.

That is the duty -please don't laugh - of the Irish bank regulators.

In other word of the people who allowed this whole problem to happen.

But instead of laying the problem at the foot of the Irish authorities, you like to blame others.

by IM on Sat Feb 5th, 2011 at 07:02:05 AM EST
[ Parent ]
That excuses the ECB from the first paragraph. It does not excuse the ECB from anything else on that laundry list of indictments of poor performance.

In fact, it does not even excuse the ECB from the first paragraph. Because the ECB has been lobbying for the banks to not be resolved since the first day of this crisis. The ECB decided to be a part of the problem, where it could have been a part of the solution.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 07:14:29 AM EST
[ Parent ]
And this is difficult because some here tend to jump around: If I talk about the debts of the Irish public they talk about the banks and their creditors. If I point that the "punish the bank creditors" idea is much to late, they talk about the Irish public debt.

So its public debt now and  all public debt hold by "foreigners" - that is fellow europeans - is per se odious debt.

by IM on Sat Feb 5th, 2011 at 06:38:29 AM EST
[ Parent ]
There are multiple factors/aspects involved in the situation; and in the normal, condensed give-and-take of these types of discussions, different answers are given in response to the various points made.

I was tempted to down-rate your remark for willful mis-characterization, but I'll simply make this comment instead. The thread proves that you are incorrect.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Sat Feb 5th, 2011 at 12:21:31 PM EST
[ Parent ]
The thread proves nothing of the sort. And you shouldn't threaten people who are arguing with you.
by IM on Sat Feb 5th, 2011 at 01:18:36 PM EST
[ Parent ]
The ECB is not carrying out quantitative easing, since they insist on "sterilizing" all their sovereign bonds purchases, which effectively draws liquidity from the private sector in order to fund the bnod purchases.

There are indications that there's no more private liquidity to be drawn.

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 Sat Feb 5th, 2011 at 06:10:15 AM EST
[ Parent ]
They are accepting these under terms that stifle the respective economies, especially if you are not very high up in the ladder. They are buying up bad debt to protect private bankers from a EU periphery default, and at the same time imposing (and that is exactly the word, they are actively taking part in these discussions in Greece) a neoliberal agenda that destroys among other things labor rights, collective bargaining and any vestiges of a social state - this is a politically unaccountable yet activist ECB. And if you look at the Merkel / Sarkozy "competitiveness agenda", which is about to be rammed down the throats of pretty much every one in the EU, it turns out that this was a part of a very aggressive Shock Therapy strategy.

This is most definitely not what a Central Bank should be doing. The ECB is acting literally as an enemy of the people. Of all countries.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Sat Feb 5th, 2011 at 06:13:22 AM EST
[ Parent ]
What neoliberal agenda?

 Look, I am hardly a expert on Irish politics. But as far as I know every Irish government and party since twenty years has happily pursued a neoliberal agenda: Fianna Fail and the Greens, Fianna Fail and the Progressive Democrats, Fine Gael and Labour, Fianna Fail and Labour.

And now you want blame "Europe"? Mighty convenient.

by IM on Sat Feb 5th, 2011 at 06:43:09 AM EST
[ Parent ]
What was, pales in comparison to what is coming. I mean Ireland had collective bargaining? Public schools? I'm not sure these are part of any plan for the future that the EU elites have in mind.
And I see this as an opportunity to get the Irish (and European) people to reject neolib policies once and for all versus the opportunity for the elites to completely destroy any vestiges of a social state anywhere in Europe. You somehow see the crisis as some sort of game of moral rewards and punishments. However this is about how the future EU will be structured, on whether, say, the ECB will become a democratically accountable institution and not a clearing house for banker domination in the European economy.

If one thinks that ECB/IMF austerity should be rejected on principle in this case, then I don't see how else Ireland can help this cause other than by doing something like what Jake is saying.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Sat Feb 5th, 2011 at 06:53:13 AM EST
[ Parent ]
"Europe" is not to blame for causing the Irish crisis, but they are to blame for having completely botched their policy reaction to the sovereign debt crises of 2010. And for writing neoliberal (well, not even neoliberal, actually Austrian) economics into the EU constituent treaties.

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 Sat Feb 5th, 2011 at 10:07:23 AM EST
[ Parent ]
As I've said before, for economic purposes, the upper levels of the banking sector in Europe and elsewhere tends to act as a quasi-independent nation state.

It's not so much about "Europe", but about European elements in international banking sector joining in with the collective financial nervous breakdown, and demanding that Europe's real economies should pay to clean up the vomit and replace the carpets and the furniture.

The only possible mature and democratic response to this is "no."

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Feb 5th, 2011 at 10:15:49 AM EST
[ Parent ]
What neoliberal agenda?

Why, Merkel's so-called "competitiveness pact".

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 Sun Feb 6th, 2011 at 03:39:10 PM EST
[ Parent ]
Why are the citizens not responsible for due diligence in electing their officials, and pressing for jail for crooked ones who drop regulations for their cronies?

Align culture with our nature. Ot else!
by ormondotvos (ormond.otvosnospamgmialcon) on Sat Feb 5th, 2011 at 09:55:24 PM EST
[ Parent ]
They are.

But killing the Irish economy in order to make a point about the consequences of electing crooks and liars to high office is overkill and collective punishment. What about the Irish citizens who were shouting bloody murder about their corrupt and in-bred politicians? They'll be punished too if the economy goes into the crapper.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 10:03:32 PM EST
[ Parent ]
That is a good question. 80% or so of the Irish voters voted in 2007 for openly neoliberal parties.
by IM on Sun Feb 6th, 2011 at 11:48:36 AM EST
[ Parent ]
So did 80 % of the German voters at the last election. Does that justify telling all German bondholders to take a hike?

No, it does not. Bondholders should be given haircuts in order of their importance for the productive economy, and in a manner that is distributionally reasonable. Widows and orphans should be protected. Bankers should lose their shirts.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 06:32:18 PM EST
[ Parent ]
Now that is a lie.
by IM on Mon Feb 7th, 2011 at 09:26:30 AM EST
[ Parent ]
I suppose whether the SPD is neoliberal is in the eye of the beholder.

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 09:29:10 AM EST
[ Parent ]
True. But you cuold say the same about Labour in Ireland. That is why I said openly neoliberal: FF, FG, PD.
by IM on Mon Feb 7th, 2011 at 09:37:25 AM EST
[ Parent ]
IM:
True. But you cuold say the same about Labour in Ireland.
And that proves what exactly?

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 10:23:12 AM EST
[ Parent ]
I wouldn't call Labour neo-liberal. Certainly centre-left at best though. Their manifesto for the last election was about things like transfers to the poor and centre-left stuff like that.
by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 10:31:30 AM EST
[ Parent ]
After Hartz IV?

After sabotaging the SPD/Linke coalition in NRW for absolutely no gain?

After preferring a Grand Coalition over an SPD/Linke coalition at the federal level?

No, not really.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 7th, 2011 at 09:43:01 AM EST
[ Parent ]
I was trying to be polite...

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 10:31:02 AM EST
[ Parent ]
All debt is not equal. The assumption of the bad debts of the Irish banks by the Irish Government was, arguably, an abuse of the discretion by the ruling party, Fianna Fail. They had no legal obligation to do so, and certainly no obligation to do this by themselves. When a bank makes a loan to a borrower, the bank is or should be in a much better position to assess the creditworthyness of the borrower. If they take risks, they need to make risk provisions. It is the duty of the regulators of that bank to see that they do. Just because German banks took a big risky dump in Ireland does not absolve the ECB or the German Central Bank from responsibility.

Unfortunately, most economics currently taught in universities in the US and Europe makes many utopian assumptions about the behavior of individuals and institutions in the economy and in markets. These assumptions have been challenged by events, but the adherents refuse to change their assumptions. There are many on ET, myself included, who believe that many of those economists, and especially the interests that influence their selection for high posts, prefer the existing theory for its effectiveness as a smoke screen and as a public religion with which to loot the public despite its obvious debilities in explaining how finance and the economy work.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 4th, 2011 at 01:58:15 PM EST
[ Parent ]
The Irish Question is that of whose ox gets gored. And there is a considerable difference in the relative power of the creditors and debtors. Rather like the mining company that further squeezes its employees through sharp practices at the company store and rental of company housing.

The question is whether the Irish people should bear the entire cost of solutions that cannot work so that the German, British and other government will not have to confront the insolvency of some of their own banks. The Germans, the British and other creditors would prefer to "extend and pretend". But that keeps in place the problems that led to the current fiasco in the name of saving face for governments and institutions that allowed and even encouraged these loans.

In addition, the policies required of the Irish under the terms obtained by the ECB will greatly impoverish the Irish people to benefit a few wealthy individuals in creditor nations. That is the evil through which I would like to see a stake driven.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 4th, 2011 at 02:11:28 PM EST
[ Parent ]
You are not helpful. The Irish central bank and Ireland in general did not really regulate its own banks. Your theory that that was somehow the responsibility of other regulators to regulate Irish banks let's your neoliberal irish friends of thew hook. Instead it is evil foreigners.

There is no exposure of german banks to genuine irish banks. What happened is that Ireland was because of its no regulation and ultra low corporate taxes a welcome tax and regulatory haven for daughters of foreign banks. One was depfa, others were big SIVs of WEtsLB for example. The cost for these daughters is already borne by Germany. The exposure to genuine Irish banks, who ruined themselves in real estate, was always low and is after two years almost nonexistent.

This whole foreign banks would lose is just a xenophobic talking point to distract the Irish from the responsibility of their own banks and government.  

by IM on Fri Feb 4th, 2011 at 02:22:03 PM EST
[ Parent ]
Perhaps you are missing the realpolitik aspect of this. Organizing a political movement involves narratives with moral judgments. Your morality may be a bit different from mine in that I oppose the neoliberal scheme in the broadest sense, and my morality does view the enemy as evil. Others may view them as ill-informed; I do not.

Point being that it takes campaigns to make a movement - much as the current Middle-Eastern situation may evolve. I want for our side to build a recruitment system, which includes propaganda, of course.

We can discuss the philosophical points 'til the cows come home, but at some point we stick our analysis out there - which I do often enough here at home - and try to build a base.

As far as the haircut aspect, you are certainly correct in that the natives will be shaved, too. As Migeru implies, they can suffer either now with the punishments that will accrue to those who fight back; or they can suffer more over the long term as this bailout debacle robs them in smaller amounts, but constantly.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Fri Feb 4th, 2011 at 02:44:48 PM EST
[ Parent ]
The Irish central bank and Ireland in general did not really regulate its own banks. Your theory that that was somehow the responsibility of other regulators to regulate Irish banks let's your neoliberal irish friends of thew hook.

I grant you that the Irish Central Bank failed to regulate its banks. Most likely regulatory capture. But there are two sides to every loan. When the Irish real estate bubble popped there were lots of foreign banks that were owed money. These banks also had an obligation to perform due diligence when making the loan. That they did is laughable. So they and their regulators also bear responsibility. But, especially in Germany, the attitude is that this is all the fault of a bunch of irresponsible banks in peripheral countries - the German version of evil foreigners.

I advocate a fair sharing of responsibility where each party takes a haircut. You advocate having only the evil foreigners take the haircut. Granted my position is unhelpful to German, British and other creditors and their agents in the guise of the ECB and BOE. Were all oxen to be gored perhaps there would be an incentive to construct a fairer and more balanced system that serves the purposes of more than just the elites in Germany.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 4th, 2011 at 05:29:44 PM EST
[ Parent ]
As I said, two years or so to late. All foreign banks have as far as possible left town, leaving the Irish government - NAMA and so on and the ECB holding the bag. But of course most Irish private capital has fled these banks too.

And now you have this cunning plan that foreign holders of Irish government bonds are unworthy and  domestic holders are worthy. That is fine as as far defending the interest of the Irish elite goes, but why is that now suddenly a pan-european progressive project?  

by IM on Fri Feb 4th, 2011 at 05:39:32 PM EST
[ Parent ]
How about all depositors, whatever their nationality, get saved up to a certain amount (say 100k to be ridiculously generous). Then you save as many of the rest as you can in some order that derives from whatever your strategic bargaining plan is as Jake outlined.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Fri Feb 4th, 2011 at 06:02:45 PM EST
[ Parent ]
There have been suggestions that Ireland doesn't even have enough money to guarantee all deposits up to 100k. I find that hard to believe, but it's within the realm of possibility, given what we've seen worldwide in the last 3 1/2 years.

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 Fri Feb 4th, 2011 at 06:10:55 PM EST
[ Parent ]
And now you have this cunning plan that foreign holders of Irish government bonds are unworthy and  domestic holders are worthy.

Far from it! I advocate and support claw-backs from all involved in this debacle. Every cent obtained by executives and board members and all income received by politicians and regulators regardless of how it has been sequestered in property, trusts, etc. This should apply to all profiting from these banks, Irish, British, German, etc.

We need to return private banking to the days of unlimited personal responsibility of the bankers for the solvency of their institutions. The state can clean up damage to others, but should see that the full burden of fiascoes fall on the bankers themselves. Current policy is the exact opposite. That is the core problem.

"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 04:43:34 PM EST
[ Parent ]
The Irish central bank and Ireland in general did not really regulate its own banks.

Nobody here is disputing that. Ireland was a massive case of control fraud. People should be going to prison for that. But the fact that several highly placed property developers, bankers and Fianna Fail machine politicians should be dining on prison fare for a few years does not mean that the general public has to be flagellated in order to honour obviously bogus debts.

You could make the argument that those who voted for Fianna Fail bear some measure of responsibility, since Ireland is, after all, a democracy. While I agree that on some moral level they do, as a practical matter the buck has to stop somewhere. You cannot flagellate the entire Irish economy in penance over their corrupt politicians, for the same reason that you couldn't hang every German who voted for the Nazi party, or worked in the German armaments industry during the war.

Personal responsibility is all well and good, but you have to draw a line somewhere, or your quest for personal responsibility will turn into collective punishment.

The exposure to genuine Irish banks, who ruined themselves in real estate, was always low and is after two years almost nonexistent.

Well, that would simplify matters greatly. Then the Irish government just needs to shaft some domestic Irish bondholders. Which is always less complicated than shafting foreign bondholders.

There's just the teensy-tiny problem that it isn't true.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 01:09:55 AM EST
[ Parent ]
I call Godwin!

Is is all the fault of Fianna fail now, what?

Yes, Fine Gael and Labour and the greens and the Progressive Democrats were all a bunch of communists.

by IM on Sat Feb 5th, 2011 at 06:47:04 AM EST
[ Parent ]
Tell me, do you believe that all Americans should be held responsible for the war crimes in Iraq, just because they are supported by both their major parties?

The buck has to stop somewhere. Killing the Irish economy to punish the Irish for electing crooked politicians is both overkill and collective punishment.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 07:10:50 AM EST
[ Parent ]
The Fine Gael Labour Government left office in 1997 - long before any property bubble or unsustainable fiscal expansion.  I really don' understand why you appear to be trying to spread blame equally all round.  While there may be few in positions of power who are entirely blameless, the primary responsibility in Ireland has to lie with the FF led Governments since 1997, their developer/banker friends, the Central bank and the financial regulator.

In any case the primary losers now are the poor, old, sick and unemployed, few, if any of whom bear any responsibility for the crisis.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Feb 6th, 2011 at 09:08:24 AM EST
[ Parent ]
Do you really want claim the neoliberal policies of Ireland were all fine until the property bubble? And did either Fine Gael or even Labour offer any alternatives at the last election?
Six and half a dozen.
by IM on Sun Feb 6th, 2011 at 12:00:44 PM EST
[ Parent ]
Neo Liberal policies as such weren't introduced until Charlie McCreevy and PDs decided they preferred Boston to Berlin and introduced pro-cyclical tax reductions at a time of booming development and construction.  You may not be happy with economic policies prior to 1997 but to describe them as neo-liberal would be inaccurate.  There was huge state intervention in economic activity, the trade unions were officially recognised as "social partners" in national economic planning, and social welfare and minimum wages were increased (to what is now regarded as an unsustainable degree).  Throwing the neo-liberal label around too liberally is no more helpful that making nationalistic or Godwinian allegations.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Feb 6th, 2011 at 01:18:50 PM EST
[ Parent ]
I am using it as shorthand, yes, But how would you dewcribe Fine Gael? Social democrats? And hasn't Labour been very third-wayish now for years?
by IM on Sun Feb 6th, 2011 at 02:39:28 PM EST
[ Parent ]
You have also claimed the German policy is not neoliberal. How would you describe it Fine Gael's EPP partners, the CDU? And hasn't the SPD been a model for European third-wayers since Schroeder?

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 Sun Feb 6th, 2011 at 02:49:24 PM EST
[ Parent ]
I did say german policy tin this crisi was not neoliberal. And that is true. Prior to that both CDU and SPD have been drifting to the right. That said, the CDU is still to left of say the Tories, or the PP or both FF and FG. And I think, especially in the last years the SPD is going back to the left. And even in worst years we were still tame compared to New Labour.  
by IM on Sun Feb 6th, 2011 at 03:19:10 PM EST
[ Parent ]
Two words: Hartz IV.

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 Sun Feb 6th, 2011 at 03:33:16 PM EST
[ Parent ]
That was pre-crisis. If we agree we are talking about a economic crisis starting in 2008 or late 2007. One word:
Kurzarbeit.
by IM on Sun Feb 6th, 2011 at 03:49:52 PM EST
[ Parent ]
The German response to this crisis has been a single-minded focus on balanced budgets and wage suppression. How isn't that neoliberal policy? Except, of course, insofar as it might be Austrianism...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 06:40:28 PM EST
[ Parent ]
The real german response has been automatic stabilisers and stimulus. The rest was rhetoric.
by IM on Mon Feb 7th, 2011 at 09:39:42 AM EST
[ Parent ]
Rhetoric. Right. We all know that constitutional amendments are expressions of rhetoric, not policy.

Incidentally, why shouldn't Ireland pursue countercyclical fiscal policy? Because the current German line is that they shouldn't.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 7th, 2011 at 09:42:42 AM EST
[ Parent ]
In Irish terms, FG were mildly social democrat under Garrett Fitzgerald, more centrist under Bruton and are now becoming more old style conservative now under Kenny.

Labour wouldn't quite know how to find one way, never mind three...

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Feb 6th, 2011 at 02:55:54 PM EST
[ Parent ]
<sigh>

Here's my simplified story about the Irish economy:

  • During the late 80's and early 90's there were a sequence of changes - tax cuts from very high rates (marginal of 90% at one stage!), the maturation of Irish infrastructure with the help of EU transfer payments, that sort of thing - that freed up the market economy to be reasonably efficient.

  • We started playing some catch-up on the rest of Europe - the whole EU solidarity thing worked, leading to pretty fast growth from a very low base. Not a bad thing.

  • The next ten years of FF-led government was an unholy mix of neo-liberals and populists who wanted to buy power by any means. What followed was a festival of tax cuts and selling the family silver - privatising assets - in order to fund tax cuts. The property boom was encouraged and fanned when it looked like flagging so that further giveaways could take place.

  • Meanwhile, the neo-liberals almost entirely captured the media. Ireland is best viewed as a regional UK media market, with three Irish TV stations and tens of UK or US ones, with UK newspapers and tabloids selling well. Labour ended up believing they couldn't be too lefty if they wanted to get votes because the conventional wisdom, locally and internationally, was entirely against them. Every other day there were reports of how wonderful the rest of the world thought the Irish model was. Ireland was the shining poster child, the richest country in Europe (note that income!=wealth).

  • Complaints (mentioned by Labour) about inequality, about the fragility of the tax system, about the dangers of pro-cyclical policies were all poo-pooed, with the Taoiseach of the time saying that the unbelievers should go kill themselves.

  • Then the economy started to slow and the financial meltdown happened and the government and the financial regulators couldn't bring themselves to understand exactly how badly they screwed up. They went from being the smartest guys in the room to being a crowd of feckless paddies again and they have no idea how to deal with that except more of the same: cut, cut, cut and be good little boys and girls and don't let any banks die or the serious people will be upset at them.

  • Bank guarantee, etc.
by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 10:07:54 AM EST
[ Parent ]
I call Godwin!

I would be very careful with that call. Were one to ignore the rampant short-sighted, self-serving stupidity employed by so many in their response to the Irish debt crisis, one could construct a narrative composed of the long litany of macro-economic policies and ECB decisions that have consistently been favorable to Germany and unfavorable to the periphery that Germany is attempting to achieve by economics what they could not achieve by military force 70 years ago. That would be worthy of a Godwin call. (I in fact believe that it is a group of wealthy individuals and those who serve them in several countries that, not entirely coherently, is advancing such a goal in their somewhat collective self interest.)

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 6th, 2011 at 11:30:59 PM EST
[ Parent ]
This whole foreign banks would lose is just a xenophobic talking point to distract the Irish from the responsibility of their own banks and government.

Merkel, already the largest contributor to the EU's rescue fund, must walk "a very thin line" as she tries to balance her pledge to do whatever is needed to save the euro with voter hostility to the bailouts, said Carsten Brzeski, an economist at ING Groep NV in Brussels. She also risks harming her country's banks by her insistence that bondholders take losses on future bailouts. German lenders hold more than 112 billion euros of debt issued by the governments of Greece, Ireland, Portugal, Spain and Italy, according to data compiled by Bloomberg.


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 Sun Feb 6th, 2011 at 04:50:57 AM EST
[ Parent ]
God, how sloppy, if not more. Let me take a hand:

German lenders hold more than 600 billion euros of debt issued by the governments of Greece, Ireland, Portugal and the United States.

Including Italy in the PIIGS is a invention of the neoliberal anglo business press anyway.

by IM on Sun Feb 6th, 2011 at 12:09:44 PM EST
[ Parent ]
Okay, let me try again.

Eurointelligence: Is Ireland Solvent (Wolfgang Münchau and Raphael Cottin, 24.11.2010)

In the long run Ireland is probably insolvent. Portugal is in a very similar position, perhaps even worse, because of structural problems that might hinder economic growth.

But in the short run, the show will go on. The readiness by the other Europeans to bail out Ireland is easily explained. The exposures by EU banks to Ireland, Greece and Portugal are massive. ...

Ireland is in a different league than the others. Unlike Portugal, Ireland could bring the house down, and that will still be the case, once Ireland's insolvency is fully realised and understood. A breakdown by countries shows that Germany and the UK are most exposed to Ireland, Spain to Portugal, and France to Greece. If the periphery goes, the European banking system will have its own subprime crisis - in addition to the actual subprime crisis.

Where are we headed now? There will be no immediate default. Ireland, and also Portugal, will come under the umbrella of the EFSF. Spain is more solid, but also highly vulnerable to a financial market squeeze. I would expect the EU to step in should Spain come under pressure. That could be through a series of bilateral programmes, or more likely an increase in the lending ceilings of the EFSF. The likelihood of such an event would be hard to predict. I would expect Spain to be ok, but Spain, too, needs to return to some solid growth.

The source of the data is the Bank for International Settlements.

There you go, as of the latest data available on November 24, the exposure of German banks to Ireland was of the order of €120bn.

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 Sun Feb 6th, 2011 at 12:42:17 PM EST
[ Parent ]
120 bn total exposure is not the same as 120 bn exposure to government debt.

And if we follow the money, it seems to be british-german belgian conspiracy against Ireland.

by IM on Sun Feb 6th, 2011 at 02:34:12 PM EST
[ Parent ]
I can't see your goalposts any more, can you stop moving them?

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 Sun Feb 6th, 2011 at 03:05:35 PM EST
[ Parent ]
But you are moving the goalposts. You are taking total exposure as if it is exposure to government debt. It isn't. The second number is smaller, probably much smaller. I never claimed there is no exposure at all. I just deny that all irish debt is public debt - private debt is rather larger and that all Irish debt is to german banks; the exposure to british banks alone is larger.

Also, most of this is Depfa/HRE anyway and this bank is already nationalised.  

by IM on Sun Feb 6th, 2011 at 04:02:45 PM EST
[ Parent ]
Also, most of this is Depfa/HRE anyway and this bank is already nationalised.

The fact that the German government has taken leave of its senses and bailed out German banks does not mean that Ireland has to compound the mistake by bailing out the German government. If the German government wants a bailout, the proper place to argue that is at the ECB, which controls the printing presses. The printing press is where governments go to get bailouts in normally functioning fiat monetary systems.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 06:43:07 PM EST
[ Parent ]
120 bn total exposure is not the same as 120 bn exposure to government debt.

Why yes, yes it is, since Ireland took leave of its senses and bailed out their own banks, that's precisely what it is. Unless you are in the minority that believes that Ireland has a single solvent bank left with overseas liabilities. In which case I have a "competitiveness" reform to sell you.

It's this bailout that the "Irish rescue" - at usurious 5.7 % interest - is now trying to prevent from collapsing (as it should by any right).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 06:40:05 PM EST
[ Parent ]
Which is the best argument around that events are being driven by the very short-sighted German domestic political concerns of Angela Merkel and not by economic understanding or financial prudence of any sort. Given the situation and given the extraordinary willingness of the Irish government to attempt to swallow the whale of debt they have assumed, one would think that the governments whose banks are counter-parties to Irish debt would be more than happy to make loans available at zero percent and see how much of the whale Ireland could swallow. But no! They want to make 5.7% interest on the loan! They may as well drop a 20 megaton bomb on Dublin for all the good this will do in helping Ireland to attempt the impossible.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 6th, 2011 at 10:44:40 PM EST
[ Parent ]
I would suspect that most of the private debt owed to German banks is either owed by Irish banks or by  private individuals who are basically in slow-motion bankruptcy.

The IFSC complicates matters, in that some of the debt might be owed to branches of German banks there, for instance.

by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 10:18:01 AM EST
[ Parent ]
Equality before the law is sacred. So a default or partial default has to treat all bond-holders of the Irish state the same way.

This conclusion does not follow from that premise.

Repudiating the bank guarantee is no more a violation of the principle of equality before the law than issuing that guarantee - of the private debts of a subset of private companies (I didn't see any guarantee of Irish manufacturing firms' debts, even though that would have lowered their cost of funding, which would have provided a real economic benefit).

I mentioned the 100 billion owned by Irish banks to the ECB. That is not a hedgefund. Nor even really foreign.

It shouldn't act like a hedge fund, and it shouldn't act like a foreign entity.

Yet it does.

If it didn't behave like a foreign hedge fund, there would be no real need to default on it. If it behaved like a proper central bank, it would keep rolling over that position indefinitely, because that's what central banks do with sovereign debt positions as a matter of course.

And the considerable sums that the Irish governments already put in the banks is a fact too.

No. They're a promise. Unless ECB reserves have been moved from the Irish reserve account to the bank's reserve account, no transaction has taken place which cannot be undone by legislative fiat.

I think that is offered here is a illusion. Bankruptcy without the pains of bankruptcy.

The macroeconomics of sovereign states is funny that way. Sometimes the ordinary citizen really can avoid the pain by shafting obviously evil people like Goldman Sachs or Deutche Bank. Sometimes they can't, of course. Greece will feel pain, to a greater or lesser extent (default means less pain than AusterityTM, but there will be pain). Ireland, with its strong trade surplus, does not need to feel pain. The pain is a political choice.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 12:57:33 AM EST
[ Parent ]
IM is representative of a widespread view in Ireland that it is not realistic for Ireland to default on ECB debt without putting our membership of the Euro and EU in doubt - and destroying our banks and attractiveness as a recipient of foreign direct investment into the bargain. In other words the decision to guarantee the banks was fatal and cannot now be undone now that most of the original bondholders have been repaid and that debt replaced with Sovereign debt.

People understand the situation in terms of their own experience and extrapolate that to high finance where different rules apply. The whole subprime scam was based on the realisation that most people want to repay their debts even at the cost of going hungry and the immorality of high finance and "debt restructuring" is outside their moral universe.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 4th, 2011 at 06:20:01 PM EST
[ Parent ]
it is not realistic for Ireland to default on ECB debt without putting our membership of the Euro and EU in doubt - and destroying our banks

What? People in Ireland still think they have banks left, let alone worth defending?

At least the current Irish Central Banker is not that insane: Sell Irish banks to foreign investors, says Honohan

Ireland's banks should be sold off to foreign owners to quicker clean up the debt crisis, the country's top banker declared today.

Patrick Honohan, governor of the Central Bank, also claimed a new government will be able to change the terms of the €85bn EU/IMF bailout.

The banking chief said getting overseas investors to take over the homegrown banks that survive the current economic mess was looking like the best option.



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 Fri Feb 4th, 2011 at 06:34:54 PM EST
[ Parent ]
Migeru:
What? People in Ireland still think they have banks left, let alone worth defending?

The ATM machines still work...

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 4th, 2011 at 08:03:32 PM EST
[ Parent ]
But that's not what this is about. The payment clearing system will survive unscathed.

Somebody really has to explain to people (and politicians, and unfortunately even to central bankers) how a regulatory bank resolution works.

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 Sat Feb 5th, 2011 at 02:51:22 AM EST
[ Parent ]
That is another central point.  The Government literally said the ARMs would stop working if they didn't guarantee and then bail-out the banks.  The whole scam was based on the notion that the banks were indivisible and absolutely essential to the continence of ordinary day to day and business life.

The metaphor of the ATMs not working was actually used to bring home to people the seriousness of the situation - unfortunately in an entirely misleading way.

So the key points are - debt restructuring is an entirely routine way of resolving structural imbalanced which have been allowed to build up between debtors and creditors - for which both are responsible, and yes, the ATMS (which is the sum total of many people's experience of banking - will continue to work before, during and after the process.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Feb 5th, 2011 at 06:39:20 AM EST
[ Parent ]
And it's moral to allow the fraudsters and parasites to walk away from the mess they helped create?  

What about their moral responsibility for not doing their damn jobs?  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Feb 4th, 2011 at 06:37:38 PM EST
[ Parent ]
No.  But it's the law as it stands...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 4th, 2011 at 08:05:00 PM EST
[ Parent ]
And sometimes the law is an ass.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 4th, 2011 at 11:28:42 PM EST
[ Parent ]
But waht about the loans to the irish government?

Immaterial.

Loans actually extended to the Irish sovereign amount to less than 20 % of the total outstanding Irish sovereign debt. The remaining 80+ % are loans originally extended to Irish banks, which the Irish sovereign, in a fit of momentary insanity, decided to guarantee. That guarantee should never have happened, and simply telling all the hedge funds and foreign banks to go take a hike is the simplest way to reverse it at this point.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 12:56:41 AM EST
[ Parent ]
And that is a illusion. The Irish debt did rise fast because they had a deficit caused by the economic crisis. Negative growth, a tax system depending on the house bubble, 13% unemployment will cause a significant deficit.

Take 2010. Of the famous 30% deficit, 20% or so are guarantees etc. to the banks. But 10% is the ordinary deficit. And these "ordinary deficits" alone have caused a significant part of the debt.

by IM on Sat Feb 5th, 2011 at 06:56:42 AM EST
[ Parent ]
Ten percent deficits in a serious business depression are not a bug, they're a feature. It's called "countercyclical fiscal policy." Look it up.

The ECB should be printing money on demand to support that, not demanding that the member states fund their countercyclical policy in the money markets.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 07:17:38 AM EST
[ Parent ]
My god. I am pro countercyclical policy. But if a 10% deficit is cause by automatic stabilisation and countercyclical policies, you can't turn around and declare the resulting debt odious debt. I mean you are not a member of the tea party after all.
by IM on Sat Feb 5th, 2011 at 07:40:58 AM EST
[ Parent ]
But that's not the part of the debt Jake, or anyone here, is considering odious (it could be, in Greece part of it certainly is)! He is saying that the Irish government had no business socializing the extra 20% GDP of private debts of Irish bankers. He is also, I think, rather warm to the idea that said bankers should go to jail (I wouldn't put it past him to even be for the abolition of private banks), and that public money is for the public good, which I think automatically disqualifies him from Tea Party membership

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sat Feb 5th, 2011 at 07:47:15 AM EST
[ Parent ]
Private banks are a perfectly fine thing to have. They just shouldn't be allowed to run their own macroeconomic policy, let alone run the government's.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 07:51:44 AM EST
[ Parent ]
But

1) I can call it odious that the ECB isn't buying those bonds at face value, and is forcing Ireland to jump through ridiculous hoops and fund in the private market.

and

2) Just because a third of the debt isn't odious doesn't mean the other two thirds also aren't odious.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 07:49:21 AM EST
[ Parent ]
Our correspondent tells me that they are flattered that you think they're an economist, but it's not quite correct.

Also, they have a slot for "a 700/1200 word piece in a respected publication" if we can boil this down by tomorrow evening. We're a bit on the high end for length, and will need to tone down the more colourful language, but it should be doable.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 4th, 2011 at 07:41:31 AM EST
[ Parent ]
JakeS:
Our correspondent tells me that they are flattered that you think they're an economist
Shouldn't they rather be offended?

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 Fri Feb 4th, 2011 at 08:33:53 AM EST
[ Parent ]
If you restructure the post as a draft negotiating strategy for Ireland highlighting strengths and weaknesses - possible alliances and points made by others we can build on - it would make a valuable contribution to the debate as basically Fianna Fail are saying the overall deal is non-negotiable and are accusing the opposition of living in fantasyland if they think we can change the terms..

Our Euro experts here could also describe the process - do we work through Council or Parliament, and what role does Patrick Honahan - our central bank Governor play?

The point we need to address is this:  Most ordinary people think that a contract, once signed, is binding - and are not aware of the degree to which it is utterly routine in the world of high finance for debts to be restructured.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 4th, 2011 at 09:54:55 AM EST
[ Parent ]
Do you have the time to do this and will you do this under your own name or do you prefer to have it signed by ET editors using their nics and/or real names? I would be willing to sign and use my real name or nic, but could provide both if necessary.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 4th, 2011 at 11:15:14 AM EST
[ Parent ]
I'm working on it, and I'll be signing it in my own name. If there is time to circulate it to the ET admins before deadline, I'll try to get them to sign off on an ET byline. But getting it published is more important than whose name it is published under.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 01:29:31 AM EST
[ Parent ]
This is very good. Kudos, Jake.

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 Fri Feb 4th, 2011 at 02:51:38 AM EST
European Tribune - Irish pushback strategy - we get mail
Ireland is somewhat unique in the €-zone for having a genuine debt crisis. Greece, Spain and Portugal (and soon Belgium) are experiencing currency crises (similar to the one that caused the UK to leave the ERM back in 1992). ... Ireland runs a respectable trade surplus w.r.t. the rest of the €-zone
So, the logic here is that a surplus country can only get in trouble through genuine overindebtedness, whereas deficit countries first get overindebted as a result of their troubles?

I'd say Belgium is special, too. They have historically had more than 100% debt-to-GDP ratio...

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 Fri Feb 4th, 2011 at 03:58:53 AM EST
Countries can get in trouble in a variety of interesting and imaginative ways, so saying that surplus countries can only get in trouble through genuine over-indebtedness and deficit countries can never have a genuine debt problem would be wrong.

What is true is that in the present crisis it looks very much like the deficit countries are having a currency crisis (because the attacks are highly correlated with foreign debts and current accounts deficits, and only weakly correlated with sovereign debts and deficits), and it looks very much like Ireland is having a genuine debt crisis (since its banks are insolvent following a real estate bubble that was not an obvious macroeconomic necessity).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 4th, 2011 at 07:25:44 AM EST
[ Parent ]
European Tribune - Irish pushback strategy - we get mail
Ireland runs a respectable trade surplus w.r.t. the rest of the €-zone, so in the medium term, the current surplus-friendly setup works in favour of Ireland's narrow self-interest.

The narrow self-interest objective is to secure liquidity until the hysterical children in the international money markets are done panicking about your sovereign default (this takes a year to a year and a half).

We're missing some data here - or at least I'm not satisfied with the data we've seen so far.

When the Irish bailout happened, the Irish government had been saying for some time that they were funded on a cash basis until the middle of 2011. In other words, they already had 8 months of time for the histerical children to calm down before the first batch of bonds came due for rollover.

What likely happened, though, was that the interbank lending market was effectively closed to Irish banks, which were consequently relying on emergency liquidity from the ECB, and the ECB threatened to close the spigot. This would have instantly crashed the Irish banks, forcing a regulatory intervention (the one that should have taken place in 2008 when the government issued their guarantee) and the calling of the government guarantee on bank debts (the government was funded until 2011 assuming the guarantee remained a contingent, as opposed to an actual, liability so this would probably have triggered a default).

Another question is whether the combined Irish Central Bank and Treasury had the ability to honour the deposit guarantee. I don't remember seeing an estimate of how much money was needed for that. In fact, a slow-motion deposit run is probably taking place as we speak. Two weeks ago, I wrote:

In other news: Central Bank steps up its cash support to Irish banks financed by institution printing own money - Irish, Business - Independent.ie
A spokesman for the ECB said the Irish Central Bank is itself creating the money it is lending to banks, not borrowing cash from the ECB to fund the payments. The ECB spokesman said the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.

News that money is being created in Ireland will feed fears already voiced this week by ECB president Jean-Claude Trichet that inflation is a potential concern for the eurozone.

However, a source at the ECB said the European bank is comfortable that the amounts involved are small enough not to be systemically significant. The ECB has been lending money to banks in Ireland at just 1pc, as long as the banks can put up acceptable collateral.

Incidentally, this answers my question Can the Eurozone National Central Banks create fiat Euros by themselves? in the affirmative. Yes, they can!

Zero Hedge is, of course, all excited about this: Accelerating Deposit Flight In Ireland Forces Irish Central Bank To Print Money Independent Of ECB

It appears that Irish savers are sufficiently smart to realize that their money is no longer safe in a banking system whose existence is now only backstopped merely from referendum to referendum. As it is very unclear what will happen to the IMF/ECB rescue mechanism once the Irish election is held in March, with a material possibility that the whole plan will be unwound, leaving the country's financial system in the wind, a behind the scenes bank run is accelerating. Incidentally while this was the topic of the December letter by Guggenheim's Scott Minerd, which we discussed in a post titled "Scott Minerd's Detailed Pre-Mortem On What Europe's Bank Run Will Look Like, And Other Observations", his just released January missive deals with precisely the same topic (see chart below). So faced with the prospect of accelerating deposit redemptions, what does the Irish Central Bank go ahead and do? According to the Independent it has gone ahead and proceeded with that traditional recourse to all regimes in the bring: print money.

Today, our correspondent writes
We are in dire straits. We cannot borrow money in the markets. The ECB gave the ok to our Central Bank in December to print €51bn euro. I am not sure if this relates to the amounts disclosed in a newspaper last week.
The article in question is €50 billion in loans puts `solvency risk' on Central Bank | The Post
A staggering €50 billion of emergency funding to Irish banks by the Central Bank of Ireland could pose a threat to the very solvency of the Central Bank itself, a report by Citi has concluded.

The report, which examines the €50 billion in emergency liquidity assistance (ELA) provided by the Central Bank of Ireland (CBI) to Irish banks, also concluded that ``it is likely that the collateral offered (by the Irish banks) would not be accepted by the ECB''.

Citi suggested there was considerable secrecy around the precise mechanism under which this €50 billion was lent out, and the Central Bank has declined to comment.
The reports by Citi's Willem Buiter are Migeru:
Buiter has a new paper out:

Willem Hendrik Buiter - Publications

    CITIGROUP PUBLICATIONS
    1. "ELA: An Emperor without Clothes?", with Ebrahim Rahbari and Juergen Michels, Citi Economics, Global Economics View, 21 January 2011.
    2. "The Debt of Nations", with Ebrahim Rahbari, Juergen Michels and Giada Giani, Citi Economics, Global Economics View, 7 January 2011.
Other required reading from Buiter is discussed in my diary Can the Eurozone National Central Banks create fiat Euros by themselves?
In Can Central Banks Go Broke? (CEPR Policy Insight No.24), Willem Buiter asks:
Does it matter if a central bank suffers a large capital loss? Can the central bank become insolvent? How and by whom should the central bank be recapitalised, should its capital be deemed insufficient?
But he also does something else: this is one of the most accessible places where one can find a discussion of the structure of the ECB and its relationship with the National Central Banks.

While it answers many questions one might have, it also leaves a few important issues unresolved or undiscussed. In particular, the paper invites the question of whether National Central Banks can create fiat money independently of the ECB.

Buiter outlines the toolkit to understand the extent to which the combined Irish Treasury and Central Bank are solvent. This is what Jake is talking about when he says
Then you decide what level of debt you will realistically be able to honour (be pessimistic - the EU could well be looking at a Japan-style lost decade)


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 Fri Feb 4th, 2011 at 04:23:28 AM EST
A nitpick:
the Frankfurt overnight rate plus some politically acceptable fixed acceptable yield curve

That said, my feeling is that

Repeal of the prohibition on direct ECB purchase of sovereign bonds, and a mandate to purchase sovereign bonds at a price no less than [the one corresponding to] the Frankfurt overnight rate plus some politically fixed acceptable yield curve (the precise shape of which is beyond the scope of this missive).
is too specific a mandate, an probably too rigid to be optimal or even politically acceptable at all.

All that is needed is a mandate for the ECB to act as a market-maker of last resort, which together with Jake's

A change of the ECB's mandate, ... towards having a supervisory role over the private banking sector, to prevent credit bubbles
would be subsumed within a Financial Stability mandate.

But Financial Instability needs to be understood in a Minsky sense. Unfortunately Trichet and friends believe just raising regulatory capital requirements is enough and the market will provide. Policing market stability itself doesn't fit their worldview. Trichet presided the Basel III committee and is now in charge of the European Financial Stability Board, which I fully expect to fail in their mandate given their faulty, market-worshipping macroeconomic outlook.

Required reading on Market-Making of last resort:

Willem Buiter on for-profit banking:
The intermingling, in private profit-oriented businesses, of the provision of public goods or services with regular profit-seeking activities, represents an extremely unhealthy state of affairs. The public provision of private goods is a well-documented disaster. The private provision of a public good without effective regulation (especially when provision is by a complex private businesses for which the public good is but one concern among many), can be a disaster of comparable magnitude.
(Central banks as market makers of last resort 4; liquidity, markets and mechanisms, August 23, 2007)

See also:

Yes, I am a fan of Willem Buiter.

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 Fri Feb 4th, 2011 at 04:36:05 AM EST
European Tribune - Irish pushback strategy - we get mail
First, on the subject of publishing the results of stress tests, it is my impression that this is mainly an option for Spain. Spain is large enough (and has large enough sovereign and interbank debts to the banks of major creditor nations) that the domestic Spanish bank stress tests should have given them a reasonable basis for guessing the solvency (or not) of the banks of major creditor nations. Ireland may or may not represent a large enough part of their balance sheets that you can pull the same trick. But it's certainly worth looking into. If you decide to pursue that strategy, my advice would be to gang up with as many of the other €-zone debtor nations as possible, to get the most complete picture you can (and to avoid being the only country to incur the wrath of the powers that be when you stick it to Frankfurt and the City).
Unfortunately, Zapatero now thinks he's best friends with Merkel. When the next round of attacks gets underway he won't know what hit him.

Merkel: "Spain has done its homework and is on a good path" · ELPAÍS.com in English

The plan, which has been negotiated with French president Nicolas Sarkozy, includes measures already adopted by Spain such as the pushing back of the retirement age to 67, as well as new proposals such as the disassociation of salary increases from inflation, and a legal or even constitutional ban on incurring a budget deficit, as has already been applied in Germany.

Zapatero, who has given his support to Merkel's project, said the euro occupied a large proportion of this morning's bilateral discussions. "The euro zone is [Europe's] most ambitious political and economic project," affirmed the Spanish prime minister. "The euro is strong but we are going to strengthen the common currency even more."

Spain's labor leaders, meanwhile, took no time in rejecting Chancellor Merkel's proposal that salaries should be linked to the growth of benefits and not to inflation. In a joint press conference with the president of Germany's principal labor union, DGB, CCOO leader Ignacio Fernández Toxo and the UGT's Cándido Méndez explained it would be an error if Spanish salaries stopped being linked to the consumer price index and were only linked to productivity.



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 Fri Feb 4th, 2011 at 05:05:40 AM EST
European Tribune - Irish pushback strategy - we get mail
Note that, perversely, prevalent attitudes in the core EU members mean that negotiating in Ireland's narrow self-interest is going to be considerably easier than negotiating in the wider European interest.
This is good for Ireland since they can use their narrow self-interest as a fall-back position.

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 Fri Feb 4th, 2011 at 05:30:58 AM EST
Hm, I have been thinking about how to make an easy point. Being easy, it of course ignores a lot of things like the dual nature of trade imbalances, the character of money and the composition of the bad debt. Please point out how wrong this is :)

Ireland has a trade surplus, more money comes in each year then goes out.

If Ireland was a company it would be going well. Unfortunately, one of the partners had a nephew who got a huge gambling debt and in a reckless act the partner wrote over this debt on the company. The company now has a debt that can not be served, and the debtors want the company to gut salaries, fire people and in general run the company in the ground to get some money back fast.

Fortunately, Ireland is no company, it is a state. Ireland can thus default on bad debt with no other repercussions then a bit higher interest on the remaining debt for a while. Russia did it in the 90ies, and that is exactly what happened. As long as more money comes in every month then goes out, a bit higher interest will not cause any problems.

So on the one hand we have the ECB way to gut the real Irish economy to try to pay the gambling debts of the bankers, on the other we have a bit higher interest on the (really low) debts Ireland had before the crisis. The choice should be simple.

Would this work to explain the situation to the average irelander? Is it right enough?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Feb 4th, 2011 at 08:15:04 AM EST
What is bad debt? A bond from the irish state is a bond.

Let's say I am a hedge fund. I did buy a irish bond in 2007.

Is that bad debt? If so, why?

by IM on Fri Feb 4th, 2011 at 08:21:10 AM EST
[ Parent ]
Bad debt is debt that's not likely to be paid back. That's not a permanent quality of the debt. A bond from the Irish state is a bond that may plausibly not be paid back. From the diary:
Nobody is addressing the terms of the loan - the fact that the amount of the 'bailout' (not for Ireland, for the banks who lent to us!) of €67.5bn (not counting €17.5bn we are contributing - decimating our pension reserve fund) is not going to allow us to proceed  an 'orderly restructuring' (aka default) in 2014. In fact we will need in the order of €152 bn to get to 2014.
Irish debt is bad debt to the extent that Ireland falls short of those €152 bn.

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 Fri Feb 4th, 2011 at 08:32:24 AM EST
[ Parent ]
Bad debt is debt that was not justified on the basis on which it was granted.

An Irish bond issued in 2007 was not necessarily a bad debt, if it was issued to pay for legitimate expenses of the Irish state. It was a bad debt if it was issued as part of a swap for bad private debt.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 4th, 2011 at 08:33:54 AM EST
[ Parent ]
Debt which was justified on the basis of the economic environment at the time of issue may cease to be justified at some point in the future.

Debt becomes bad when it becomes clear that future earnings will not retrospectively validate the valuations made at issue.

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 Fri Feb 4th, 2011 at 08:38:31 AM EST
[ Parent ]
But then all the debt of the Irish State is bad debt. And it has to default on all of it or partially default on all of it.

So the foreign devils get only, say, 80% of their capital back and the true born Irish men too.

by IM on Fri Feb 4th, 2011 at 09:07:34 AM EST
[ Parent ]
Not all debt is the same in terms of seniority. When a bank fails, the depositors gets paid first, then the bondholders in decreasing order of seniority of the bond (not of the creditor).

I agree discriminating on the basis of nationality will instantly run afoul of the EU courth of justice.

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 Fri Feb 4th, 2011 at 09:12:17 AM EST
[ Parent ]
But are there really any bondholders left? or that many depositors? The capital of the (troubled) irish banks is now either ECB or irish government. The ECB has lent more  then 110 Pound sterling to irish banks according to your guardian source.
by IM on Fri Feb 4th, 2011 at 09:22:10 AM EST
[ Parent ]
The ECB has lent more  then 110 Pound sterling to irish banks

I assume you mean Billions. In any case, the Guardian claimed the exposure of foreign banks was 5 times that, as late as March 2010. So foreign banks still have an exposure of 400 billion.

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 Fri Feb 4th, 2011 at 09:30:46 AM EST
[ Parent ]
The foreign exposure also "includes derivatives and other credit commitments", the seniority of which is not entirely clear to me.

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 Fri Feb 4th, 2011 at 09:31:42 AM EST
[ Parent ]
There shouldn't be any.  That's a private contract - I think but IANAL - between the bond holder and two or more parties.  The State should only perhaps, depending, guarantee the underlying bond.

The Neo-libs are always shouting the State should not interfere with private contracts so ... the State should not interfere and let the derivatives go south.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Feb 4th, 2011 at 01:30:27 PM EST
[ Parent ]
The Irish state might have to deal with the negative consequences of derivatives to Irish institutions. But in general, yes, let those who made the bed lie in it.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 4th, 2011 at 11:18:50 PM EST
[ Parent ]
But of course that is not the problem of the creditor. Money is fungible. If Ireland borrowed x billion in 2008 or 2009, it used y billion for it's normal spending and z billion for the banks. But they didn't told me - the fictional bond buyer - about that. They just sold me a bond.

If you say "banks!" I will say "my credit paid for the unenmployed!"

by IM on Fri Feb 4th, 2011 at 09:05:01 AM EST
[ Parent ]
Debt which cannot be paid will not be paid, whatever the money was used to pay for.

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 Fri Feb 4th, 2011 at 09:07:52 AM EST
[ Parent ]
Yes, but in a bankruptcy all creditors will suffer. Including private persons in Ireland.
by IM on Fri Feb 4th, 2011 at 09:52:08 AM EST
[ Parent ]
Private persons in Ireland are already suffering because of the conditionalities of a bailout designed to give the foreign bondholders time to offload their bonds on the ECB without improving the solvency of Ireland.

Bankruptcy would be a better deal.

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 Fri Feb 4th, 2011 at 09:55:49 AM EST
[ Parent ]
The Irish mess started when foreign banks and other financial institutions lent money to Irish banks who turned around and created a real estate bubble.  If anyone in that chain had done due diligence they would have KNOWN they were sending good money into a black hole.  

Simply put: there's a case to be made the Irish and foreign financial institutions are guilty of malfeasance.  In which case they can go whistle for their money.  Illegal acts do not constitute a binding contract.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Feb 4th, 2011 at 01:37:29 PM EST
[ Parent ]
Illegal act? So loaning money to the irish state in 2003 or 2005 or even 2009 was illegal exactly why?

Because the Fiana Fail dictatorship was not the legal government? Because everybody had to know how exactly the "Celtic Tiger" would crash?

Nationalistic nonsense. Next up: How the ECB caused the Famine.

by IM on Fri Feb 4th, 2011 at 02:11:12 PM EST
[ Parent ]
Nationalistic nonsense

You might want to note that most here are not irish. So it seems wrong to claim that nonsense on behalf of the irish is nationalistic.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Feb 4th, 2011 at 03:00:47 PM EST
[ Parent ]
The last Irish in my family tree, to my knowledge, was a great-great grandmother from Ulster who arrived in the mid 19th century. The Scots-Irish-Welsh on my father's side arrived earlier.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 4th, 2011 at 11:24:58 PM EST
[ Parent ]
Two things happening.

The first was malfeasance by not doing due diligence by the Irish banks and the foreign financial institutions who lent money to the Irish banks to fund the real estate bubble.

The second was the improper action by entities in the Irish government who bailed-out the Irish banks and loaning foreign institutions.  Proper financial regulation and oversight would have would never allowed the Irish banks to get into this mess in the first place; proper financial regulation and oversight post-mess would have let the banks fail with the Irish government "picking-up the pieces" as Migeru has already outlined elsewhere in this discussion.

Debt is paid off by the cash stream generated from the productive (goods and services) assets the debt was used to purchase XOR the cash stream generated by a vibrant economy and then redirected to debt service.  Consumer real estate purchase is a perfect example of the latter.  (At least as long as the house, whatever, is held by a consumer.  I note purchase for rental is different.)  Consumer real estate does not generate cash but, rather, is a net drain of cash when viewed from the total amount of discretionary consumer income.  This means:

As the cash stream generated by the Real Economy is diverted to debt service the total amount of consumer spending MUST fall by that amount.  This, in turn, lowers economic activity (eventually) in exactly the place where the cash comes from to service the debt: the "Real Economy" where people create wealth by producing goods and services and get cash for so doing.

The result of this has been analyzed (no link, for which I apologize) to conclude banks and other financial institutions withdraw, roughly, 7 pounds for every pound of debt issued.  No economy in the world, including the global economy, can withstand that rate of predation.  Eventually marginal borrowers will be forced into non-performance initiating a positive feedback loop in the negative direction and the bubble bursts.  

No one 'round here, I should think, is saying debt is necessarily evil.  Debt assumption for increasing production generating an Internal Rate of Return (IRR) (cash) capable of debt service is a vital part of a non-barter economy.  Debt assumption that doesn't generate an IRR and simultaneously reduces the ability of the micro-economy to service that debt is stupid because it WILL, eventually, crash the economy.  

As a former banker, I can tell you there are known methods and procedures for determining the credit-worthiness of borrowers.  Running those is what Due Diligence is.  Since 2004 I have been warning the ever-increasing amount of money flowing into real estate was going to crash the global economy because I ran those methods and procedures.  The various financial institutions did NOT go through that process and, IMHO, should be held accountable.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Feb 4th, 2011 at 03:14:21 PM EST
[ Parent ]
IM:
How the ECB caused the Famine.

I thought that famine was caused by the ethanol subsidies to US ethanol refiners which has driven up the price of corn.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 4th, 2011 at 11:22:06 PM EST
[ Parent ]
No, by the CRA and Fannie Mae.
by IM on Sat Feb 5th, 2011 at 06:28:37 AM EST
[ Parent ]
Oh, dear, you now subscribe to the Republican theory that the cause of the crisis was Fannie and Freddie forcing the private banks to give mortgages to n****rs?

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 Sat Feb 5th, 2011 at 06:32:03 AM EST
[ Parent ]
That was a obvious joke. I am a regular Krugman reader too.
by IM on Sat Feb 5th, 2011 at 07:44:14 AM EST
[ Parent ]
How dare they pay for the unemployed!

That was then, this is now. The question is whether, in the next couple of years, Irish government revenues should be used to pay the unemployed or not.

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 Sat Feb 5th, 2011 at 12:57:28 PM EST
[ Parent ]
But that is my point: Debt used for paying the unemployed (or to make up for falling taxes)  can hardly be odious debt.
by IM on Sat Feb 5th, 2011 at 01:51:01 PM EST
[ Parent ]
The only way the Irish state is likely to be able to pay unemployment benefits or anything else that benefits the Irish is if they default. Else they are trapped in an impossible attempt to repay unpayable debt.

"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 04:49:51 PM EST
[ Parent ]
You are conflating legitimate and illegitimate debts.

The vast, vast majority of the Irish government debt is illegitimate, taken on in the process of bailing out insolvent German banks. The fact that legitimate Irish debt exists does not change the fact that the vast, vast majority of the Irish debt is not legitimate.

Unfortunately, what with sovereign debt being fungible, it is not necessarily possible or meaningful to annul the bonds that were used in the bailout. So you will have to annul an equivalent amount and let the bondholders who are least important to the Irish (and European) economy take the hit first. In the greater scheme of things, the result is almost the same. Yes, a Landesbank here or there is going to take an unfair hit, and an oligarch or two is going to keep a nest egg squirreled away in Lichtenstein. Take that up with DeutcheBank and the ECB, who pressured Ireland to honour the insane guarantee. If Ireland had defaulted on the guarantee instead of defaulting on its debt, the default would have been targeted much more narrowly at the guilty parties.

But that was then and this is now.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 05:37:44 PM EST
[ Parent ]
"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

Friends come and go. Enemies accumulate.

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

Friends come and go. Enemies accumulate.

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

Friends come and go. Enemies accumulate.

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.)

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

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

Friends come and go. Enemies accumulate.

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!

"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

Friends come and go. Enemies accumulate.

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?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

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

Friends come and go. Enemies accumulate.

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

Friends come and go. Enemies accumulate.

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 ]
Hallo,

new here.

Isn't this plan a illusion and about two years to late? As far as I understood, all private creditors to irish banks have ceased to lend new money since fall 2008. So the exposure of private foreign and domestic creditors is steadily shrinking. So a default of the Irish banks would hit

a) The Irish state

b) The ECB.

I am not sure you are in a  strong position with the threat: I will just default and hit myself and my own central bank.

Anothr thing: Can I change my password here at ET?

by IM on Fri Feb 4th, 2011 at 08:16:09 AM EST
This is true
As far as I understood, all private creditors to irish banks have ceased to lend new money since fall 2008. So the exposure of private foreign and domestic creditors is steadily shrinking.
However, just because it's shrinking it doesn't mean the exposure of the private sector is small. In fact, if the British, French and German private sector hadn't been hugely exposed to Irish debt there wouldnt' have been a bailout at all last November.

See The Guardian: Ireland bailout: the Datablog guide to who will fund it, which countries are most exposed - and who will be next? Visualised (November 22, 2010)

Ireland bailout: the Datablog guide to who will fund it, which countries are most exposed - and who will be next?

Ireland's bailout negotiations for a bailout are under intense scrutiny. But where's the money coming from - and which countries in the world have the most claims by foreign banks?
Get the data
Interactive guide

(link to infographic)

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 Fri Feb 4th, 2011 at 08:29:19 AM EST
[ Parent ]
The data is not good enough, not specific enough. Take the exposure of german banks. How much of the sum is

a) To the irish state
b) non bank lenders
c) irish banks
d) depfa

First you have to factor out depfa. A irish bank, yes, but owned by HRE, that is the Federal Republic now. The FRG wonm't default on it's self.

Then you have to subtract b). companies or private, thier creditworthiness will not be deiced by the irish government.

Now a) and c) can still be substantial. But is anybody really demanding a default on all government debt? If Ireland is defaulting o n c) tomorrow, will any foreign private creditors still be involved?

We need data on that.

by IM on Fri Feb 4th, 2011 at 09:44:31 AM EST
[ Parent ]
You don't need data - because the point of Jake's letter/article isn't to create a complete recovery plan for the Irish economy, but to put default on the table as a realistic option.

It's a political move, not a practical one. The aim is to persuade the public and the incoming government that default is worth considering, and that it's potentially a better choice than the current ECB/IMF suicide note.

There's no need to deal with specifics until there's a consensus that default is worth considering in the abstract.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 4th, 2011 at 09:55:58 AM EST
[ Parent ]
Fine. Then I will try to make  argument without data.

At the outset of the crisis the Irish banking system consisted of two parts: International and Irish banks. The "irish" banks did get in trouble and had to be rescued because of the housing bust: Mortgages, breakdown of the construction sector. The international banks had not be rescued with the exception of depfa and here Ireland was for once lucky: depfa was still a german problem.

Now in 2008 there was  a high exposure of international banks to Ireland. Some of it was to multinationals based in Ireland: I think we can agree that this exposure is not the problem. Some of it was to the international banks in Ireland: Not the problem either.

Problematic was and is the exposure to the "Irish" banks. But of course all banks have cut back their exposure now for over two years.

The losses of the "Irish banks" did first eat up the capital, so owners did get wiped out. Then the Irish State had to pay. Creditors on the other hand, depositors, bondholders, other creditors escaped scot-free.

Because the losses of the banks were to big, the credit of the Irish state is now in trouble too. Now the question is, why the creditors of the banks don't have to take some losses too. That means the bond-holders but not the depositors or at least not the smaller depositors.

Now my theory is that there are not many private bond-holders left. They have used the last two years to get rid of their credits to Irish banks. The obligations of the Irish banks have shifted to the Irish state and the ECB.

So a default of the troubled Irish banks or the threat of a default is no longer advantageous to Ireland.                

by IM on Fri Feb 4th, 2011 at 10:26:48 AM EST
[ Parent ]
IM:
Now my theory is that there are not many private bond-holders left. They have used the last two years to get rid of their credits to Irish banks. The obligations of the Irish banks have shifted to the Irish state and the ECB.
Is this consistent with the circus we saw in November, with Germany, France and the ECB pressuring Ireland to accept a bailout of its foreign creditors?

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 Fri Feb 4th, 2011 at 10:44:15 AM EST
[ Parent ]
You mean pressuring Ireland to accept reality?
High unemployment, ruined "Irish" banks, shrinking economy, a very high budget deficit. All this did exist in Ireland last november. It was not only a figment of the imagination of evil foreigners.

I would be happier with real facts. All we have now is your interpretation of the motives of the ECB and the major european countries.    

by IM on Fri Feb 4th, 2011 at 10:51:35 AM EST
[ Parent ]
The fact is all that has been done to the Irish banks is buy their bad assets at inflated prices, as well as guarantee their debt. 100 bn of ECB loans don't change that. The bondholders still have the bulk of the bonds they used to have, since the ECB has only bought about 80bn in sovereign Eurozone bonds so far.

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 Fri Feb 4th, 2011 at 11:09:27 AM EST
[ Parent ]
But isn't there replacement? The Irish banks got 100 billion or from the ECB and quite substantial sums from the Irish government. All this money has to replace some body else's money. And somebody else are the once existing private creditors.

So a default of the banks alone will not achieve much. It has to be  default of the irish government.  

by IM on Fri Feb 4th, 2011 at 11:34:10 AM EST
[ Parent ]
IM:
The Irish banks got 100 billion or from the ECB and quite substantial sums from the Irish government.
That's just liquidity, in exchange for those 100 billion in cash, the Irish banks have to park more than 100 billion in assets, at the ECB's own valuation, as well as pay interest.

That replaces short term lending and deposits, not bonds which are long-term liabilities.

The once existing long-term bondholders continue to be long-term bondholders. Or have traded the bonds with other private bondholders since the ECB is not known to be buying bank bonds (at least, nobody is screaming bloody murder if they're doing it: they just complain about buying government bonds).

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 Fri Feb 4th, 2011 at 11:38:31 AM EST
[ Parent ]
I'm not inventing anything, by the way...

ECB Tried to Force Ireland Into Bailout, Minister Says - Bloomberg

ECB officials, who say they are politically independent, told Ireland on a Nov. 12 conference call that it should seek outside help to rescue its banks and contain a debt crisis, according to a person briefed on the discussion.
It is simply unconscionable for a central bank to say "look for outside help" regarding its own banks.

ECB Tried to Force Ireland Into Bailout, Minister Says - Bloomberg

ECB President Jean-Claude Trichet said the bank can't afford to set its monetary policy to help individual countries.
Unless that country is Germany, that is. Also, the ECB is saying monetary policy trumps banking supervision.
Asked whether the ECB pushed Ireland into accepting a bailout, he told lawmakers in Brussels today that "we couldn't adjust our policy to take into account the situation of Ireland."
Considering Ireland has 1% of the EU's population...
European Union officials "were leaking in the papers that Sunday, quite incredible pressure on this country," Ahern said today, adding that he won't stand in the next general election for personal reasons.

An ECB spokesman declined to comment on his remarks.



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 Fri Feb 4th, 2011 at 11:17:31 AM EST
[ Parent ]
Ahern?

Consider your source. Ireland is a story of neoliberalism run wild. Your new theory, that everybdody was peachy until the evil ECB intervened, may be popular with eurosceptics and other such ilk. It is hardly supported by the facts.

by IM on Fri Feb 4th, 2011 at 11:21:31 AM EST
[ Parent ]
Meh.

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 Fri Feb 4th, 2011 at 11:27:07 AM EST
[ Parent ]
So your speculation about Portugal has now support your speculation about Ireland? Turtles all the way down.
by IM on Fri Feb 4th, 2011 at 11:29:21 AM EST
[ Parent ]
Dude, it's Reuters saying the Frankfurter Allgemeine and FT-Deutschland published rumours coming from the German government which Reuters determined couldn't be substantiated.

In June, about Spain.

Then Ireland, then Portugal.

Let me remind you that Spain's response to the rumours was to threaten to publish bank stress test data, at which point Germany was livid and did its utmost to water down what was finally publshed a month later. Also, publication of banks' sovereign debt exposure was made voluntary, with Deutsche Bank being the only major bank refusing to disclose any data.

It's all circumstantial but it's pretty damning.

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 Fri Feb 4th, 2011 at 11:33:51 AM EST
[ Parent ]
What new theory? The ECB has failed to intervene in the proper direction, and when it has intervened, it has done so in less than helpful manner. While at the same time Trichet has been undermined by certain national central bankers and chief economists, and people in the EU institutions have been making damaging leaks to the press while proffering to aim for financial stability.

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 Fri Feb 4th, 2011 at 11:29:57 AM EST
[ Parent ]
Well, yes the ECB. Still, the root of the problems of Ireland is in Ireland. Do you deny this?

I don't like this nationalistic narrative evil foreigners picking on innocent little Ireland.

Ireland after all, has been showered with EU-subventions until a few years ago. And it was very big on no regulation and on tax dumping. They still want to keep their corporation tax rate. Is this the fault of some german cabal too?

by IM on Fri Feb 4th, 2011 at 01:21:30 PM EST
[ Parent ]
The reason we're talking about telling foreign creditors to fuck off and die is that domestic Irish creditors are a domestic Irish distributional problem. Foreign creditors are the ones with the motive, means and opportunity to use the European institutions as leverage to get the Irish public to pay for their poor judgement.

Yes, domestic Irish holders of sovereign bonds should also be told to fuck off and die, unless they are important to the Irish economy. But that's an internal Irish question of whether the Irish government wants to impose AusterityTM on the Irish people in order to pay off Irish oligarchs.

I'm not sure if you're trying to argue that the bulk of the Irish sovereign debt is held by ordinary non-oligarchic Irish citizens and businesses (which is almost certainly false) or you simply have been labouring under the impression that I am not in favour of telling Irish oligarchs to fuck off and die (I am very much in favour of that, but that doesn't have anything to do with the European Union or the ECB).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 01:51:39 AM EST
[ Parent ]
I labour under the impression that you have built a narrative* where the entire debt of the Irish state is hold by "evil" foreign actors, who for some unclear reason deserve to lose their money.

Because of this xenophobic paranoia you have a xenophobic solution: A bank or multinational company who resides - probably because of the low corporation tax - in Ireland is good and should get interest and capital on their bonds. A company or bank that has the misfortune not to have resettled in Ireland and still resides elsewhere should lose everything.

So my mutual regional bank, who has perhaps bought some Irish bonds in the past, is evil and should lose everything. The equivalent Irish mutual bank, who has participated to its heart delight in the property bubble and regularly showered local Fianna Fail politicians with money is good and should take no losses at all.

Meanwhile the Irish elite is laughing all the way to the bank*.

*( or Meistererzählung, but I don't want to fuel your xenophobia)

*( Not a Irish bank! Only idiotic foreigners would keep their money there! Lichtenstein, Cayman Islands)

by IM on Sat Feb 5th, 2011 at 06:24:20 AM EST
[ Parent ]
Meistererzählung, but I don't want to fuel your xenophobia

We're beginning to tread into "that was uncalled-for" innuendo territory here.

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 Sat Feb 5th, 2011 at 06:33:22 AM EST
[ Parent ]
Ok, that was to far. Xenophobia goes much to far. But you could tell him to cut it back on the godwin violations.
(Cowen ist not Hitler and Fianna Fail is not the NSDAP)

Still, the analysis - foreigners forced the Irish to do this and that is nationalistic. The idea that all debt I don't like is owned by foreigners anyway is simplistic and a dangerous illusion. The proposed solution is much to oriented on the nation state.

We shouldn't infantilize Ireland and especially the Irish elites. They are responsible and this shouldn't be hidden behind a cloud of anti-EU rhetoric.  

by IM on Sat Feb 5th, 2011 at 07:14:27 AM EST
[ Parent ]
Nobody is infantilizing Ireland, and Cowen was not a nazi but an incompetent fuckwit ideologue. See what Klaus Regling and Patrick Honohan had to say about the Irish bank fiasco.

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 Sat Feb 5th, 2011 at 08:20:09 AM EST
[ Parent ]
Yes? I still remember this facts. The Irish crisis was made in Ireland. You all seem intent to forget that.
by IM on Sat Feb 5th, 2011 at 08:37:39 AM EST
[ Parent ]
Well - apart from the parts that weren't, you're quite correct.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Feb 5th, 2011 at 08:41:31 AM EST
[ Parent ]
Even if, so what? If i see a thief robbing a man, i don't care, because he is not robbing me? It is naive to think that Ireland is some kind of a basket case. Only 2 yrs ago politicians all over wanted to be like irish themselves. Politicians are neoliberal puppets everywhere and in every party.
by kjr63 on Sat Feb 5th, 2011 at 12:47:28 PM EST
[ Parent ]
As per xenophobia: It has been mentioned elsewhere in the thread that not one (correct me if I'm wrong now) of the fiercer participants arguing with you on this in this thread is Irish. Irish xenophobia in this context would be some sort of autophobia, which seems, somehow, unlikely...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sat Feb 5th, 2011 at 06:41:53 AM EST
[ Parent ]
IM is complaining about anti-German xenophobia, but is it xenophobia when German economists agree that the direction German economic policy makers are pushing the EU in is misguided?

GERMANY IS UNFIT FOR THE EURO (Joerg Bibow)

Not for the first time in its history the German people have been irresponsibly misled by a political leadership that seems to have lost any sense of history, any sense of order and stability in Europe, and any sense of Germany's key contributing role to the current crisis. As ever, the mindset of lawyers frames the political debate among a political class that seems inhumanly uneducated in matters of economics. If economic voices are heard at all, it is usually the voice of the Bundesbank. It is a peculiar democracy that expects either its constitutional court or central bank to have the final word of wisdom.
Berlin weaves a deficit hair-shirt for us all (Wolfgang Münchau)
I can foresee two outcomes. First, Germany might end up in a procyclical downward spiral of debt reduction and low growth. In that case, the constitutionally prescribed pursuit of a balanced budget would require ever greater budgetary cuts to compensate for a loss of tax revenues.

...

One could also construct a virtuous cycle - the second outcome. If Germany were to return to a pre-crisis level of growth in 2011, and all is well after that, the consolidation phase would then start in a cyclical upturn.

Either of those scenarios, even the positive one, is going to be hugely damaging to the eurozone. In the first case, the German economy would become a structural basket case, and would drag down the rest of Europe for a generation. In the second case, economic and political tensions inside the eurozone are going to become unbearable. ...

...

While the balanced budget law is economically illiterate, it is also universally popular. Average Germans do not primarily regard debt in terms of its economic meaning, but as a moral issue. ...

... The balanced budget constitutional law is therefore not about economics. It is a moral crusade, and it is the last thing, Germany, the eurozone and the world need right now.




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 Sat Feb 5th, 2011 at 11:16:07 AM EST
[ Parent ]
What the hell has this with anything? What exactly has the debt bake or other nonsense to with the question of the neoliberal irish policies. Do the two economist you cite think Ireland is a economic model? I doubt that.
by IM on Sun Feb 6th, 2011 at 12:05:55 PM EST
[ Parent ]
You really are not paying attention to your own government's policy position, are you?

The "debt brake" has now become a condition that Germany wants to impose on the entire EU as a conditionality for allowing enough money to be lent to get over the sovereign debt crisis.

Since the debt brake is economically harebrained, default and let the chips fall where they may is looking better by the day, to be honest.

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 Sun Feb 6th, 2011 at 12:42:49 PM EST
[ Parent ]
Nationalistic nonsense. I am not responsible for the policy position of the german government. And Ireland brought itself to ruin without any debt brake. So you are suddenly of the opinion that Ireland is  able to service its debt, if not for the newest german demands?
by IM on Sun Feb 6th, 2011 at 02:23:54 PM EST
[ Parent ]
No, Ireland is not able to service its debt, therefore it will be defaulted on sooner or later. Given that, better that it be sooner rather than later. And the German policy proposals not only have nothing to do with the causes of the crisis (since Germany brought itself to ruin without any debt brake, as you say), they do nothing to resolve it.

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 Sun Feb 6th, 2011 at 02:32:28 PM EST
[ Parent ]
If Belgium and Italy were able to handle  this level debt, since twenty years now, Ireland should be too. And how exactly the german debt brake in 2009 was bale to cause the Irish property bust and bank bankruptcy in 2008 I really don't get.

And Germany did get somewhat better through the crisis, because it did talk austerity, but did do stimulus.

by IM on Sun Feb 6th, 2011 at 02:49:53 PM EST
[ Parent ]
Everyone did stimulus in 2009.

Just like everyone is doing austerity in 2010.

And if "doing stimulus" is how Germany got out of the crisis, countries that haven't still gotten out of the crisis should continue to do stimulus.

Nobody is claiming that the German debt brake caused anything before it was enacted. The claim is that the debt brake is strongly deflationary, which will only make growth more sluggish and debt more unsustainable in the future, and is therefore incredibly harebrained.

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 Sun Feb 6th, 2011 at 02:55:49 PM EST
[ Parent ]
If Belgium and Italy were able to handle this level debt, there's no reason for the markets to cut off credit to anyone in the Eurozone now. Therefore the markets are insane and support at below market prices (as opposed to punitive rates) should be provided by those parts of the Eurozone still enjoying access to the credit markets, for the sake of Eurozone financial stability.

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 Sun Feb 6th, 2011 at 02:58:33 PM EST
[ Parent ]
But that is exactly what is happening now. And you demand that Ireland thanks its european partners by defaulting on her debt. That model can't work.

What is necessary, if it is necessary, is a new deal about the interest rate. But that is not the same as  a default on sovereign debt engineered to hit only foreigners.

And am not sure why you want to argue about german economic policies 2008-2010: Clearly fiscal expansion, reaching their height in the first half of 2010. Is that really in doubt anymore?

This whole Ireland is insolvent meme is nonsense. There have be quite a number of countries with a public debt around 100% of gdp.  

by IM on Sun Feb 6th, 2011 at 03:42:17 PM EST
[ Parent ]
This whole Ireland is insolvent meme is nonsense.

Perhaps you should be arguing this point with the bond raiders, who seem unusually keen to assure everyone otherwise.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Feb 6th, 2011 at 03:48:36 PM EST
[ Parent ]
The wisdom of "the markets"? Come on.

And if you swear fealty to "the markets", how do you think they will react to a default?

by IM on Sun Feb 6th, 2011 at 03:53:46 PM EST
[ Parent ]
The markets can stay irrational longer that one can stay solvent.

In the case of Ireland, if you think Ireland is solvent, then it is in fact being subjected to an irrational run (withdrawal of short-term liquidity). The proper response in that case is for the Central Bank to provide liquidity at a reasonable non-market rate.

Instead of that the Central Bank tells the Irish government to call in the IMF.

Also, when the European Council tries to organise a collective fiscal facility, Germany screams "no bail-out clause!". When the ECB tries to buy sovereign bonds in the secondary market, the (German) Chief Economist and the Bundesbank chair wrongly claim that is forbidden by treaty (the treaty forbids buying at issue, which is bad enough already). The European Commission, Council, Ecofin and Central Bank are all such neoliberal market-worshippers that they actually take the market's assessment of Ireland's solvency at face value.

The Irish "rescue package" entails, under any plausible scenarios, including the ones put together by the Ecofin, an actual increase in the Irish debt burden, while at the same time demanding IMF-style "conditionalities". Some "rescue". No wonder the Irish government didn't want to be "rescued" and had to be forced.

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 Sun Feb 6th, 2011 at 04:07:03 PM EST
[ Parent ]
No, that's not what's happening.

What's happening is that the Irish sovereign is being funded at 5.7 % when it should be funded at 0.0 %.

The fact that the ECB has finally woken up and started doing its job w.r.t. the private Irish banks (a decade late and a billion € short) does not excuse the fact that the ECB still isn't doing its job and printing money on demand for the Irish government.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 06:55:17 PM EST
[ Parent ]
I am not responsible for the policy position of the german government.

Analogously, no individual Irishman is responsible for the economic policy of the Irish government. Or are they? You have argued elsewhere on this thread that they are.

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 Sun Feb 6th, 2011 at 02:46:28 PM EST
[ Parent ]
Did I talk about individual irish citizens? There is a collective responsibility in a democracy. And the opposition during the years of the celtic tiger was very small. And because of this responsibility you can't do something like a foreigners only default.
by IM on Sun Feb 6th, 2011 at 03:26:34 PM EST
[ Parent ]
The ECB isn't doing its job. If the ECB were doing its job, the Irish sovereign would be funded at 0.0 %, and we wouldn't be having this discussion.

Since the ECB is obviously unresponsive to the plight of Irish widows and orphans, the Irish state has a duty to protect Irish widows and orphans, and incentivise the ECB to start doing its fucking job and printing money on demand at 0.0 % to sovereigns needing stimulus. The easiest way to incentivise proper behaviour from the ECB is to cause pain to the ECB's political backers. Which means causing pain to the Frankfurt-based banks, and which means causing pain to Mrs Merkel's government.

You call it nationalist. I call it realpolitik. If you have some alternate suggestion for how to get the ECB to start providing unlimited stimulus money for the Irish economy at somewhere around the Frankfurt overnight rate, then I'm all ears. But so far you have presented no viable political strategy for how the Irish can continue to do stimulus without defaulting. And you have provided no political strategy - nevermind a credible one - for how the Irish state can obtain the necessary liquidity for continued stimulus without either leaving the €-zone or threatening to default on foreigners first, in order to pressure those foreigners' governments to pressure the ECB.

Since you seem so keen on applying collective punishment to Ireland for electing Fianna Fail, you may think of it as applying collective punishment to any polity that doesn't pressure the ECB to start doing its fucking job and printing unlimited money for use in Keynesian stimulus.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 07:06:27 PM EST
[ Parent ]
I am not responsible for the policy position of the german government.

But the Irish pensioners and unemployed that you're happily throwing under the bus are responsible for the actions of their government?

You can't have it both ways. Either the Irish people don't deserve to suffer for electing evil morons to high office, or the German people don't deserve to get bailed out, because they elected evil morons to high office.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 06:50:45 PM EST
[ Parent ]
Bailed out by whom?

Don't you think there is collective responsibility?

by IM on Mon Feb 7th, 2011 at 09:24:49 AM EST
[ Parent ]
No, I don't believe in collective responsibility. I don't believe that it is legitimate to murder a Teabagger just because he voted for a torturing war criminal. And I don't believe that it is legitimate to murder an Irish widow's pension just because she voted for a crooked finance minister.

I do believe in defeating neoliberal policies whenever and wherever they sully humanity with their depravity. In this particular situation, defeating neoliberal policies means defeating Austerity. Defeating Austerity means threatening Mrs. Merkel and Messrs. Weber and Stark with a sufficiently big stick that they start printing money wholesale. And the only stick Ireland has that is big enough to make Messrs. Weber and Stark shit their pants and start printing money wholesale is the threat of making several major German financial institutions insolvent.

And if a German pension fund or two is collateral damage in that fight, well then there's nothing wrong with insolvent private pension funds that better public pensions won't solve.

If you have a better plan for how to fight back against "Hartz IV For Ireland," then I'm all ears.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 7th, 2011 at 09:40:50 AM EST
[ Parent ]
Ironically, as the only Irish person actively involved in this discussion, I have defended IM's views as representative of many in Ireland - (Particularly conservatives who see the crisis has a heaven sent opportunity to cut back public expenditure dramatically).

However no one in Ireland has any sympathy with the banksters and regulators who are the most immediate causes of the crisis and whom many would wish to jail.  What is more difficult to track down is those who benefited from the property boom - farmers who sold land etc.- partly because the beneficiaries are much more small scale and diffuse, partly because much of the money would have been invested in banks or property at home or abroad and so much was subsequently lost.

There is also a huge generational problem.  Virtually all the beneficiaries (except a few banking whizzkids) are older, and most of those suffering are younger - the unemployed, emigrants, and those in negative equity because they bought their house (with a huge mortgage) since c. 2003.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Feb 6th, 2011 at 01:54:40 PM EST
[ Parent ]
I labour under the impression that you have built a narrative* where the entire debt of the Irish state is hold by "evil" foreign actors,

It pretty much is. More than two thirds of the Irish national debt is the direct result of the 2008 bailout of the Irish banks - a bailout whose overwhelming beneficiaries were foreign banks who failed to exercise due diligence in their lending during the bubble years.

Them's the facts. Not my fault you don't like them.

who for some unclear reason deserve to lose their money.

Well, if you lend money to a bank engaged in massive real estate speculation, then you need to lose your shirt. And if you have a business address on Canary Wharf, then you need to lose your shirt on general principles.

A bank or multinational company who resides - probably because of the low corporation tax - in Ireland is good and should get interest and capital on their bonds.

Uh, no. That's not what I said. Did you miss the part where I said that companies that are important to the productive economy should be paid, no matter where they reside? Here's a hint:

Then you make two lines on each of the two lists: One line between people you really, really want to save (ordinary bank depositors, industrial firms, etc.) and people you kinda sorta want to save if you can (private pension funds, non-toxic investment banks - if you have any of those left - etc.), and another line between the people you kinda sorta want to save and the evil people who should take a long walk off a short pier (bookies, toxic investment banks, everything with a business address on Canary Wharf).

Then you mix the lists like this:

Domestic need-to-save
Foreign need-to-save
Domestic want-to-save
Foreign want-to-save
Evil (foreign and domestic)

Now, it is true that domestic Irish bondholders need to be taken care of before foreign bondholders. There are two reasons for this. The first reason is practical: Foreign bondholders can appeal to their own governments for bailouts if the Irish government cannot honour their bonds. The second reason is political: As long as the ECB refuses to print money on demand to support a Keynesian counter-cyclical fiscal policy for Ireland, the ECB's constituency should feel the pain before the Irish people.

A company or bank that has the misfortune not to have resettled in Ireland and still resides elsewhere should lose everything.

No, firms which serve a real economic function should not lose their money. Deutche Bank and Goldman, however, should.

So my mutual regional bank, who has perhaps bought some Irish bonds in the past, is evil and should lose everything.

Yes. Banks are very, very low on my list of businesses that need to be saved.

The equivalent Irish mutual bank, who has participated to its heart delight in the property bubble and regularly showered local Fianna Fail politicians with money is good and should take no losses at all.

Well, no. Again, I refer you to the part of my diary that you appear to find it difficult to understand:

Then you make two lines on each of the two lists: One line between people you really, really want to save (ordinary bank depositors, industrial firms, etc.) and people you kinda sorta want to save if you can (private pension funds, non-toxic investment banks - if you have any of those left - etc.), and another line between the people you kinda sorta want to save and the evil people who should take a long walk off a short pier (bookies, toxic investment banks, everything with a business address on Canary Wharf).

Then you mix the lists like this:

Domestic need-to-save
Foreign need-to-save
Domestic want-to-save
Foreign want-to-save
Evil (foreign and domestic)

The equivalent Irish mutual bank should also lose its shirt. Only thing is, the Irish banks are mostly already insolvent, which is why we're having this conversation in the first place.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 07:11:38 AM EST
[ Parent ]
Well, we view the basic facts different.

There also seems to be a value dissonance. I like my regional public bank and my regional/local saving bank. I think the are a valuable part of the German banking system and should be defended against the ravaging neoliberalism. As should be the equivalent parts of the banking system of other European countries. (And the state bank of North Dakota)

And you do discriminate against other Europeans:

Domestic need-to-save
Foreign need-to-save
Domestic want-to-save
Foreign want-to-save

A clear hierarchy of needs against foreigners.

by IM on Sat Feb 5th, 2011 at 07:28:21 AM EST
[ Parent ]
There also seems to be a value dissonance. I like my regional public bank and my regional/local saving bank. I think the are a valuable part of the German banking system and should be defended against the ravaging neoliberalism.

Well, yeah. If there's enough money to go around to keep banks from losing their shirts, then local banks and state-owned banks should be at the front of the queue.

But the fact is that if a bank becomes insolvent, there are established procedures to resolve that situation without any major loss for the real economy. The bank's management is decapitated, the assets sold off, and its shareholders and unsecured creditors get to take a haircut. But the economic function - credit analysis, information gathering, transaction clearing and money creation - will still be carried on during and after a bankruptcy.

When a manufacturing firm goes bankrupt, on the other hand, there is a significant risk that it is going to be disassembled and sold as scrap. Which destroys its economic function. And when a pension fund is insolvent, retirees get shafted. So all in all, if you have to shaft someone it's better for everyone, except the shareholders and management, that you shaft a bank than a manufacturing firm.

And the proportion of banks that are simply evil is arguably higher than the proportion of manufacturing firms that are simply evil.

And you do discriminate against other Europeans

Yes, because foreigners have another safety net.

In the best of all possible worlds, the EU would come together and make a list of firms and individuals who needed to be bailed out for the common good, and another list of firms and individuals who need to go whistle for their money. And then the EU would, collectively, bail out the people who needed to be bailed out.

In the world we actually have, the EU is not going to bail out the Irish retirees. And while the German government might bail out German retirees, it isn't going to bail out Irish retirees. So shafting the foreigners in preference to the Irish is the only way the Irish government can incentivise other governments to lend material support to a rescue operation that could ensure that nobody had to be shafted (except the hedge funds).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 08:03:04 AM EST
[ Parent ]
Uh, is your German regional public bank insolvent?

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 Sat Feb 5th, 2011 at 08:17:16 AM EST
[ Parent ]
I hope not. Sparkassen and Genossenschaftsbanken tend to be the healthy part of our banking system. But if the great lets default plan succeeds, they can get hit too. For no good reason.
by IM on Sat Feb 5th, 2011 at 08:31:30 AM EST
[ Parent ]
If they get hit it will be because they could not resist investing in what should have been an obvious raging real estate bubble. That is a good reason, regardless of where the bubble occurred.

"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 06:03:53 PM EST
[ Parent ]
Ahern?

Consider your source.

Ahern, Dermot, the Justice Minister, not Ahern, Bertie, the former Prime Minister.

Here's another account:

FT Deutschland picked up a story, according to which the Irish justice minister Dermot Ahern blamed the ECB for pushing in Ireland into a decision to apply for a bailout, without having the opportunity to make a proper evaluation of the process. (The way he phrased it suggests that he thought the action not merely politically unacceptable, but also legally doubtful.)


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 Sun Feb 6th, 2011 at 12:50:54 PM EST
[ Parent ]
As far as I understand Irish politics, it is probably the same family. And I would not trust the word of member of the current government. Next they will blame the sidhe.
by IM on Sun Feb 6th, 2011 at 02:03:36 PM EST
[ Parent ]
As far as I understand your comment, it's bigoted. And it happens to be wrong in this instance, too.
Ahern was born into a family that had no association with party politics. ...

...

In late 1994 Bertie Ahern (no relation) succeeded Albert Reynolds as leader of Fianna Fáil.



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 Sun Feb 6th, 2011 at 02:29:17 PM EST
[ Parent ]
Not bigoted. Irish politics do have a problem with to many political dynasties.

And you are defending a liar. The same wikipedia article showed me that Ahern was on November 15th still claiming: There is no bail out.  

So I why should I trust his claims now?

by IM on Sun Feb 6th, 2011 at 03:12:24 PM EST
[ Parent ]
Irish politics do have a problem with to many political dynasties.

So much for collective democratic responsibility.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Feb 6th, 2011 at 03:57:58 PM EST
[ Parent ]
Is that an Ireland only exception or do think all democratic states are not democratic in true sense, so their citizens are just subjects, not do be made responsible for the mad antics of their overlords?
by IM on Sun Feb 6th, 2011 at 04:06:43 PM EST
[ Parent ]
There is a misunderstanding of the structure and nature of citizen responsibility for their government in the western democracies. Let me illustrate:

Osama:

  • The US government is guilty of thousands of murders of Muslims around the world, in actions of imperialist intent [True]
  • The US government is elected by the people of the US, in free and democratic (usually) elections [True]... THEREFORE

  • I can inflict personal punishment on individual US citizens because of they share a collective responsibility for their government. So it's OK to blow up the twin towers because that's the only way I can punish (random) Americans for their complicity in their governments machinations, because of which all of them have enjoyed perks like cheap oil forever.

Now the premises of the argument are true, but the conclusion does not follow. Citizen responsibility is a different sort of responsibility than criminal responsibility and can not be addressed by an international equivalent of a penal system. Before you say that this is physical punishment, I assure you that the results of ECB/IMF policy in the EU and Ireland will be very physical for many people, most of which were the people at the bottom of the ladder, the least responsible for whatever their banker overlords had indeed decided. In fact should Ireland not default, those least affected by the depression that will ensue will be the buggers at the top who were most implicated in and most responsible for this whole debacle.

How's that for justice?

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Sun Feb 6th, 2011 at 08:27:53 PM EST
[ Parent ]
Good question. I agree that collective punishment against citizens of a democratic state is justified. But not in every case. Democracy is after all based on individual rights that majority vote cannot nullify. In this case we are talking after all very much about housing, and that is, or at least should be, in the realm of individual rights. (And of course economic collective punishment in practise never punishes collectively)
by kjr63 on Mon Feb 7th, 2011 at 08:06:27 PM EST
[ Parent ]
The negotiations with the ECB were carried out b the Central Bank Governor and senior civil servants in the Dept. of Finance and the Cabinet was "bounced" into accepting a fait accomplit very late in the process.  Yes they did ultimate accept the deal but both the manner and the content of the decision was unconscionable and is a primary reason why we now have a general election in which the Governing parties will be shafted.

My diary is primarily aimed at ensuring the next Government doesn't act quite as stupidly.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Feb 6th, 2011 at 03:07:57 PM EST
[ Parent ]
Now my theory is that there are not many private bond-holders left.

Once the creation of NAMA was on the horizon the bonds issued by and loans issued to the affected banks most likely became highly toxic. Most are probably still held by the original holders or have been sold at a substantial, (but inadequate), haircut. The only other possibility is that they have been bought by the Irish government. About that I have no information.

The banksters got to keep their profits from the time before their bubble burst and, once again, the losses are socialized. Enough is enough.

"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 04:59:10 PM EST
[ Parent ]
You seem to be overlooking the point that we're discussing sovereign default. Default by individual Irish banks is secondary.

You're also overlooking the point that hardly anyone believes that the current repayment regime is in any way practical or realistic. The ECB/IMF suicide agreement is based on dogma and rhetoric, not practical economic reality.

It's not Ireland that needs to deal with reality - it's the ECB and the IMF.

Given that default is a predictable outcome of the current agreement - after the real economy crashes into a depression - the choice is between defaulting now, extracting the banking parasite, and rebuilding a working real economy, or defaulting later when all that's left of the real economy is a glassy smoking crater, and the best talent has moved abroad.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 4th, 2011 at 11:17:40 AM EST
[ Parent ]
Are we now? So it is sovereign default? But then of course all these odious debt arguments are irrelevant. Or is all debt of the irish state now odious?

To be honest, I don't get this: "it can't be paid argument anyway." Belgium had a public debt higher then 100% of gdp too. Even if we ignore Japan, there is also Italy.    

by IM on Fri Feb 4th, 2011 at 11:27:20 AM EST
[ Parent ]
So you're sure the debt can be paid and isn't onerous, but you're also arguing that lenders should impose punitive rates?
by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 4th, 2011 at 11:30:04 AM EST
[ Parent ]
What punitive rates? I am just saying Belgium had a debt of 115.5% to gdp in 1996 and 73,3% in 2007. So there is real example not that far away.

wWy do you assume that Ireland will always be in recession, never grow again and never be able to balance it's budget? And never gain to able to get lower interest rates?

by IM on Fri Feb 4th, 2011 at 11:57:27 AM EST
[ Parent ]
IM:

Do you really think a hedge fund - or any private lender woulds give a credit to the irish banks at 1.75%?

The current negotiated rate for the bailout loan is 5.8%, which looks pretty damn punitive to me - and certainly if you want a country to get out of a depression, loan sharking isn't the most effective way to do it.

Unless you're arguing the case for the loan sharks, of course.

I suppose someone has to.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 4th, 2011 at 12:06:38 PM EST
[ Parent ]
Loan sharks? Do you assume the other european countries can borrow at 0%? And the ECB has given the banks - and that means nowadays the irish banks - a lot of money at 1.75%. And you think 1.75% is to high and so the irish banks have  a right to default on their debts to the ECB.

Burn the ECB! 1.75% is usury!

by IM on Fri Feb 4th, 2011 at 12:40:19 PM EST
[ Parent ]
FWIW, 1.75% is very close to the current one-year interbank lending rate.

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 Fri Feb 4th, 2011 at 12:43:50 PM EST
[ Parent ]
A point of order: With a properly functioning central bank, a sovereign country can in fact borrow at 0.0 %.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 01:54:45 AM EST
[ Parent ]
IM:
Belgium had a debt of 115.5% to gdp in 1996 and 73,3% in 2007. So there is real example not that far away.
That was the growth phase of the business cycle. What's being demanded of Ireland is to cut the deficit now in the middle of a recession.

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 Fri Feb 4th, 2011 at 12:42:13 PM EST
[ Parent ]
That is of course nutty. Austerity now is a mad proposal. But I think a lot of the irish deficit is cyclical and would go away on a upturn. The remaining deficit can be closed. The irish are rather undertaxed - especially income tax and yes corporate tax.

So why should be impossible to balance the budget in five years or so?  

by IM on Fri Feb 4th, 2011 at 01:13:47 PM EST
[ Parent ]
Austerity now is a mad proposal.

"Austerity Now" is the Brussels Consensus, though it might well be a remake of a famous Coppola movie from the 70s, starring Marlon Brando.

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 Fri Feb 4th, 2011 at 05:04:35 PM EST
[ Parent ]
"Austerity Now!" is the demand that the ECB and IMF are making.

If the ECB and IMF were not demanding Austerity Now!, then we wouldn't be having this discussion, because Ireland would be perfectly able to repay the debt in due time. But Austerity Now! is what is being demanded, and what will cause Ireland to default. Well, better to default now, and let the people who are demanding Austerity Now! eat the losses, than first crash the Irish economy and then default, leaving the Irish public in a smoking crater and the people who are demanding Austerity Now! still eating very nearly the same losses.

Defaulting is a zero-sum game. Not defaulting is a negative-sum game.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 01:59:33 AM EST
[ Parent ]
IM:
Even if we ignore Japan

Japan "managed" by adopting a zero interest rate policy. This had the effect of making it cheap to hide the insolvency of its major banks for a decade -- at the cost of a "lost decade", (or two), of economic stagnation from which the Japanese economy has yet to truly emerge. It also helped GE and others who profited immensely from the "Yen carry trade". Richard Koo has written extensively about this "lost decade" and made an excellent presentation at George Soros' forum this last spring.

A common consequence of prolonged cheap money regimes is the creation of asset bubbles. In the US Greenspan's prolonged cheap money policy combined with "see no evil" regulatory forbearance helped fuel the bubble that broke in 2008. That bubble which began in 1999 served to facilitate the extraction of wealth from the US middle class by the US banking elites through home equity loans that made possible the continued purchase of cheap Chinese goods that also profited those same elites -- at the expense of the US worker whose real income has declined.

The end result of such cycles is economic devastation for the many and, absent governmental intervention as with FDR, consolidation of the wealth and power of the financial elites. As a collective institution that financial elite is incapable of concern for the health of the body politic or the average citizen and, in a failed attempt to continue to extract expected returns, imposes massive gratuitous damage on the society as a whole. This is what is looming for Ireland.  

"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 05:47:25 PM EST
[ Parent ]
The "irish" banks did get in trouble and had to be were rescued by crooked Fianna Fail politicians because of the housing bust: Mortgages, breakdown of the construction sector.

[...]

Now in 2008 there was  a high exposure of international banks to Ireland.

[...]

Problematic was and is the exposure to the "Irish" banks. But of course all banks have cut back their exposure now for over two years.

The question is to what extent they have unwound it. I don't think they have. And to the extent that they have, they have foisted it on their own sovereigns or the ECB. I have no problem defaulting on a foreign sovereign who decided to relieve its banks of garbage assets. If you want to bail out your banks, you should get to pay for it yourself. I also have no problem with defaulting on the ECB - if the ECB were acting like a proper central bank, we wouldn't be having this discussion in the first place, because then the ECB would simply fix prices in all €-zone sovereign bonds.

The losses of the "Irish banks" did first eat up the capital, so owners did get wiped out. Then the Irish State had to took leave of its senses and decided to pay. Creditors on the other hand, depositors, bondholders, other creditors escaped scot-free.

[...]

Now my theory is that there are not many private bond-holders left. They have used the last two years to get rid of their credits to Irish banks. The obligations of the Irish banks have shifted to the Irish state and the ECB.

Well, yes. That's why we're talking about a sovereign default, not a bank default. There has been a swap of Irish bank debts for sovereign debt, but the ultimate creditors remain roughly the same people. So defaulting on the government debt will force the people who used to be creditors of Irish banks to take a haircut. Obviously it won't hit every former creditor, and it will hit some financial institutions who weren't creditors of Irish banks. But that's how things go in financial meltdowns. Beats flagellating the Irish economy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 01:41:01 AM EST
[ Parent ]
IM:
Can I change my password here at ET?
[ET Moderation Technology™] Can you try again now?

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 Fri Feb 4th, 2011 at 08:39:38 AM EST
[ Parent ]
I did. But all I get is about comment settings. Nowhere I can change the password (so i can memorize it).
by IM on Fri Feb 4th, 2011 at 09:18:39 AM EST
[ Parent ]
[ET Moderation Technology™] Try again.

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 Fri Feb 4th, 2011 at 09:24:23 AM EST
[ Parent ]
Thank you. Now it worked.
by IM on Fri Feb 4th, 2011 at 09:31:44 AM EST
[ Parent ]
So a default of the Irish banks would hit

a) The Irish state

The Irish state already took this hit a couple of years ago, when it took leave of its senses and issued a blanket guarantee of all Irish private bank debt. This is about the Irish state saying "yeah, about that guarantee? Go suck on it."

b) The ECB.

I am not sure you are in a  strong position with the threat: I will just default and hit myself and my own central bank.

A rather important subplot in this story is that the ECB is behaving more like a hedge fund than like Ireland's central bank. Even if it were true that most of the debt would hit the ECB and EFSF, that wouldn't be that bad an outcome, all things considered.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 4th, 2011 at 08:40:38 AM EST
[ Parent ]
"yeah, about that guarantee? Go suck on it."

Who will suck on it? The irish depositors? Or the capital owners - that would be the government and the pension fund. Leaves the ECB. A hegde fund? the ECB has given 100 Billion Euro or so to the irish banks. at 1.00%. Have you ever heard of a hedge fund acting like this?  

by IM on Fri Feb 4th, 2011 at 09:35:31 AM EST
[ Parent ]
the ECB has given 100 Billion Euro or so to the irish banks. at 1.00%.

If that's true, it's the repo rate, at one-week maturities.

If it's been overnight lending at the punitive "marginal lending facility" rate, it's 1.75%, when the overnight interbank lending rate is not much higher than 0.25%

All of this lending is overcollateralised, as it is "against eligible assets" at a discount set by the ECB itself at its discretion.

Anyway you look at it, the ECB is making a lot of money on this lending. It's called Seigniorage.

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 Fri Feb 4th, 2011 at 09:44:05 AM EST
[ Parent ]
So what. Do you really think a hedge fund - or any private lender woulds give a credit to the irish banks at 1.75%?

And why should the european and irish central bank not enjoy seignorage?

by IM on Fri Feb 4th, 2011 at 09:48:17 AM EST
[ Parent ]
Oh, it should. But it should not complain about it.

Also, the Eurozone monetary authority shouldn't be the leading driver of the push to bring in the IMF to lend Euros to a Eurozone treasury.

Something really bizarre happened in November.

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 Fri Feb 4th, 2011 at 09:53:21 AM EST
[ Parent ]
Who will suck on it?

The people who are holding the Irish government bonds that they got in exchange for the toxic debts of Irish banks.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 02:01:33 AM EST
[ Parent ]
The plan is not two years too late. Two years ago (on October 1, 2008, to be precise) the plan would have been different, a straightforward regulatory intervention of insolvent banks, putting the banks in receivership, dismissing the management, and splitting the banks' good assets and important liabilities (i.e., deposits) into a going concern and the bad assets (plus any net equity of the good bank) and unimportant liabilities into an entity with the sole purpose of carrying out a bankruptcy liquidation.

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 Fri Feb 4th, 2011 at 08:47:11 AM EST
[ Parent ]
Well, in that case there is no need to accept the austerity package is there?

I do not see this so much about the debt itself, but about the belief that Ireland is out of money ("We are in dire straits. We cannot borrow money in the markets." to quote the initial letter) and thus has to accept ECB's program of austerity in order to borrow money. If the belief in that the debt needs to be repayed (it does not) is undermined, the need to accept the austerity package goes away.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Feb 4th, 2011 at 02:55:08 PM EST
[ Parent ]
But that is more regenotiating the terms of the loan and not defaulting. Two different things.
by IM on Fri Feb 4th, 2011 at 03:06:24 PM EST
[ Parent ]
Default is about re-establishing that Ireland, not ECB or the money-markets, decides social policy in Ireland. If the irish voters and the irish politicians can get this and still want to keep the loan/debt solution, fine by me. But as it stands, the common wisdom appears to be debt-> loan from ECB-> must accept austerity.  So debt is one of the points to attack, another is the way ECB has taken it upon itself to run the social policy of memberstates.

Then again, I have nothing against default per se either. The lenders after all gets payed for interest for taking that risk. And I see nothing wrong in deciding to protect those that Ireland deems more in need of protecting while performing such a default.

Politics is about choices, shock doctrine is all about denying any choice except dramatic cuts for those worse off and privatising assets to those best off. And then rushing it through. What we do here is largely to constantly formulating choices in the hope that it gets read and used.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Feb 4th, 2011 at 03:18:06 PM EST
[ Parent ]
But they did decide their social policy: Neoliberalism it was, low tax - no regulation - beggar your neighbour.

And now you argue they should be free of the consequences of this. So that Ireland has the autonomy to go on the next neoliberal binge.

And you buy in the nationalistic irish narrative: Ireland as perpetual victim, never responsible for anything.

by IM on Fri Feb 4th, 2011 at 03:40:45 PM EST
[ Parent ]
Do you mean that they should accept austerity as the proper consequences for neoliberalism?

And you buy in the nationalistic irish narrative: Ireland as perpetual victim, never responsible for anything.

Ireland is a state, not a person. Since my argument when it comes to irish debt is very similar to my arguments about greek and icealandic debt, I believe that nationalistic irish narrative might not be the common demoninator.

To me you appear to have an either/or approach to responsibility, where ECB can not be responsible for anything as all is the fault of Ireland. Could you please tell me if it is the people of Ireland, the politicians of Ireland or some other person/group that you hold responsible?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Feb 4th, 2011 at 04:15:47 PM EST
[ Parent ]
The Irish politicians were responsible for the regulation of the Irish banks. There was  no european banking regulation. Irish banking regulation failed.

The Irish people supported not only FF, but also the their coalition partner and the main opposition party FG. All of them - and the Labour party at least 90% of it - supported the failed Irish economic model. All the other major players of Irish society: banks, business, the real estate sector, local government, the unions, the press played happily along.

Perhaps the roman catholic church was innocent, being otherwise occupied. And perhaps the national association of the travelers opposed the housing boom.

But as far as a society can be made responsible, the Irish society was collectively responsible.

The last big madness was the famous universal guarantee, without consultation of any european partners.

The ECB on the other hand is not helpful now, but has supported the Irish banks two years now. Is it really so absurd to say, this can't go on we need a permanent solution?

Now this could have happened in other countries and in similar ways it did. Everybody likes a real estate boom and low taxes, and everybody likes to blame shadowy foreigners.

But we shouldn't encourage them. Not in Ireland and not in Iceland or Greece.  

by IM on Fri Feb 4th, 2011 at 04:43:38 PM EST
[ Parent ]
_ Is it really so absurd to say, this can't go on we need a permanent solution?_

Yeah, the permanent solution is for the new Dail to renege on the blanket guarantee of all bank liabilities adopted by the previous government in October 2008. This will burn some creditors of the Irish banks. It will be a sovereign default since presumably the guarantee by now has legal standing.

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 Fri Feb 4th, 2011 at 04:54:33 PM EST
[ Parent ]
What do you mean exactly by this? Repeal the guarantee and return to just the general EU wide 20.000 deposit insurance? And then bankruptcy of the troubled banks?

That would actually make sense.

But that is not the proposal of the post and not the proposal of most of the commentators here who want to default on all Irish government debt.

by IM on Fri Feb 4th, 2011 at 05:04:12 PM EST
[ Parent ]
Everyone seems to think the Irish government guaranteed all deposits. That's not what they did.

They guaranteed the entire balance sheet of the banks, from deposits to senior to junior debt to derivatives to whatever.

So bondholders had a government guarantee they didn't have before.

I'm not saying repeal the deposit guarantee. After all, depositors have always been and will always remain the most senior creditors of any regulated bank. No, I'm saying repeal the blanket guarantee of the entire unsecured debt of the Irish 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 Fri Feb 4th, 2011 at 05:32:28 PM EST
[ Parent ]
A unlimited deposit insurance is still a bridge to far. But how helps the fact that the irish government was even madder us now?

The plan outlined in the post above discriminates between foreign and domestic creditors. Do you support that?

by IM on Fri Feb 4th, 2011 at 05:44:15 PM EST
[ Parent ]
No, actually, I don't think that's sensible. It's also contrary to core EU principles and would be challenged it the European Court of Law.

However, as an initial threat in order to bargain down to a sensible position it might make sense.

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 Fri Feb 4th, 2011 at 06:01:49 PM EST
[ Parent ]
Distinguishing between foreign and domestic creditors does make sense: Foreign creditors have a second safety net in their own government; Irish creditors have no such thing. And as a practical matter, Frankfurt and Bruxelles are going to be a lot more sensitive to British, German and French creditors than to domestic Irish creditors.

If the powers that be do not want German taxpayers to bail out Greek sovereign bonds, then there is no reason for Irish taxpayers to bail out German pension funds.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 02:09:57 AM EST
[ Parent ]
I see this "blame the people" narrative all over Europe. Who who was the primary beneficiary of this neoliberal binge? How much were workers exploited in Ireland? A lot (see below)

[source].

If working people were not the main beneficiaries why are they expected to be the sole suckers that have to foot the bill and not the people they've been making money for?

And tell me (I really don't know): What percentage of national income went to hospitals, to education? Wasn't Ireland among the most unequal countries in the EU? How about the people at the top who made real money out of the bubble?

We had the same discussion with the Icelanders, and look where they are now. And we're having some variety of this discussion in Greece. There is no excuse to pretty much annul democracy and throw a country to the markets, witch pretty much is synonymous to shielding the elites form real damage. And this is not just about Ireland (although Ireland is an especially odious case given that the Irish government unabashedly burdened their own voters with the debts of their banker friends, at the ECB's request): it is about the whole EU periphery (and indeed even the working class EU-core) which, after Merkel is done with her "competitiveness" plans, will become German vassal states with quasi-feudal elites running them. So I personally as a citizen of Greece have a lot of sympathy for Ireland, and will root for them in the rather unlikely case that they manage to knock down this whole theater of vampire bankers feeding off a disaster they invented, by any means necessary. Heck raise a new independence army. I'll come and join as a volunteer, if we don't manage to kick off our own bag of mayhem down here.

Note that the elites where I am are pretty much disparaging the Greek people for not following exactly the sort of road the Irish have "chosen", they then fail to explain how that road led to the exact same consequences when all was said and done was that much better.  

The concept that people are "responsible" for policies that are presented to them by all the "important people" (and I won't even go into the international claptrap concerning the Irish model, and the Celtic Tiger) as inescapable and without alternative, assumes too much of democracy as is currently practiced. Especially if the end result of the bitter medicine they will be forced to swallow is even less democracy, fewer options and a vastly more skewed income distribution.

Having said all that, I think IM is helping a lot in honing the arguments and preempting criticism. So I think that this is becoming a rather useful exchange.

If it's going to a vote: I will sign whatever is agreed upon. As Egypt shows, many humble efforts can have unpredictable results - and what do we have to lose anyway.

One general question to Jake, Migeru and all: what would a similar proposal for Greece look like? Is there anything that Greeks can do to avoid this neolib hell we're experiencing? Apart from mass protests civil unrest and general havoc that is...

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Fri Feb 4th, 2011 at 05:55:25 PM EST
[ Parent ]
what would a similar proposal for Greece look like? Is there anything that Greeks can do to avoid this neolib hell we're experiencing? Apart from mass protests civil unrest and general havoc that is...

Ireland is unique among the PIGS in that it has a structural balance of payments surplus, and that its goverment debt is unsustainable mostly because of the ill-conceived blanket guarantee of their failing bloated banks. They would have had a large deficit in 2009 in any case due to the recession, but without several multiples of GDP in zombie banks liabilities the Irish treasury and central bank would likely be jointly solvent.

I think Greece has only the nuclear option left: sovereign default and issuing scrip. But maybe that's a failure of my imagination.

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 Fri Feb 4th, 2011 at 06:09:06 PM EST
[ Parent ]
Yes and the 1 trillion Euro question is: in the medium and in the long run, is the nuclear option better or worse for exactly the people you want to protect - compared to following the road of austerity and "reform" (which will lead to a default managed by the debtors at some point anyway)? Does just sitting and hoping for an electoral change of guard in Germany and France in the next couple of years even make sense?
Or is cutting general income levels in half but preserving their public nature, taxing property and assets and prosecuting tax dodgers among other things, a better option on a 5 or 10 year horizon?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Fri Feb 4th, 2011 at 06:19:09 PM EST
[ Parent ]
I actually think it is. Sovereign default doesn't imply an exit from the Euro, and if the money markets close down to Greece as a result and the European System of Central Banks temporarily stops clearing payments with the Greek Central Bank they pretty much force you to issue scrip to keep functioning, institute capital controls, or other emergency measures suspending parts of the EU rules. You can always pay any fines imposed by the European Court of Justice a decade later, when the economy has recovered.

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 Fri Feb 4th, 2011 at 06:39:00 PM EST
[ Parent ]
Ah, right blame the ECB. Because the irish elites who created this low tax no regulation paradise are not blame at all. Instead they got you rooting for them.

And Iceland: I still think the glorious icelandish plan to split their banks and give the new part the assets and the old the debts was fraudulent. Especially because the domestic deposits were in the new bank and the foreign deposits in the old. But in the long run they will pay anyway. They already have to some countries.

by IM on Fri Feb 4th, 2011 at 06:24:53 PM EST
[ Parent ]
No I'm not. Burn them. Tax them to oblivion. But the issue is not whether the elites or the people are to shoulder the blame. Under current arrangements workers pay for the debt and the elites (Irish, German etc) are free to make even more money and reflate some new bubble or whatever the magic fairy of unfettered markets tells them to do. How is that fair? At this point getting rid of the austerity seems a prerequisite for even the most basic popular input in the matter. And this is not solely an Irish  matter. Why should we care to protect German (or Irish, or whatever) bankers?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Fri Feb 4th, 2011 at 06:30:22 PM EST
[ Parent ]
I agree the Irish elites need to be held accountable, in the strict sense of that word.  All those "profits" (sic) need to be seized and used to help alleviate the crises.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Fri Feb 4th, 2011 at 06:32:01 PM EST
[ Parent ]
The "well you chose this" option is nonsense.

It's like a spouse discovering that the other spouse is a crook who's defending themselves by saying "You married me for the nice house, so it's your fault I'm a thief."

People are trained - bizarrely - to assume that this economics stuff is far over their heads and they should leave it to the experts without expressing an opinion on it.

But the so-called experts act without oversight or accountability.

When a doctor fucks up badly and kills multiple people, the doctor is - at least - struck off.

Finance has no formal code of conduct, no regulatory body that can ban individuals from working in the industry, and no system for personal accountability when egregious errors are made.

Criminal fraud can be punished, but stupid decisions that ignore even the most basic requirements of due diligence aren't.

Since financiers have no concept of personal responsibility, default isn't just good economic sense, it's also the only option that can send the industry a message about ethical standards.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 4th, 2011 at 07:00:42 PM EST
[ Parent ]
Ah, right blame the ECB. Because the irish elites who created this low tax no regulation paradise are not blame at all. Instead they got you rooting for them.

Did you miss the part where I argued that the Irish oligarchs need to lose their shirts as well?

Here's a hint:

Then you make two lines on each of the two lists: One line between people you really, really want to save (ordinary bank depositors, industrial firms, etc.) and people you kinda sorta want to save if you can (private pension funds, non-toxic investment banks - if you have any of those left - etc.), and another line between the people you kinda sorta want to save and the evil people who should take a long walk off a short pier (bookies, toxic investment banks, everything with a business address on Canary Wharf).

Then you mix the lists like this:

Domestic need-to-save
Foreign need-to-save
Domestic want-to-save
Foreign want-to-save
Evil (foreign and domestic)

All the people on the 'evil' part of the list should ultimately end up losing their shirts completely.

And Iceland: I still think the glorious icelandish plan to split their banks and give the new part the assets and the old the debts was fraudulent.

That is a perfectly ordinary bank intervention. There is nothing fraudulent about that, and indeed it is how a bank is put through bankruptcy every month somewhere in the OECD.

But in the long run they will pay anyway.

No. Really, they won't have to pay anybody who isn't going to send a gunboat to Reykjavik.

They may want to pay some of their creditors, because they view their claims as legitimate, or because they want to avoid the political fallout from not paying them. But sovereign states never have to pay their creditors.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 5th, 2011 at 02:30:06 AM EST
[ Parent ]
Of course, that's sometimes how they get non-sovereign.

Align culture with our nature. Ot else!
by ormondotvos (ormond.otvosnospamgmialcon) on Sat Feb 5th, 2011 at 10:07:16 PM EST
[ Parent ]
Because the irish elites who created this low tax no regulation paradise are not blame at all.

They're already fucked. Most of them are down to whatever small numbers of millions they managed to squirrel away in the wife's name. They're not exactly homeless and starving, but they're down to a small percentage of their previous "wealth".  The ones that aren't are the ones who were rich before the boom. Some of them are still managing to appear rich, but they're standing in the air at the top of a canyon they just haven't noticed.

by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 09:45:55 AM EST
[ Parent ]
Neoliberalism it was, low tax - no regulation - beggar your neighbour.

So, no cafeteria neo-liberalism allowed? If Ireland takes one bite of that apple they have to eat the whole apple, seeds and all?

Ireland opted to follow that part of the neo-lib agenda that suited it best. Beggar thy neighbor tax policies are de rigueur between the states in the USA and Ireland correctly saw this as a likely option to attract industries. If this was unacceptable it should have been required to be undone before the EMU proceeded to completion.

The real estate bubble in Ireland flowed from neo-lib ideology and practice and its replication in Ireland was cheered as an example of the benefits of this ideology and practice -- until it blew up. In these circumstances it seems entirely appropriate that the Irish state should seek to protect those social services that will allow counter-cyclical spending to alleviate suffering and prevent a debt-deflation economic death spiral.

At the time the EMU process was started the EU and Germany was characterized by rather generous social programs. The neo-liberal agenda has been largely to dismantle this system in the name of competitiveness but with the result of reducing the share of produced wealth going to workers and retirees as wages, benefits and social services.

The terms of the EMU/IMF settlement smack of vindictive opportunism by Germany and the ECB to punish Ireland for clinging to the low tax policy that has provided it with industry and to force Ireland to drastically cut social spending regardless of the human cost. It would be one thing if that policy might work. But that seems to have a vanishingly low probability of happening.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 6th, 2011 at 12:11:42 AM EST
[ Parent ]
I have markedly less sympathy for the Irish "tax competition" strategy than you appear to have. But it is rather rich to hear from a German that the Irish are collectively responsible for their irresponsible macroeconomic policy... when Germany has practised the even more irresponsible macroeconomic policy of wage competition.

A country that passed Hartz IV really has no business whatsoever lecturing others on macroeconomic policy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 12:45:47 AM EST
[ Parent ]
I am not a country. But that fits to your nationalist policy approach. It is also fine to see that you and your fellow travelers are full throated defenders of irish neoliberalism.

(Actually, unit labour cost in Germany are still higher then in most western european countries)

And whatever exactly helped Germany to master this crisis - neoliberalism it was not.

by IM on Sun Feb 6th, 2011 at 11:54:18 AM EST
[ Parent ]
I think Jake's "you" referred to my comment, and I should clarify that I despise tax arbitrage in all of its forms. I was not so much defending Ireland's approach to attracting industry as pointing out that there is no reason they have to adopt more of the neo-lib agenda just because they adopted this part. I would favor a gradual increase in corporate taxes on multi-nationals doing business in Ireland, up to just below the point where the advantage is eliminated.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 6th, 2011 at 03:28:49 PM EST
[ Parent ]
I am not saying they have to adopt even more of the neo-liberal agenda. A roll-back is necessary. They could balance their budget by raising taxes: corporate, income and perhaps on real estate, to prevent a new bubble.
by IM on Sun Feb 6th, 2011 at 03:46:27 PM EST
[ Parent ]
Increasing income tax rates on top earners would likely be a good move. I don't know the specifics of the Irish tax structure, but I doubt that it taxes the wealthy and their estates particularly onerously.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 6th, 2011 at 04:27:15 PM EST
[ Parent ]
They have increased taxes at the top a bit, but, anecdotally, a lot of the top earners are in pretty precarious positions now anyway - their incomes are down substantially (my household is down a third, for example) if they're employed or professionals and they're probably carrying investment loans which are becoming pretty onerous (not so much my household, we have a low risk tolerance).

In the short term squeezing too much will kill the golden goose - and increase the stress on the banking system too. Isn't life grand?

by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 09:51:06 AM EST
[ Parent ]
They could balance their budget by raising taxes: corporate, income and perhaps on real estate, to prevent a new bubble.

In the first place, that is not what is being pushed for under the banner of AusterityTM. If you believe that forcing Ireland to honour its debts will result in rollbacks of their neoliberal policies, then you are living in a fantasy world. Pressuring Ireland to honour their debts will provide an excuse for neoliberals - in Berlin, in Bruxelles and in Dublin - to push for wage suppression, dismantling of the pension system, destruction of unemployment protection and collective bargaining and all the other bullshit "reforms" that always get pushed whenever there is a "debt crisis" and "budgets need to be balanced."

Arguing that Ireland should pay its debts by raising taxes on the rich is, in terms of realpolitik, as delusional as asking that the Irish turn down Lisbon in order to permit a grassroots drafting process for the next treaty. It's not gonna happen, and by pushing for it you are aiding and abetting the neoliberals, for whom insisting on debt repayment is a precondition for engaging in "structural adjustment programmes."

In the second place, no Ireland cannot balance their budget by taxing the rich, because Ireland is in the middle of a serious industrial depression, in case you didn't notice. Which means that they can't balance their budget, full stop. They can't balance their budget by taxing the rich. They can't balance their budget by taxing the poor. They can't balance their budget by cutting benefits. They can't balance their budget by taxing corporations. Because they can't balance their budget. Demanding that they balance their budget is buying into the neoliberal idea that governments need to run balanced budgets. They don't. In fact, they shouldn't. Not in recessions, and not cycle-averaged.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 6th, 2011 at 07:36:03 PM EST
[ Parent ]
I don' buy the theory that Ireland can't rise taxes. That is neoliberal clap-trap. FDR did rise income taxes during the great depression. And what ever the situation in Ireland is, it is not a industrial depression. Manufacturing is least troubled sector in Ireland.

I don't assume Ireland will always be depressed. Budgets can and should be balanced over the cycle. Your novel theory: never balance the budget and default regularly can not work.  

by IM on Mon Feb 7th, 2011 at 09:33:31 AM EST
[ Parent ]
Your plan is raising taxes to pay off foreign debts in the depths of a recession? Raising taxes - my taxes, I'll point out - to spend on stimulus I might buy. To pay off private debts that should never have been made public? Not so much.
by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 09:40:23 AM EST
[ Parent ]
You can't balance the sovereign budget in the middle of a depression. If you try, the only result will be crashing your GDP to a level where the tax base erodes sufficiently to restore the sovereign deficit required for the private sector to deleverage.

Obviously, you can raise taxes on the rich, even during a depression. It's actually not a bad time to do it, provided that you have a big enough soapbox to shock doctrine it through. But it won't balance your budget. It will only enable you to make sure that the deficit goes towards building useful infrastructure rather than lining the pockets of your oligarchs. For the purpose of real economic planning, that's a great thing. For the purpose of paying German bondholders, whose bonds mature in less than three years, it doesn't really matter one way or the other.

And this is all Macro 202 (actually, if you look closely at the accounting identities, it's Macro 101 - but most textbooks not to emphasise it). Even the Chica(r)go cultists get this, although they like to pretend otherwise.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 7th, 2011 at 09:52:56 AM EST
[ Parent ]
Irish taxes were between 33% and 37% prior to the crisis. That I think is to low. It should be possible to raise this level to 40-45%.

Or you can cut the level of expenditures to 33-37%. But I don't think you can run a real welfare state on this.

Now regarding the middle of a depression: I don't assume that Ireland will in three or five or ten years still in the middle of a depression. And then taxes can be rised. And debts be serviced.

As for paying back - why? States are long lived. If Ireland wants to keep the debt another fifty years, why not. Economic growth will then make the debt more bearable.

But in the next few years, if not in the next few months Ireland can arrange its public budget in a way that the interest can be paid. More I do not assert.
   

by IM on Mon Feb 7th, 2011 at 10:27:07 AM EST
[ Parent ]
I don't assume that Ireland will in three or five or ten years still in the middle of a depression

I wouldn't be surprised if it was, given that we're meant to be running massive austerity budgets for all of that period.

GNP is going to shrink again this year and probably next year - any recovery will be drowned at birth by further austerity.

Sure, tax rates here are too low, sort of. Effective tax rates may be quite high for the poor because of how VAT and charges for government services are structured. I've been calling for increases in Irish taxes for years.

by Colman (colman at eurotrib.com) on Mon Feb 7th, 2011 at 10:42:59 AM EST
[ Parent ]
But in the next few years, if not in the next few months Ireland can arrange its public budget in a way that the interest can be paid.

No. It can't.

Why is this so hard to grasp? It's Keynes For Kindergardeners: You cannot run a budget surplus during a serious depression. Not enough surplus to pay interest, not enough surplus to amortise, no surplus at all. Full stop.

So Ireland's bonds will have to be carried for the next five to ten years (more like fifteen if Germany insists on practising Austerity) without the bondholders seeing a single eurocent. Now, that would not in and of itself be a problem, if the ECB were doing its fucking job and printing money on demand. But the ECB is labouring under the delusion that governments should be paying seigniorage to the international money markets.

Now regarding the middle of a depression: I don't assume that Ireland will in three or five or ten years still in the middle of a depression. And then taxes can be rised. And debts be serviced.

If the ECB had been doing its job and printing unlimited amounts of money for Ireland, then your proposal would have been something worth talking about. It would still have been odious, because there is no good reason the Irish taxpayer should bail out the Irish banks, so the part of the debt that corresponds to the bailout should be defaulted upon, at the very least. But it would have been within the realm of the possible.

With the ECB practising Austrian economics, however, your plan of "carry now, pay later" is delusional. It can't happen until Weber, Trichet and Stark are fired and replaced with people who understand the real opportunities and constraints that a fiat currency represents. So unless you have a proposal for how to get Messrs. Trichet, Weber and Stark fired and replaced with Keynesian economists that does not involve defaulting on everything with a business address in Frankfurt, I don't see how your plan is anything but a pipe dream.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 7th, 2011 at 01:11:42 PM EST
[ Parent ]
Of course your plan is even more of pipe dream.

But on the ECB: There are 16 member states  of the ECB. If they wanted, they could send 16 Keynesian economist to Frankfurt. They don't do this. Instead they blame the ECB, a beast of their own creation.

by IM on Tue Feb 8th, 2011 at 10:11:01 AM EST
[ Parent ]
Of course your plan is even more of pipe dream.

Oh, I don't expect the extortion to actually change ECB policy.

But when they default, that will cease to be Ireland's problem, and the Germans who get burned can take it up with Messrs. Stark and Weber, who bear the lion's share of the blame for the ECB's stupidity.

But on the ECB: There are 16 member states  of the ECB. If they wanted, they could send 16 Keynesian economist to Frankfurt. They don't do this. Instead they blame the ECB, a beast of their own creation.

Oh, but that is the whole point of this strategy: Pressure the €-zone countries into sending loose-money governors to the ECB.

That said, it really is undignified seeing you try to fob the blame off on someone else - anybody else - other than the last twenty years of German policymakers. The inflation mandate was a German idea - in fact, a German condition for joining the € in the first place. So was the General Stupidity Pact, by the way. And there is no doubt that German policy positions wield a disproportionate influence in the ECB. For that, you only have to look at its actual interest rate policy over the ten years of its existence as a functioning central bank: They have consistently favoured German macroeconomic policy at the expense of the interests of peripheral countries.

When you follow the money, you end up in Frankfurt.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Feb 9th, 2011 at 01:13:30 AM EST
[ Parent ]
Tell that the Weber. Shouldn't his resignation put a little dent in your "the germans runs everything" conspiracy?
by IM on Sat Feb 12th, 2011 at 05:41:28 PM EST
[ Parent ]
Merkel runs Germany.

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 Sat Feb 12th, 2011 at 09:31:43 PM EST
[ Parent ]
I thought the Bundesbank?
by IM on Sun Feb 13th, 2011 at 07:54:44 AM EST
[ Parent ]
Weber's ouster is good news. Now we just need to get rid of Stark, and we'll have a shot at getting somebody sane in office.

But it doesn't change the fact that the ECB has been consistently favouring the surplus countries - of which Germany is the most prominent and powerful - and has for far too long been pandering to German inflation neuroses.

Incidentally, you should be happy about this outcome. Weber was the most significant obstacle to Ireland's debt being repaid in full, due to his insane insistence that the ECB shouldn't carry it at below market rates until the crisis was over.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Feb 13th, 2011 at 12:31:49 AM EST
[ Parent ]
Actually, all 27 EU member states. See the ECB General Council page.

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 02:24:43 AM EST
[ Parent ]
But the ECB is labouring under the delusion that governments should be paying seigniorage to the international money markets.

But that is much too generous an assessment of the mind set of the ECB. Rather than laboring under delusions, they are much more likely acutely aware of the ire they would recieve, the hit their financial futures would take, and the general opprobrium they would endure were they to deny their private sector patrons the seigniorage to which they feel entitled. They are probably at least aware of the arguments that they can create money without seigniorage, but also aware that this is like a third rail for central bankers in a neoliberal economic environment.

It would be very interesting for Trichet to be asked by, say an MEP, why he has not considered issuing money without siegniorage to help the recovery of banks and central banks that threaten the stability of the entire system. The answer, if truthfully given, would be that so doing would undo too much of the narrative that underlies existing policy and would harm the beneficiaries of the neoliberal policies -- the very wealthy.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Feb 8th, 2011 at 02:46:29 PM EST
[ Parent ]
And whatever exactly helped Germany to master this crisis - neoliberalism it was not.

On this I believe we can agree. One thing that has helped Germany for at least the last decade has been that they have been able to set important aspects of macro policy to suit their perceived needs regardless of the consequences to other countries. The peripheral nations have been out of phase with Germany in their interest rate needs and are receiving ever decreasing sympathy for their plight.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 6th, 2011 at 03:37:12 PM EST
[ Parent ]
May I ask what irish political parties will support this plan? Not FF and not FG.

Do you hope for Labour or the Greens?

The nationalistic aspect should get you Sinn Fein, but will ULA really go along with your preference for Irish capitalists?

Furthermore, if all their dreams come true, ULA and Sinn Fein will have 15 seats or so. And the great independent coalition friendly to default has just now decided that the kitchen is to hot.

Isn't that a problem?

by IM on Fri Feb 4th, 2011 at 03:51:32 PM EST
When Sinn Fein was first conceived, they could probably muster 20 people. That's how organizations start. If your point is that we can have no impact immediately, the odds are with your argument. Then again, we never know when circumstances and ideas will mesh.

Your argument overlooks the portion of the populace who did not support any of the parties or programs involved in this debacle - in most situations they are the majority. It doesn't matter if individuals understand the likely consequences and oppose the policies; or if they understand little until their butts are bitten; or if they hide from understanding because it's just too difficult or scary. When the shock hits, they are victims.

Our task is - I repeat - to be ready with a succinct analysis and a program which can build a movement. JakeS' diary succeeds in that with a little editing. I ask again, will the ET powers-that-be support this project, despite IM's protests?

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Fri Feb 4th, 2011 at 05:15:20 PM EST
[ Parent ]
What, do you think this is a protest? Go ahead, make..

someones day. I don't really want to disrupt the powers that be of ET.

(I am a fairly regular ET reader and I never thought ET was a power or thought itself a power)

by IM on Fri Feb 4th, 2011 at 05:22:03 PM EST
[ Parent ]
I think the reference to "the powers that be" is just asking whether there's editorial endorsement of an Op-ed. In particular, Jerome's.

Any Op-ed can be composed on-site and signed by those who wish to do so with or without editorial endorsement, but people feel it's a different matter to identify the signatories as "ET contributors" without asking for permission first.

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 Fri Feb 4th, 2011 at 06:55:42 PM EST
[ Parent ]
I never thought ET was a power or thought itself a power

Thought wrong.

We're a Legend in our own Mind.

LOL

People have written Letters to the Editor and Op-Ed pieces, Jerome for one, as a "contributor to" or "editor of" European Tribune with no vetting.  Back a couple of years ago a consensus was reached that people should get an OK (at least from Jerome who pays all the bills for this thing) before presenting themselves as speaking for "European Tribune."

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Feb 4th, 2011 at 07:23:44 PM EST
[ Parent ]
Suggestions:

  1.  Need a 'hook' in the first sentence of the first paragraph such as "To reach a real/moral/working/{whatever} solution to the Irish debt crises ...." or something like that.  

  2.  Delete every qualifying adjectival phrase and if you MUST - replace them with a single adjective.  

  3.  Delete every own goal' such as "it is my impression ..." & all that.  You're the expert.  You're the person who knows what should be done.  Write from that stance.  

  4.  Just say what you want to say.  Use straight forward word order:

You wrote:
Second, on general negotiation strategy for sovereign defaults, it's actually fairly simple.

My re-write:

Second, there is a simple negotiation strategy for sovereign defaults.  

  1.  Delete the jocularity such as "kinda/sorta."  

  2.  Take a hard look at prepositional phrases: "Repeal of the misnamed Growth and Stability Pact" s/b "Repeal the misnamed Growth and Stability Pact."  (This is one tactic to move from Passive to Active voice.)

  3.  Cut, Cut, Cut.  Get to the point.  Say what you want to say:

Repeal of the prohibition on direct ECB purchase of sovereign bonds, and a mandate to purchase sovereign bonds at a price no less than [the one corresponding to] the Frankfurt overnight rate plus some politically fixed acceptable yield curve (the precise shape of which is beyond the scope of this missive).

Off the top of my head:

Negotiate to have the ECB directly purchase sovereign bonds.  Fight for these purchases be at the Frankfurt overnight rate.  

(not quite there but a lot closer, IMHO.)

  1.  Move the PS to the body of the text but DO NOT make it the last paragraph.  The last paragraph should be up-beat.  

  2.  Personalize.  "The narrow self-interest objective ..." s/b "Your narrow ..."

  3.  I see why you put this in but I'll suggest re-writing that section so it can be deleted.  Yes, that is a potential outcome.  And, yes, you're undercutting the message by including it.

c) You cannot even save all the people you really want to save. Then you're screwed, if you'll pardon my French. You will be coming hat in hand to other countries.

Never, ever, give an opponent a chance to attack using your own words.  If you keep this in it WILL be quoted and used against you! ..."Even JakeS admits blah, blah, blah"

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Feb 4th, 2011 at 06:08:34 PM EST
you've done this before...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 4th, 2011 at 08:07:47 PM EST
[ Parent ]
Yup.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Fri Feb 4th, 2011 at 11:13:18 PM EST
[ Parent ]
I've just been through the entire thread for the first time. There's a helluva lot to digest, and i'm questioning my capabilities.

I'm pleased that IM has entered the discussion, and trust it will remain civil. We do need as wide a selection of views as possible, provided they are given in the interest of furthering discussion.

I'm really challenged to fully understand the implications of this discussion, but sure it's refined my views.

back to lurking.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

by Crazy Horse on Sat Feb 5th, 2011 at 02:44:39 PM EST
Hands will be wrung,
epithets slung,
poor eat dung,
no one hung.

Align culture with our nature. Ot else!
by ormondotvos (ormond.otvosnospamgmialcon) on Sat Feb 5th, 2011 at 10:20:27 PM EST
BusinessWeek: Anglo Irish to Swap 90 Percent of Subordinated Debt (December 21, 2010)
Investors agreed to exchange 307 million euros ($404 million) of its so-called lower Tier 2 bonds due 2014 and 459.5 million euros of similarly ranked notes maturing 2016 at an 80 percent discount to par value, the Dublin-based bank said in a statement. By accepting the swap, holders agreed to changes in conditions that will wipe out investors refusing to take part.


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 Sun Feb 6th, 2011 at 01:20:08 PM EST
Eurointelligence: Aftermath of a "surreal" summit
Karl Whelan on another gap for Ireland

In a very interesting post on the Irish economy blog, Karl Whelan calculated that the EU/IMF package is still some €11.5bn short and will not fund Ireland through the 2011-13 period. He asks that the political parties should address the issue of whether they are want to ask the EU/IMF for more funds, and in particular given some additional spending commitments on windmills and broadband systems, whether they want to ask for even larger loans to cover those commitments as well.



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 04:52:19 AM EST
More from the same Eurointelligence article:
Wolfgang Münchau says EU is trying to solve the wrong crisis

In his FT column, Wolfgang Münchau argues that the competitiveness agreement is going to backfire in a big way. First, it does not constitute a solution to the current crisis, which is a banking crisis, first and foremost, which would require a commitment to force bank restructuring, which is still lacking. So whatever crisis Merkel's comprehensive crisis resolution package tries to resolve, it is not the current crisis. But if even you accept it as a long-term governance proposal, it is still not clear why harmonisation at the German level is necessary and desirable - nor likely to eradicate future imbalances. This is an unpleasantly hegemonial proposal, though which one country seeks to impose its economic order onto the rest. (Emphasis added.)


And no one will call Godwin on Münchau, I presume.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Feb 7th, 2011 at 01:58:02 PM EST
[ Parent ]


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