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Ireland to take on the ECB?

by Frank Schnittger Wed Jun 15th, 2011 at 05:42:30 PM EST


Michael Noonan
The ECB has set its face against any "credit event" being allowed to happen as part of the Greek or any other bail-out.  Ireland has even been prevented from buying out its own debt at discounted rates on secondary markets.

Ireland's EU partners have also been spectacularly unhelpful in insisting that Ireland pay a higher rate of interest on its loans than that payable by Portugal.  Sarkozy persists in believing that Ireland can be bullied on the corporate tax issue despite France's effective rate of corporation tax being lower than Ireland's.

However today, Michael Noonan, Ireland's Finance Minister, has announced that Ireland will impose loses on unsecured senior bondholders in Anglo Irish Bank and Irish Nationwide despite such a move being explicitly ruled out by the ECB.  Interestingly, Noonan went to the USA to clear the deal with the IMF and Timothy Geithner first - such has been the Irish Government's loss of faith in the ECB and its European "partners".


Senior Anglo and Nationwide bondholders could be burned

The Government plans to burn unsecured senior bondholders in Anglo Irish Bank and Irish Nationwide in a bid to cut taxpayers' debt exposure.

Finance Minister Michael Noonan made the announcement after a meeting with the International Monetary Fund and US Treasury Secretary Timothy Geithner in Washington.

It is understood that the Government will seek to impose losses of up to €3.5bn on some of the bondholders - although there is no guarantee that the bid will be successful.

Earlier moves have been challenged in the High Court.

And the Government has come under fire from the opposition for promising to tackle these bondholders before the election but failing to deliver since.

Mr Noonan said he had discussed the plan with the IMF, which supported the strategy.

He added these banks are no longer normal institutions.

Mr Noonan also said he would seek support from Europe to propose significant cuts in the money to be paid to these bondholders.

He added that Mr Geithner will support Ireland's efforts to maintain our low 12.5pc corporation tax while the treasury secretary has agreed to take the issue up with French authorities who have been lobbying strongly for a cut as part of our EU/IMF loan agreement.

It could, of course, all end up being just another abortive attempt by the Irish government to show some semblance of independent thinking.  The equation of private banking debt with national sovereign debt should never have been allowed in the first place.  Many will criticise the Minister for gambling all of Ireland's much diminished political capital for such a small sum. The €3.5 Billion of Senior debt at issue is a small fraction of the total private debt which has been socialised.

However Noonan is an experienced Minister and not given to blowing off steam on ill-considered proposals.  Presumably he knows the ECB will go ballistic that another country is threatening its no "credit event" mantra just as the Greek crisis is coming to a head.  It says much about the almost total breakdown of trust and goodwill between Ireland and the EU that Noonan would even consider such a step.  Irish Taoiseach, Enda Kenny, has yet to meet with Sarkozy on a bilateral basis since he took office - such has been the breakdown of relations with France, in particular.

We are about to find out whether the new Irish Government has any balls - and how far the ECB is prepared to go to destroy the Euro.

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Strangely, the Irish Times has to date made no mention of this story... its on the Irish Independent's home page.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jun 15th, 2011 at 05:46:50 PM EST
He added that Mr Geithner will support Ireland's efforts to maintain our low 12.5pc corporation tax

Obviously, since the low corporation tax benefits primarily US corporations having established their European base of operations in Ireland. What's not to like for Geithner?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 15th, 2011 at 05:52:54 PM EST
The US Government has previously criticised what they see as tax avoidance by US corporations based in Ireland and threatened to subject them to US corporate taxes as well.  US corporations can avoid higher US corporate tax rates by declaring the bulk of their profits in Ireland.

I suspect what we are seeing is the dividend for Obama's highly successful PR visit to Ireland and Geithner trying to limit the damage of his previously reported opposition to more helpful terms for the Ireland in the ECB/IMF intervention.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jun 15th, 2011 at 06:06:24 PM EST
[ Parent ]
The Irish/Dutch bypass is a serious problem for US.

Under Dutch law, royalties are not taxable.

US company A creates Dutch company D, Bahamas company B and Irish company I. It sells IP to D which collects royalties from I (which actually operates the overseas business) and then D pays out all profits to tax free B.
Company I appears to lose money!

by rootless2 on Fri Jun 17th, 2011 at 10:53:50 AM EST
[ Parent ]
In other words some US corporates evade even Irish 12.5% tax by declaring profits as royalties in Holland and as profits in the Bahamas. - So much for the Irish Corporate tax rate representing unfair competition, Dutch tax laws appear to be even be even less demanding.  See here for companies which abuse this

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jun 17th, 2011 at 12:33:03 PM EST
[ Parent ]
From Eurointelligence: On the Brink (again)
Ireland ready to wipe out senior guaranteed bond holders

This was a great day for Ireland to throw in its own bombshell. In an interview with Irish television RTE, finance Minister Michael Noonan said Ireland will propose plan to impose big losses on some senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society. He said he was seeking assistence from the senior bond holders "because we don't think the Irish taxpayer should have to redeem what has become speculative investment. I don't think it should be redeemed." He also hinted that the changeover from Jean-Claude Trichet to Mario Draghi at the ECB might make it easier for Ireland to pursuade the ECB. Apparently he got no sympathy from the IMF. When asked whether the IMF agreed with him, he said: "I got an agreement that they understood our position fully."

Ireland's risky threat of a haircut on senior bond holders

BreakingViews writes that Michael Noonan has picked a risky moment to stage a raid on bank creditors. The move is a direct challenge to the European Central Bank. It will also further rattle markets already spooked by talk of a Greek restructuring. "Ireland has previously avoided forcing haircuts on senior bank bondholders due to opposition from the ECB, its main creditor. It could be that Germany's public spat with the ECB has given the Irish government the confidence to take a stand. Alternatively, Dublin could be playing a high-stakes game of poker to get a reduced interest rate on its own bailout while preserving its advantageous corporate tax regime.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 03:56:10 AM EST
unsecured or secured, unguaranted or guraranted?

Irish times says "senior unsecured unguaranteed bonds"

by IM on Thu Jun 16th, 2011 at 04:19:28 AM EST
[ Parent ]
They are senior unsecured.

But they are guaranteed by the blanket government guarantee issued by the Irish in 2008.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 04:27:35 AM EST
[ Parent ]
Maybe "unguaranteed" refers to bonds issued after the Irish government guarantee was announced, though precisely how you would argue that in a bankruptcy court is beyond me.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 06:15:56 AM EST
[ Parent ]
http://www.irishtimes.com/newspaper/breaking/2011/0616/breaking8.html

The important part:

<Anglo has €3.2 billion of senior unsecured unguaranteed bonds, of which €750 million falls due on November 2nd. Irish Nationwide has €600 million of senior bonds due to be repaid in June 2012. The value of Anglo's November 2011 bond fell in trading on the bond markets from 89 cent in the euro to about 70 cent following the Minister's comments.<p>  Mr Noonan would not say how big a cut the Government would make on the unsecured Anglo and INBS bonds, but said he hoped it would be "substantial". Negotiations have not yet started.

 Anglo repaid a €200 million senior bond in full last month. "All eyes were on Greece," Mr Noonan explained. "Whether Greece would restructure or reschedule or reprofile or default." In the circumstances, he said, he "certainly didn't want the attention to switch to Ireland for a relatively small amount of money in the overall context of things".>

So 4 billion. A 50% cut would get 2 billion. What about the other irish banks?

by IM on Thu Jun 16th, 2011 at 04:15:47 AM EST
Goodbody Stockbrokers - News and Comment - Morning Meeting Wrap
Specifically, although there are many issues to be agreed in relation to Greece (which now look like being delayed even further), Germany's clout is likely to mean a form of burden-sharing between the private and public sectors is likely to play a part. Up until yesterday, we were surprised that the debate around burden-sharing in the Irish banks in wind-down had gone somewhat quiet, while intense focus has been placed on Ireland receiving a lower interest rate on its official European loans. A 50% haircut on the unsecured, unguaranteed debt in Anglo and Irish Nationwide is equivalent to about eight years of the savings that would be made if the Irish interest rate was reduced to the level that Portugal is accessing funds.

European policymakers may not appreciate Ireland highlighting this issue again, especially at a time when markets are fragile because of what is happening in Greece. However, setting a precedent that Government's will not continue to bail out bankrupt financial institutions at the cost of sovereign debt sustainability could be to the advantage of Europe too. Anglo and Irish Nationwide would then represent a test case in how to deal with similar situations in the rest of the bloc.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 16th, 2011 at 06:11:12 AM EST
Dermot O'Leary: Greeks' burden sharing is a gift we should use to our advantage - Irish, Business - Independent.ie
Once it became clear that Ireland would need to request external assistance, Honohan hinted that Lenihan had a sense of optimism that an agreement could be reached that would represent a significant step forward in Ireland's fight against the banking and fiscal crises. This optimism turned out to be misplaced, as only a "plain vanilla" programme, as Honohan described it, was agreed.

Lenihan must have believed that the Troika would accept some collective responsibility for Ireland's plight, but as it turns out, all Ireland was provided with was time away from funding markets to get its own house in order. Honohan's description of Lenihan as "crestfallen" following the negotiations is telling.

Although Honohan didn't name names, it is commonly understood that the stance of the ECB on the issue of burden-sharing was the major roadblock to a more comprehensive solution to Ireland's banking problems.

It continues to be the main opponent to meaningful burden-sharing, but recent developments suggest that further private sector participation in the resolution of the crisis in Europe is coming. Having previously been ruled out at a European level until 2013, it is now back on the radar, courtesy of Germany's insistence on involving private sector creditors in the second IMF/EU programme for Greece.

The ECB continues to oppose coercive involvement of the private sector, but Standard & Poor's comments this week, when downgrading Greek debt further into junk territory, indicate that "voluntary restructuring" is actually an oxymoron.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 16th, 2011 at 06:19:06 AM EST
Government plans to impose losses on bank bondholders - The Irish Times - Thu, Jun 16, 2011
Mr Gilmore said the Government had not informed the European Central Bank of its plans ahead of Mr Noonan's statement but insisted that circumstances had changed since the bank opposed such a move when Ireland's EU-IMF bailout was agreed last year.

"I don't think it'd come as any great surprise" to the ECB that Ireland is seeking to share the burden of bailing out both lenders, Mr Gilmore told RTÉ's Morning Ireland.  He said the Government plans to discuss senior bond loss-sharing with the ECB.

One hundred days into the current Government's term, Mr Gilmore said the State is now in a stronger position than it was in November when the bailout was negotiated. "We have friends both in Europe and internationally who understand the Irish position and therefore we are in a much stronger position today," he said, adding that Ireland is "not a supplicant state".



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 16th, 2011 at 06:25:08 AM EST
The "not a supplicant state" part has been removed from the article, I note...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Fri Jun 17th, 2011 at 07:13:03 AM EST
[ Parent ]
Noonan concerned Greek crisis may engulf Ireland
Mr Noonan, who is in New York on a trade mission, also sought to quell market unease over his surprise announcement yesterday that the Government would seek to impose "substantial losses" on senior Anglo Irish Bank and Irish Nationwide bondholders.

There was "no urgency" to the plan and his comments had been given too much weight because of the crisis in Greece, he said.

"Ireland won't act unilaterally on Anglo Irish and Irish Nationwide," Mr Noonan said.

The Government, which has injected a combined €34.7 billion into Anglo and Irish Nationwide over the past two years, is winding down the lenders over a 10-year period. Mr Noonan said the "last red cent" of debt owed by the government and the "pillar banks" will be repaid.

Irish bonds fell today despite the Minister's comments, pushing 10-year yields up one basis point to 11.56 per cent. The extra yield investors demand to hold Irish 10-year debt rather than German securities widened as much as 12 basis points to 8.72 per cent today, a euro-era record.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 16th, 2011 at 02:04:17 PM EST
You have to love the total reversal of the usual positions: When it's dollar-denominated debts to US banks, the IMF finds default unthinkable, while the EU finds it sensible. When it's €-denominated debts to French and German banks, the IMF is counseling default while the ECB and their friends are screaming about "credit events" being the end of the world.

Bunch of fucking parasites.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 17th, 2011 at 05:49:32 AM EST
The equation of private banking debt with national sovereign debt should never have been allowed in the first place

Excuse me, but that decision was taken by St Brian and can't be criticised any more. How dare you speak ill of the dead?

<sigh>

by Colman (colman at eurotrib.com) on Fri Jun 17th, 2011 at 06:03:49 AM EST
I presume this is some sort of attempt at building a negotiating position - some sort of credible fallback for if the others push too hard and force Ireland to walk away.

It's possible at this stage that the Irish government - who yesterday announced no income tax increases will be in the next  budget (which is a good thing in the context of the depths of a recession/depression) - realizes the insanity of the situation and is looking for a way out, either by  negotiation or force.

by Colman (colman at eurotrib.com) on Fri Jun 17th, 2011 at 06:17:18 AM EST
That's the hopeful interpretation.  The more cynical one being that Noonan had to say something as the 100 days in Office were up and the Government had promised to "burn the bond-holders".  His subsequent row-back doesn't say much for his ability to sustain an argument or negotiating position.

I have to disagree on income tax.  It is one of the few progressive taxes we have and given that part of the problem in Ireland is that high earners are earning far to much, the introduction of a 60% rate on higher incomes would have been an effective way of balancing the current attempt to reduce the wages of relatively low income Hospitality and Building sector workers.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jun 17th, 2011 at 10:05:42 AM EST
[ Parent ]
But the two are unconnected. The low earners are being attacked to bolster profits. They'll do that anyway.

Also, why are high earners' incomes a problem? I thought it was just high earning civil servants that were a problem? You think taxing barristers more will reduce their fees for some reason?

by Colman (colman at eurotrib.com) on Fri Jun 17th, 2011 at 11:09:38 AM EST
[ Parent ]
For most businesses, hourly wage rates of 10-20€/hour are not a problem, however high legal fees often are - to the point that most companies settle even outrageous cases out of court because of the costs involved. This has knock on effects for insurance premiums, business overheads, attracting skilled employees and ultimately for workers cost of living wage claims.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jun 17th, 2011 at 12:39:35 PM EST
[ Parent ]
Sure, but raising taxes isn't going to reduce legal fees. More likely the opposite.
by Colman (colman at eurotrib.com) on Sun Jun 19th, 2011 at 07:06:58 AM EST
[ Parent ]
Also, they've said they're not going to cut welfare payments again, for whatever that commitment is worth.
by Colman (colman at eurotrib.com) on Sun Jun 19th, 2011 at 07:07:58 AM EST
[ Parent ]
... is a fine Hiberno-English phrase that means to make like you're ready for a fight, in lieu of actually getting stuck in.

The Fine Gael / Labour government have gotten exactly nothing from the ECB or the EU, despite campaigning on getting tough, so they are acting tough.  Nothing will come of it.

Fine Gael / Labour = continuity Fianna Fáil / Green Party.

Incidentally there are gatherings / demonstrations for Real Democracy Now in major towns in Ireland today, in solidarity with their Greek and Spanish counterparts.

I'd like to think this could be the start of something, but this is Ireland.

by Pope Epopt on Sun Jun 19th, 2011 at 07:00:29 AM EST
Real democracy now! in Ireland is small but growing.
by irishhead on Tue Jun 21st, 2011 at 01:19:31 AM EST
[ Parent ]
by irishhead on Tue Jun 21st, 2011 at 01:21:12 AM EST
[ Parent ]
Thanks for posting pictures, Irishhead. I can't see them because I don't think letting Mark Zukerberg control any political movement is a terribly good idea.

Do they exist anywhere outside Facebook's turf?  Perhaps here?

The Galway event was abysmal.  A few Socialist Workers Party usuals in contradiction to the request for no party banners, with the conseqent zero chance of involving those who are bored/repelled by that kind of organising. If there is a European wide social change, Ireland (and probably England) will be the last to take part. Sorry, very grumpy today.

by Pope Epopt on Tue Jun 21st, 2011 at 04:34:43 AM EST
[ Parent ]
by irishhead on Tue Jun 21st, 2011 at 01:18:29 AM EST
We are all hoping it is true.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 21st, 2011 at 05:21:44 PM EST
[ Parent ]


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