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Beggars can't be choosers | 27 comments (27 topical, editorial, 0 hidden)
Re: Beggars can't be choosers (none / 1)
European Tribune - Beggars can't be choosers
However the ECB could turn off the liquidity taps to the Irish Banks at any time thus effectively bankrupting them whatever the Irish Government might do.

Can it? How would it work?

If yes, could not the Irish government issue scrip in such a situation?

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by A swedish kind of death on Sat Nov 20th, 2010 at 07:18:24 PM EST
Re: Beggars can't be choosers (none / 1)
In that case the Irish banks would be insolvent and would have to be intervened by their regulator or national deposit insurance scheme. The assumption would be that the Irish government doesn't have enought cash even for a "Good Bank" resolution of its banks.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Carrie (migeru at eurotrib dot com) on Sat Nov 20th, 2010 at 07:34:19 PM EST
[ Parent ]
Re: Beggars can't be choosers (none / 1)
But that is ridiculous. Surely they have enough liquid assets to cover all domestic depositors?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 20th, 2010 at 08:27:48 PM EST
[ Parent ]
Re: Beggars can't be choosers (none / 0)
They have 20 Billion cash in hand but will have to borrow again mid next year as loans mature.  Presumably they think borrowing will be impossible if they allow the banks to default.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Nov 21st, 2010 at 02:11:44 AM EST
[ Parent ]
So what? (n/t) (none / 0)


Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 21st, 2010 at 03:12:55 AM EST
[ Parent ]
Re: So what? (n/t) (none / 0)
Given the current budget deficit is ecpected to be c. 12% of GNP next year, not being able to borrow would mean a severe deflationary shock to the system - either by dramatic tax increases or expenditure reductions or both.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Nov 21st, 2010 at 12:38:27 PM EST
[ Parent ]
Re: So what? (n/t) (none / 1)
Ireland has a positive balance of trade, so it does not need to roll over its debt. So nothing prevents Ireland from presenting its current bondholders with an ultimatum: Either you buy every single bond we issue, at the price we decide, or you get not one penny back.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 21st, 2010 at 01:34:20 PM EST
[ Parent ]
Re: So what? (n/t) (none / 0)
I don't know how much of Ireland debt matures in the next 12 months, but it may be more than the balance of trade surplus. Also I don't know how directly a balance of trade surplus translates into Government cash flow to pay off maturing debt.  

So unless you are advocating defaulting on currently maturing Government debt - much of which probably predates the banking crisis and was thus lent in good faith to a Government with a c. 25% debt/GDP ratio - this is debt which should be repaid.

The people who lent to Ireland in the last 10 years are propably quite different to those who bought bank bonds, and so you would be making one set of (arguably responsible low risk creditors) responsible for the sins of those who invested in the dodgy banks.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Nov 21st, 2010 at 02:41:20 PM EST
[ Parent ]
Re: So what? (n/t) (none / 1)
I don't know how much of Ireland debt matures in the next 12 months, but it may be more than the balance of trade surplus. Also I don't know how directly a balance of trade surplus translates into Government cash flow to pay off maturing debt.

Doesn't really matter, as long as the Irish government is able to tell the largest single creditor to fuck off. Its creditors are unlikely to form a coherent block if it starts taking them down one by one.

So unless you are advocating defaulting on currently maturing Government debt - much of which probably predates the banking crisis and was thus lent in good faith to a Government with a c. 25% debt/GDP ratio - this is debt which should be repaid.

And it will be... if they keep rolling it over until the bad bank debt has been resolved. The alternative is to simply default on all Irish sovereign debt and set up a shadow central bank to fund the deficit. That would be far worse for these creditors.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 21st, 2010 at 02:58:21 PM EST
[ Parent ]
Re: So what? (n/t) (none / 0)
JakeS:
And it will be... if they keep rolling it over until the bad bank debt has been resolved. The alternative is to simply default on all Irish sovereign debt and set up a shadow central bank to fund the deficit. That would be far worse for these creditors.

So how is this different from the ECB/IMF bail-out fund - which enables Ireland to access capital at cheaper rates until such time as it can fund its own borrowing on sovereign debt markets again?

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Nov 21st, 2010 at 03:22:44 PM EST
[ Parent ]
Re: So what? (n/t) (none / 0)
Fewer sticky strings.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 21st, 2010 at 03:44:41 PM EST
[ Parent ]
Re: So what? (n/t) (none / 1)
We don't yet know what the strings will be. So far the Irish Government has been making all the running in tying itself up in knots all by itself with no need for help from anyone else - as in the 15 Billion cuts in public expenditure programme it is about to announce and which pre-dates ECB/IMF involvement (if not consultation).  

The IMF may turn out to be a convenient bogeyman to frighten the public sector unions, but the sense I have is that the Irish Govt. has been leading the charge to rein in public expenditure, and particularly public administration costs as well as the value of income transfer and resource entitlement programmes.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Nov 21st, 2010 at 04:35:51 PM EST
[ Parent ]
Re: So what? (n/t) (none / 1)
Jake

as long as the Irish government is able to tell the largest single creditor to fuck off. Its creditors are unlikely to form a coherent block if it starts taking them down one by one.

i can't evaluate your strategic path, but this tactical path seems highly hypothetical, if not unworkable.

Doesn't this all come back to which interest group is best recognized by the ECB/Irish sklaven, and there's no voice for what might be termed a sensible course of action?

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

by Crazy Horse on Sun Nov 21st, 2010 at 03:24:39 PM EST
[ Parent ]
Re: So what? (n/t) (none / 1)
Doesn't this all come back to which interest group is best recognized by the ECB/Irish sklaven, and there's no voice for what might be termed a sensible course of action?

The ECB is largely irrelevant to the Irish situation - if Ireland wants to implement a solution that would work, then the ECB does not have enough divisions to stop it from doing so.

It is true that the Irish political class isn't going to do this, but that does not mean that it cannot be done.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 21st, 2010 at 04:06:21 PM EST
[ Parent ]
Re: Beggars can't be choosers (4.00 / 2)
After all we've seen in the last 3 years, I wouldn't bet my life savings on that surely...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Carrie (migeru at eurotrib dot com) on Mon Nov 22nd, 2010 at 05:55:43 AM EST
[ Parent ]

Beggars can't be choosers | 27 comments (27 topical, 0 editorial, 0 hidden)
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