Possible IMF second Bailout if we say no to EU Fiscal Treaty?

Slydice · 05-03-2012 10:12pm #1

So, I just wondered to myself about the EU Fiscal Treaty.

In recent days, I've read articles suggesting differences between the IMF and EU sides in reviewing our bailout. Specifically, I think I read that the IMF has previously said we should burn some bondholders and in recent times that we should get a reduction in our promissory notes.

From what I gather, the IMF seem to be all about getting Ireland back in business whereas the EU/ECB seem to be all about saving the Eurozone.

So, if the IMF is all about getting us back into business, then would they give us a bailout all by themselves? I mean, we're a pretty small country and if the IMF can help bailout Ireland, Iceland, Greece, Hungary, Ukraine and Portugal all in the last 5 years, then surely they have the capacity to help Ireland all by themselves.

If the EU/ECB are all about saving the euro and if there's no formal way (from what I gather) to kick us out of the euro, then wouldn't they try to help by giving money to the IMF to help us out?

Anyway, anyone have the expertise to evaluate this idea?

the groutch · 05-03-2012 10:29pm

there definitely is a good cop - bad cop dynamic creeping into the situation

Godge · 05-03-2012 10:32pm

Slydice wrote: »

So, I just wondered to myself about the EU Fiscal Treaty.

In recent days, I've read articles suggesting differences between the IMF and EU sides in reviewing our bailout. Specifically, I think I read that the IMF has previously said we should burn some bondholders and in recent times that we should get a reduction in our promissory notes.

From what I gather, the IMF seem to be all about getting Ireland back in business whereas the EU/ECB seem to be all about saving the Eurozone.

So, if the IMF is all about getting us back into business, then would they give us a bailout all by themselves? I mean, we're a pretty small country and if the IMF can help bailout Ireland, Iceland, Greece, Hungary, Ukraine and Portugal all in the last 5 years, then surely they have the capacity to help Ireland all by themselves.

If the EU/ECB are all about saving the euro and if there's no formal way (from what I gather) to kick us out of the euro, then wouldn't they try to help by giving money to the IMF to help us out?

Anyway, anyone have the expertise to evaluate this idea?

Our European partners would like us to ratify the Treaty. We decide to throw that back in their faces and you think that they will conspire with the IMF to help us out.

I have no doubt that if we reject the Treaty, we will be left hanging by the IMF/EU for a year and told to deal with our problems ourselves.

Social Welfare cuts by 20%, public pay by 10%, increased taxes, riots, strikes, no schools, no colleges, only emergencies in hospitals, etc.

hmmm · 05-03-2012 10:37pm

There's been a thread on this just over the past week.

The IMF are unlikely to want or have all the money necessary to lend to Ireland to both fill our deficit and keep our banking system alive.

The IMF is funded by many countries who are a lot poorer than Ireland, who are sick of seeing their money being handed over to rich countries like ourselves.

The IMF have taken a back seat in designing the recovery programs, if it was a 100% IMF deal they wouldn't be taking any prisoners.

later12 · 05-03-2012 10:39pm

It would put the IMF in a tricky position, since its clear and well established preference is to tackle the Euro debt crisis in concert with the European troika.

However yes of course, an IMF bailout is perfectly within the realms of possibility, just like how Hungary was rescued in 2008, for example. Also possible are bilateral loans, constituted by member states acting individually or together outside of the framework of the ESM.

I find it pretty incredible that there is a suggestion that a member state in a monetary union and an economic quasi-union would be completely ignored in the event of a crisis event impeding its ability to access funding. That would have serious consequences for financial stability within the EA.

If it didn't, there would have been no such entity as the ESM in the first place. Ireland wasn't bailed out last time 'round for the gas of it.

Godge · 05-03-2012 11:21pm

later12 wrote: »

It would put the IMF in a tricky position, since its clear and well established preference is to tackle the Euro debt crisis in concert with the European troika.

However yes of course, an IMF bailout is perfectly within the realms of possibility, just like how Hungary was rescued in 2008, for example. Also possible are bilateral loans, constituted by member states acting individually or together outside of the framework of the ESM.

I find it pretty incredible that there is a suggestion that a member state in a monetary union and an economic quasi-union would be completely ignored in the event of a crisis event impeding its ability to access funding. That would have serious consequences for financial stability within the EA.

If it didn't, there would have been no such entity as the ESM in the first place. Ireland wasn't bailed out last time 'round for the gas of it.

We wouldn't be completely ignored. We would be told there is a treaty over there to ratify. Once you ratify it you can have a deal. Otherwise borrow on the markets.

So we would have a second vote and vote yes by over 80%. Then we would get our money but in the meantime serious damage will have been done to the country's reputation in business and the IDA's job will have got even more impossible.

The only way it makes sense to vote no is if we believe that we could never need another bailout. Funnily enough, for that to happen, to satisfy the markets we would probably have to show we are improving faster than if under the Treaty conditions.

Vote yes for austerity, vote no for twice as much austerity.

later12 · 05-03-2012 11:51pm

Godge wrote: »

We wouldn't be completely ignored. We would be told there is a treaty over there to ratify.

That's speculation. Personally I would speculate that it wouldn't come to that.

A No vote has no material impact upon the Treaty or its role elsewhere in Europe, therefore I don't believe that Europeans are so concerned (or so game) as to overtly resort to blackmailing the Irish into passing it when European financial stability would be at stake.

Europe concerning itself with a campaign for a far-off 0.5% deficit target when there is a potentially emerging threat to the Euro is a suggestion that suffers from a serious lack of credibility.

To even entertain that idea, a referendum campaign following on from an adverse economic event would lead to a new wave of a banking crisis in Ireland, potentially threatening contagion and a sovereign or currency spillover.

vote no for twice as much austerity.

Now you're really tempting me. But I suspect you're wrong.

later12 · 06-03-2012 12:09am

Godge wrote: »

The only way it makes sense to vote no is if we believe that we could never need another bailout. Funnily enough, for that to happen, to satisfy the markets we would probably have to show we are improving faster than if under the Treaty conditions.

I had meant to reply to this point as well.

Explain that, can you?

Where was it ever suggested that regaining consistent and ongoing market access requires improving upon a 0.5% structural deficit?

Godge · 06-03-2012 12:11am

later12 wrote: »

That's speculation. Personally I would speculate that it wouldn't come to that.

A No vote has no material impact upon the Treaty or its role elsewhere in Europe, therefore I don't believe that Europeans are so concerned (or so game) as to overtly resort to blackmailing the Irish into passing it when European financial stability would be at stake.

Europe concerning itself with a campaign for a far-off 0.5% deficit target when there is a potentially emerging threat to the Euro is a suggestion that suffers from a serious lack of credibility.

To even entertain that idea, a referendum campaign following on from an adverse economic event would lead to a new wave of a banking crisis in Ireland, potentially threatening contagion and a sovereign or currency spillover.
Now you're really tempting me. But I suspect you're wrong.

Keep dreaming.

Europe has completed an arrangement to bring long-term financial stability.
Ireland has stayed outside.
Ireland subsequently has a problem and needs a bailout.

(1) Is Ireland let off nicely or
(2) Is Ireland made an example of, to show the markets and other potential miscreants (the other PIIGS) that following the Treaty works but being outside is calamitous.

You are betting on (1), I am betting on (2).

washman3 · 06-03-2012 12:12am

But did our 3 failed national school teachers not tell us last month that there would be absolutely no need whatsoever for a second bailout???
when they ridiculed those in the know who suggested we would.!!:D:D:D

Godge · 06-03-2012 12:14am

later12 wrote: »

I had meant to reply to this point as well.

Explain that, can you?

Where was it ever suggested that regaining consistent and ongoing market access requires improving upon a 0.5% structural deficit?

Because we don't have the parachute or net below the tightrope which being in the Treaty with our partners in the Euro gives us.

Remember when we had our own currency and we had to have higher interest rates than other countries in order to maintain currency parity with them? That was the price of having our own punt in a small independent country.

The price of our fiscal independence will be to show that we don't need the Treaty because we are so well-behaved. We will be imprisoned by our need for freedom.

Godge · 06-03-2012 12:17am

washman3 wrote: »

But did our 3 failed national school teachers not tell us last month that there would be absolutely no need whatsoever for a second bailout???
when they ridiculed those in the know who suggested we would.!!:D:D:D

It is not quite as simple as that. There are potential advantages of a bailout.

How about this scenario? We return to the markets and borrow some money. Then we will see that the rates available from a bailout are lower than the market rates and we will seek/get a second bailout. At that stage we will be nearly out of the mess.

There is another posssible advantage of a second bailout. It postpones by a few years the day we have to reach the 60% rule and the 0.5% rule.

later12 · 06-03-2012 12:20am

Godge wrote: »

Keep dreaming.

Europe has completed an arrangement to bring long-term financial stability.

Oh has it? I haven't heard that. How will it achieve long term stability?

...Ireland made an example of, to show the markets and other potential miscreants (the other PIIGS) that following the Treaty works but being outside is calamitous.

You seem to think all of this exists in a vacuum, with no potential for spillover effects like an Irish banking crisis and contagional effects.

Godge wrote: »

The price of our fiscal independence will be to show that we don't need the Treaty because we are so well-behaved. We will be imprisoned by our need for freedom.

You're waffling. There is absolutely no basis for suggesting that Ireland must reach a deficit metric that outperforms the Treaty in order to secure market access. None in principle, and none in practice. At all.

washman3 · 06-03-2012 12:41am

Godge wrote: »

It is not quite as simple as that. There are potential advantages of a bailout.

How about this scenario? We return to the markets and borrow some money. Then we will see that the rates available from a bailout are lower than the market rates and we will seek/get a second bailout. At that stage we will be nearly out of the mess.

There is another posssible advantage of a second bailout. It postpones by a few years the day we have to reach the 60% rule and the 0.5% rule.

but my question was: were we not assured last month by our government that we would not require a second bailout and would return to the markets in late 2012 or early 2013.
now,these same people are telling us that we must vote yes,otherwise we cannot go looking for a second bailout if and when required.
are they making this up as they go along??
Clueless in the extreme.:mad:

Taxi Drivers · 06-03-2012 12:45am

Slydice wrote: »

Possible IMF second Bailout if we say no to EU Fiscal Treaty?

I'm not it's an issue. The problem with the EU will arise if we try to enter a new programme after the 1st of March 2013. We are in an existing programme and have been promised funds for as long as we are out of the markets.

http://economic-incentives.blogspot.com/2012/02/no-more-money.html

We are determined to continue to provide support to countries under programmes until they have regained market access, provided they successfully implement those programmes. We welcome Ireland and Portugal's resolve to strictly implement their programmes and reiterate our strong commitment to the success of these programmes.

Hootanany · 06-03-2012 12:50am

Godge wrote: »

Our European partners would like us to ratify the Treaty. We decide to throw that back in their faces and you think that they will conspire with the IMF to help us out.

I have no doubt that if we reject the Treaty, we will be left hanging by the IMF/EU for a year and told to deal with our problems ourselves.

Social Welfare cuts by 20%, public pay by 10%, increased taxes, riots, strikes, no schools, no colleges, only emergencies in hospitals, etc.

Why not 30 perecent across the bOard

later12 · 06-03-2012 12:58am

Taxi Drivers wrote: »

I'm not it's an issue. The problem with the EU will arise if we try to enter a new programme after the 1st of March 2013. We are in an existing programme and have been promised funds for as long as we are out of the markets.

http://economic-incentives.blogspot.com/2012/02/no-more-money.html

But the ESM Treaty is a Treaty, and it establishes that funding is conditional.

The other statement is merely a collective statement made for the purposes of a press conference. Obviously it does not enjoy precedence over a European Treaty.

Skopzz · 07-03-2012 1:07pm

Time for people to stand up by voting no and force the government to stop socializing private debt. Let broke business go broke. Make them stand and deliver. Making all the taxpayers foot the bill is even worse long term. We can burn this private debt of Anglo.

footy231 · 19-04-2012 7:07pm

dont be scared into thinking we are doomed by saying no we are not, we cant just be left on the wayside we are part of the euro currency we will affect the rest if we didnt after all we need the loans to pay back our loans to the germans etc. so dont be scared vote no, this government needs to listen to its people, they just want yes to keep their gravy train rolling, cause when the financial system ponzi scheme gets worse or collapses (and it will) they can run off with their huge pensions, us "peasents" will be hit hardest. not the political elite or the gambling bankers. just remember that we are in this because of them both yet they still come out on top, all the hardship is for them.WAKE UP PEOPLE

Scofflaw · 20-04-2012 10:27am

The IMF will not lend further to Ireland - we are already borrowing over twice the IMF's normal quota maximum. They will very definitely not lend in the absence of European participation.

In the absence of ESM access we won't be simply left without recourse, though - some kind of bailout facility would be arranged. Unfortunately, though, it's impossible for such a bailout fund to be on better terms than the ESM, for obvious reasons, and between the reluctance/annoyance at having to stump up yet more money over and above their ESM commitments and the need to draw a clear line, we would have to expect far more draconian terms.

A point worth repeating about the IMF is that they're not our "friends", or even a good cop. Their interest in Ireland is short term. As long as we exit their programme successfully and at the agreed time then the IMF have a success to celebrate - the long-term effects of actions undertaken to reduce Irish debt in the short term are not as important to them as they are to us.

cordially,
Scofflaw

Slydice · 29-04-2012 2:22pm

Looks like they've started a discussion on this idea on irisheconomy.ie:
http://www.irisheconomy.ie/index.php/2012/04/29/reminder-imf-loans-more-expensive-than-eu-loans/

The Sunday Times reports that the IMF could be an alternative source of funding in the event of a No vote.

One point to keep in mind in this debate is that the IMF charges a penalty premium of 200/300 basis points on large loans, whereas the premium has been dropped from EU loans, as decided at the July 2011 summit.

Colm McCarthy has contributed:

colm mccarthy Says:
April 29th, 2012 at 11:24 am

Aside from the interest cost, there is the little matter of whether the Fund would lend at all, outside a renewed troika deal. This from March 22nd. last:

http://www.piie.com/blogs/?tag=ireland

ardmacha · 29-04-2012 2:29pm

2007 "don't be listening to the prophets of doom, there will be a soft landing"
2012 "dont be scared into thinking we are doomed by saying no we are not"

Hope springs external!

Icepick · 29-04-2012 3:39pm

Skopzz wrote: »

Time for people to stand up by voting no and force the government to stop socializing private debt.

Does that include people unable to pay their mortgages and other debt?

femur61 · 29-04-2012 4:25pm

Are we damned if we do and damned if we don't Stephen Donnelly said he will be voting yes, its lesser of two evils. We have to get our house in order and not be living way beyond our means!

steve9859 · 29-04-2012 5:43pm

Godge wrote: »

I have no doubt that if we reject the Treaty, we will be left hanging by the IMF/EU for a year and told to deal with our problems ourselves.

Social Welfare cuts by 20%, public pay by 10%, increased taxes, riots, strikes, no schools, no colleges, only emergencies in hospitals, etc.

Typical scaremongering from the yes side. That will not happen. I work in the City and have spoken to quite senior level European sovereign analysts / investors at a number of the big banks, and not a single one of them believes that a no vote will result in a 2nd bailout being withheld and Ireland being hung out to dry by the EU / IMF.

Good loser · 29-04-2012 8:08pm

steve9859 wrote: »

Typical scaremongering from the yes side. That will not happen. I work in the City and have spoken to quite senior level European sovereign analysts / investors at a number of the big banks, and not a single one of them believes that a no vote will result in a 2nd bailout being withheld and Ireland being hung out to dry by the EU / IMF.

You and others appear to believe this clause of the treaty will not be implemented.

Why not take the same relaxed attitude to all the other clauses?

In which case everybody might as well vote yes.

Fully Established · 29-04-2012 9:17pm

One thing about these Treatys , if it is rejected it will be put again to the public until it is ratified , Nice and Lisbon come to my mind.

femur61 · 29-04-2012 9:50pm

http://www.rte.ie/news/2012/0429/no-access-to-imf-funds-if-treaty-fails-ministers.html?utm_source=twitterfeed&utm_medium=twitter

Apparatnly IMF says remarks were misinterpreted IN THE aticle in the Sunday Times.

Icepick · 29-04-2012 11:44pm

Fully Established wrote: »

One thing about these Treatys , if it is rejected it will be put again to the public until it is ratified , Nice and Lisbon come to my mind.

It doesn't have to be ratified by Ireland.

Godge · 29-04-2012 11:47pm

steve9859 wrote: »

Typical scaremongering from the yes side. That will not happen. I work in the City and have spoken to quite senior level European sovereign analysts / investors at a number of the big banks, and not a single one of them believes that a no vote will result in a 2nd bailout being withheld and Ireland being hung out to dry by the EU / IMF.

Well, maybe you are right. Two options then if we vote no

(1) No bailout, left to hang for a year to sort our own problems, draconian cuts (this was my suggestion)
(2) IMF provide second bailout - EU won't because of no vote. That means IMF will impose their usual solution, probably mean cut social welfare by 30%, cut public service pay by 20%, funny thing is a lot of those likely to be affected are voting no!!

Bottom line, yes means more austerity, no means even more austerity beyond that demanded by a yes vote.

Scofflaw · 30-04-2012 1:14am

Godge wrote: »

Well, maybe you are right. Two options then if we vote no

(1) No bailout, left to hang for a year to sort our own problems, draconian cuts (this was my suggestion)
(2) IMF provide second bailout - EU won't because of no vote. That means IMF will impose their usual solution, probably mean cut social welfare by 30%, cut public service pay by 20%, funny thing is a lot of those likely to be affected are voting no!!

Bottom line, yes means more austerity, no means even more austerity beyond that demanded by a yes vote.

Karl Whelan on the IMF option:

At this point, it appears that some of the No campaigners have forgotten what they’re really campaigning against. What most of the No campaigners are protesting against is fiscal austerity. However, ruling out access to the ESM and relying on whatever the IMF will be willing to provide to Ireland is a recipe for a far harsher near-term austerity than would occur with access to European funds.

http://karlwhelan.com/blog/?p=386

Possible IMF second Bailout if we say no to EU Fiscal Treaty?

Comments