Why are left-wing parties opposed to the EU/IMF deal?

Soldie · 22-02-2011 10:14pm #1

Left-wing parties such as Sinn Féin and the United Left Alliance reject the EU/IMF bail out, and are also against any renegotiation of the terms of said bail out. Both parties wish to unilaterally terminate the deal, because they say that banking debt should not be sovereign debt. The particulars of the EU/IMF loan reveal that the majority of the €85 billion sum is to finance the budget, however, and not to recapitalise the banks. Both Sinn Féin and the United Left Alliance's economic policies ultimately depend on returning to the bond markets at some stage, and so it can be said that they can't be against the principle of borrowing money at interest. Ireland's last fateful venture into the bond markets saw the government raise €1.5 billion by selling 3 and 8 year bonds, with the latter being sold with an average yield of 6.02%, which is higher than the average interest rate in the EU/IMF deal. The bond auction was reported on by most major media outlets, but there wasn't a peep out of Sinn Féin, the People Before Profit Alliance, or the Socialist Party, the last two of which later formed the United Left Alliance. Indeed, the aforementioned groups have had little-to-nothing to say about any of the NTMA's previous auctions. To me this highlights an inconsistency in their position: They are both vehementally opposed to the borrowing of money at interest, and indifferent to it. The cynic in me says that their fierce opposition to the EU/IMF deal functions as a handy populist tool, and something they can easily vent their anger at.

Thoughts?

nesf · 22-02-2011 10:20pm

Large section of the population are unhappy with the deal. Easy vote getter to oppose it.

There may be ideological reasons too but the above is why it's the first words out of their mouths so often.

20Cent · 22-02-2011 10:50pm

Question is why is anyone for the IMF/ECB deal. It is clearly a recipe for disaster causing spiraling depression of the economy and inevitable default.

Lord TSC · 22-02-2011 11:07pm

nesf wrote: »

Large section of the population are unhappy with the deal. Easy vote getter to oppose it.

There may be ideological reasons too but the above is why it's the first words out of their mouths so often.

This seems to be the big one. A lot of people are not happy about having to deal with the reality of Ireland's dire economical situation and would prefer to pretend everything is still perfectly ok. Some parties are jumping on this by promising the world to voters if it means they will get voted in.

Monty Burnz · 22-02-2011 11:08pm

Populism.

Although I'd be disappointed if FG did not give it serious consideration. It's not a lunatic policy to be dismissed out of hand - it's an option that may be the least worst.

I don't know if the Irish people have any idea of what default would entail, or what their appetite for it would be like if they did. Read about what happened in Argentina - there, in the wake of the default, the rich got richer and the poor got poorer.

But it may still be our best/only option.

SkepticOne · 22-02-2011 11:13pm

Soldie wrote: »

The particulars of the EU/IMF loan reveal that the majority of the €85 billion sum is to finance the budget, however, and not to recapitalise the banks.

The recapitalisation is only made the minority by extending the figure to money Ireland had already raised prior to the deal. The bailout itself is only 67 billion.

Dozen Wicked Words · 22-02-2011 11:13pm

Ideology, fairly sure Socialist Parties have NEVER been keen on any part of Capitalism have they? They don't buy into the whole concept of bond markets and are against the notion of the IMF itself, so why is it a surprise they are against a bailout by the IMF?

Regarding what they had to say on the matter or otherwise, how much airtime did the Socialist Party get before the election was called (or even now) to put across their views?

SkepticOne · 22-02-2011 11:46pm

20Cent wrote: »

Question is why is anyone for the IMF/ECB deal. It is clearly a recipe for disaster causing spiraling depression of the economy and inevitable default.

But although it will lead to big problems in the future, it puts off immediate ones. I think for this reason people support the deal.

SkepticOne · 22-02-2011 11:53pm

In answer to the OP, I think the only explanation is the left-wing (along with the right-wing) oppose the deal because they think it is a poor deal. Ideological opposition to the deal is more of a right-wing thing than a left wing one. As far as populism goes as an explanation, I don't think the hard left have every been populist. Fianna Fail would be the main populist party in Ireland and they were the ones that agreed on the deal, which apparently is quite popular among voters.

Even without going into much detail on the deal itself, the fact that it was done by government on its last legs that had been lurching from crisis to crisis the prior two years and had failed to recognise problems in the years preceding that would suggest that what ever deal they make should be subjected to intense scrutiny with a view that improvements can be made.

Monty Burnz wrote: »

Although I'd be disappointed if FG did not give it serious consideration. It's not a lunatic policy to be dismissed out of hand - it's an option that may be the least worst.

Although it is highly unlikely imo that the current deal is the best (or least worst), I would agree that it should not be dismissed out of hand. Whatever good in it should be salvaged if at all possible. Some sort of deal, if not the current one, is probably necessary. The current deal may form the basis for a better one if the incoming government prove to be good negotiators.

View · 23-02-2011 12:15am

20Cent wrote: »

Question is why is anyone for the IMF/ECB deal. It is clearly a recipe for disaster causing spiraling depression of the economy and inevitable default.

Because the interest rate that "the markets" are willing to lend us at (>9%) is 50% higher than the interest rate that the IMF/EU are going to charge us (<6%).

Obviously, we are not obliged to borrow from either the markets or the IMF/EU but if we want to go that way then we have to be willing to face the cuts necessary to turn around our day-to-day expenditure problem (and just to stress at borrowings of 19 billion a year to fund it that would be a huge problem even if our banks were in wonderful financial health).

zig · 23-02-2011 12:17am

Soldie wrote: »

Left-wing parties such as Sinn Féin and the United Left Alliance reject the EU/IMF bail out, and are also against any renegotiation of the terms of said bail out. Both parties wish to unilaterally terminate the deal, because they say that banking debt should not be sovereign debt. The particulars of the EU/IMF loan reveal that the majority of the €85 billion sum is to finance the budget, however, and not to recapitalise the banks. Both Sinn Féin and the United Left Alliance's economic policies ultimately depend on returning to the bond markets at some stage, and so it can be said that they can't be against the principle of borrowing money at interest. Ireland's last fateful venture into the bond markets saw the government raise €1.5 billion by selling 3 and 8 year bonds, with the latter being sold with an average yield of 6.02%, which is a higher than the average interest rate in the EU/IMF deal. The bond auction was reported on by most major media outlets, but there wasn't a peep out of Sinn Féin, the People Before Profit Alliance, or the Socialist Party, the last two of which later formed the United Left Alliance. Indeed, the aforementioned groups have had little-to-nothing to say about any of the NTMA's previous auctions. To me this highlights an inconsistency in their position: They are both vehementally opposed to the borrowing of money at interest, and indifferent to it. The cynic in me says that their fierce opposition to the EU/IMF deal functions as a handy populist tool, and something they can easily vent their anger at.

Thoughts?

Firstly, you equate the bailout to being the same as raising bonds, this isnt true because raising bonds doesnt require strenuous conditions attached to it.

Secondly,while yes they are against the EU/IMF bailout, it is moreso the reasons why we have to get this bailout that annoys them.
Bond interests soared because they didnt trust Ireland could pay back its mounting debt. This is what caused the EU to move in. This debt isn't our deficit in the exchequer, its debt incurred by banks that got out of hand with the property bubble, this fear in the bond market began as it became clear that the guarantee was failing and the likes of Anglo were turning into black holes.

As for why it is the left? Yes it seems to be all left parties, but not only left parties, there are alot of independents that share the same viewpoint.
But I guess the reason is because the supposed left priority is the countries citizens in general, not the rich. And this bailout is a classic example of rich people getting all their money back after investing/gambling (whatever you want to call it), and the tax payer footing the bill. This is a fair reason why someone on the left would be against it.

What I dont like about the left agenda is that they wont acknowledge that serious cuts are needed, even with a solid job stimulus.

Scofflaw · 23-02-2011 12:29am

SkepticOne wrote: »

The recapitalisation is only made the minority by extending the figure to money Ireland had already raised prior to the deal. The bailout itself is only 67 billion.

What? How does a 35:50 bank:budget split of the €85bn come out as bank recap in the majority? Is 50 no longer a bigger number than 35? Someone should be told!

amused,
Scofflaw

Scofflaw · 23-02-2011 12:41am

zig wrote: »

Firstly, you equate the bailout to being the same as raising bonds, this isnt true because raising bonds doesnt require strenuous conditions attached to it.

Secondly,while yes they are against the EU/IMF bailout, it is moreso the reasons why we have to get this bailout that annoys them.
Bond interests soared because they didnt trust Ireland could pay back its mounting debt. This is what caused the EU to move in. This debt isn't our deficit in the exchequer, its debt incurred by banks that got out of hand with the property bubble, this fear in the bond market began as it became clear that the guarantee was failing and the likes of Anglo were turning into black holes.

To be fair, that actually happened only once the guarantee expired.

zig wrote: »

As for why it is the left? Yes it seems to be all left parties, but not only left parties, there are alot of independents that share the same viewpoint.
But I guess the reason is because the supposed left priority is the countries citizens in general, not the rich. And this bailout is a classic example of rich people getting all their money back after investing/gambling (whatever you want to call it), and the tax payer footing the bill. This is a fair reason why someone on the left would be against it.

The funny thing is, though, that the rich pay most of the taxes. Nor have I heard that people like the EAPN who are directly concerned with the lower-paid calling for rejection of the deal, although they're calling for the low paid to be protected in the deal. That suggests that populism is at work in the calls for outright rejection - it's an appeal to the fantasy that everything can be made all right by just taking a tough line, because then the rich bullies will back down in the face of people power.

What I dont like about the left agenda is that they wont acknowledge that serious cuts are needed, even with a solid job stimulus.

What bothers me about it is how one squares the circle of defaulting on the markets and borrowing on the markets - although the refusal to contemplate serious reductions of budget deficit obviously exacerbates that problem.

cordially,
Scofflaw

Soldie · 23-02-2011 12:44am

zig wrote: »

Firstly, you equate the bailout to being the same as raising bonds, this isnt true because raising bonds doesnt require strenuous conditions attached to it.

That's a fair point, but in order to sustain a situation in which the bonds can be depended on being paid back, the state needs fiscal integrity. So, either you make the cuts required, and stop hemorrhaging money, or you stick your fingers in your ears and let the IMF come in and do it for you.

Secondly,while yes they are against the EU/IMF bailout, it is moreso the reasons why we have to get this bailout that annoys them.
Bond interests soared because they didnt trust Ireland could pay back its mounting debt. This is what caused the EU to move in. This debt isn't our deficit in the exchequer, its debt incurred by banks that got out of hand with the property bubble, this fear in the bond market began as it became clear that the guarantee was failing and the likes of Anglo were turning into black holes.

This tells only half of the story. The state's public finances are in tatters, and now, 3 years into the crisis, we still have a gaping budget deficit of €20 billion. Fianna Fáil's reluctance to address the unsustainable fiscal situation with any real conviction is something that greatly worried bondholders. The left-wing parties that I mentioned in my original post also want to reverse the cuts and taxes imposed by Fianna Fáil in their last budget, which will increase the rate at which the government will deplete its funds. The irony here is that a rejection of the cuts leads both to an increased dependence on borrowed money, and a decreased likelihood in being able to pay the money back. The end result is the bond buyers saying "no more", and that is what happened last November. There's only so long that bond buyers will offer favourable interest rates when the government is making very little effort to address the enormous deficit.

As for why it is the left? Yes it seems to be all left parties, but not only left parties, there are alot of independents that share the same viewpoint.

Fine Gael and Labour wish to renegotiate the terms of the loan, which is a view shared by independents such as Paul Sommerville and Shane Ross. Sinn Féin and the United Left Alliance wish to unilaterally terminate the loan, which is a different thing entirely.

SkepticOne · 23-02-2011 12:54am

Scofflaw wrote: »

What? How does a 35:50 bank:budget split of the €85bn come out as bank recap in the majority? Is 50 no longer a bigger number than 35? Someone should be told!

You believe we've been lent 85 billion?

Permabear · 23-02-2011 1:19am

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Soldie · 23-02-2011 1:50pm

20Cent wrote: »

Question is why is anyone for the IMF/ECB deal. It is clearly a recipe for disaster causing spiraling depression of the economy and inevitable default.

Neither Fine Gael nor Labour are for the deal, as both of them wish to renegotiate it. Even Fianna Fáil are committed to restructuring the deal, as per their election manifesto.

SkepticOne wrote: »

The recapitalisation is only made the minority by extending the figure to money Ireland had already raised prior to the deal. The bailout itself is only 67 billion.

The €85 billion is to be drawn down in tranches, and it may be the case that not all of it is needed (it may also be the case that more is needed). €50 billion of it has been earmarked to finance the budget, as that is what the four-year plan has been based on, and another €10 billion was to go into the banks. The remaining €25 billion is on hold as a contingency for the banks. No matter what way you look at it, the majority of the proposed bail out is to finance the budget (€50 billion out of €85 billion is 58%, and €50 billion out of €67.5 billion is 74%). The controversy surrounding the overall figure is that much more may be needed for the banks.

Permabear · 23-02-2011 2:11pm

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Scofflaw · 23-02-2011 2:22pm

SkepticOne wrote: »

You believe we've been lent 85 billion?

Sigh - no, you know perfectly well that I don't. Soldie said:

The particulars of the EU/IMF loan reveal that the majority of the €85 billion sum is to finance the budget, however, and not to recapitalise the banks.

You said:

The recapitalisation is only made the minority by extending the figure to money Ireland had already raised prior to the deal. The bailout itself is only 67 billion.

The bailout loan facility is indeed only €67.5bn, but the money intended for immediate injection into the banks (which was estimated at €10bn) is from Irish sources - which would leave a maximum of €15bn in the bailout facility itself earmarked for the banks.

That's how it's possible for Lenihan to have intended a capital injection of €8bn even though we haven't drawn that money from the loan facility, and why there is currently some confusion over the balance in the NPRF now that he has delayed that injection.

cordially,
Scofflaw

Rabble Rabble · 23-02-2011 2:29pm

Soldie wrote: »

Neither Fine Gael nor Labour are for the deal, as both of them wish to renegotiate it. Even Fianna Fáil are committed to restructuring the deal, as per their election manifesto.

The €85 billion is to be drawn down in tranches, and it may be the case that not all of it is needed (it may also be the case that more is needed). €50 billion of it has been earmarked to finance the budget, as that is what the four-year plan has been based on, and another €10 billion was to go into the banks. The remaining €25 billion is on hold as a contingency for the banks. No matter what way you look at it, the majority of the proposed bail out is to finance the budget (€50 billion out of €85 billion is 58%, and €50 billion out of €67.5 billion is 74%). The controversy surrounding the overall figure is that much more may be needed for the banks.

It is however, the interest rates on the €50 billion which is the question, not the sum itself , about 5% of GDP per year. Those those interest rates are high because the markets are not sure about how much extra borrowing Ireland would need. Deficit reduction normally reduces interest rates. Had there been no bank bailout the interest rates charged on our loans would probably be about 100 basis points over the German ones. To come into a country and offer a bailout at just below the rate offered for the previous bond auction is not much of a deal, given the loss of sovereignty. Worse this offer came with money - to be repaid by the irish taxpayer - for bondholders whose very claim on the Irish taxpayer is spooking the market.

If the Irish government were to convince the sellers of Sovereign bonds that the banks were no more a burden on the Irish tax payer, then interest rates would fall.

Permabear · 23-02-2011 2:37pm

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Soldie · 23-02-2011 2:40pm

Rabble Rabble wrote: »

It is however, the interest rates on the €50 billion which is the question, not the sum itself , about 5% of GDP per year. Those those interest rates are high because the markets are not sure about how much extra borrowing Ireland would need. Deficit reduction normally reduces interest rates. Had there been no bank bailout the interest rates charged on our loans would probably be about 100 basis points over the German ones. To come into a country and offer a bailout at just below the rate offered for the previous bond auction is not much of a deal, given the loss of sovereignty. Worse this offer came with money - to be repaid by the irish taxpayer - for bondholders whose very claim on the Irish taxpayer is spooking the market.

Sinn Féin and the United Left Alliance have no interest in renegotiating the deal; they both wish to unilaterally terminate it. As I stated in my original post, neither of them had anything to say about the 6.02% average interest rate when the government last took to the bond market, which is higher than the rate of interest in the EU/IMF deal. If they took issue with the interest rate, as you say, then they would be arguing for a renegotiation of the deal, but they're not, they simply want to scrap it. It's an inconsistent position.

Scofflaw · 23-02-2011 2:41pm

Rabble Rabble wrote: »

It is however, the interest rates on the €50 billion which is the question, not the sum itself , about 5% of GDP per year. Those those interest rates are high because the markets are not sure about how much extra borrowing Ireland would need. Deficit reduction normally reduces interest rates. Had there been no bank bailout the interest rates charged on our loans would probably be about 100 basis points over the German ones. To come into a country and offer a bailout at just below the rate offered for the previous bond auction is not much of a deal, given the loss of sovereignty. Worse this offer came with money - to be repaid by the irish taxpayer - for bondholders whose very claim on the Irish taxpayer is spooking the market.

If the Irish government were to convince the sellers of Sovereign bonds that the banks were no more a burden on the Irish tax payer, then interest rates would fall.

Now if that could be done without upsetting the same markets by reneging on the bank debt, we might have a solution. Unfortunately, it seems unlikely that somebody will simply take the bank debts off our hands, so it seems the only way to get rid of bank debt quickly is to renege on it, thereby scaring the markets we're supposed to be impressing.

An alternative, of course, is to actually get the deficit under control and restructure the banks, since we would then be in a far better position to deal with remaining bank debt. As a bonus, this also doesn't frighten the markets, which makes it far likelier that we can stop tapping the bailout facility earlier.

cordially,
Scofflaw

OhNoYouDidn't · 23-02-2011 3:08pm

Scofflaw wrote: »

Now if that could be done without upsetting the same markets by reneging on the bank debt, we might have a solution. Unfortunately, it seems unlikely that somebody will simply take the bank debts off our hands, so it seems the only way to get rid of bank debt quickly is to renege on it, thereby scaring the markets we're supposed to be impressing.

An alternative, of course, is to actually get the deficit under control and restructure the banks, since we would then be in a far better position to deal with remaining bank debt. As a bonus, this also doesn't frighten the markets, which makes it far likelier that we can stop tapping the bailout facility earlier.

cordially,
Scofflaw

Maybe the left (and parts of the centre and right) simply see a bad deal and don't conceptually believe that public policy should be dictated by the 'markets', or in your case an incorrect assumption about how the market works.

Permabear · 23-02-2011 3:17pm

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phantom_lord · 23-02-2011 3:23pm

OhNoYouDidn't wrote: »

Maybe the left (and parts of the centre and right) simply see a bad deal and don't conceptually believe that public policy should be dictated by the 'markets', or in your case an incorrect assumption about how the market works.

Have the left come up with a new form of economics where money comes out of thin air or something?

Denerick · 23-02-2011 3:28pm

20Cent wrote: »

Question is why is anyone for the IMF/ECB deal. It is clearly a recipe for disaster causing spiraling depression of the economy and inevitable default.

Typical response really. Explain how Ireland is supposed to run the country without external aid. Explain how Ireland is supposed to borrow from the bond markets on a sustainable basis without foreign intervention. In short, stop living in fantasy land and be honest with yourself.

Denerick · 23-02-2011 3:29pm

OhNoYouDidn't wrote: »

Maybe the left (and parts of the centre and right) simply see a bad deal and don't conceptually believe that public policy should be dictated by the 'markets', or in your case an incorrect assumption about how the market works.

There is nothing worse than pious protestation.

After you've stopped banging a drum and saying how angry you are, could you please stop for a moment and THINK. Please offer a reasonable solution to our problem that doesn't involve a socialism-in-one-country scenario.

20Cent · 23-02-2011 3:32pm

Denerick wrote: »

Typical response really. Explain how Ireland is supposed to run the country without external aid. Explain how Ireland is supposed to borrow from the bond markets on a sustainable basis without foreign intervention. In short, stop living in fantasy land and be honest with yourself.

Where did I say anything about no external borrowing?

The deal as it stands is unsustainable. It will result in an unstructured default of all debt including sovereign. This is acknowledged by the left and right, even the IMF had said so much. The markets know this also hence the bond price.

Denerick · 23-02-2011 3:36pm

20Cent wrote: »

Where did I say anything about no external borrowing?

The deal as it stands is unsustainable. It will result in an unstructured default of all debt including sovereign. This is acknowledged by the left and right, even the IMF had said so much. The markets know this also hence the bond price.

Where is the money going to come from then? We are borrowing it at much cheaper rates than we would be on the markets.

20Cent · 23-02-2011 3:40pm

Denerick wrote: »

Where is the money going to come from then? We are borrowing it at much cheaper rates than we would be on the markets.

Seems we have our wires crossed. You are posting as if the options are deal or no deal. I was referring to renegotiating/changing it, not dismissing it out of hand.

Why are left-wing parties opposed to the EU/IMF deal?

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