What happens if we refuse to pay?

hobochris

I Know there are many here who would be a lot more enlightened on the subject of international economics then myself.I have a simple question, I hope someone can provide an answer to:

What happens if we refuse to pay and cease to service our debts to bondholders,foreign banks etc.. from here forward? and also refused IMF/EU assistance?

beeno67

hobochris wrote: »

I Know there are many here who would be a lot more enlightened on the subject of international economics then myself.I have a simple question, I hope someone can provide an answer to:

What happens if we refuse to pay and cease to service our debts to bondholders,foreign banks etc.. from here forward? and also refused IMF/EU assistance?

Then we will need to cut spending immediately by about 15 billion euro.

gmale

Iceland have refused to payback their debts, took a referendum to make that decision. Is anybody lending money to them?

hobochris

Why do we want to borrow any more money?

Why not refuse to service debt, and work on making our own economy work without need for outside credit?

beeno67

hobochris wrote: »

Why do we want to borrow any more money?

Why not refuse to service debt, and work on making our own economy work without need for outside credit?

Because we would need to cut 15 billion immediately, as I already said. Unless we borrow the money we do not have money to pay public sector, pensions, dole etc.

hobochris

beeno67 wrote: »

Because we would need to cut 15 billion immediately, as I already said. Unless we borrow the money we do not have money to pay public sector, pensions, dole etc.

The 15 Billion needs to be and will be cut one way or another, as far as I'm concerned that's a given that we should get it over and done with asap.

A plaster hurts a lot less when you rip it off quickly, granted their is an initial shock.

digme

hobochris wrote: »

The 15 Billion needs to be and will be cut one way or another, as far as I'm concerned that's a given that we should get it over and done with asap.

A plaster hurts a lot less when you rip it off quickly, granted their is an initial shock.

Atleast the plaster is on your own body.

The_Honeybadger

gmale wrote: »

Iceland have refused to payback their debts, took a referendum to make that decision. Is anybody lending money to them?

They took a referendum on socialising their banking sectors bad debts, not their sovereign debt, which is a different thing. They did the equivelent of us telling our banks that their problems are not the taxpayers problems. If we stopped paying back our national debt then I would assume we would upset alot of people, our membership of the EU would come under question, we would almost certainly be trown out of the Euro currency arrangement, and we could forget about getting finance to pay our public servants and the dole.

sarumite

hobochris wrote: »

The 15 Billion needs to be and will be cut one way or another, as far as I'm concerned that's a given that we should get it over and done with asap.

A plaster hurts a lot less when you rip it off quickly, granted their is an initial shock.

Although you don't want to take all the money out of the economy at once. People still need to spend money to get the economy moving again.

Cavehill Red

mickeyk wrote: »

They took a referendum on socialising their banking sectors bad debts, not their sovereign debt, which is a different thing. They did the equivelent of us telling our banks that their problems are not the taxpayers problems. If we stopped paying back our national debt then I would assume we would upset alot of people, our membership of the EU would come under question, we would almost certainly be trown out of the Euro currency arrangement, and we could forget about getting finance to pay our public servants and the dole.

The markets quickly forget, especially after a regime change. That's what happened repeatedly in South America and Asia in recent times when countries defaulted.

I entirely agree with your analysis otherwise, as to the ramifications of simply refusing to pay the debt. But the Iceland option is a valid one.

You don't hear that gag about Iceland and Ireland anymore, do you? Because they've already begun a painful recovery while we're still digging the hole a lot deeper.

I think a reneging of the non-depositor bank debts would be better received if it came alongside a change of government and was the expressed will of the people.

That's why I'd like to see Labour and Fine Gael proposing to have an immediate referendum on this.

dan_d

Quite simply?

Nobody would do business with us anymore.

And we are a country that relies very, very heavily on foreign money, in many forms. It doesn't matter what Iceland or Argentina or whoever did. If we want to continue to be a country that does business and not one whose entire speciality is known to be exporting people to do other country's business....we cannot do this. It's not a case of keeping the EU happy, it's a case of trying to stay open for business.

If you loaned 2000eur to a friend who told you they'd definitely pay you back the next week when they got paid and they came back to you 4 months later and said "actually, sorry, I should have told you I won't be able to pay you back, I don't have the money....but will you lend me another 2000eur?" would you do it?

I strongly doubt it. In fact I strongly doubt you'd lend them another penny ever again, and furthermore, you'd tell everyone you knew not to lend them money because they won't get it back.

And I personally do not understand why there are so many people out there who seem to think this is an option.

Cavehill Red

Spain has defaulted on sovereign debt 13 times. People are still lending money to Spain.
Uruguay and Turkey have defaulted 6 times in the past century each. People are still lending money to both.
As I said earlier, the markets have short memories, especially in the context of a change of regime.

knipex

beeno67 wrote: »

Then we will need to cut spending immediately by about 15 billion euro.

Actualy no. its 15 Billion if we achieve growth and continue it to 2014. Out deficit as it stands is a little over 19 billion say 20 billion dead.

hobochris wrote: »

Why do we want to borrow any more money?

Why not refuse to service debt, and work on making our own economy work without need for outside credit?

You have seen the panic over 6 billion in cuts and tax increases imagine what would happen if that had to be 20 billion ?

We would have to cut spending and increase taxes by 20 billion overnight.

It would mean cutting social welfare, mass redundancies and pay cuts, cuts to pensions, closing hospitals and schools and massive tax increases.

Plus absolutely no infrastructure spending.

hobochris

knipex wrote: »

Actualy no. its 15 Billion if we achieve growth and continue it to 2014. Out deficit as it stands is a little over 19 billion say 20 billion dead.




You have seen the panic over 6 billion in cuts and tax increases imagine what would happen if that had to be 20 billion ?

We would have to cut spending and increase taxes by 20 billion overnight.

It would mean cutting social welfare, mass redundancies and pay cuts, cuts to pensions, closing hospitals and schools and massive tax increases.

Plus absolutely no infrastructure spending.

Granted it seems grim, But the bright side of this situation is its a chance to get our house in order, is it not?

maninasia

mickeyk wrote: »

They took a referendum on socialising their banking sectors bad debts, not their sovereign debt, which is a different thing. They did the equivelent of us telling our banks that their problems are not the taxpayers problems. If we stopped paying back our national debt then I would assume we would upset alot of people, our membership of the EU would come under question, we would almost certainly be trown out of the Euro currency arrangement, and we could forget about getting finance to pay our public servants and the dole.

Aha but the main reason the national debt will be so crippling is that is going to include all the Irish bank debts

http://www.youtube.com/watch?v=7ef15CG_9hA

So it we worked out a deal like Iceland for the banks it should be better for Ireland, the problem is the government doesn't have any balls to face up to a funding crisis right now which would mean public sector would have big lay-offs and afraid them and their mates will face massive losses in the property sector. It would be better to tell the bondholders to take the pain, we take our pain and get it all over with quicker and the overall pain would be less for the general taxpayer.

Lumping the bank debts into NAMA and a bank guarantee and therefore becoming part of the national debt was a huge mistake, it's going to bankrupt us as we just can't handle the increasing amount of debt (AIB could be another 30-50 billion added in ) and borrow money at the same time to run the country.

People would do business with us, we still have a good industrial and service sector in Ireland, good institutions, good education, membership of EU and Euro...these companies will keep on operating pretty much as usual as they trade in Euros which won't be affected....things would be tough for a while but once they saw we are in a good situation and growing again it will be forgotten quickly enough. Many economic success stories in Asia defaulted or semi-defaulted in 1997..they bounced back very quickly.

knipex

hobochris wrote: »

Granted it seems grim, But the bright side of this situation is its a chance to get our house in order, is it not?

We may be too busy dealing with the riots.. and food shortages....

BeeDI

knipex wrote: »

We may be too busy dealing with the riots.. and food shortages....

Exactly ......... not to mention fuel shortages ......... without which we could not produce most of our own food, and if we could, we could not get it to the cities ............ :mad::mad:

Face it folks, we HAVE to pay our debts, if we we want our kids to have 3 square meals a day.

Cavehill Red

maninasia wrote: »

Lumping the bank debts into NAMA and a bank guarantee and therefore becoming part of the national debt was a huge mistake, it's going to bankrupt us as we just can't handle the increasing amount of debt (AIB could be another 30-50 billion added in ) and borrow money at the same time to run the country.

This is our problem in a nutshell.
Bank debts were nationalised in what effectively amounts to an act of national treachery.
We need to go the Iceland route and renege on these debts, which are not the responsibility of the state of people of Ireland but the responsibility of the banks and their bondholders.

Cavehill Red

BeeDI wrote: »

Face it folks, we HAVE to pay our debts, if we we want our kids to have 3 square meals a day.

But why should the bank debts be our debts? We didn't rack them up, so why are we being crippled to pay them off?

Tradnuts

Iceland refused to pay, and the UN Human Development Index now ranks them 17th (2010) in the world, down from 3rd last year. So not paying is not exactly an easy way of the problems.

knipex

Cavehill Red wrote: »

But why should the bank debts be our debts? We didn't rack them up, so why are we being crippled to pay them off?

Saving the banks was a disaster but the deficit has nothing to do with the banks. The money for the banks is "off balance sheet" in other words on top of the current 20 billion annual deficit.

To put it into perspective. It is estimated that the banks will cost 30 billion.

Our deficit over the last 3 years has been 60 billion give or take and growing every year.

We need to deal with the deficit which has nothing to do with the banking bail out (not that we should ignore the banking bail out but it is a separate issue)

Tradnuts wrote: »

Iceland refused to pay, and the UN Human Development Index now ranks them 17th (2010) in the world, down from 3rd last year. So not paying is not exactly an easy way of the problems.

Thats a myth.

Iceland did not refuse to pay its sovereign debt. It refused to pay a debt associated with its banks..

It still had to deal with its deficit and government debt.

Nijmegen

It wouldn't be €15bn we'd need to cut in spending overnight. That kind of a shock to the economy would reduce tax take even further, and we would need more cuts. And foreign businesses wouldn't be investing, might be pulling out, the banking sector would freeze up. And we'd become an experiment in how-low-can-you-go, or a competition with North Korea to see just how screwed up you can make a country.

Govt spending gets recycled in the economy, so it generates new economic activity and comes back in taxes. Indeed, some of what it spends it gets almost directly back, like the VAT paid by civil and public servants.

That's why you tend to deflate a deficit slowly, rather than overnight.

We would regress further than the 1970's and 1980's, the 'lost decades' in Ireland. Mass unemployment that would make 14% seem like the good old days. Public services gone out the window. Third world hospitals. Etc etc etc etc etc etc.

With an EU/IMF bailout essentially they will lend us the money but will make us take harsh steps to reduce the deficit, but over a few years.

Essentially, they would be the adult supervision to our inept politicians.

Just reneging on our debts would be suicide.

Cavehill Red

knipex wrote: »

Saving the banks was a disaster but the deficit has nothing to do with the banks. The money for the banks is "off balance sheet" in other words on top of the current 20 billion annual deficit.

To put it into perspective. It is estimated that the banks will cost 30 billion.

Our deficit over the last 3 years has been 60 billion give or take and growing every year.

We need to deal with the deficit which has nothing to do with the banking bail out (not that we should ignore the banking bail out but it is a separate issue)

I agree our deficit is of major concern. But that's not why we're being targetted on the international bond markets. We're being targetted because it's perceived that we cannot pay our total debts, which now includes the banking debts.
America's deficit is improbably massive. As are those of many other countries. Unlike America, who is actually printing billions more to spend, Ireland, which has already been in austerity for a number of budgets, is the one being attacked.
The reason is not because we're not cutting enough. It's because it is impossible for us to cut enough to service both the sovereign debt and the bank debts and NAMA.

maninasia

Cavehill Red wrote: »

I agree our deficit is of major concern. But that's not why we're being targetted on the international bond markets. We're being targetted because it's perceived that we cannot pay our total debts, which now includes the banking debts.
America's deficit is improbably massive. As are those of many other countries. Unlike America, who is actually printing billions more to spend, Ireland, which has already been in austerity for a number of budgets, is the one being attacked.
The reason is not because we're not cutting enough. It's because it is impossible for us to cut enough to service both the sovereign debt and the bank debts and NAMA.

I used to belive the bank debt was secondary and of course the annual running deficit is very important but after reading Morgan Kelly's analysis I realised AIB could be another Anglo very soon, due to problems with their mortgage holders...the bank guarantee will apply to them aswell.

dan_d

But how are AIB's mortgage holders any different from BOI's mortgage holders or EBS (which I know is a different story again), or Permanent TSB, or Bank of Scotland or any of the above?

AIB may cost us more money at some point, but mortgage holders as a whole are a massive problem for this country. As I said on another thread (the one discussing Morgan Kelly's article), they are the elephant in the room. They're the reason we can't push taxes higher, the reason people are fighting their wage cuts, the reason we are negotiating with unions over pay - if the people of Ireland cannot afford their mortgage repayments, the banks are hurt all over again. I don't think we can afford to let mortgage repayments sink a bank, because they all have this problem.Where do you draw the line?

As for comparing the US to Ireland...again, I don't think it's comparing like to like.We have to pay our debts.There's no point quoting how many countries reneged on their debts over the years - I'm not sure Uruguay and Turkey are good examples of recovered countries.As for Asia, their economies are streets away from ours, in terms of sheer size alone. And also in the fact that labour is cheap and they have a huge manufacturing base.

It's just not a viable option. Our deficit HAS to be paid. Every country has a deficit (correct me if I'm wrong), and deals with it differently. Unfortunately we chose to also shoulder the debts of our banks. That doesn't mean we get to cry off on paying off/reducing the deficit. It was a decision made by our politicians, be it right or wrong, but we still have to deal with the deficit. Any other course would be economic suicide.

foxcoverteddy

Naturally the subject of Ireland's debt is of great interest, however it seems that those who were at the root cause are still there, which includes our inept politicians, once again I was under the impression that if someone puts themselves up for election then they should be capable of doing the job, it appears a great many were not and their only interest is the feathering of ones own nest.
As for the banks I see or hear of no action being taken against either Auditors or the banks own internal audit which had an obligation to report irregularities to the Financial Regulator, who also appears to have walked off with money in his pocket
It is very easy for those on high salaries to shrug off higher costs, okay they will no doubt protest, but what about those who are at the other end of the spectrum?