The 2013 crunch

Justin Collery

I haven't seen this discussed, but I think it is very significant

http://www.rte.ie/news/2010/1118/germany-business.html

On the day the IMF land in Ireland the Germans are clearly saying from 2013, if a country (or bank) defaults the bond holder pays. The implication of this is that in 2013 I do not believe Ireland will be able to borrow from the bond markets. The reason I believe this is that at that stage we will still have a budget deficit of ~6% and the interest rate demanded by the market, due to the increased risk will be too high.

For that reason, despite all the bumf we are hearing, I believe that the IMF announcement, when it comes, will include a facility which the state can draw on if needed, and they will need it, in 2013.

You will be told "this facility is being put in place in the unlikely event that Ireland needs it. Thats not the plan, Ireland is fully funded blah blah blah blah." Lies. We are currently being bailed out, we are about to be bailed out, and we will be bailed out again in 2013.

locomo

We may not have a budget defecit of 6% in 2013. Long before then, the germans will take a hard look at our public expenditure, social welfare etc. They will ask why are our public servants the highest paid in Europe ? Why do retired people get so much here ? Why is the dole in Dundalk more than double the dole in Newry ? Why are there 50,000 more public servants now employed than there were 4 years ago in this country ? I hope they cut, cut, cut, NOW so we can have a better life in 5, 10, 30 and 50 years time.

cavedave

What happens to a Ponzi scheme when a date for it to be finished is set? It falls apart because once people know a ponzi scheme will end at time n you can work back to realise you don't want to be the last people into the scheme at n-1, and with no one entering at n-1 you don't want to be the ones entering at n-2 etc.

Given the vulnerability of so many eurozone countries, it appears that Merkel does not understand the immediate implications of her plan. The Germans and other Europeans insist that they will provide new official financing to insolvent countries, thus keeping current bondholders whole, while simultaneously creating a new regime after 2013 under which all this debt could be easily restructured. But, as European Central Bank President Jean-Claude Trichet likes to point out, market participants are good at thinking backwards: if they can see where a Ponzi-type scheme ends, everything unravels.

FoxT

I agree with both of the above posts. Politicians have been soundbiting that we have enough cash to keep the country going for a few more months - but that is irrelevant. The train is traveling at 100mph. doesnt matter if the buffers are a mile away or 5 miles away, it is going to crash.

The Govt must slash current expenditure. This is anathema to most politicians, so getting the IMF in early & 'blaming' them for the cuts, while cynical, is probably the best thing to do at this stage , insofar as it will ensure that cuts are implemented.

if they have any balls the Govt will use this as an oppty to straighten out some of the glaring anomalies in our taxation system. I am thinking of
- Abolish all levies & increase income tax rates to make up for it
- Introduce property tax, phase out stamp duty for family homes
- reduce/eliminate vast spaghetti of tax breaks etc which is cumbersome, difficult to administer, and easy to cheat on.
-abolish mortgage interest relief. It was always a bad idea.

Wont happen though.