Independant today (09/12), "senior bondholders cannot be burned"

zig

Just wondering where are they getting this "cannot" from? Why wouldnt it be possible for Enda and friends to go back and demand a renegotiation? Is it possible the EU officials are just saying this to the bondholders to stop them from panicking?


http://www.independent.ie/business/european/bondholders-safe-even-if-opposition-win-election-2454031.html

Bondholders safe even if opposition win election

By Emmet Oliver Deputy Business Editor

Thursday December 09 2010

Senior EU officials have told international investors that even a new Irish government will not be allowed to remove the protection which has been given to senior bondholders in the banks.
In a private phone call this week with hedge funds and other investors from across Europe, the EU team which negotiated Ireland's rescue package, reassured the firms that senior bondholders cannot be burned as part of the €85bn rescue package, even if Fine Gael and Labour seek to reopen the question.
The Irish Independent, which has seen extracts from the call organised by Deutsche Bank, understands the EU team described the protection for senior bondholders as an "integral part" and a "building block" of the entire plan.
Forcing discounts or "haircuts" on senior bondholders is not a part of the programme that will be discussed during quarterly reviews, the EU officials made clear. The EU team said other details could be discussed.
The disclosure is a major blow to the Labour Party which is pushing to force losses on senior bondholders, by introducing a so-called resolution regime for banks.
The party's finance spokeswoman Joan Burton said recently: "What we need is a banking resolution regime in place, where you could have a negotiated settlement with all bondholders, including senior bondholders, if a bank goes bust."
Questions
Hedge funds and asset managers peppered the EU team with questions about senior and junior bondholders, with several questions about the opposition's approach differing from that of Fianna Fail and the Green Party.
The EU team said its approach would make a "obvious distinction" between viable and non-viable banks. The team said the kind of burden sharing to be imposed on junior bondholders would come down to what kind of bank was involved.
It will come down to the "quantum" of taxpayers' money which has gone into the bank, said the EU official.
One questioner wanted to know whether the state's own investment in AIB would be wiped out first, before any senior bondholders were hit. "I don't have answers to those questions now,'' said the EU official.
But he reiterated that the programme did not include any plans to impose burden sharing on senior bondholders.
Overall, the EU team were upbeat about Ireland's prospects, particularly the export sector. The call, which is believed to have involved Istvan P Szekely, mission chief of the European Commission for Ireland, was warned that there were risks to the €85bn plan.
"We have to be humble,'' said one of the EU team, pointing out that Ireland's restructuring was one of the largest tried by a European country. "The extent to which we can predict this is limited," he said.
- Emmet Oliver Deputy Business Editor
Irish Independent

Permabear

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Laminations

donegalfella wrote: »

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And by all means we should be paying interest on (a) but why should we pay any interest on what we borrow for (b). A renegotiation is not a default, it's a redrawing of the interest rates to recognise the role of the European banks lending into an irresponsible Irish system. Why should we be paying interest to protect their banks?

We could sweat them out, it'd be a major blow for Ireland if they refused to deal and we had no money to borrow and instead had to survive on our tax take- but we could survive for a while on €31bn. However could Europe afford to not deal. It would mean certain contagion and the collapse of the euro. Do you disagree with any renegotiation of interest rates or haircuts for bondholders?

Euroland

donegalfella wrote: »

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Iceland (and not only Iceland) managed to do that.

Euroland

donegalfella wrote: »

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Nonsense.

1) Today Fitch already downgraded Ireland down to BBB+, no panic.

2) Many countries went through this route and after a few years they are back on track, much stronger and their credit ratings growing up again.

Permabear

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ilovesleep

God donegalfella, so there is so no hope what so ever for this country. We need a war if you ask me.

Laminations

DF, ifthe bondholders get burnt/take a bath would that affect your investments? i.e. Your speculation and betting against your own country and people

Laminations

donegalfella wrote: »

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But that's my point, we can survive without (a) for longer than they can survive without (b). We should have the upperhand in negotiations/renegotiations.

Before the budget, the state was spending around €55 billion a year. Can you outline what changes you would make to reduce that to €31 billion?

Politically, how can the Irish government afford to jeopardize this deal? What happens if the EU/IMF walk away?

They can't afford to walk away. We can survive on current spending levels for 8months. If we had to go it alone, we could slash all welfare and raise all taxes. We were paying 65% rates in the 80s. Anyway if we had to go it alone by that stage the euro would have collapsed and we'd be back to our own currency which we could deflate. It's a total bluff that they'd walk away so all of that is hypothetical scaremongering

And politically, the government should die before letting the country be used as a sphincter. They shouldn't be concerned on how it will affect their chance of seats

Permabear

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handlemaster

donegalfella wrote: »

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This is what would happen !!

ICELAND'S decision two years ago to force bondholders to pay for the banking system's collapse appeared to pay off this week after official figures showed the country exited recession in the third quarter.
The Icelandic economy, which shrank for seven consecutive quarters, grew 1.2 per cent in the three months to the end of September. Iceland famously agreed in a referendum to reject a scheme to repay most of its debts that were once worth 11 times its national income.
In contrast to Ireland, Iceland's taxpayers refused to pay the debts accumulated by the banking sector. Bondholders were told to accept dramatic cuts in the value of repayments on bank debt after the sector borrowed beyond its means to fund ambitious investments abroad.
Advertisement: Story continues below
The return to growth is likely to put pressure on Irish politicians to explain why Dublin rejected a more radical restructuring of its debts and a departure from the euro zone. Iceland's currency has fallen by around a quarter, helping its exports.
Economists on the right and left have recommended a country deep in debt restructure repayments with bondholders - in effect writing off much of the debt.
The Nobel prize winner Paul Krugman has called on Ireland, Greece and Portugal to consider leaving the euro zone and defaulting on its debts.



Its just business. Bond holders took a risk ( or in this case no risk as we are propping them up) with private banks,they got there interest while it lasted. As with Nama etc loans were tranfered under false pretences it appears from the banks, why should I pay for their gambling.

Permabear

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Euroland

donegalfella wrote: »

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+1, agree

Euroland

donegalfella wrote: »

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Already recovering

Euroland

donegalfella wrote: »

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We can get it elsewhere, i.e. China, Russia, Sweden

zig

donegalfella wrote: »

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Just because you devalue your currency doesnt make you Zimbabwe, they had lots of reasons why they ended up the way they did, Mugabe being one big one.

Laminations

donegalfella wrote: »

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So if we refused to pay interest on our borrowings that we are taking simply to pay back foreign banks, you think the Germans would collapse the euro rather than strike a deal?

Since the state doesn't plan to repay its debts, why should Joe Average bother with his mortgage?
.

This is where you're getting mixed up. I'm suggesting we pay our debts - thats part (a) of your scenario. I'm suggesting we renegotiate (b), not refuse to pay it but negotiate haircuts for bondholders and a better interest rate from the ECB

Euroland

donegalfella wrote: »

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Slash public sector salaries on average by 20-25% (those ho make more will get higher cuts), slash social welfare by 30-50%, scrap overseas development fund, reduce expenditure across the state agencies/bodies, etc.

noodler

Most of the bonds are now guaranteed under the ELG.

The only option option to consideration is the non-Guaranteed senior bonds and if the IMF/EU (well EU anyway) say no then what are you going to do?

noodler

Euroland wrote: »

Slash public sector salaries on average by 20-25% (those ho make more will get higher cuts), slash social welfare by 30-50%, scrap overseas development fund, reduce expenditure across the state agencies/bodies, etc.

Public sector pay bill is around €16.5bn I believe.
So slahing it be a quarter gets us a €4bn saving.

Spending on social welfare is around €20bn so a slash in that budget by 35% is about €7bn.

Feel free to correct me on that of course.

Scofflaw

Laminations wrote: »

And by all means we should be paying interest on (a) but why should we pay any interest on what we borrow for (b). A renegotiation is not a default, it's a redrawing of the interest rates to recognise the role of the European banks lending into an irresponsible Irish system. Why should we be paying interest to protect their banks?

We could sweat them out, it'd be a major blow for Ireland if they refused to deal and we had no money to borrow and instead had to survive on our tax take- but we could survive for a while on €31bn. However could Europe afford to not deal. It would mean certain contagion and the collapse of the euro. Do you disagree with any renegotiation of interest rates or haircuts for bondholders?

I suspect that if Ireland chose to burn the senior bondholders - effectively a default at this stage - the extra damage done by cutting the bailout facility would be minor from the point of view of everybody except Ireland.

cordially,
Scofflaw

Laminations

Scofflaw wrote: »

I suspect that if Ireland chose to burn the senior bondholders - effectively a default at this stage - the extra damage done by cutting the bailout facility would be minor from the point of view of everybody except Ireland.

cordially,
Scofflaw

A renegotiation could simply involve the interest rates we're paying. We shouldn't be punitively charged to borrow money to give to European banks

Euroland

donegalfella wrote: »

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We borrow directly from China, Russia, Sweden, etc

Laminations

noodler wrote: »

Public sector pay bill is around €16.5bn I believe.
So slahing it be a quarter gets us a €4bn saving.

Spending on social welfare is around €20bn so a slash in that budget by 35% is about €7bn.

Feel free to correct me on that of course.

That's €11bn already and you haven't touched tax. Increase tax rates by an average of 30% and you have another €10bn and you're almost there. Anyway it's all irrelevant cos they wouldnt let us go it alone as thatd mean a default rather than a renegotiation and itd mean the collapse of the euro. We'd have a knock on effect for Spain/Italy/Portugal, all of whom owe german banks big style so they have to deal in a renegotiation. It's a game of chicken and we have swerved too early

Euroland

handlemaster wrote: »

The Nobel prize winner Paul Krugman has called on Ireland, Greece and Portugal to consider leaving the euro zone and defaulting on its debts.

I fully agree with Paul.

Euroland

donegalfella wrote: »

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Zimbabwe is a different story, we are backed up by enormous trade surplus. So, in a long run, I don’t expect Irish punt to slip significantly against other mayor currencies.

danbohan

donegalfella wrote: »

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So, let's see, you would slash all welfare, raise all taxes, slash PS pay and pensions. By that point, I'm pretty sure you'd have Dublin engulfed in riots. I'm glad I don't live there.

I'm glad I don't live there.

in a few weeks after dublin had burned down the hungry hordes would have drifted as far as donegal in search of your gold and silver reserves DF ,

Euroland

noodler wrote: »

Public sector pay bill is around €16.5bn I believe.
So slahing it be a quarter gets us a €4bn saving.

Spending on social welfare is around €20bn so a slash in that budget by 35% is about €7bn.

Feel free to correct me on that of course.

Public sector could be cut down to 10 and social welfare down to 10, and we would get 16.5 BEUR saved. Additional expenditure cuts (army, overseas development fund, capital expenditure, etc) could add another 1-4 BEUR, so we nearly there.

danbohan

Euroland wrote: »

Slash public sector salaries on average by 20-25% (those ho make more will get higher cuts), slash social welfare by 30-50%, scrap overseas development fund, reduce expenditure across the state agencies/bodies, etc.

those cuts should have taken place on tuesday anyway , but look at the screeching over 8 euro cuts to sw ,wonder when the majority of people will realize the bind we are in , sinn fein and the unions are fully aware and just playing politics which is just as big a disservice to Irish population as anything fianna fail did in last few years

who_ru

the Germans will never leave the Euro and revert back to the Mark for obvious reasons.

right now the euro is weak, it is no surprise that German exports are rocketing ahead, the German minister for finance said recently that full employment was possible in the near future in the German economy.

if for some reason the Govt in Berlin decided to leave the Euro, revert to the mark, then that currency would appreciate instantly against a weak and propably mortally wounded Euro, making German exports extremely difficult to sell anywhere. I cannot see Germany leaving the Euro on that basis.

And as an aside, Merkel is deeply unpopular in Germany right now and is simply making populist noises about making lenders take a hit instead of German tax payers footing the bailout bill.

Gordon Browne has ominous words for all eurozone countries.
http://www.bbc.co.uk/news/uk-11951014

windsurfer99ie

who_ru wrote: »

the Germans will never leave the Euro and revert back to the Mark for obvious reasons.

right now the euro is weak, it is no surprise that German exports are rocketing ahead, the German minister for finance said recently that full employment was possible in the near future in the German economy.

if for some reason the Govt in Berlin decided to leave the Euro, revert to the mark, then that currency would appreciate instantly against a weak and propably mortally wounded Euro, making German exports extremely difficult to sell anywhere. I cannot see Germany leaving the Euro on that basis.

And as an aside, Merkel is deeply unpopular in Germany right now and is simply making populist noises about making lenders take a hit instead of German tax payers footing the bailout bill.

Gordon Browne has ominous words for all eurozone countries.
http://www.bbc.co.uk/news/uk-11951014

I think your analysis is correct. German exports benefit from a weak Euro, and we have also provided them with a market for their products. In turn, the German Banks have lent us the "trade surpluses" back at punative rates of interest. For these reasons, the German economy has prospered under the Euro. However, for historical reasons the German people hate inflation and weak currency, and as you say, Merkel is unpopular at the moment. Therefore, I do not think that it is out of the question that for domestic political reasons they may collapse the Euro at some point, even though it would not appear to be in their economic interests to do so at the moment.