IMF Call For Bailout Increase

later12

In typically unsurprising fashion, the IMF have followed the trend of European banks and financial analysts in commenting that the current Eurozone bailout fund, the EFSF, should be increased in size.
http://www.irishtimes.com/newspaper/breaking/2011/0125/breaking6.html

The official size of the eurozone fund is €440 bn however due to its carefully funded structure, the current effective bailout fund available from the EFSF is actually in the region of €225 bn in the event of further Eurozone bailouts becoming necessary.
The Germans, in their approach of limited liability, have up until now, been reluctant to increase the bailout, although they now look set to increase the funds effective rate of €225bn to its official rate of €440 bn. This is not going to be enough.

As well as facing up to bank restructuring needs, in terms of separating sovereign and banking debt and offering haircuts, it is time that the Eurozone wake up to the inevitable cost of the European bailout. According to Wolfgang Munchau (Financial Times) and Willem Buiter (Citigroup) the fund needs to be somewhere in the region of €2,000 billion. These estimates are based on the necessity of facing up to bank insolvencies as well as the sovereign debt crisis in itself. Buiter's report is 84 pages long but if you have nothing better to do, then it's an interesting read.
PDF: http://www.nber.org/~wbuiter/DoN.pdf

Buiter also has this to say about Ireland

Ireland’s financial support package will buy time, but does not address the fundamental insolvency issues of the consolidated sovereign and banking system. The Irish case also highlights the need for an EU-wide bank special resolution regime (SRR).

Is there any hope for the Eurozone when the Eurozone, apparently, seems determined not to help itself?

Scofflaw

Is there any hope for the Eurozone when the Eurozone, apparently, seems determined not to help itself?

Trying to do the bare minimum to get through the current crisis is the natural position of most governments, and that tends to be reflected in joint European action. Being forced by circumstances is the usual route to progress in Europe - not, as our eurosceptics would have it, because crises are used as a cover for rushing forward towards a USE, but because it takes a crisis to force the member states to recognise that they have to do something.

cordially,
Scofflaw

later12

Scofflaw wrote: »

Being forced by circumstances is the usual route to progress in Europe

I don't know about you but in my job that has a name, and its called being behind the curve. I would imagine that we all, in our working lives and in our personal commitments, are expected to be able to foresee the consequences of our action or our inaction to a reasonable degree. Europe really ought not an amoeba that is only able to react to immediate stimuli and never have any foresight, yet that is what is playing out.

In some cases, even our reaction to stimuli seems particularly dawdling, and largely that is down to the nature of Europe and its inability to take bold or decisive action. I'm referring particularly to things like the initial establishment of the bailout mechanism which was late and now needs an overhaul.
If Europe has to become the USE for change to happen, fine. This interminable heel dragging is not helping anybody and not helping the Eurozone itself. The Eurozone doesn't even have an effective political body or political Commission to oversee it and its specific interests bar some minor appendage of EcoFin that meets a few days per year, and is also lacking in any international representation.
http://euobserver.com/9/25984

"It is absurd for those 15 countries not to agree to have a single representation at the IMF. It makes us look absolutely ridiculous. We are regarded as buffoons on the international scene," the group's president said at a conference in Brussels

pog it

later10 wrote: »

I don't know about you but in my job that has a name, and its called being behind the curve. I would imagine that we all, in our working lives and in our personal commitments, are expected to be able to foresee the consequences of our action or our inaction to a reasonable degree. Europe really ought not an amoeba that is only able to react to immediate stimuli and never have any foresight, yet that is what is playing out.

In some cases, even our reaction to stimuli seems particularly dawdling, and largely that is down to the nature of Europe and its inability to take bold or decisive action. I'm referring particularly to things like the initial establishment of the bailout mechanism which was late and now needs an overhaul.
If Europe has to become the USE for change to happen, fine. This interminable heel dragging is not helping anybody and not helping the Eurozone itself. The Eurozone doesn't even have an effective political body or political Commission to oversee it and its specific interests bar some minor appendage of EcoFin that meets a few days per year, and is also lacking in any international representation.
http://euobserver.com/9/25984

Hope you don't mind my asking but what do you mean by the USE?

later12

pog it wrote: »

Hope you don't mind my asking but what do you mean by the USE?

Sorry... the United States of Europe.

Scofflaw

later10 wrote: »

I don't know about you but in my job that has a name, and its called being behind the curve. I would imagine that we all, in our working lives and in our personal commitments, are expected to be able to foresee the consequences of our action or our inaction to a reasonable degree. Europe really ought not an amoeba that is only able to react to immediate stimuli and never have any foresight, yet that is what is playing out.

In some cases, even our reaction to stimuli seems particularly dawdling, and largely that is down to the nature of Europe and its inability to take bold or decisive action. I'm referring particularly to things like the initial establishment of the bailout mechanism which was late and now needs an overhaul.
If Europe has to become the USE for change to happen, fine. This interminable heel dragging is not helping anybody and not helping the Eurozone itself. The Eurozone doesn't even have an effective political body or political Commission to oversee it and its specific interests bar some minor appendage of EcoFin that meets a few days per year, and is also lacking in any international representation.
http://euobserver.com/9/25984

The problem there is that people don't want a USE - neither the Member States nor the citizens. They want relatively loose cooperation with their national interests firmly represented - until it comes time for a really coordinated response, with national interests set aside, when they want that. But they go back to wanting the former as soon as the crisis is over, so that's fundamentally the way it has to be. It's neither advisable nor desirable to impose a USE in the name of efficiency and against the wishes of the majority.

cordially,
Scofflaw

Sesshoumaru

Scofflaw wrote: »

The problem there is that people don't want a USE - neither the Member States nor the citizens. They want relatively loose cooperation with their national interests firmly represented - until it comes time for a really coordinated response, with national interests set aside, when they want that. But they go back to wanting the former as soon as the crisis is over, so that's fundamentally the way it has to be. It's neither advisable nor desirable to impose a USE in the name of efficiency and against the wishes of the majority.

cordially,
Scofflaw

Might it not end up being imposed by necessity anyway? One area the EU has never touched are member states sovereign military forces. But now we have Britain and France signing deals to share aircraft carriers.

http://www.telegraph.co.uk/finance/newsbysector/industry/defence/8105006/UK-France-defence-David-Cameron-hails-new-military-co-operation-between-Britain-and-France.html

How I read this is, they're both broke and can't afford to maintain their current level of military spending. Rather than they both become a second rate military power, they've decided to pool at least some of their military resources.

With the EU only making up 7~8%(and declining) of the world population, I can only hope people in Europe will choose more pooled sovereignty over global insignificance.

Here is an article I was reading earlier on naval power.

http://www.globaliamagazine.com/?id=1092

Europe: "Significant Shrinking"

But Europe, according to this analysis, is falling far behind in this naval arms race. The author writes that the French Navy will shrink about 45 percent; the British naval forces could even lose up to two-thirds of their units and capabilities. The Italian fleet will also shrink. Only Spain could possibly maintain its standing, if it is not sucked into the Euro crisis. Greece has to save funds and cut its fleet in half, therefore losing rank 13, falling far behind on the list of the world's most powerful navies. The German navy will also shrink. Because it has to finance the war in Afghanistan, deployment of the ground troops and air transport, Berlin has little leeway left for new vessels. By 2030, Germany will lose about 45 percent of its vessels and one-third of its naval capabilities. All the navies of the EU combined, will have approximately the same number of vessels as the US Navy, but only half its naval capabilities.

A USE would eliminate inefficiency like this, where capabilities are duplicated by many countries and the combined sum then becomes less than what it could be.

I know my examples only focus on money being wasted on duplicated military capability. But I'm sure this applies to other areas.

Scofflaw

Sesshoumaru wrote: »

Might it not end up being imposed by necessity anyway? One area the EU has never touched are member states sovereign military forces. But now we have Britain and France signing deals to share aircraft carriers.

http://www.telegraph.co.uk/finance/newsbysector/industry/defence/8105006/UK-France-defence-David-Cameron-hails-new-military-co-operation-between-Britain-and-France.html

How I read this is, they're both broke and can't afford to maintain their current level of military spending. Rather than they both become a second rate military power, they've decided to pool at least some of their military resources.

With the EU only making up 7~8%(and declining) of the world population, I can only hope people in Europe will choose more pooled sovereignty over global insignificance.

Here is an article I was reading earlier on naval power.

http://www.globaliamagazine.com/?id=1092



A USE would eliminate inefficiency like this, where capabilities are duplicated by many countries and the combined sum then becomes less than what it could be.

I know my examples only focus on money being wasted on duplicated military capability. But I'm sure this applies to other areas.

True - it has to be remembered that one of the ongoing drivers behind EU integration is that European powers who largely ran the world within living memory are now in second place behind the US, and concerned about slipping into third and fourth place behind China and India. Europe is not terribly keen on that happening.

I'm a little bothered by the possibility that this is one of the driving forces behind CCCTB - not so much to make business within Europe easier, but to facilitate the emergence of "European champions" on the world stage.

cordially,
Scofflaw

Byron85

Somewhat related but McWilliams just posted this on his facebook:

Irish banks are defaulting everywhere now by buying old bonds back at big discounts, so the principle of default has obviously been breached. Clearly, this leads the way for the big one, which is an organized bank default. Only a matter of time

later12

That's a little bit exaggerated, with respect to David McWilliams. The default he's talking about was a renegotiation on subordinated debt, which is by its very definition a reasonably risky investment.

People on this forum who post here regularly probably think I have some sort of pathological hatred of economic pundits in the media, and i don't (honestly) but the above statement by David McWilliams is exactly what I do have a problem with and is exactly the type of exaggerated discourse we really do not need.

He is right if he is saying that a progressive restructuring is a matter of time, and right if he is alluding to yesterdays restructuring of subordinated debt as a sign of things to come through CCAs, but there have been no outright defaults and I wish people would open their eyes to what defaulting actually means for Ireland.

Scofflaw

later10 wrote: »

That's a little bit exaggerated, with respect to David McWilliams. The default he's talking about was a renegotiation on subordinated debt, which is by its very definition a reasonably risky investment.

People on this forum who post here regularly probably think I have some sort of pathological hatred of economic pundits in the media, and i don't (honestly) but the above statement by David McWilliams is exactly what I do have a problem with and is exactly the type of exaggerated discourse we really do not need.

He is right if he is saying that a progressive restructuring is a matter of time, and right if he is alluding to yesterdays restructuring of subordinated debt as a sign of things to come through CCAs, but there have been no outright defaults and I wish people would open their eyes to what defaulting actually means for Ireland.

He's also making out that this is something new, whereas:

AIB is to pay 50-67 cent on the euro - depending on the type of debt being exchanged - with the new bonds maturing ten years after the settlement date, currently expected to be June 25. The bulk of the notes AIB wants to swap are quoted at around 35-45% of their nominal value.

An analyst said last week that if the bank paid an average of 50 cent on the euro and had 100% take-up, the potential capital gain could be €1.2 billion. AIB needs to raise an additional €1.5 billion in capital on top of a €3.5 billion state injection of funds.

Banks are taking advantage of steep discounts in the secondary debt market to improve their capital cushion by buying back bonds at a discount. Bank of Ireland recently repurchased €1.26 billion worth of debt at 38-50% of face value.

Updated: 18:45, Tuesday, 16 June 2009

Really, using McWilliams as a guide to the economy is hardly better than using Kevin Myers as a guide to complex social issues.

amused,
Scofflaw