Re-negotiating the IMF deal

messymess

I'm not financially savvy or politically oriented so put your mittens on please.

Apparently reducing the loan deal would involve agreement from all EU member states. Now, they also want us to increase our corporation tax. Why is it not possible to barter this for a few years? Would it be acceptable to raise this to the EU average for a period of the loan, or perhaps even 10years or something? How quickly will that foreign investment get up and leave from Ireland? Intel can't exactly move FAB plants over night. This might reduce our debt and raise taxes from companies that seem to excel in minimising it.

Also, with the bond holders why is it a case of burning them or not? Can we not just singe them and a cut a deal to say, look you'll get x% now feck off with ya?

Sand

1 - Its not an IMF deal: Its an EU deal. The IMF didnt like the deal. The idea that the IMF had much of a hand in this deal is the largest misconception around the deal. The IMF were allowed to sit at the table, so long as they didnt get in the EUs way.

2 - The EU has no interest whatsoever in renegotiating. The general mood is we're getting what we deserve. The ECB has gotten itself off the hook. The Irish have publically agreed to shackle themselves with all the losses of bank investors. And the Irish have nothing to negotiate with - they're terrified of offending their EU friends by even querying the possibility of defaulting. And if the Irish are terrified of even speaking about default, whats the Irish negotiating position? Pity? Pleas for mercy? Begging? Grovelling? The heirs of Bismark and Richelieu will get a laugh out of that.

3- Our corporation tax is *the* cornerstone of our industrial policy, and the MNCs based here are the only truly well functioning part of the economy.

4 - Even if the a relatively huge adjustment (1-2% reduction in the rate) was achieved, it would still be of a minor benefit, given our overall debt and the cost of servicing it.

5 - The cost to the Irish economy of trading our control of our own industrial policy for a few trinkets like a 1-2% off the credit card would be in the league of the native americans decision to trade Manhattan to the Dutch for some beads and coloured stones.

Also, with the bond holders why is it a case of burning them or not? Can we not just singe them and a cut a deal to say, look you'll get x% now feck off with ya?

We can, but we have to be willing to refuse to pay them *anything* at all, otherwise they have no incentive not to demand everything. Burning the bondholders wont be costless, its not a quick fix. Ireland would have to balance its budget nearly immediately (I.E. an austerity budget cutting spending by 20 billion in a single year!). If youre not ready to accept that sort of immediate adjustment, then youd best get comfortable in the shackles youve been fitted with.

But it is an alternative we will have to increasingly consider as the cost of the debt mountain rises and rises.

RichardAnd

Intel can't just up sticks and run easily as they have installed manufacturing here but Google, SAP, microsoft and many others can as they simply have offices full of people. Not so hard to shift.

Besides this, even raising corporation tax by 1 or 2 % once would seem a precursor to further hikes down the line. Even raising it to 13%, for example, would prove to the MNCs that we are willing to tamper with the rate and thus, might make them less keen to stay.

In short, corp tax should only go down in this country and, if I were in charge, I would have a CT of 0%. Of course, if I were in charge, I wouldn't be spending a collective 40 odd billion a year on PS wages and SW but hey, that's a topic for a different thread.

ISAW

Sand wrote: »

1 - Its not an IMF deal: Its an EU deal. The IMF didnt like the deal. The idea that the IMF had much of a hand in this deal is the largest misconception around the deal. The IMF were allowed to sit at the table, so long as they didnt get in the EUs way.

Oh it is an IMF deal alright.
Well 19.5 billion Special Drawing Rights of it is (€22.5 billion of 85 billion)
Over 20 billion is a bit more than a "sit in" I would say.

http://www.imf.org/external/np/sec/pr/2010/pr10496.htm

2 - The EU has no interest whatsoever in renegotiating. The general mood is we're getting what we deserve. The ECB has gotten itself off the hook. The Irish have publically agreed to shackle themselves with all the losses of bank investors. And the Irish have nothing to negotiate with - they're terrified of offending their EU friends by even querying the possibility of defaulting. And if the Irish are terrified of even speaking about default, whats the Irish negotiating position? Pity? Pleas for mercy? Begging? Grovelling? The heirs of Bismark and Richelieu will get a laugh out of that.

the Irish position is "default and cause a collapse of Spain Portugal Greece and eventually the Euro"

I don't think putting a gun to one's hear and warning that you are about to shoot is a strong position. On the other hand the EU have to accept that you can't just loan money irresponsibly to people who can't pay back so they might allow bond holders to be burned in future. But that won't change what Ireland owes now.

3- Our corporation tax is *the* cornerstone of our industrial policy, and the MNCs based here are the only truly well functioning part of the economy.

I reject that! SME's are functional but just don't have the cashflow. It is a bit like having fully operational farms with traind up farmers and food scientists but no money to buy seeds or fuel for the machines or pay for electricity when you know if the system can be started it will pay off in time.

4 - Even if the a relatively huge adjustment (1-2% reduction in the rate) was achieved, it would still be of a minor benefit, given our overall debt and the cost of servicing it.

Actually assuming the deficit is wiped out assuming the current FF austerity plan, ( the current budget being a different thing altogether compared to the bailout money) a huge adjustment of say 2 per cent would be like leaving us owing about six or seven billion less (onthe bailout money) by 2015, which is just about the same amount we would be in the red ( about 8 billion) if the Labour plan is followed. So Labour would like to owe 8 billion less on the repayments but instead of wiping out the year on year overspend from 15 billion now to zero would reduce it from 17 to 8.

http://www.labour.ie/download/pdf/laboursplanforstabilityandgrowth.pdf
page 9

5 - The cost to the Irish economy of trading our control of our own industrial policy for a few trinkets like a 1-2% off the credit card would be in the league of the native americans decision to trade Manhattan to the Dutch for some beads and coloured stones.

Yup. Even if we had no bailout at all we still have an overrun of 15 billion

http://www.budget.gov.ie/budgets/2011/Documents/Economic%20and%20Fiscal%20Outlook.pdf

page d 12

D17 gives youy the current government plan - this budget 4 billion cuts 1.5 billion extra tax and half a billion other = 6 billion the next three years under FF/GP would have been
3.6 another 3.1; and 3.1

The shortfall would go from -13 now to -1 in 2015
(page D23 table8)

We can, but we have to be willing to refuse to pay them *anything* at all, otherwise they have no incentive not to demand everything. Burning the bondholders wont be costless, its not a quick fix. Ireland would have to balance its budget nearly immediately (I.E. an austerity budget cutting spending by 20 billion in a single year!). If youre not ready to accept that sort of immediate adjustment, then youd best get comfortable in the shackles youve been fitted with.

Yep say next year we decide not to take any of the 85 billion and not to pay the debt of 50 billion we still will need 15 billion next year . so what will the government cut or tax to make up 15 billion? and after solving that who will lend us money?

But it is an alternative we will have to increasingly consider as the cost of the debt mountain rises and rises.

true. If we cut 15 billion in a year ( remember the Budget just gone was 6 billion) then someone might well lend us something. But SF or the United Left while they want to default also want to spend and not save 13 billion in cuts and taxes in a year.

squod

Some very interesting options put forward on VB tonight. Wortha lookagain on TV3s player if this kind of thing floats your boat.

hinault

We are not in a position to repay our debts in reality.

Default is gonna happen.

An orderly default, this being a default agreed with our creditors, would be preferable.

A disorderly default, this being where we unilaterally take the decision not to repay our creditors, would be disasterous.

Sand

@ISAW

Oh it is an IMF deal alright.

No, its really not. The EU/ECB was the architect of the deal. The IMF was overruled - theyve been diplomatic, but its clear they had a different view to the EU/ECB: The IMF was focused on a strategy to help Ireland recover control of its fiscal situation, the EU/ECB were focused on a strategy to help themselves and limit their own exposure.

I don't think putting a gun to one's hear and warning that you are about to shoot is a strong position. On the other hand the EU have to accept that you can't just loan money irresponsibly to people who can't pay back so they might allow bond holders to be burned in future. But that won't change what Ireland owes now

So are you disagreeing or agreeing that Ireland has no negotiating position other than begging and grovelling and that the EU/ECB has no interest in renegotiating a deal that gives them everything that want? The interest rate set isnt without purpose: Its to discourage us from borrowing. Why would the EU/ECB reduce the rate to *encourage* us to borrow more when they are doing everything in their power to limit their exposure to the Irish mess? The ECB/EU couldnt care less about the Irish people: we are 1% of the EU's economic activity. And if we choose to borrow ridiculous amounts of money at extortionate rates to pay our public sector astronomical wages, we arent going to get a lot of sympathy from ECB staff or their wider European media.

Ireland needs a negotiating position and grovelling, whilst amusing and gratifying for the ECB/EU, isnt a negotiating position. The almost child like belief that the adults in the ECB will punish us by taking the sweets away, but will relent if we say were *reaaaaally* sorry is a sign of national immaturity, and the immaturity of our political/chattering classes.

I reject that! SME's are functional but just don't have the cashflow.

Im struggling to see how theyre well functioning if theyre without cashflow? Businesses are supposed to generate wealth - not consume it.

Actually assuming the deficit is wiped out assuming the current FF austerity plan

Yeah, assuming.

The CB is already slashing growth predictions that the 4 year plan is based on. Also, despite austerity measures taken so far, the Current Expenditure of the government has increased every year since 2007. And already, political parties with serious aspirations to lead this country are rowing back on their willingness to combat the deficit. Some austerity.

Yep say next year we decide not to take any of the 85 billion and not to pay the debt of 50 billion we still will need 15 billion next year . so what will the government cut or tax to make up 15 billion? and after solving that who will lend us money?

Sigh.

The country was run on 31 billion in 2000. Spending goes up to 75 billion in 2009: More than doubling in only 9 years. Youre telling me theres not flab to be found easily? That all of that 44 billion was committed to *vital* services? That there wasnt any waste, vanity projects or looting?

Colm McCarthy has provided analysis to highlight protential savings. Departments and civil servants have reviewed and identified all of their departments looking for savings. Countless reports and recomendations by consultants have been made to highlight efficiencies that can be made in everything from health to education to taxation to the political system.

All thats missing is the political courage to do the necessary.

Let me ask you a question though:

What taxes will you raise and spending will you cut to eliminate the deficit AND pay all the interest on the 104 billion the country owed at the end of 2009, AND the 85 billion plus that you will borrow over the next 2-3 years AND any further borrowing you manage to raise at extortionate rates? Because you will have to cut more savagely and hike taxes more drastically to balance a budget that includes that sort of interest servicing cost. When you have finished exhausting the NPRF, how will you pay for Irelands greying population which will become even more grey as younger generations are forced to emigrate abroad to find a job? And eventually you will have to not only balance the budget, but begin paying down the Irish debt before interest service charges become the greater part of Irish expenditure. If youre not willing, or able to cut and tax to that extent then you are simply going to have a messier, costlier default later.

hinault

Sand @ in respect of financial year 2000 (only 10 years ago), government expenditure was actually a lot lower than the figure you gave on this thread earlier

Here is the 2000 Exchequer figures (in Punts).
http://www.finance.gov.ie/viewdoc.asp?DocID=2636

Unless I'm reading this wrong, approx €20billion was spent by the government in that year.

hinault

It's interesting even as recently as 2004 (6 years ago), the country was running
a slight budget surplus with tax revenues at €35 billion.
http://www.finance.gov.ie/viewdoc.asp?DocID=2636

hinault

The following is the Dept of Finance commentary for 2007 and 2008 showing tax receipts and tax expenditure for both years.

The increase in current expenditure in both years is massive, coupled with the fall in the level of tax receipts yielded.




2007:

Revenue

Total current receipts in 2007 amounted to €47,887 million compared to €46,145 million in 2006.

Tax revenue, at €47,249 million was €1,826 million below profile in 2007. Year-on-year, tax receipts were up 3.8 per cent. Income tax was on target. Stamp duty, VAT, corporation tax, CGT and excise duty were all behind target, at -€739 million, -€374 million, -€259 million, -€240 million and -€232 million respectively.

Non-tax revenue in 2007 was €638 million, compared to a Budget 2007 target of €565 million, slightly ahead of expectations. This compares to €606 million last year.

Capital receipts in 2007 amounted to €1,408 million compared to a Budget 2007 target of €1,483 million, slightly behind expectations. In 2006 the Exchequer recorded capital receipts of €1,871 million in 2006.

Expenditure

Total net voted spending was €44,609 million in 2007 compared to €39,391 million in 2006, an increase of 13.2 per cen

Net voted current spending in 2007 was €36,959 million compared to €32,915 million in 2006, an increase of 12.3 per cent.

Net voted capital spending in 2007 amounted to €7,650 million compared to €6,476 million in 2006, an increase of 18.1 per cent. This was €102 million or 1.4 per cent ahead of the Revised Estimates figures.

Non-voted current (Central Fund) expenditure totalled €3,931 million in 2007, including a saving of about €360 million on national debt interest. This compares with €4,161 million in 2006.

Non-voted capital expenditure totalled €2,374 million in 2007, including €1,616 million paid to the National Pensions Reserve Fund. This compares to €2,200 million in 2006.



2008 :

Revenue

Total current receipts in 2008 amounted to €41,624 million compared to €47,887 million in 2007.

Tax revenue, at €40,777 million was €8,133 million below profile in 2008. Year-on-year, tax receipts were down 13.7 per cent. All tax heads were below target - VAT at €2,120 million, Capital Gains Tax at €1,780 million, Corporation Tax at €1,634 million, Stamp Duty at €1,204 million, Income Tax at €723 million, Excises at €547 million, Capital Acquisitions Tax at €73 million and Customs at €52 million.

Non-tax revenue in 2008 was €847 million. This compares to €638 million last year.

Capital receipts in 2008 amounted to €1,398 million. In 2007 the Exchequer recorded capital receipts of €1,408 million.

Expenditure

Total net voted spending was €49,313 million in 2008 compared to €44,609 million in 2007, an increase of 10.5 per cent.

Net voted current spending in 2008 was €40,757 million compared to €36,959 million in 2007, an increase of 10.3 per cent. This was €356 million or 0.9 per cent above the REV figures.

Net voted capital spending in 2008 amounted to €8,556 million compared to €7,650 million in 2007, an increase of 11.8 per cent. This was in line with the REV figures.

Non-voted current (Central Fund) expenditure totalled €3,936 million in 2008. This compares with €3,937 million in 2007.

Non-voted capital expenditure totalled €2,487 million in 2008. This compares to €2,368 million in 2007.

cyberhog

Sand wrote: »

The Irish have publically agreed to shackle themselves with all the losses of bank investors.

Baloney! The Irish people have been sold down the river by the scumbags in Fianna Fáil. The people did NOT agree to the terms of the deal so get your bloomin' facts straight before you go mouthing off about "The Irish".

RichardAnd

cyberhog wrote: »

Baloney! The Irish people have been sold down the river by the scumbags in Fianna Fáil. The people did NOT agree to the terms of the deal so get your bloomin' facts straight before you go mouthing off about "The Irish".

Joe Public did not literally agree to the deal to which you refer but his actions did directly contribute to it. For three elections in a row, the Irish people elected a party that perfectly represents themselves; a corrupt, short-sighted and populist FF. This is the point Sand is making.

In a nutshell, claiming the Irish people, taken as a whole, had nothign to do with the country's ruin is akin to claiming that a group of people who willingly got into a car when the driver is out of his mind on drink bear no responcibility when that driver wraps the car around a tree.

You can blame FF all you wish but you'll find that the most successful people in the world don't spend too much time blaming others for their problems. And I would point out that, regardless of guild, the current mess we are in IS our problem whether or not we like it.

jmayo

There is no way in hell we can ever repay the deal as currently constituted.

So options are as someone said, renegogiation for very favourable terms, orderly default or disorderly default.
Contrary to what some say, I think we do have to threaten the nuclear option.

If the ECB/EU refuses to renegogiate then threaten to pull the plug, it will hurt the other EU members and not just the ones that are shaky like Greece, Portugal, Spain and Italy, but the big players like Germany whose banks are so exposed to all the PIIGS.

I can't see them risking complete meltdown which could possibly happen if one eurozone member defaults.
They can't risk taking the chance.

Call me pessimistic, but I think the euro is doomed anyway.
It looks like there is no way that Greece and Ireland can now avoid default, and if one goes it could trigger chain reaction.
If the contagion spreads to Spain or Italy then it is the end.
Another thing that is currently happening which doesn't appear to be mentioned at all is the strength of the euro to the dollar.

BTW as someone mentioned our public spending went up in 2007 and 2008.
That is something that sadly is not mentioned enough and is forgotten in the whole banking debacle.
How the fook could the government continue the upward spending as the bubble was bursting?
They should have brought in a tough budget in early to mid 2008, rather than lenihan screwing about for 18 months. :mad:

Sponge Bob

The IMF deal is nothing and we have drawn none of it down yet. The real deal is what is already in the Repo window in the ECB = €180bn

cyberhog

RichardAnd wrote: »

In a nutshell, claiming the Irish people, taken as a whole, had nothign to do with the country's ruin is akin to claiming that a group of people who willingly got into a car when the driver is out of his mind on drink bear no responcibility when that driver wraps the car around a tree.

Well that is a nice straw man attempt, RichardAnd. I claim no such thing.

RichardAnd wrote: »

You can blame FF all you wish but you'll find that the most successful people in the world don't spend too much time blaming others for their problems. And I would point out that, regardless of guild, the current mess we are in IS our problem whether or not we like it.

I blame Fianna Fáil because they are the numpties that agreed Irish citizens should bear ALL of the burden of the banking crisis. Which was the point that Sand made that I responded to and you ignored.

BTW even one of the most successful men in the world can see what these cretins in Fianna Fáil have done to the Irish is a disgrace.

“It’s patently unjust that the Irish people should absorb all the losses made by the banks and that the bondholders should be totally free, and that I think will have to be modified,” Soros said.

http://www.businessweek.com/news/2011-01-27/soros-says-europe-debt-restructuring-can-t-wait-until-2013.html

femur61

cyberhog wrote: »

Baloney! The Irish people have been sold down the river by the scumbags in Fianna Fáil. The people did NOT agree to the terms of the deal so get your bloomin' facts straight before you go mouthing off about "The Irish".

Demoracey my a*se, dictatorship is really what the country is. Buch of teachers making decisions with no experience in the real world.

later12

We don't need to renegotiate, we don't need to burn anyone, literally or metaphorically. it's very simple.

• Change the EFSF (Eurozone crisis mechanism) responsibility, allow it to buy secondary bonds (now available at discounts) on the market
• EFSF exchanges that bond for a sovereign bond in Dublin of longer maturity
• EFSF passes on discount to Ireland.
• Further maturity swaps are possible over longer time periods
• Ireland's bond yields fall on primary market, Ireland re-enters market and doesn't draw down any more EU or Eurozone or IMF debt

Simple.
Relax.