Bank Bondholder amount revealed

Anonymous1987

The Central Bank has decided to reveal the amount of senior (€56.3bn) and subordinated debt (6.9bn) owed to the domestic bank bondholders, see here. An estimate of the potential benefit to the taxpayer from burden sharing among the bondholders is here. With the actual figures now available we can apply the same haircut assumption to the known values as follows:

Bond Type | Amount | Assumed Discount | Benefit
Senior Bonds (Guaranteed) | 20.93 | 40% | 8.37
Senior Bonds (Unguaranteed secured) | 19.1 | 50% | 9.55
Senior Bonds (Unguaranteed unsecured) | 16.41 | 50% | 8.21
Subordinated | 6.94 | 70% | 4.85
Total |63.38||30.99

The total benefit of the haircuts is about €5.5bn above what Constantin estimated. The real question is what is the impact of defaulting on €30.99bn of bank borrowing and is it enough to warrant the damage to the bank and sovereign credit ratings and their ability to access both short and long term funding not to mention the functioning of the Irish financial system.

ixtlan

Constantin refers to an article where the debt ratings were lowered for the unguaranteed unsecured debt. Not for the guaranteed debt.

To default on that guaranteed debt is a sovereign default. Even SF have not advocated a sovereign default.

Defaulting on the senior unguaranteed secured debt is possible, but the bond holders would be entitled to demand the assets that the bonds were secured on, which would complicate matters. Do we want mortgages being traded to bond holders?

The subordinate bondholders (I believe) have already been offered an 80% haircut.

That really only leaves the potential 8b of savings from the unguaranteed, unsecured senior bonds. A big figure it's true, but taking the big picture into account, many believe it's not worth burning these bondholders considering the negative consequences it might have.

ix.

Anonymous1987

Isn't the bank guarantee up for renewal every six months?

Nevertheless I agree with you on the economic cost of the market reaction but it is interesting to consider the possible benefits on haircuts for the bondholders.

Scofflaw

That cross-checks nicely with the current debt securities position of the domestic Irish banks (a group which includes the covered institutions, but also includes Danske, Rabobank, Barclays and a couple of others):

Irish Held|%|Eurozone Held|%|Rest of World|%|Total
€50.304bn |62.79|€10bn |12.48|€19.812bn |24.73|€80.116bn

So it's worth also considering that of the €80.1bn there, 62.8% is Irish held - but since that €80.1bn includes both the covered institutions and subsidiaries of foreign banks, it's likely that Irish holdings of debt in the covered institutions is higher, since eurozone and rest of world holdings in Danske, Rabobank, Barclays etc are more likely than in the Irish institutions.

So when one pulls up a haircut figure, one should bear in mind that at least 60% of what you're burning is simply being burnt in some other part of the Irish economy. That means taking ixtlan's €8bn and realising that about €5bn of that isn't a saving - it's just moving the problem around again.

Isn't the bank guarantee up for renewal every six months?

It is, but the form the guarantee takes in this case (the ELG) is that it guarantees any debt securities issued during the period of the guarantee until their maturity, maximum 5 years. The original guarantee covered all debt, even existing debt, but could only be called on until the end of the guarantee in September 2010 - this one is only for new debt, but any debt guaranteed under it is guaranteed for the lifespan of the debt, not the lifespan of the guarantee.

cordially,
Scofflaw

zig

Scofflaw wrote: »

So when one pulls up a haircut figure, one should bear in mind that at least 60% of what you're burning is simply being burnt in some other part of the Irish economy. That means taking ixtlan's €8bn and realising that about €5bn of that isn't a saving - it's just moving the problem around again.

Not sure about that one, you make it sound like money that your average tax payer will save from this will be once again lost or 'moved around'. But surely thats not the case. The average tax payer will be saved, and its the rich guy thats after investing a couple of 100k that loses out. While literally, yes, its affecting the Irish economy,doesnt it still stand that the tax payers burden will be somewhat relieved?

Scofflaw

zig wrote: »

Not sure about that one, you make it sound like money that your average tax payer will save from this will be once again lost or 'moved around'. But surely thats not the case. The average tax payer will be saved, and its the rich guy thats after investing a couple of 100k that loses out. While literally, yes, its affecting the Irish economy,doesnt it still stand that the tax payers burden will be somewhat relieved?

Unlikely, because it's very highly unlikely that it's a few "rich guys" who have bought the bonds. You're talking about maybe €40bn in bonds there (60% of the €63.4bn), and the number of people in Ireland who personally have even €100 million to put into bank bonds is pretty small (smaller than it was, too). Also, let's face it, Irish bank bonds have pretty big question marks hanging over them, and if you're in Ireland, you'll be well aware of the calls for burning those bonds, the change of government etc. If you had €100m to invest, would you put it in Anglo bonds right now?

No, I'd say it's more likely that Irish banks hold a lot of the debt of other Irish banks - again, the Central Bank records show that Irish domestic banks hold €31.7bn of securities issued by Irish-resident MFIs (Monetary Financial Institutions, aka banks) at end-January. The remaining Irish-resident banks (that is, the IFSC subsidiaries etc) only hold €1.6bn - which also gives you an idea how well-regarded that debt is. So roughly half of that €63.4bn is almost certainly held by Irish domestic banks - and, again, I'm prepared to bet it's not being held by Danske and Rabo.

Now perhaps that €31.7bn is holdings in IFSC banks rather than in domestic banks, and it's entirely coincidental that the amount of Irish resident debt holdings in Irish domestic banks neatly covers the holdings of Irish domestic banks in Irish MFI debt - but I wouldn't consider it likely. I'd say it's much more likely that the Irish banks are playing pass the parcel with their debt, and there's probably a couple of State SPVs in there as well. I'd be interested to see how much the various tied Irish insurance companies and pension funds have tied up in domestic Irish bank debt.

So, on balance, I'd say that when you decide to start burning the unsecured, unguaranteed bondholders - for what that's worth - you'll see the smoke rising from other Irish banks' asset sheets.

cordially,
Scofflaw

hinault

Scofflaw wrote: »

So it's worth also considering that of the €80.1bn there, 62.8% is Irish held - but since that €80.1bn includes both the covered institutions and subsidiaries of foreign banks, it's likely that Irish holdings of debt in the covered institutions is higher, since eurozone and rest of world holdings in Danske, Rabobank, Barclays etc are more likely than in the Irish institutions.

So when one pulls up a haircut figure, one should bear in mind that at least 60% of what you're burning is simply being burnt in some other part of the Irish economy. That means taking ixtlan's €8bn and realising that about €5bn of that isn't a saving - it's just moving the problem around again.

I take your point.

To cut through this we need to see the identity of the bondholders to be certain.
The chances of having the identities and nationalities disclosed is remote but it might help to inform.

If the nationality and location of the bondholders was disclosed this would then kick off another debate, should we burn if the bondholders are foreigners?
Or we must resist burning the bondholders if they're Irish because we're only burning another part of our economy?

This bloody debt hook:mad::mad::mad:

Scofflaw

hinault wrote: »

I take your point.

To cut through this we need to see the identity of the bondholders to be certain.
The chances of having the identities and nationalities disclosed is remote but it might help to inform.

If the nationality and location of the bondholders was disclosed this would then kick off another debate, should we burn if the bondholders are foreigners?
Or we must resist burning the bondholders if they're Irish because we're only burning another part of our economy?

This bloody debt hook:mad::mad::mad:

It really is the case that the time to have burned the bondholders was September 2008 - at this stage nearly all the private bank debt has been "socialised" into sovereign or sovereign-backed debt, or appears (to me at least) to be being passed around between the same set of banks.

cordially,
Scofflaw

Permabear

This post has been deleted.

FoxT

Bond Type Amount Assumed Discount Benefit Senior Bonds (Guaranteed) 20.93 40% 8.37Senior Bonds (Unguaranteed secured) 19.1 50% 9.55Senior Bonds (Unguaranteed unsecured) 16.41 50% 8.21Subordinated 6.94 70% 4.85 Total 63.38 30.99

I dont know much about this - So I pose my assumptions here as a question...

- the Guaranteed bonds are untouchable ?
- The secured ones can be zeroed out against whatever security is contracted for in the bond? ( presumably property?)

Subordinated & unguaranteed unsecured - why not nuke 'em?

Would that be regarded as a sovereign default even if they are unguaranteed?

I thought that subordinated & unsecured bondholders traded risk for more interest?

Sorry if this is the wrong forum - but am genuinely interested in this.

My last q is - even if we do succeed in reducing our bondholder liabilities by, say 30bn - isnt that only about 20% of our total exposure? Would it really help that much?
Or should we use the threat of defaulting to force a lower interest rate on our so-called 'bailout'
Or, again, what percentage of these bonds are held by Irish entities - if we default on them, are we shooting ourselves in the foot?

Thanks for reading. Am confused by the whole thing.

- FoxT

hinault

Scofflaw wrote: »

It really is the case that the time to have burned the bondholders was September 2008 - at this stage nearly all the private bank debt has been "socialised" into sovereign or sovereign-backed debt, or appears (to me at least) to be being passed around between the same set of banks.

cordially,
Scofflaw

I agree with you.

ixtlan

FoxT wrote: »

- the Guaranteed bonds are untouchable ?

Well you can default on them... you can default on anything if you really want, but such a default, since they have a state guarantee, is a state sovereign default, so good luck in trying to sell state bonds to raise funding...

FoxT wrote: »

- The secured ones can be zeroed out against whatever security is contracted for in the bond? ( presumably property?)

Not sure of the details here. You could presumeably argue through the courts that the assets did not cover the bonds, but what you can be sure of is that this would get very ugly indeed.

FoxT wrote: »

Subordinated & unguaranteed unsecured - why not nuke 'em?

Good point. Although they could be forced to take a complete 100% loss, the done thing seems to be to offer the subordinate bond holders something, in this case 20%. I assume this is so that there is legal agreement and to avoid lawsuits, plus perhaps to do some reverse burden sharing. For the senior unguaranteed unsecured they could take a hit as discussed, but it should be noted that these senior bondholders are considered higher priority than depositors so there might be legal issues there. Also the real concern is that while saving a few billion on those senior bonds you bring down upon Europe a storm of a financial crisis that might end up costing even more.

FoxT wrote: »

Would that be regarded as a sovereign default even if they are unguaranteed?

No.

FoxT wrote: »

I thought that subordinated & unsecured bondholders traded risk for more interest?

Yes indeed. Note though that senior bondholders arer far as I am aware were not getting exhorbitant interest rates. Does anyone know what kind of rates were being paid? Subordinated bondholders were getting high interest and surely accepting high risk.

FoxT wrote: »

even if we do succeed in reducing our bondholder liabilities by, say 30bn - isnt that only about 20% of our total exposure? Would it really help that much?

It's unlikely we could get 30b, and yes whatever we would save would be small compared with the total debt issue.

FoxT wrote: »

Or should we use the threat of defaulting to force a lower interest rate on our so-called 'bailout'

This has been suggested, but really there's going to be a lower interest rate anyhow, and I'm not sure how effective such a threat might be.

FoxT wrote: »

Or, again, what percentage of these bonds are held by Irish entities - if we default on them, are we shooting ourselves in the foot?

Scofflaw has speculated on this. We don't really know for sure. We would definitely be doing some self-injury.

Ix.

CDfm

When I see the debt issue I also see lack of regulation on joining the Euro and an increase in the money supply.

Now I know our banks were poorly regulated but how much did joining the Euro add to our problems.

It is not just Ireland who has gotten in trouble here but Greece, Portugal, & Spain as well.

Do we deserve fairer treatment as a result of the failed Euro experiment ?

zig

Permabear wrote: »

This post had been deleted.

On that basis,I presume your saying it will definitely not be done yes?

Boskowski

What failed Euro experiment?

Scofflaw

Boskowski wrote: »

What failed Euro experiment?

While it may well not be what CDfm meant, I guess you could say our attempt to find out whether a country could combine gross fiscal recklessness with Euro membership without massive penalties.

Apparently you can't.

cordially,
Scofflaw

CDfm

Boskowski wrote: »

What failed Euro experiment?

Joining the euro meant that we lost control of our currency and aspects of monetary and interest rate policies were ceded to the the EU.

Foreign lenders lent to the Irish institutions even though their balance sheets showed worrying exposure to mortgage business.

Burning the bondholders could have destabilised the euro and affected the debt financing of other Euro countries.

Scofflaw

CDfm wrote: »

Joining the euro meant that we lost control of our currency and aspects of monetary and interest rate policies were ceded to the the EU.

And retained enough to exacerbate the situation pretty badly - which means we had enough control to calm it down, too.

CDfm wrote: »

Foreign lenders lent to the Irish institutions even though their balance sheets showed worrying exposure to mortgage business.

Burning the bondholders could have destabilised the euro and affected the debt financing of other Euro countries.

Not sure that that applied back at the time of the guarantee. There just doesn't ever seem to have been much eurozone held debt in the Irish domestic bank system. Sure, maybe it's somewhere other than recorded in the Central Bank's figures for Irish banks' domestic balance sheets, but if it is, I haven't seen it, and all the figures I've seen purporting to show that there was a lot of eurozone money in the Irish banks are showing something provably different.

I think we had a window, back in 2008, when we could have refused to take on a lot of bank debt - certainly, most of Anglo's - without destabilising the euro, because we never had enough eurozone money in our banks to do so.

cordially,
Scofflaw

CDfm

Thanks Scofflaw.

What makes it so awful is the economics of bank regulation is very simple and it is a situation that need not have happened. .

Scofflaw

CDfm wrote: »

Thanks Scofflaw.

What makes it so awful is the economics of bank regulation is very simple and it is a situation that need not have happened. .

That's what worries me about it - that the current position is fundamentally the outcome of what happened during what people think of as "the good times" - which suggests that it'll be easy to sell to people again once the current crisis is over (historically, that's what happens, too). It was exacerbated by bad decisions - or one bad decision - that was also primarily the outcome of the bad regulation preceding it, because the government hadn't regulated the banks well enough in the previous decade to know their true position.

Even had we burned Anglo's bondholders, we would still be facing a large bank bailout bill - it just wouldn't be quite so big, or feel quite so like we were paying for the excesses of the golden circle.

cordially,
Scofflaw

zig

Scofflaw wrote: »

No, I'd say it's more likely that Irish banks hold a lot of the debt of other Irish banks - again, the Central Bank records show that Irish domestic banks hold €31.7bn of securities issued by Irish-resident MFIs (Monetary Financial Institutions, aka banks) at end-January. The remaining Irish-resident banks (that is, the IFSC subsidiaries etc) only hold €1.6bn - which also gives you an idea how well-regarded that debt is. So roughly half of that €63.4bn is almost certainly held by Irish domestic banks - and, again, I'm prepared to bet it's not being held by Danske and Rabo.

Fair enough, so does that mean other Irish banks are exposed with these bonds? And if so, what kind of hit could they afford if they were 'burnt' to an extent? (excuse my ignorance on the whole thing). Because it still goes back to my original point that its the taxpayer that is supposed to be relieved not the banks.
Its also worth noting that were still only talking 60% here(or even less, but lets presume that whole 60% is completely Irish held in terms of banks. That still leaves us with another 40% thats not.

My point is, that given all that, surely there is still room for significant cuts?

bladespin

Boskowski wrote: »

What failed Euro experiment?

The single currency maybe? Definately a failure all round, bar maybe saving some cost on ex rates - from what I can see anyway.

CDfm

bladespin wrote: »

The single currency maybe? Definately a failure all round, bar maybe saving some cost on ex rates - from what I can see anyway.

Did the EU/ECB give guidence to the new Euro Countries Central Banks on how they needed to meet the regulatory issues .

Has the Euro benefited any particilar country(ies ) for trade or otherwise.i.e. say the Germans or French in exporting more of their industrial output to us.

It often seems to me that the EU project is there to benefit the larger trading nations and that the Corporation Tax advantage we have is a lot less than proximity (and lack of an ocean to cross) advantage that the mainland European countries have.

So in terms of transactions and trade -who have been the winners ?

Scofflaw

zig wrote: »

Fair enough, so does that mean other Irish banks are exposed with these bonds? And if so, what kind of hit could they afford if they were 'burnt' to an extent? (excuse my ignorance on the whole thing). Because it still goes back to my original point that its the taxpayer that is supposed to be relieved not the banks.

The problem, though, is we're trying to reduce the bank debt we're responsible for - and the amount of bank debt we would actually wind up paying (on liquidation) depends on the balance of assets and liabilities in the banks. So if we burn a couple of billion of liabilities in Bank A, then we're reducing the amount we might have to pay on Bank A - but if Bank B (that we're also responsible for) was holding that debt, then Bank B's assets have just gone down by the amount we 'saved' in Bank A, which increases the amount we have to pay in Bank B by the same amount we thought we saved.

Something sometimes lost amongst the noise is, I think, the fact that we're not actually paying the banks' debts as such yet. What we're doing is injecting capital sufficient for them to stay solvent, because as long as they're solvent the debts don't fall due. What we don't want to happen is that the banks are so obviously insolvent that they're forced into liquidation, because then we do have to cover the difference between liabilities and assets, or at least some of it.

What we're hoping is that we can make the banks sufficiently robust that they can go back to getting their capital from the markets, which would release the capital we've put into them. Unfortunately, burning the banks' bondholders, while it decreases the banks' liabilities and making them a better investment, simultaneously makes investors wary of investing in the banks, because they can't be sure there won't be another round of haircuts.

zig wrote: »

Its also worth noting that were still only talking 60% here(or even less, but lets presume that whole 60% is completely Irish held in terms of banks. That still leaves us with another 40% thats not.

My point is, that given all that, surely there is still room for significant cuts?

I don't know - it really doesn't look like it, though. It looks like we'd save less by doing so than by reducing the bailout interest loan, at this stage.

Our problem is that the banks' debts have already been largely turned into state-guaranteed obligations. The only way to separate them back out again is to wait for the guaranteed debt to mature, and turn it into non-guaranteed debt. That's a four to five year plan, of course - but then, isn't it all?

cordially,
Scofflaw

Scofflaw

bladespin wrote: »

The single currency maybe? Definately a failure all round, bar maybe saving some cost on ex rates - from what I can see anyway.

I don't see how one can really just state that to be the case. In what way has the euro itself been a failure, as opposed to us making a mess of handling our membership of it? On what criteria does one actually judge the euro?

cordially,
Scofflaw

bladespin

Scofflaw wrote: »

I don't see how one can really just state that to be the case. In what way has the euro itself been a failure, as opposed to us making a mess of handling our membership of it? On what criteria does one actually judge the euro?

cordially,
Scofflaw

Just my opinion, but, I do believe that if we had control of our currency we would be in a better position to dig ourselves out of the hole we're in for one, also I believe the single currency and low interest rates from the ECB fuelled the credit craze we experienced during the boom, the economy was out of control and the government might (if they'd been bothered) have been able to slow economy down thereby providing the'soft landing' we were hoping for, I'm not an economist but those points would make the single currency a failure in my eyes.
From the point of view of the larger states, I'm not sure but I don't partuicularly care what Germany thinks about the Euro.

Scofflaw

bladespin wrote: »

Just my opinion, but, I do believe that if we had control of our currency we would be in a better position to dig ourselves out of the hole we're in for one, also I believe the single currency and low interest rates from the ECB fuelled the credit craze we experienced during the boom, the economy was out of control and the government might (if they'd been bothered) have been able to slow economy down thereby providing the'soft landing' we were hoping for, I'm not an economist but those points would make the single currency a failure in my eyes.
From the point of view of the larger states, I'm not sure but I don't partuicularly care what Germany thinks about the Euro.

But none of that is an argument against the euro - it's a reprise of the fact that we handled our euro membership badly.

cordially,
Scofflaw

CDfm

Scofflaw wrote: »

I don't see how one can really just state that to be the case. In what way has the euro itself been a failure, as opposed to us making a mess of handling our membership of it? On what criteria does one actually judge the euro?

cordially,
Scofflaw

OK - suppose I downgrade the "euro being a failure " to" being ill-concieved".

I have found an article I somewhat agree with by a French Economist Gilles Saint-Paul.

Is the euro a failure?

Gilles Saint-Paul
5 May 2010
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Comment Republish
As world markets continue to raise concerns about Eurozone countries, this column argues that the euro has been a failure. Why should money be poured into Greece to "save the euro"? Besides the moral hazard effects of the intervention, it makes little sense to prolong a monetary regime which is actually one of the reasons why these Eurozone countries are in trouble.


During the run-up to the monetary union, many economists were sceptical and warned that it would not work. Their argument was simple. Europe was not an optimal monetary union because it lacked both labour mobility and the fiscal mutual insurance schemes that exist in the US. Also, nominal price formation was rigid so that we could not expect it to offset imbalances and competitiveness differences quickly. Despite those shortcomings, the sceptics considered that the costs of monetary union were not too large after all, because asymmetric shocks are not that important quantitatively.
The Eurozone was formed and it was largely accepted as an irreversible fact. The sceptics refrained from questioning its soundness as an institution for fear of being perceived as unrealistic or extreme. Mentioning that a member country might leave the monetary union some day was considered a political non-starter, so that pragmatic economists who insisted on making a difference in the policy arena did not see the point in ruining their credibility by making such suggestions.
With the Greek crisis, we are brutally reminded that such a prospect is far more real than it was assumed. In order to keep Greece in the Eurozone, other countries must foot the bill, while imposing harsh conditions that – in my view – will be fulfilled only hypothetically. So why do we want to keep Greece in the Eurozone, especially given that membership plays no small role in its current troubles?
Asymmetric trends not asymmetric shocks

The reason why the Eurozone does not work is not asymmetric shocks – their cost is constant over time and therefore unlikely to lead to the single currency's eventual demise – but asymmetric trends. Over the last decade, countries in the Eurozone have quietly but stubbornly diverged in terms of inflation, growth, fiscal performance and competitiveness.

• Some have had 2% inflation on average, others 4%.
• Some have built up trade surpluses, others are increasingly indebted with respect to the rest of the world.
• Some have kept their government budget in check, others have let debt grow.

This divergence comes from different policy choices, different institutions, and different cultures. But the common currency, contrary to the hopes of those who believed such a straightjacket would force member countries to converge in real terms, has in fact added to the divergence.
Spain

Take the example of Spain. It has enjoyed strong growth after its accession to the Eurozone, but this growth was not sustainable. It was mainly driven by a construction boom, itself the outcome of a housing bubble. As construction is not a traded good, the result has been a massive trade deficit, which reached 9% of GDP.
As the boom heated the economy (relative to its equilibrium level which involves a rather high level of unemployment), Spain has experienced consistently greater inflation than the average of the Eurozone. This inflation has in turn deteriorated its competitiveness, which has further added to its trade deficit, while making it quite painful to reallocate resources to the export sector now that the construction industry is gone. Greece has experienced similar inflation differentials and its competitiveness is even more crippled than Spain's.
What if they weren’t in the Eurozone?

Now what would have happened to such a country if it had not been a member of the Eurozone? Perhaps its central bank would have been worried about inflation and would have raised the interest rate. This would have cooled the economy down, and especially hit the oversized construction industry and perhaps even deflated the housing bubble. Or foreign investors would have taken into account the critical developments of the external accounts and attacked the currency. Its depreciation would have restored Spanish competitiveness and activity would have been reallocated from construction to exports. (The speculative attacks against the EMS in September 1992 illustrates just how quickly these corrective mechanisms may take place: The currencies that were attacked were only overvalued by some 5%.)
Eurozone membership not only destroyed those mechanisms, it exacerbated the imbalances. Since its government was able to borrow in the common currency, Spain now had the same nominal interest rate as the rest of the Eurozone. Therefore, the greater its inflation rate, the lower its real interest rate and the greater the stimulus to the economy; not only the cooling down mechanisms are gone but the common currency is a destabilizing factor. Furthermore, if some sectors (like, plausibly, construction) are more sensitive to the real cost of capital than others, then these low interest rates also magnify the bad allocation of economic activity between sectors.
The Spanish government might have wanted to react by having a fiscal contraction; but its incentives to do so were not that large. After all, it managed to reduce its unemployment rate from 20% to some 10% (it is now back at 20%). It is easier to reduce unemployment that way than through painful structural reforms, even though only the latter can bring a durable reduction in unemployment. And the low borrowing costs made fiscal consolidation less necessary from a pure accounting perspective. Thus the boom was not sustainable in the long term, it was a blessing in the short term – which is what politicians care about most...
What this example illustrates is that flexible exchange rates (or imperfect pegs that are vulnerable to speculative attacks) have disciplinary virtues. This may sound paradoxical since part of the economics literature claims that fixed exchange rates are good for stabilising inflation. But in fact that is only true if a country is somewhat averse to the trade deficits induced by persistent inflation differentials. In the case of Greece, Portugal, and Spain, this has not been the case.
Under a flexible exchange rate, a government which has trouble imposing fiscal discipline on itself faces a dilemma. If it borrows in its own currency, and eventually resorts to inflation to make up for its incapacity to balance the budget, markets will anticipate that and ask for a substantial risk premium on its debt. This was the case for the southern European countries before the European monetary union. This risk premium in turn makes the country more vulnerable to an exploding public debt and it should therefore keep a check on its public expenditure and aim for a primary surplus soon. If it borrows in foreign currency, a depreciation of its currency will bring about severe trouble, so that there is a big incentive to avoid inflation.
In a monetary union, markets will start worrying about the state of the public finances only when actual default is in sight. Meanwhile, the monetary union allows a country to borrow at low interest rates regardless of its actual economic situation. This may be a blessing insofar as the risk premium on the exchange rate risk no longer has to be paid, and the same level of expenditure may be financed at a lower cost in terms of debt. But, depending on the political context, the government is also tempted to take advantage of the low rates to further increase its expenditures. This is what has been happening in Greece to such an extent that public debt is now arguably even higher than if it had stayed out of the Eurozone.
Conclusion

Thus it is somewhat disturbing that we are now asked to pour money into Greece to "save the euro" (while the British, who have no stake in the euro, are spared that burden). Besides the fact that apart from Germany, the other large Eurozone economies (France, Italy, and Spain) are barely in a better shape than Greece, and besides the moral hazard effects of the intervention, it makes little sense to prolong a monetary regime which is actually one of the reasons why those countries are in trouble.
Furthermore, in a typical adjustment program, shock therapy aimed at stabilizing public finances must be associated with policies that make it possible for the economy to start growing again – a necessary ingredient if one wants the program to be politically acceptable or just to fulfil its objectives. After all, jobs are needed for the people to tolerate the hardship imposed on them, and fiscal receipts are needed for the government to avoid fresh insolvency problems five years down the line.
In the case of Greece an important obstacle to recovery is the competitiveness problem. If Greece was not part of the European Monetary Union an IMF adjustment package would presumably have involved a sharp depreciation of the currency (if it had not happened before under the sheer pressure of the markets). By insisting that Greece remains in the Eurozone, the other member countries are greatly reducing the success probability of their plan.


This article may be reproduced with appropriate attribution. See Copyright


http://www.voxeu.org/index.php?q=node/4999

The Euro may have had inherent flaws in it that destabilised certain countries.

Now if we look at Germany which is a Federation their view will be to harmonise everything to eliminate advantages competitor countries have. For example, harmonise corporation tax - which by defination would penalie Ireland an island nation on the edge of europe.

Angela Merkel may be a lovely woman and great friends with Enda she will put the German voters needs before what Ireland needs. She has elections too.

EDIT _ A link to some other easy read articles on the Gilles Saint-Paul site

http://www.voxeu.org/index.php?q=node/5194

Taxi Drivers

Scofflaw wrote: »

No, I'd say it's more likely that Irish banks hold a lot of the debt of other Irish banks - again, the Central Bank records show that Irish domestic banks hold €31.7bn of securities issued by Irish-resident MFIs (Monetary Financial Institutions, aka banks) at end-January. The remaining Irish-resident banks (that is, the IFSC subsidiaries etc) only hold €1.6bn - which also gives you an idea how well-regarded that debt is. So roughly half of that €63.4bn is almost certainly held by Irish domestic banks - and, again, I'm prepared to bet it's not being held by Danske and Rabo.

I think you may be trying to compare apples and oranges (or at least not so ripe apples with apples). According the CB Banking Statistics the covered banks have €79 billion of bonds issued. The senior/guaranteed/unguaranteed break-down gives a total of €63.4 billion. According to this the reason for the difference is the €17 billion in bonds that the banks issued to themselves in January to use as collateral with the ECB cashiers. It still means that about €15 billion of the bonds are cross-held by the covered banks themselves. This is less than a quarter as opposed to a half but is significant all the same. What a mess!

CDfm

Like it or not having the euro even in these recessionary times has been a huge benefit to Germany.

So penalising Ireland is just greedy.

Suggesting we increase our corporation tax rate just makes Ireland less attractive as a start up location for businesses that compete with German businesses.

Anyway - the benefits to Germany are below.

.

Having a Large Euro Area Is an Advantage for Germany

by Adam S. Posen, Peterson Institute for International Economics

Op-ed in Die Welt
February 19, 2010
English language version © Peterson Institute for International Economics.


Listening to the current hue and cry over Germany's role in backstopping Greek restructuring, one might be duped into thinking that having the euro extend beyond the core economies was a great mistake. Whatever the balance of economic costs and benefits of euro adoption for other countries, for Germany itself, widespread euro adoption has been a boon. There are many advantages to being the anchor economy for a currency zone from which Germany has benefited over the last 11 years. None of those advantages are imperiled by the Greek situation and all of those advantages increase with the size of the euro area.
First of these advantages to Germany is seigniorage: the public revenues generated when actual currency issued is used outside of the originating area. Throughout Eastern Europe and the Med, as well as in some forms of illicit commerce globally, cash euros are in wide usage—and that translates into hard cash for the German government budget, as much as 0.2 percent of GDP (or 5 billion euros) a year, every year. That usage abroad is much greater, and has more potential for growth in usage, than deutsche mark (DM) usage ever had.
Second, companies doing business in the euro area get to price and invoice most of their transactions in euros without having to worry about exchange rate fluctuations. That applies to both German companies exporting to other euro area members and foreign companies doing business in Germany. Greater certainty reduces transaction costs, lowering costs to the consumer. It also expands trade, creating more variety and competition, also of benefit to the economy's productivity growth. Germany, as the Euroexportmeister, benefits most from this network of stability—and again has a wider and deeper range of trade in its own currency now than it did under the DM. And that means more transactions with producers outside of the euro area are denominated in euros as well, reducing costs and risks there, too.

It is in the Germans' own enlightened self-interest to provide financing to ease the process of real adjustment in those euro area economies that have overstretched on spending on German goods.

Third, interest rates for businesses to borrow have been reduced on average. Some of this benefit was felt much more in other euro area economies than in Germany, since Germany already had the lowest risk premia on its borrowing. Still, the significant deepening of euro-denominated bond markets has paid off for many German businesses and households as well by expanding access to credit. That deepening of bond markets is a direct result of the euro's wide adoption including by Germany. This attracts inflows of capital to Europe beyond what came in to just the DM-denominated debt market, which increases liquidity. These gains dwarf any risk premia on overall euro debt that are feared, and may not even come to pass.
Fourth, at least still in prospect, the euro provides a platform for Germany to stand with the Americans, Chinese, Japanese, and now other rising economic powers in international negotiations. Yes, Germany was an original member of the G-5 then G-7, and had often spoken for continental Europe in the late 20th century. Increasingly, however, it will require the weight and legitimacy of the euro area as a whole to have a major voice at the table. In fact, that is an argument for the German political discussion to favor greater European integration in German self-interest. And that begins with how Greece and other "peripheral" economies—including in Eastern Europe outside the euro area—are treated.
Finally, and most importantly for the present situation, Germany benefits directly from the stability that the euro provides to surrounding countries—and that includes from having southern membership of the euro area. Germany gets to run a trade surplus with member countries that otherwise would not be able to afford so many of its exports. People should remember what happened in 1992 and 1995, the last time that other European economies found their combination of demand growth and real exchange rates against the German economy unsustainable: massive abrupt nominal depreciations against the DM, which hammered German export competitiveness and then shocked the depreciating economies. Those were lose-lose situations, and a repeat of such is what the euro prevents.
So the current fevered debate in Germany over a potential contribution to a strictly conditional loan to Greece—which will in any event be fully repaid—is misplaced. The German economy is a beneficiary of being able to run a sustained trade surplus with its European neighbors, particularly in a time of global contraction. It is in the Germans' own enlightened self-interest to provide financing to ease the process of real adjustment in those euro area economies that have overstretched on spending on German goods. That will not only keep the markets open and prevent contraction in growth on both sides of the trade——it will be an investment in the continued attractiveness of the euro area to future members. An expanded euro area remains so much in Germany's direct interest that it is worth financing, if not paying for.

So Germany has benefited by keeping its markets open in spite of the bail out.

It has an advantage to the peripheral economies such as Ireland.

Germany benefits from euro despite huge bailout


Font Size: Larger|Smaller
Wednesday, July 14, 2010
SIMON KENNEDY
LONDON - Bloomberg



A worker assembles a Siemens Healthcare Magnetic Resonance Imaging scanner at the company's factory in Erlangen, Germany in this file photo. Bloomberg photo
For Germany, bailing out its neighbors to save the euro is proving a price worth paying.
Rising share prices and foreign sales at BMW and Siemens show why it may be worth keeping the single currency even as some voters balk at the cost of rescuing Greece and demand a return to the deutsche mark. As exporters benefit from the lower labor costs and currency stability fostered by the euro’s 1999 introduction, unemployment has dropped close to an 18-year low and the DAX Index is the 16-nation bloc’s best performing major benchmark this year.
That’s reinforcing Germany’s status as a pillar of euro stability rather than a weak link as European policy makers scramble to stop the region lurching back into recession. While academics including Martin Feldstein say the Greek crisis could splinter the euro and investor George Soros urges Germany to do more to ease economic tensions in the region, the currency is rebounding. The euro has gained 6.6 percent against the dollar since hitting a four-year low on June 7.
“A break-up would be a big problem for the German economy, probably bigger than for most others,” said Julian Callow, chief European economist at Barclays Capital in London. “Industries in Germany have gained so much market share in Europe. For Germany, it’s a lose-lose situation.”
From sick man to champion:
Germany is reaping the rewards of the discipline imposed on its economy over the past decade after reunification in 1990 dragged down growth and saw the country being labeled the “sick man” of Europe. With the euro preventing governments from devaluing their way to growth, Germany squeezed labor costs just as economies from Spain to Greece chose to run up record budget deficits and allowed employment costs to rise.
The result has sharpened Germany’s trading edge over the euro-region economy’s southern periphery. Europe’s largest economy became 13 percent more competitive against its neighbors in the 11 years through 2009, mirroring similar declines in Spain and Greece, according to a wages-based indicator designed by the European Central Bank, or ECB.
The pay-off is evident in the performance of Siemens, Europe’s largest engineering company. Since 2001 it has recorded 23.1 billion euros ($29 billion) in restructuring costs, according to estimates by Morgan Stanley. That efficiency-drive helped boost the European share of Siemens’ sales to 41 percent in 2009 from 32 percent in 2004 and pushed its operating margin above those of General Electric, Alstom and ABB.
Exporters have pushed the DAX 3.9 percent higher this year, with Siemens shares increasing 18 percent and BMW, which on Tuesday raised its earnings forecast, climbing 32 percent. The Spanish and Greek benchmarks have lost 14 percent and 29 percent, respectively, and the U.S. Dow Jones Industrial Average has declined 0.6 percent.
Positive expectations:
“Talking to companies you get the feeling that they are really quite positive about their earnings and expectations,” said Stefan Moeckel, a fund manager at WestLB Mellon Asset Management. He says the DAX may reach 7,000 this year, compared to Tuesday’s closing level of 6,191.
Commerzbank Chief Executive Officer Martin Blessing said July 8 Germany is growing at a faster pace than anticipated. Deutsche Bank predicts that the German economy will expand 2 percent this year, more than France, Italy and Spain.
German voters are yet to be convinced about the benefits of the euro as they foot the biggest share of the bailouts agreed by leaders earlier this year to rescue the currency. Fifty-one percent of respondents in a poll published on June 30 by Bild called for a return to the deutsche mark.
The reason for their irritation is that Greece and other so-called peripheral economies “broke the rules” of the euro by living beyond their means, said Joerg Kraemer, chief economist at Commerzbank in Frankfurt. Of the 610 billion euros pledged by governments, Germany could have to pay as much as 170 billion euros.
While Kraemer says quitting the euro is “not on the agenda,” Morgan Stanley’s co-chief global economist Joachim Fels has said that may change. Inflation expectations may accelerate if investors question governments’ commitment to fiscal discipline, he says, prompting a German rethink of membership.
A German exit is “clearly not a near-term possibility,” Fels said in a May 18 interview. “It is a distinct possibility longer-term.”

http://www.hurriyetdailynews.com/n.php?n=germany-benefits-from-euro-despite-huge-bailout-2010-07-14

The Germans are very quiet about that.

Scofflaw

Taxi Drivers wrote: »

I think you may be trying to compare apples and oranges (or at least not so ripe apples with apples). According the CB Banking Statistics the covered banks have €79 billion of bonds issued. The senior/guaranteed/unguaranteed break-down gives a total of €63.4 billion. According to this the reason for the difference is the €17 billion in bonds that the banks issued to themselves in January to use as collateral with the ECB cashiers. It still means that about €15 billion of the bonds are cross-held by the covered banks themselves. This is less than a quarter as opposed to a half but is significant all the same. What a mess!

Mm, I don't think so, quite. The reason there's a difference between what the CB records for the covered institutions and for the domestic institutions is because the CB stats for the "Irish domestic credit institutions" don't contain precisely the covered banks - Danske, Rabo, and Barclays are in there as well. Unless Danske, Rabo etc have absolutely no securities issued, the difference between the figures has to include their securities - so the fact that it's roughly €17bn is coincidental.

On the other hand, what you can see in in the domestic institutions figures from the CB is a jump of almost exactly €17bn in Irish held securities from end-December to end-January (from €33.3bn to €50.3bn). Because that's a movement rather than an absolute figure, then to exclude it being Danske/Rabo etc it's only necessary that they didn't make any major changes in debt issues in January - which is very likely, whereas the idea that those banks have no current securities outstanding at all is very unlikely.

(In fact, we know that Danske does have bonds outstanding (see here, p27), so I think we can discount the idea that the €17bn gap between the CB 'covered' and CB 'domestic' debt is the cross-held bonds, because we know that the €17bn gap there needs to also account for bonds issued by the non-covered domestic banks.)

Either way, as you say, we know that that €17bn is cross-held, and that's a definite third of the Irish holdings - and I think we can also say that the fact that the €17bn jump shows up in the CB stats under "Irish held securities" means that that's where cross-holdings go when they occur - but we don't know, without a list of bondholders, whether there's more cross-holding in there, or slightly more distant cross-holding through non-credit financial institutions like Quinn Insurance. All we can say is that at least a third of the Irish held debt is cross-held - currently.

cordially,
Scofflaw

Scofflaw

CDfm wrote: »

Like it or not having the euro even in these recessionary times has been a huge benefit to Germany.

Being fiscally disciplined has been a huge benefit to Germany - just as the fiscal discipline we imposed on ourselves in the Nineties was for Ireland.

CDfm wrote: »

So penalising Ireland is just greedy.

The interest rates on the bailout fund are supposed to be dissuasive rather than punitive, and I would say they are - they're not far above rates we have borrowed at from the markets, and they're a long way below what we can currently borrow from the markets at. The dissuasion was built in from the inception of the EFSF, and agreed to by Ireland at that time.

After all, we're supposed to be fixing the problems in our country - the runaway budget deficit, the overgrown banking sector, right? Unless we do it, we have no hope of going back to the markets - which means we stay reliant on the big economies for cash. What incentive do we have to take the necessary pain if we can just tap Germany for money at rates lower than we'd get from the markets anyway?

Ireland is a sovereign country - that means that those who lend to us as a last resort can't actually force us to get our deficit under control except by either (a) physically threatening us with war; or (b) giving us an interest rate higher than the market rates, so that we want to fix our problems and get back to the market.

For the rate offered to us to be as low as people would like, we're going to have to offer some other assurance that we'll get our house in order, because in the absence of a dissuasive interest rate, there is absolutely nothing stopping us from electing a government that won't actually fix our budget deficit. We could have elected a government that promised to end the budget cuts, and to not stick to the programme of reducing the deficit - and, in the shape of Labour, we did so to some extent. That's our sovereign right as a democracy - but it means that we need more money from our 'friends' to stay afloat. We become an indigent nation, reliant on soft loans from real economies - and who the heck owes us a living?

CDfm wrote: »

Suggesting we increase our corporation tax rate just makes Ireland less attractive as a start up location for businesses that compete with German businesses.

Paranoia aside, that's not a real issue. It may be something individual politicians think we should do, but there's no mechanism for forcing us to do it, no proposal that we do it, and no suggestion that the Commission would make such a proposal.

The tax rate is a straw man issue - it gives Irish politicians something they can confidently claim to defend, because it's not actually under attack.

CDfm wrote: »

Anyway - the benefits to Germany are below.

So Germany has benefited by keeping its markets open in spite of the bail out.

It has an advantage to the peripheral economies such as Ireland.

It does, yes - because, to quote the article you've cited:

Germany is reaping the rewards of the discipline imposed on its economy over the past decade after reunification in 1990 dragged down growth and saw the country being labeled the “sick man” of Europe. With the euro preventing governments from devaluing their way to growth, Germany squeezed labor costs just as economies from Spain to Greece chose to run up record budget deficits and allowed employment costs to rise.

So Germany is economically healthy because they've driven down labour costs. We, on the other hand, like several other economies, allowed them to spiral out of control, becoming grossly under-competitive in the process, and are now so unwilling to bring them back under control that many people think leaving the euro in order to be able to avail of the short-term boost of devaluing our currency is an attractive option, while becoming paranoid about protecting a low corporate tax rate we believe is an adequate substitute for real competitiveness - anything rather than fiscal and economic discipline. We've had an easy decade, courtesy of cheap money, and now we can't imagine facing pain - we're soft.

Germany would have a competitive economy if they still had the Deutschemark - we'd still be up the creek if we still had the Punt. The difference is that they have made real improvements to their competitiveness, resulting in a stable and attractive economy, whereas people here are engaged in a desperate search for magic money trees and get out of debt free cards. To top it off, we're angry that the people bailing us out have the gall to not offer us rates that would allow us to put off getting our deficit in order! We're suspicious of the fact that they've made themselves genuinely competitive while we were blowing our economy into a bubble selling each other overpriced and shoddy houses - we're not to blame, of course, so they must somehow have stolen a march on us. And so they did - by actually marching while we wallowed in cheap credit and boasted about phantom wealth.

Sorry for the rant there - but really, the reaction to our crisis has been pathetic. Anyone doing better than us must have done so at our expense, anyone lending to us isn't giving us a good enough deal, we was robbed, we weren't to blame, everybody else should pay for our banks, it was the euro, it was the German banks, boo hoo poor little us, snivel snivel, we'll show them our balls oh yes, then they'll be sorry, we'll give them the finger, we'll refuse their money because it isn't cheap enough, because we're fucking cheap credit addicts. Boke.

seriously - meh,
Scofflaw

CDfm

Scofflaw wrote: »

Sorry for the rant there - but really, the reaction to our crisis has been pathetic. Anyone doing better than us must have done so at our expense, anyone lending to us isn't giving us a good enough deal, we was robbed, we weren't to blame, everybody else should pay for our banks, it was the euro, it was the German banks, boo hoo poor little us, snivel snivel, we'll show them our balls oh yes, then they'll be sorry, we'll give them the finger, we'll refuse their money because it isn't cheap enough, because we're fucking cheap credit addicts. Boke.

seriously - meh,
Scofflaw

Whoa there neddy.

I didn't say we were right or that thr germans were being altruistic just pointing out that the german self interest here has always come first.

I am not really a fan of the euro and never really have been -so I am pointing out that the Euro has always served the German interests.The bailout has also served the German interest.

As for our idiotic public servants -elected and unelected - who were involved in irish bank regulation - I would give them a few goats and seed potatoes and have them repopulate the Blasket Islands. I am truly horrifired their behavior, and we are not having our new administration tackle this or even aportion some blsne to the DoF/CB.

Taxi Drivers

Scofflaw wrote: »

Mm, I don't think so, quite. The reason there's a difference between what the CB records for the covered institutions and for the domestic institutions is because the CB stats for the "Irish domestic credit institutions" don't contain precisely the covered banks - Danske, Rabo, and Barclays are in there as well.

Hi Scofflaw,

I think you've overlooked a new development from the CB stats. Table 4.1 as you point out refers to all domestic institutions. However, there is a new Table 4.2 which provides the same information for the covered institutions. This shows that the total bonds isssued by the covered banks was €79.2 billion.

Table 4.1 shows that all domestic bonds have €80.1 billion of bonds in issue so about 99% of the bonds are from the covered six as opposed to foreign banks with Irish operations (Danske, Rabo, Barclays etc.). This €79.2 billions differs from the €63.4 billion total in the later release on the breakdown of the bonds by type. The €17 billion of self-issued bonds is likely to be the reason.

Table 4.2 shows that there was a €17 billion jump (€33 billion to €50 billion) in debt securities issued to Irish residents on the liability side of the covered banks' balance sheets and a €17 billion jump (€15 billion to €32 billion) in debt securities held by the covered banks that were issued by Irish monetary financial institutions on the asset side of the covered banks' balance sheets.

This conclusion seems plausible to me:

The covered six have €79 billion of bonds issued. About €17 billion of these are guaranteed self-issued bonds which are being used as collateral with the ECB. Another €15 billion are held by the covered banks themselves. Banks in the IFSC hold only €1.5 billion of these bonds. That accounts for €33.5 billion of the €50 billion of covered bank bonds held by Irish resident.

Who holds the other €16.5 billion? It could be “Irish credit unions and Irish pension funds”. It could be IFSC-based non-banking institutions that do not appear in the Central Bank statistics. We don’t know. We do know that non-Irish residents hold €29 billion of bonds issued by the covered banks.

ixtlan

CDfm wrote: »

I am not really a fan of the euro and never really have been -so I am pointing out that the Euro has always served the German interests.The bailout has also served the German interest.

Well of course. No country would have introduced the Euro if it did not serve it's interest in some way. It served Ireland's interest also in boosting business activity across the Eurozone, and making such business easier and more stable. The fact they we totally screwed up our economy by pouring money into a bubble is not directly the Euro's fault, though you can argue perhaps that politicians are incapable of managing fiscal policy... ergo economic stability must be maintained through monetary policy... ergo we must have an independent currency. That's a sad state of affairs though to want to argue... elected politicians are always going to be incompetent, so we must have an independent currency managed by unelected officials.

And I'll add that the bailout served the Irish interest too, as well as the German interest. In it's absence we could/would have defaulted on lots of bank debt but whether that would have served our interest better is highly questionable.

Ix.

CDfm

ixtlan wrote: »

Well of course. No country would have introduced the Euro if it did not serve it's interest in some way.

Agreed - but if you look at Gilles Saint-Pauls paper the currency is flawed . The member states have different economies.They are not generic.

The Euro interest rate is poised to rise shortly -which is the opposite to what Ireland needs.

It served Ireland's interest also in boosting business activity across the Eurozone, and making such business easier and more stable. The fact they we totally screwed up our economy by pouring money into a bubble is not directly the Euro's fault, though you can argue perhaps that politicians are incapable of managing fiscal policy... ergo

A politician will always take the short term option & economic growth for a politician is like a fix for a junkie and their eyes glaze over ..........

So the mechanism must have controls that stops that.

Ours did not.

We do not have a "statist" culture that the germans or others have.

economic stability must be maintained through monetary policy... ergo we must have an independent currency. That's a sad state of affairs though to want to argue... elected politicians are always going to be incompetent, so we must have an independent currency managed by unelected officials.

It wont because the economies if the member states are not homogenous they are heterogenous.

And I'll add that the bailout served the Irish interest too, as well as the German interest. In it's absence we could/would have defaulted on lots of bank debt but whether that would have served our interest better is highly questionable.

The bailout served our interest but the euro has not given us stability.

The currency mechanism is flawed in some ways.

Now we can say that ourselves, the Greeks, Portugeese and Spanish have been very naughty.

It has also been the case that both our DoF and Central Bank were both either inept and incomptetant or wreckless. Either way , there should be a massive clear out of the officials involved. You can't have the same people administering the bailout that administered the mess. And we do need a system where officials are accountable.

And, I happen to think that the policy traffic on this is all one way.

The euro fuelled the bubble and of course it is working for Germany but the profits from it is the grow the Euro economy in their interest.

ixtlan

CDfm wrote: »

Agreed - but if you look at Gilles Saint-Pauls paper the currency is flawed . The member states have different economies.They are not generic.

The Euro interest rate is poised to rise shortly -which is the opposite to what Ireland needs.

Quite true. On reflection it seems somewhat extraordinary that the issues that have arisen were not foreseen by the politicians involved. I suppose the grand vision obscured the potential pitfalls and it was just assumed that each country would behave rationally.

CDfm wrote: »

A politician will always take the short term option & economic growth for a politician is like a fix for a junkie and their eyes glaze over ..........

So the mechanism must have controls that stops that.

Ours did not.

We do not have a "statist" culture that the germans or others have.

I'm not sure if the statist culture would matter, but that's a moot point. Since Germany is the biggest economy the Euro interest rates would always have followed their requirements, making control mechanisms for Germany unnecessary.

So, I guess I agree with your points. Right now though, it's a rock and a hard place situation. Leaving the Euro is probably impossible, leaving the likely solution greater European control over each others economies, which is going to be extremely unpopular.

Ix.

Scofflaw

Taxi Drivers wrote: »

Hi Scofflaw,

I think you've overlooked a new development from the CB stats. Table 4.1 as you point out refers to all domestic institutions. However, there is a new Table 4.2 which provides the same information for the covered institutions. This shows that the total bonds isssued by the covered banks was €79.2 billion.

Table 4.1 shows that all domestic bonds have €80.1 billion of bonds in issue so about 99% of the bonds are from the covered six as opposed to foreign banks with Irish operations (Danske, Rabo, Barclays etc.). This €79.2 billions differs from the €63.4 billion total in the later release on the breakdown of the bonds by type. The €17 billion of self-issued bonds is likely to be the reason.

Table 4.2 shows that there was a €17 billion jump (€33 billion to €50 billion) in debt securities issued to Irish residents on the liability side of the covered banks' balance sheets and a €17 billion jump (€15 billion to €32 billion) in debt securities held by the covered banks that were issued by Irish monetary financial institutions on the asset side of the covered banks' balance sheets.

This conclusion seems plausible to me:

The covered six have €79 billion of bonds issued. About €17 billion of these are guaranteed self-issued bonds which are being used as collateral with the ECB. Another €15 billion are held by the covered banks themselves. Banks in the IFSC hold only €1.5 billion of these bonds. That accounts for €33.5 billion of the €50 billion of covered bank bonds held by Irish resident.

Who holds the other €16.5 billion? It could be “Irish credit unions and Irish pension funds”. It could be IFSC-based non-banking institutions that do not appear in the Central Bank statistics. We don’t know. We do know that non-Irish residents hold €29 billion of bonds issued by the covered banks.

Very good! I think where I went wrong in saying the €17bn had to be coincidence was that I left out the fact that the "covered institutions" includes certain foreign subsidiaries of the domestic Irish banks in places like the UK, Guernsey and the Isle of Man. Those would actually have assets/liabilities of very similar size to the Danske/Rabo operations in Ireland, based on a look at their financial reports - and contribute in the opposite direction to the difference between the 'domestic institutions' and the 'covered institutions'.

Is it sad that I like wading around in this stuff? Really appreciate the pointer.

cordially,
Scofflaw

Amhran Nua

Scofflaw wrote: »

To top it off, we're angry that the people bailing us out have the gall to not offer us rates that would allow us to put off getting our deficit in order!

Eh, no, we're angry because most of the country had nothing directly to do with buying and selling houses, and now we're probably going to be taxed to the hilt for decades to pay for the excesses of testosterone laden developers, vastly incapable civil servants, corrupt politicians who for some reason are still milking the public for pensions, and cocksure bankers without a clue.

Before you start off on the enablement rant:

People generally believed the country was doing well, egged on by the media and establishment, and had no understanding of the consequences of the actions being taken, nor could they in most circumstances be reasonably expected to have an understanding of these issues. It's quite probable that by the time the guarantee was handed out, FF had no mandate, their subsequent expulsion from politics would support this.

There is a great deal of anger out there right now, the trick is to ensure it gets directed towards the proper quarters.

Scofflaw

Amhran Nua wrote: »

Eh, no, we're angry because most of the country had nothing directly to do with buying and selling houses, and now we're probably going to be taxed to the hilt for decades to pay for the excesses of testosterone laden developers, vastly incapable civil servants, corrupt politicians who for some reason are still milking the public for pensions, and cocksure bankers without a clue.

Before you start off on the enablement rant:

People generally believed the country was doing well, egged on by the media and establishment, and had no understanding of the consequences of the actions being taken, nor could they in most circumstances be reasonably expected to have an understanding of these issues. It's quite probable that by the time the guarantee was handed out, FF had no mandate, their subsequent expulsion from politics would support this.

There is a great deal of anger out there right now, the trick is to ensure it gets directed towards the proper quarters.

Indeed - and people directing it at those who are loaning us the money we need as a result of "the excesses of testosterone laden developers, vastly incapable civil servants, corrupt politicians who for some reason are still milking the public for pensions, and cocksure bankers without a clue" are directing it towards the wrong quarters.

Addressing claims people aren't making is, I have to point out, an irritating habit, as is pre-emptively dismissing things you assume they were going to say.

regards,
Scofflaw

CDfm

Scofflaw wrote: »

Indeed - and people directing it at those who are loaning us the money we need as a result of "the excesses of testosterone laden developers, vastly incapable civil servants, corrupt politicians who for some reason are still milking the public for pensions, and cocksure bankers without a clue" are directing it towards the wrong quarters.

You forgot teachers who are the largest occupational group in the Dail and who tackle the public sector malaise by telling them to get out to the line.

Amhran Nua

Scofflaw wrote: »

Indeed - and people directing it at those who are loaning us the money we need as a result of "the excesses of testosterone laden developers, vastly incapable civil servants, corrupt politicians who for some reason are still milking the public for pensions, and cocksure bankers without a clue" are directing it towards the wrong quarters.

There is no reason for the interest rate to be so high among several other objectionable issues, it is punitive rather than dissuasive, and people are rightly angry at that, for the reasons outlined above.

On the topic of this ongoing anger at "the people", perhaps you would be better advised to contemplate your own nailed-to-the-post support of the Greens while they supported FF in this insane guarantee. Contemplate the degree of your own responsiblity, when you should have known better.

CDfm

Amhran Nua wrote: »

There is no reason for the interest rate to be so high among several other objectionable issues, it is punitive rather than dissuasive, and people are rightly angry at that, for the reasons outlined above.

It is punitive.

Amongst the issues is government spending and like why CS wages cant be benchmarked downwards .

I mean - if the same money could be spent on capital projects that are labour intensive you get lower unmployment etc

On the topic of this ongoing anger at "the people", perhaps you would be better advised to contemplate your own nailed-to-the-post support of the Greens while they supported FF in this insane guarantee. Contemplate the degree of your own responsiblity, when you should have known better.

In fairness - everyone woke up one morning with a banking crisis and the DoF/CB lack of bank regulation etc was a major underlying factor.

Willie O'Dea seemed to be the only politician who could talk and he is a solicitor and was defense minister.

Maybe the DoF gave bad advice.

Something strikes me here - th DoF are fairly ahem whatever and the Health Services cost 50% more than they should and do not deliver health.

What does that say.

A businessman friend told me of a meeting with th County Council about rates he was told that his payments had nothing to do with services delivery and services to his business but paying wages.

He needed a reduction in rates and it turned into a well to pay the rates we will need to leave staff go. Verying sobering.

I have also heard other people say the same thing about local authorities bleeding them in change of use or expansion.

I heard on the radio of a cafe in Kinsale having to stump up 70,000 when it expanded. Thats a lot of breakfasts, teas and scones.

Amhran Nua

CDfm wrote: »

I mean - if the same money could be spent on capital projects that are labour intensive you get lower unmployment etc

Or a fund for new enterprise startups, or almost anything really.

CDfm wrote: »

In fairness - everyone woke up one morning with a banking crisis and the DoF/CB lack of bank regulation etc was a major underlying factor.

At the time of the guarantee many people were extremely upset with it, and quite vocal about that. Indeed, the question was raised in many discussions about how the greens could continue to support FF.

Still, at least we now have an eco-friendly island paradise, where the only thing louder than the distant hum of the majestic wind turbines and the electric cars is the sound of children playing with forest creatures. Oh wait, that didn't happen at all, instead the green movement in Ireland was obliterated for at least a generation, we'll be fortunate to have any forests left at all by the sounds of it, and the boys got their pensions, as predicted at the time.

Sweeping collective blame is great craic altogether.

Scofflaw

Amhran Nua wrote: »

There is no reason for the interest rate to be so high among several other objectionable issues, it is punitive rather than dissuasive, and people are rightly angry at that, for the reasons outlined above.

On the topic of this ongoing anger at "the people", perhaps you would be better advised to contemplate your own nailed-to-the-post support of the Greens while they supported FF in this insane guarantee. Contemplate the degree of your own responsiblity, when you should have known better.

Unlike some, I haven't ever tried to claim I have no responsibility, and my support for the Greens has been, as you point out, entirely overt, so I have been over these issues before, with people just as interested as yourself in pointing the finger of blame, and just as widely so long as it never swings round to the mirror.

regards,
Scofflaw

CDfm

Amhran Nua wrote: »

Or a fund for new enterprise startups, or almost anything really.

+1

Sweeping collective blame is great craic altogether.

But there was a collective concensus.

You can't really single people out.

In 2007 all the political parties used the same economic assumptions in their manifesto's.

hypervalve

If the banks had been allowed to fail back in 2008 would that have resulted in a sovereign default?

Amhran Nua

Scofflaw wrote: »

with people just as interested as yourself in pointing the finger of blame, and just as widely so long as it never swings round to the mirror.

So what blame do you think I might find looking back at me from the mirror, please elucidate, and do you not think it's a bit hypocritical in your position to be speaking constantly of "we". Of course those most responsible are only delighted to spread the fault around as widely as possible.

I'd advise less of the self righteousness in future tbh.

CDfm wrote: »

But there was a collective concensus.

FF's election results would argue otherwise.

Scofflaw

Amhran Nua wrote: »

So what blame do you think I might find looking back at me from the mirror, please elucidate, and do you not think it's a bit hypocritical in your position to be speaking constantly of "we". Of course those most responsible are only delighted to spread the fault around as widely as possible.

I'd advise less of the self righteousness in future tbh.

You're free to advise as you wish, and if you prefer to dodge any responsibility as an an Irish citizen, that's also up to you.

Amhran Nua wrote: »

FF's election results would argue otherwise.

The 2007 results suggest that there was - the same results that gave Fianna Fáil a mandate, with or without the Greens.

regards,
Scofflaw

CDfm

Amhran Nua wrote: »

FF's election results would argue otherwise.

But havent the New Coallition adopted FF's 4 year plan -which proves you do not have to be elected to be a decision maker.;)

Amhran Nua

Scofflaw wrote: »

You're free to advise as you wish, and if you prefer to dodge any responsibility as an an Irish citizen, that's also up to you.

You don't have the right to lecture Irish citizens on responsibility. You gave up that right when you explicitly supported the very deal you're calling Irish citizens "muppets" over, in the name of some chancer's pension.

Scofflaw wrote: »

The 2007 results suggest that there was - the same results that gave Fianna Fáil a mandate, with or without the Greens.

regards,
Scofflaw

Remind me once again, was the guarantee before or after the 2007 election?