Time is almost up for Spain as borrowing costs soar

darkman2

This must be it now. There is surely little doubt now Spain needs a bailout.


http://www.bloomberg.com/quote/GSPG10YR:IND/chart


Patience has dried up in the market. Spanish and Italian borrowing costs are soaring. The market does not think Spain's recent announcements about getting it's house in order go anywhere near far enough.

The Spanish Economy Minister said today:


“Spain does not need a financial bailout at this moment."

And if Spain's awful day is not enough Italy is following close on the heals into the abyss aswell

http://www.bloomberg.com/quote/GBTPGR10:IND/chart


To put Spain's position in context if Ireland notionally wanted to borrow for 9 years from the market it would pay around 6.7% - Spain could soon be paying more than Ireland to borrow money.

FT's markets editor Chris Adams has tweeted

Euro crisis has returned today with a vengeance

RichardAnd

The sooner we are all in debt to each other and are breaking our backs to exchange money that never really existed, the sooner we might realise how silly this game is and start over.

liammur

darkman2 wrote: »

This must be it now. There is surely little doubt now Spain needs a bailout.


http://www.bloomberg.com/quote/GSPG10YR:IND/chart


Patience has dried up in the market. Spanish and Italian borrowing costs are soaring. The market does not think Spain's recent announcements about getting it's house in order go anywhere near far enough.

The Spanish Economy Minister said today:


“Spain does not need a financial bailout at this moment."

And if Spain's awful day is not enough Italy is following close on the heals into the abyss aswell

http://www.bloomberg.com/quote/GBTPGR10:IND/chart


To put Spain's position in context if Ireland notionally wanted to borrow for 9 years from the market it would pay around 6.7% - Spain could soon be paying more than Ireland to borrow money.

FT's markets editor Chris Adams has tweeted

Could it be that they have decided they've made loads of money on the up, and now it's time to make loads on the way down.

Politicians should not listen to these gangsters.

darkman2

Spain and Italy both have serious underlying economic issues. Spain has not even started it's austerity drive properly yet. Unemployment there is due to reach 26% later this year and the economy is forecast to shrink 1.7% this year. And the banks have yet to fess up to the true extent of their exposure to the property crash.

This really is a desperate situation now for the Eurozone.


As for todays panic...

Peter Spiegel

Monti said Italy worried abt Spanish contagion. Today, Spain CentBank chief says cause of market worry is Italian "backpedaling".#BlameGame

Slydice

I dunno.. they were able to squeeze time outta us and greece for a good while. What time frame do they have to do a few big bond sales in?

_Kaiser_

The sooner the whole rotten, fundamentally flawed, shambles that is the Euro and EU falls the better in my opinion.

Now I know the usual suspects will start on about what a disaster that would be - but for who? Certainly not the citizens of this country and those others now under "threat" who are being forced to pay for a game most of them never had a hope of entering themselves never mind profit from.

No, the ones who will really lose out here are the investors, bankers and of course politicians and civil servants who continue to enjoy the good times that the rest of us pay for. OF COURSE they will try to save it until the bitter end. Why wouldn't they? It's a system they all profit from (in financial, power and status terms), with little to no accountability or responsibility to their native electorate so who is really surprised that they will try every threat, promise and bargain they can come up with to keep the gravy flowing for as long as possible.

Nations and alliances have come and gone over the ages and yet the world didn't end - this is ultimately no different. Something else will eventually rise to replace the EU and who knows, maybe it'll be a fairer and more mature system than the one it replaces. In the meantime, people will still be born and die, kids will go to school, people will go to work and life (perhaps with a much needed dose of humility) will go on.

The fall of the EU does not equal the fall of civilisation - regardless of what you may hear in the next few months from the Yes to Austerity camp (assuming they even get that far at this rate)

Sand

First things first - these rates are indicative only for existing debt. Spain/Italy are only significantly concerned if they cant issue new debt at reasonable rates of interest. The market for existing debt is basically the banks problem. The rate Spain/Italy issues debt at will not be the indicative rate.

And don't forget, the Eurozone hasn't wasted the past 4 years playing to the gallery and tilting at windmills. They've put together a comprehensive, effective solution - the Fiscal Compact!

The crisis never really subsided - the ECB just covered their eyes and dumped a huge amount of cash onto the Eurozone banks who had to find a home for it somewhere.

A bailout of Spain or Italy - or both - is simply beyond the capacity of the Eurozone - both politically and financially. They are not ideologically able to recognize the real problems, and their involvement in every bailout to date has been to make things worse and more costly to appease an uninformed and hostile domestic audience.

They just aren't going to be able to pull more than a declaration of aspirations out of their collective hats. So its going to be left to the ECB. The ECB has done its best to make the crisis worse and worse, but its beginning to dawn on them that the Germans *really* don't want transfers, and at the end of the day the ECB is only relevant if there is a Euro so they'll blink first and they'll just dump more and more money on the banks and hope they spend it buying junk periphery bonds. From the start of the crisis the solution was always going to be some mixture of default-inflation-transfers. By a process of elimination, it looks like its going to be mostly inflation.

darkman2

Sand wrote: »

Spain/Italy are only significantly concerned if they cant issue new debt at reasonable rates of interest.

Spain already had a failed auction last week. They couldn't raise the entire €2.6 billion they were looking for on that occasion although they did get most of it. That's a sign of the trouble Spain is in.

KINGVictor

darkman2 wrote: »

Spain already had a failed auction last week. They couldn't raise the entire €2.6 billion they were looking for on that occasion although they did get most of it. That's a sign of the trouble Spain is in.

That's true but in reality Portugal is in a far worse situation than Spain or Italy.

My take is that the markets are very wary of the percieved "face saving" Greek bailout and they are really testing the resolve of the eurozone by striking at the "core" of the periphery of the monetary union- hence the rise in the borrowing costs of Italy and Spain in recent days. Interestingly, Greece had a somewhat successful 6 month debt sale today with demand outstripping supply by a ratio of 2.6 to 1.

The Eurozone is admittedly in a quagmire because not only are member nations facing troubling economic challenges but they are posed with an uncertain political future with Greek, French elections coming up. This is juice for speculators and some who consider themselves as realists- sort of like an open season really.

It is going to be to some unpredictable, tough months ahead that will be characterised by brinkmanship, political calculations and positioning, threats, compromise etc..hope some common sense and logical thinking will accompany as well.

My bet is that the winner of the French election will determine the future course of the Eurozone as we know it.

darkman2

ECB has been in buying Italian and Spanish bonds this morning trying to buy a little bit of time. Yields have fallen slightly but everytime the ECB stops buying they shoot back up.

Kaiser2000

Kaiser2000 wrote: »

The sooner the whole rotten, fundamentally flawed, shambles that is the Euro and EU falls the better in my opinion.

Now I know the usual suspects will start on about what a disaster that would be - but for who? Certainly not the citizens of this country and those others now under "threat" who are being forced to pay for a game most of them never had a hope of entering themselves never mind profit from.

No, the ones who will really lose out here are the investors, bankers and of course politicians and civil servants who continue to enjoy the good times that the rest of us pay for. OF COURSE they will try to save it until the bitter end. Why wouldn't they? It's a system they all profit from (in financial, power and status terms), with little to no accountability or responsibility to their native electorate so who is really surprised that they will try every threat, promise and bargain they can come up with to keep the gravy flowing for as long as possible.

Nations and alliances have come and gone over the ages and yet the world didn't end - this is ultimately no different. Something else will eventually rise to replace the EU and who knows, maybe it'll be a fairer and more mature system than the one it replaces. In the meantime, people will still be born and die, kids will go to school, people will go to work and life (perhaps with a much needed dose of humility) will go on.

The fall of the EU does not equal the fall of civilisation - regardless of what you may hear in the next few months from the Yes to Austerity camp (assuming they even get that far at this rate)

Let's say for the sake of argument that it all falls down in the next week or two.

Right now, Ireland's public sector wages and welfare bills are being paid by transfers from the EU/ECB/IMF, to the tune of about €350 million every week. At the point of collapse, this all comes to a halt - immediately and without notice.

You're in charge. What do you do?

howamidifferent

Deleted User wrote: »

Let's say for the sake of argument that it all falls down in the next week or two.

Right now, Ireland's public sector wages and welfare bills are being paid by transfers from the EU/ECB/IMF, to the tune of about €350 million every week. At the point of collapse, this all comes to a halt - immediately and without notice.

You're in charge. What do you do?

Knowing our politicians, I'd hazard a guess they'll retire on health grounds to the south of France on huge pensions....:mad:

howamidifferent

howamidifferent wrote: »

Knowing our politicians, I'd hazard a guess they'll retire on health grounds to the south of France on huge pensions....:mad:

They might well do. :mad:

However, I wasn't querying what they would do. I was querying what the previous poster would do.

There is one HUGE advantage to not having power, and it is that you also don't have any responsibility - you don't have to make any hard decisions. It's easy for someone to say "the sooner it fails the better" if they get to be the hurler on the ditch.

It's a lot less easy if you have to make decisions to deal with the consequences, especially if there's a strong probability that your decisions will make things even worse.

ednwireland

howamidifferent wrote: »

Knowing our politicians, I'd hazard a guess they'll retire on health grounds to the south of France on huge pensions....:mad:

there wont be money to pay pensions (i think that s the point)

later12

Deleted User wrote: »

Let's say for the sake of argument that it all falls down in the next week or two.

Right now, Ireland's public sector wages and welfare bills are being paid by transfers from the EU/ECB/IMF, to the tune of about €350 million every week. At the point of collapse, this all comes to a halt - immediately and without notice.

You're in charge. What do you do?

It's pretty clear there was a lack of forethought in relation to co-ordinated economic governance of the Eurozone and central financing for member states.

What's even more apparent, however, is the lack of forethought that goes into suggestions that the Euro simply be thrown out the window.

bah1011

The market as a whole isn't taking this very seriously though(EURUSD up FTSE up, Eurostoxx up and gold down). This is probably due to the fact that nothing much has changed and everyone all ready knew of the troubles facing Spain.

darkman2

You obviously believe Spain won't need a bailout? I have to say I would not share that optimism. It's a ticking timebomb and there is not much time left.

Peter Spiegel of the FT puts it best comparing Spain with Italy

SpiegelPeter Peter Spiegel
Spain & Italy rightly linked? Italy: hi debt, slow growth. Spain: that + Irish-style bank crisis & indebted regions. Italy seems better off.

The real horror is in the Spanish banks - even in our desperate state we are light years ahead of them wrt sorting the banks because the banks were forced to fess up to the full extent of their losses last year. Spanish banks have not done that yet and no amount of ECB sovereign bond buying is getting Spain off the hook here. The central bank spooked the markets yesterday when they said Spanish banks would need more capital. (sound familiar?) Their denials (and the IMF are surely already in the country preparing the groundwork) of needing external assistance are just as hollow, if not even more so, than Irish denials prior to our bailout. Every single Spanish indicator from unemployment to the deficit to the banking collapse shows this is a country on the verge of catastrophe. It's economy is collapsing. The economy is forecast to shrink 1.7% this year by the central bank - one look at the predictions from the market - they think it will be far worse than that. Unemployment is touching 24% - due to exceed 26% this year. It makes the remainder of our task seem almost benign by comparison. And as I said their real austerity drive has not even properly begun. And you can add to that that Spain has already said it will not meet it's debt reduction targets under the fiscal treaty.

But can Spain be rescued? - it's very big (analysts estimate in a bailout scenario a minimum of €300bn would be required to meet it's refinancing needs over the next couple of years) and contagion will sink the other delinquents in the queue aswell. A €1trn firewall may not be enough to protect the Euro.


All we can do is hope for the best but things are pretty ropey.

liammur

darkman2 wrote: »

You obviously believe Spain won't need a bailout? I have to say I would not share that optimism. It's a ticking timebomb and there is not much time left.

Peter Spiegel of the FT puts it best comparing Spain with Italy




The real horror is in the Spanish banks - even in our desperate state we are light years ahead of them wrt sorting the banks because the banks were forced to fess up to the full extent of their losses last year. Spanish banks have not done that yet and no amount of ECB sovereign bond buying is getting Spain off the hook here. The central bank spooked the markets yesterday when they said Spanish banks would need more capital. (sound familiar?) Their denials (and the IMF are surely already in the country preparing the groundwork) of needing external assistance are just as hollow, if not even more so, than Irish denials prior to our bailout. Every single Spanish indicator from unemployment to the deficit to the banking collapse shows this is a country on the verge of catastrophe. It's economy is collapsing. The economy is forecast to shrink 1.7% this year by the central bank - one look at the predictions from the market - they think it will be far worse than that. Unemployment is touching 24% - due to exceed 26% this year. It makes the remainder of our task seem almost benign by comparison. And as I said their real austerity drive has not even properly begun. And you can add to that that Spain has already said it will not meet it's debt reduction targets under the fiscal treaty.

But can Spain be rescued? - it's very big (analysts estimate in a bailout scenario a minimum of €300bn would be required to meet it's refinancing needs over the next couple of years) and contagion will sink the other delinquents in the queue aswell. A €1trn firewall may not be enough to protect the Euro.


All we can do is hope for the best but things are pretty ropey.

And what about the U.S ?

Sand

Deleted User wrote: »

Let's say for the sake of argument that it all falls down in the next week or two.

Right now, Ireland's public sector wages and welfare bills are being paid by transfers from the EU/ECB/IMF, to the tune of about €350 million every week. At the point of collapse, this all comes to a halt - immediately and without notice.

You're in charge. What do you do?

Fire the makework section of the public sector (massive absenteeism in the HSE, acknowledgement of performance management failure in the civil service, etc, etc), then cut public sector wages, cap public sector pensions, stop the automatic transfer of trade union fees? Wont be a problem to enforce the pay cuts - the money wont be there anyway.

Christ - its no mystery what needs to be done. Its that there is no motivation to do it.

Sand

Sand wrote: »

Fire the makework section of the public sector (massive absenteeism in the HSE, acknowledgement of performance management failure in the civil service, etc, etc), then cut public sector wages, cap public sector pensions, stop the automatic transfer of trade union fees? Wont be a problem to enforce the pay cuts - the money wont be there anyway.

Christ - its no mystery what needs to be done. Its that there is no motivation to do it.

Thanks for that, but my question is not about what should be done in some general policy sense to reduce the deficit. My question is about what would have to be done in the event of an imminent collapse of the euro.

Kaiser2000's opinion is, in effect, that the sooner it fails the better. Maybe so, maybe not. But if the euro were to collapse, then all bets are off. Instead of being in an EU/ECB/IMF austerity programme, we'd find ourselves going back to the punt and with no capacity to borrow from anyone.

Right now, the EU/ECB/IMF are propping up the incomes of hundreds of thousands of Irish people to the tune of about €350 million per week. That would stop, and would stop instantly.

So in the event of that collapse happening, whoever is in charge would have to save that money right away, because they would simply have no choice but to balance the books.

With that in mind, I'm asking what real decisions would save €350 million a week, or €18 billion a year. I'm kinda hoping Kaiser2000 will give this a go, but if you also subscribe to the thesis that the sooner the euro collapses the better, then by all means have a go as well.

However, in order to score a pass mark, the answer has to save €350 million a week, or €18 billion a year. There is no margin for error, no room for half measures, and no time for mucking about with ideas that can be phased in or that will save us money some time in the future. The targets will have to be met in total, and will have to be met immediately.

later12

Sand wrote: »

Fire the makework section of the public sector (massive absenteeism in the HSE, acknowledgement of performance management failure in the civil service, etc, etc), then cut public sector wages, cap public sector pensions, stop the automatic transfer of trade union fees? Wont be a problem to enforce the pay cuts - the money wont be there anyway.

Just like that, as Tommy Cooper would say?

The joy of posting on message boards like this is not only the freedom of not having to back up our utterances with evidence from elsewhere (unless pressed), but the happy knowledge that our prescriptions will never require our signatures, nor be tested in the real world.

At best, I think it ought to be agreed that there is a huge degree of risk to economic stability in the prescription you offer.

Brussels Sprout

Sand wrote: »

Christ - its no mystery what needs to be done. Its that there is no motivation to do it.

I'd imagine the senior labour TDs are thinking "We know what to do, we just haven't figured out how to get elected afterwards".

Brussels Sprout

Deleted User wrote: »

However, in order to score a pass mark, the answer has to save €350 million a week, or €18 billion a year.

Isn't the current account deficit closer to 12 billion now? Still huge obviously but 33% lower.

One of the biggest dangers, nay certainties, is that removing all of that money from the economy would lead to a mortgage repayment crisis. At the moment close to 10% of people can't pay their mortgages. What would that be like if 2,600 euro per year extra was taken on average from every man woman and child in the state?

Brussels Sprout

Brussels Sprout wrote: »

Isn't the current account deficit closer to 12 billion now? Still huge obviously but 33% lower.

More or less. The capital deficit amounts to about another €6 billion.

Sand

@Later12

Just like that, as Tommy Cooper would say?

The joy of posting on message boards like this is not only the freedom of not having to back up our utterances with evidence from elsewhere (unless pressed), but the happy knowledge that our prescriptions will never require our signatures, nor be tested in the real world.

At best, I think it ought to be agreed that there is a huge degree of risk to economic stability in the prescription you offer.

Not just like that actually. The joys of being in government is that you have an army of bureacrats to plan out options and methods of their execution. The government has plans, there are shelves in government buildings groaning under the weight of reports and plans for cost cutting and efficiencies - all ignored.

I presume the DoF has been doing *something* over the past 4-5 years in terms of disaster planning - if they are in anyway competent surely, surely, surely they ought to have learnt its best to have some form of plan when nasty surprises come up. You must agree - if the DoF arent planning for sudden stops in funding, what exactly are they doing in your opinion and why is it more important than planning for a stop in funding?

And under the scenario described it wouldnt be a should we or shouldnt we or what is risky or what is not risky.

There would simply be no money to meet the wages and pensions. So all thats left is how to divide up whatever money is - now if the DoF isnt thinking about truly vital services, and truly critical staff that need to be prioritised in a sudden stop of official lending or otherwise then god help us all.

@Ulysses1874

Thanks for that, but my question is not about what should be done in some general policy sense to reduce the deficit. My question is about what would have to be done in the event of an imminent collapse of the euro.

Sure, but how does the answer change? Either you fire, cut and cap up front and peg to the Euro, or you immediately transfer all wages and pensions into punts at a fixed rate, and then immediately hit the printing presses to devalue those wages and pensions into an equivalent level as firing, cutting and capping up front - though at higher economic cost.

With that in mind, I'm asking what real decisions would save €350 million a week, or €18 billion a year. I'm kinda hoping Kaiser2000 will give this a go, but if you also subscribe to the thesis that the sooner the euro collapses the better, then by all means have a go as well.

Well, leaving the Euro would be frankly crazy and is totally unnecessary from Irelands point of view regardless of defaulting or not. In the proposed scenario (the Euro collapsing), it wont be down to a choice - it will simply happen and Ireland will have to deal and in such a situation there wont be any "phased in" solutions - there will simply be no money to pay wages or pensions.

But for what its worth, your essentially asking Kaiser2000 to produce a fully costed national budget...something usually produced by the DoF as their day jobs. Perhaps Kaiser 2000 can (or cant) but I assume he has his own day job to work at too.

Id also note that you are placing a great weight on the economic damage done by budget cuts in the short term, and placing not much weight at all on the economic damage done by borrowing and borrowing to fund an unsustainable fiscal situation. Kaiser2000 has been fairly clear that he sees the benefits of that borrowing being funneled into the pensions and wages of the public sector, whilst the liability for the borrowing is landed on the rest of the Irish people so I doubt he'd worry too much about saving 350 million a week with some drastic measures on those wages and pensions and entitlements.

You're also presuming that the current strategy (which is not working - Ireland needing a second bailout is now an argument of Official Ireland *for* the fiscal compact: remember Leo Varadkar being gutted by Official Ireland for daring to presume Ireland might need a second bailout last year?) is the gold standard from which deviations must be justified. That's giving a bad plan which is not working too much credit.

coolshannagh28

As so ably put by Sand it is obvious to even the most naive of us that public sector pay must be slashed and the criminal waste I

of money across the board stopped . Any half hearted attempt by the government to address this would have left the country in a much stronger position, however Labours heavyweights are calling the shots in this regard protecting the insider establishment of the public sector . We need an IMF government to take the hard decisions that will set us on the road to recovery this would gain broad support in the private sector which is disgusted by what is happening to the country right now .

Sand

Sand wrote: »

Sure, but how does the answer change? Either you fire, cut and cap up front and peg to the Euro, or you immediately transfer all wages and pensions into punts at a fixed rate, and then immediately hit the printing presses to devalue those wages and pensions into an equivalent level as firing, cutting and capping up front - though at higher economic cost.

The answer changes a lot, because there is a big difference between cutting €14 (ish) billion off the borrowing requirement over 4 years and cutting €18 billion off it in a week. :eek:

Sand wrote: »

Well, leaving the Euro would be frankly crazy

Yep. Well, for the time being at any rate.

Sand wrote: »

But for what its worth, your essentially asking Kaiser2000 to produce a fully costed national budget...

In a way, I am. But it doesn't actually have to be fully costed - just imbued with some sense of what hard budgetary decisions would have to be taken to support the opinion that "the sooner it happens the better".

Sand wrote: »

Id also note that you are placing a great weight on the economic damage done by budget cuts in the short term, and placing not much weight at all on the economic damage done by borrowing and borrowing to fund an unsustainable fiscal situation.

You'd note, or you'd surmise? There's nothing in what I've said to say what relative weighting I'm placing on various long-term and short-term factors. Borrowing the kind of money that we are is simply nuts, and we have to borrow less. We can try to do that on a graduated basis, or we can try to do it in one fell swoop. The "experts" seem to think that a graduated basis is better. If anyone thinks we should try to do it straight away, let them say so - but let them also say what policy decisions they would make and what their effects would be.

Sand wrote: »

.....I doubt he'd worry too much about saving 350 million a week with some drastic measures on those wages and pensions and entitlements.

Sure thing. But what would he do? Or what would you do?

Sand wrote: »

You're also presuming that the current strategy ........is the gold standard from which deviations must be justified. That's giving a bad plan which is not working too much credit.

I am? It is?

Nope.

If you've got a better plan then I'm all ears - because to be honest I have considerable doubts that the current plan will work.

But I'll tell you this. A whole bunch of people whose day job is to manage this situation have devised this plan. For good or ill, they sat at their desks, did their analyses, talked to one another and came up with it. If you (or anyone else, not just picking on you) thinks we should abandon that in favour of some other plan, good luck to you. But if you want anyone else to take that other plan seriously, you should say what it is, what policy decisions are involved, and what their effects will be.

Like I said earlier, it is a lot easier to be the hurler on the ditch than to play the game.

Sand

@Ulysses1874

But I'll tell you this. A whole bunch of people whose day job is to manage this situation have devised this plan. For good or ill, they sat at their desks, did their analyses, talked to one another and came up with it.

That is *not* how policy is made in Ireland.

Lets be clear - its widely believed, particularly by defenders of the current strategy, that the most controversial decision ever made by the Irish government was done on the basis of a David McWilliams opinion piece in a newspaper. Consider that, then consider your statement above.

meglome

Deleted User wrote: »

You'd note, or you'd surmise? There's nothing in what I've said to say what relative weighting I'm placing on various long-term and short-term factors. Borrowing the kind of money that we are is simply nuts, and we have to borrow less. We can try to do that on a graduated basis, or we can try to do it in one fell swoop. The "experts" seem to think that a graduated basis is better. If anyone thinks we should try to do it straight away, let them say so - but let them also say what policy decisions they would make and what their effects would be.

If you've got a better plan then I'm all ears - because to be honest I have considerable doubts that the current plan will work.

Like I said earlier, it is a lot easier to be the hurler on the ditch than to play the game.

Very much agreed. I keep reading up on our situation and when people ask what I think we should do I utter the words "it's complicated" and mumble a few additional words. It's a rock and a hard place of our own making, the way we're on might well not work but the cut it all tomorrow situation seems even worse.

Sand wrote: »

@Ulysses1874

That is *not* how policy is made in Ireland.

Lets be clear - its widely believed, particularly by defenders of the current strategy, that the most controversial decision ever made by the Irish government was done on the basis of a David McWilliams opinion piece in a newspaper. Consider that, then consider your statement above.

Come on Sand, Fine Gael are far from perfect but they are not Fianna Fail.

Sand

Sand wrote: »

Lets be clear - its widely believed, particularly by defenders of the current strategy, that the most controversial decision ever made by the Irish government was done on the basis of a David McWilliams opinion piece in a newspaper. Consider that, then consider your statement above.

But so what? I mean seriously, so what?

It matters little how we got here. We're here, we're still €18 billion a year behind the game, and we have to sort that out. We have extremely limited choices about how we sort it out. In that context, the EU/ECB/IMF/DoF axis have devised a plan. They think it'll work. I have my doubts, but I've yet to see anyone come up with a different plan backed by some concrete evidence that it will work any better.

If you think something will work better, say so. Stop going on about the past, and tell us what you'd do about the present.

For the nth time, anyone can be the hurler on the ditch, but it's not so easy to pick up a hurley and a sliothar and do better than the guys on the field.

Monty Burnz

RichardAnd wrote: »

The sooner we are all in debt to each other and are breaking our backs to exchange money that never really existed, the sooner we might realise how silly this game is and start over.

Some are creditors and some are debtors. Most are both to some degree. If we all start at zero again, those who spent more than they created will be laughing all the way to the bank, while the prudent see their savings and pensions wiped out. Not a good solution really.

darkman2

And here is evidence of the Irish onion in the Spanish stew


http://www.bloomberg.com/news/2012-04-13/spain-banks-ecb-borrowings-climb-to-300-billion-in-march.html


Spanish 10 year bonds heading toward 6% this morning.

screamer

So, how long before Spain and Italy get a "my big fat Greek debt deal writedown" whilst Ireland is left to suck it up, and get on with it.

darkman2

Spain's 10 year yields now closing in on 6% at 5.96%.

http://www.bloomberg.com/quote/GSPG10YR:IND/chart

beeftotheheels

screamer wrote: »

So, how long before Spain and Italy get a "my big fat Greek debt deal writedown" whilst Ireland is left to suck it up, and get on with it.

Oh Good Grief. Enough with the conspiracy theories. No on, I mean no one, wants to be Greece, including Greece.

Do you see them dancing on the streets of Athens? Reelecting the incumbent Government? Or indeed doing anything to suggest that they're delighted with their deal?

Back last Summer it was the Italian and Spanish crew arguing against a debt write down for Greece because of contagion, it was the Spanish and Italians rumored to be shouting at Papandreu and telling him to sort his $h!t out because of the impact on them.

The euro is in play right now.

So yes, it seems harsh that Greece doesn't have to repay what it borrowed while we have to repay what our banks borrowed. But there isn't an easier option at the moment.

The pressure on Spain and Italy might change the rules of the game, hell it has to if the euro is to survive and then we might be able to get a deal.

But what we absolutely do not want, and can not have, is the deal that Greece got. Their debt to GDP is still forecast to greatly exceed ours, and they have no chance of getting the EU/ IMF out before 2020 at the earliest. We have a chance of getting them out in a couple of years.

screamer

There's no conspiracy theory....... it has already been proven that the bigger they are, the more they are let away with, Spain was already let away with breaking the spending cap for this year....... but, now the little fella, well, sure, break his back, and make him pay....... I bet they'll give Spain and Italy big writedowns with little or no consequences at all, cause, they're too big to let them go under..... whilst poor old Greece is forever indebted, and Ireland impoverished.......

beeftotheheels

screamer wrote: »

There's no conspiracy theory....... it has already been proven that the bigger they are, the more they are let away with, Spain was already let away with breaking the spending cap for this year....... but, now the little fella, well, sure, break his back, and make him pay....... I bet they'll give Spain and Italy big writedowns with little or no consequences at all, cause, they're too big to let them go under..... whilst poor old Greece is forever indebted, and Ireland impoverished.......

Read about the history of Italian debt, a lot of it is held domestically and Italy does not default. This is one of the reasons it got to amass 120% debt to GDP. Italy will not default.

http://blogs.telegraph.co.uk/finance/andrewlilico/100013277/the-surprising-history-of-italy-and-sovereign-default/

Spain's national debt is below 100%. Their issue is their banks who co-incidentally own a lot of their debt which again reduces the expected benefits from any default.

The bit you're missing is the huge consequences, often underplayed by the media, associated with a default. It is to be avoided at all costs unless you have no other options, and for now Italy and Spain do.

darkman2

You can hardly say Spain is getting away with it. The market is smashing Spain. Spain will need a bailout same as Ireland did. Big countries are not immune from being bankrupt. Bottom line if investors think they lose money by lending to Spain they charge a higher interest rate until Spain is locked out of the market or introduces harsh austerity.

maninasia

beeftotheheels wrote: »

Read about the history of Italian debt, a lot of it is held domestically and Italy does not default. This is one of the reasons it got to amass 120% debt to GDP. Italy will not default.

http://blogs.telegraph.co.uk/finance/andrewlilico/100013277/the-surprising-history-of-italy-and-sovereign-default/

Spain's national debt is below 100%. Their issue is their banks who co-incidentally own a lot of their debt which again reduces the expected benefits from any default.

The bit you're missing is the huge consequences, often underplayed by the media, associated with a default. It is to be avoided at all costs unless you have no other options, and for now Italy and Spain do.

Default (bankruptcy) is bad for some and good for others. That is what is often missing in the debate. Public servants are loath to recommend default because that means their job, pay and benefits will be in unknown territory.

Much better to borrow and keep the money flowing now and put the problem off to another day or another government.

Sand

@meglome

Come on Sand, Fine Gael are far from perfect but they are not Fianna Fail.

Who said they were?

I'd not, but its worth noting that they have not significantly altered in any shape or form any of the strategies embarked upon by Fianna Fail. They seemingly agree with all of them. For all the chestbeating about Frankfurts way or Labours way, theyve folded like cheap deckchairs and far all their apparent differences, the current politicians are quite simply indistinguishable from Fianna Fail and the Greens - apart from the having the luxury of blaming the previous regime.

Of course - the government has not actually changed at all. The DoF are still calling the plays and they are accountable to no one.

@Ulysses1874

But so what? I mean seriously, so what?

It matters little how we got here. We're here, we're still €18 billion a year behind the game, and we have to sort that out. We have extremely limited choices about how we sort it out. In that context, the EU/ECB/IMF/DoF axis have devised a plan. They think it'll work. I have my doubts, but I've yet to see anyone come up with a different plan backed by some concrete evidence that it will work any better.

I could have sworn there was a set of goalposts around here somewhere...oh wait, there they are, way over there.

To dismiss criticism of government policy, you've claimed that government policy is made on the back of experts sternly examining the evidence, exploring options, and engaging in a series of robust internal criticism before determining the final policy so us cap doffing peasants in the field ought to simply trust in the judgement of our betters in the DoF and not dare to presume we can come up with better.

And when its pointed out this is actually not how policy is made in Ireland, that its in fact apparently entirely random solo runs by various agenices on the basis some opinion piece they read in a newspaper your response is not even to disagree, but to say "So what?" The "So what" is that what then grants government policy the expert status you assign to it by default? Why do you sneer at the prospect of Kaiser2000 coming up with a better plan than the one the DoF have come up with - surely Kaiser2000 can read a newspaper too?

I've said it before - the real curse of Irish policymaking is that no-one ever expects the government to explain or justify its policies. Instead its *always* presumed people who disagree with government policy must explain their divergence from conformity.

Kaiser2000 might be entirely wrong. Totally and completely wrong. In fact, he probably is wrong. But he is just some guy with an internet connection and an opinion. If he is wrong - to steal your own phrase, who cares? On the other hand, the government actually get to execute their policy so we ought to be *really* interested in exactly how that plan is going to work and how believable that plan is. Just assuming "Well, the DoF came up with it....so its probably grand!" is just the sort of mindset that got us in this mess.

And yes, it does entirely matter how we got here. Its practically the most important lesson we can learn from this whole sorry episode.

Sand

Sand wrote: »

To dismiss criticism of government policy, you've claimed that government policy is made on the back of experts sternly examining the evidence

I'm typing this really carefully - so please do me (and indeed yourself) a favour and read it equally carefully.

I'm not dismissing criticism of Government policy. I already said I have considerable doubts that the current plan will work.

Sand wrote: »

and not dare to presume we can come up with better.

I'm waiting. Stop spoofing and come up with something better.

Sand wrote: »

Why do you sneer at the prospect of Kaiser2000 coming up with a better plan...

I didn't sneer.

I asked.

No response so far.

From Kaiser2000 or from you.

Sand wrote: »

And yes, it does entirely matter how we got here. Its practically the most important lesson we can learn from this whole sorry episode.

And still you have no plan, no analysis, no explanation and no engagement.

You just carry on being the hurler on the ditch.

Cheers.

maninasia

A hurler in the ditch can still see when his side is losing. I fail to see your point. If they are hurlers in the ditch you are the one sitting at home with your feet up reading the paper, confident that the coach has experience and he's the only man up to the job!

later12

Sand wrote: »

Id also note that you are placing a great weight on the economic damage done by budget cuts in the short term, and placing not much weight at all on the economic damage done by borrowing and borrowing to fund an unsustainable fiscal situation.

Just to clarify - I'm not complaining about the economic damage done by budget cuts in the short term. I'm in favour of cutting the deficit in the way that it is being done. But the deficit is not just looked at in nominal terms. We look at the deficit relative to GDP or GNP. I hope nobody is foolish enough to think that if you effectively cut in excess of €20 billion (this year's deficit + TMU adjusters) from the Irish economy overnight, your GDP remains static. Imagine the Scenario when the fundamentals change.

Scenario1: GDP & revenue somehow remain static
Day0: GDP=€160bn; Nominal deficit=€20bn; Nominal Deficit per GDP:12.5%
Day1:GDP=160bn; Nominal deficit=€0.00; Nominal Deficit per GDP=0

Scenario2: GDP & Revenue fall by 10% and 20% respectively (not too far from 2008)
Day0: GDP=€160bn; Nominal deficit=€20bn; Nominal Deficit per GDP:12.5%
Day1:GDP=160bn; Nominal deficit=€0.00; Nominal Deficit per GDP=0
Day2:GDP=€144bn; Nominal Deficit=€7bn; Nominal Deficit per GDP: 5%

What we are dealing with here is simple arithmetic. In scenario 2, which I think most people would agree is the more realistic, we have cut expenditure by €20 billion to lower our deficit not to 0, but to 5%.

That's a very bizarre step to take, because the deficit is projected to reach 7% in 2013 by a consolidation of about €3.5bn and 5% by a consolidation of an extra €3bn in 2014.

So what has happened, if the above were to be realized, is that you have just cut €20 billion out of the economy for a deficit of 5% today, when under the TMU, we can reach the same 5% deficit by cutting €6.5bn over two years. Oh, and we don't have to make ourselves the European pariah or renege on any sovereign obligations.

I should point out that these figures are an abstraction to illustrate the point. We do not know that GDP & revenue would eventually fall higher or lower than the figures above, but the essential point is that when you make an overnight consolidation, your fundamentals are not realistically going to remain static. What I have yet to see any of the cut it all off now brigade explain is what happens as soon as the deficit is cut, and it quickly re-appears. Where will you get your shortfall?

Sand

Ulysses1874

I already said I have considerable doubts that the current plan will work.

Right - so you considerably doubt that the current strategy will work, but you feel diversions from it must be justified...

Must all deviations from plans which are doubted to work be justified? Is there not an inherent justification in the phrase "considerable doubt that the current plan will work"?

Again I'll say it - the curse of Irish policy-making is that no one asks the government to explain or justify their strategy. Instead the burden of evidence is placed upon deviations from conformity with the government plan.

And still you have no plan, no analysis, no explanation and no engagement.

You just carry on being the hurler on the ditch.

Couple of points:

1 - You've already admitted that you are practically calling for a fully detailed national budget as a response. Thats nice - and I tell you what, once the DoF produce a fully detailed and logically sound explanation of their strategy that doesnt amount to more than

a - Do whatever the ECB says
b - ???
c - Profit

then I'll think about producing a fully detailed national budget. In whatever time I have left over from my actual job.

Lets face it - you considerably doubt the current plan will work, so surely you too would welcome a fully detailed and logically sound explanation of the DoF strategy .... seeing as that is the strategy we are engaged in.

Or do you view national politics as some sort of team sport where you pull on the green jersey and unquestioningly cheer on the home team as they get beaten 0-10? That's the other curse of Irish policy-making - total failure doesn't disbar you from advancement.

Ask Kevin Cardiff.

2 - You've claimed the current plan (which you considerably doubt will work) is based on evidence, expertise and careful judgement - when pointed out that is exactly how policy is not made in Ireland you've accepted that. So, when you claim that people disagreeing with the current plan have no plan, no analysis, no explanation and no engagement...is it meant as a criticism?

3 - I'm not a hurler on the ditch - I'm in the game. My quality of life is directly affected by the moronic stupidity of the current plan (which you considerably doubt will work). And I fully retain the right to criticise the stupid, moronic plan (which you considerably doubt will work) of the government acting in my name - if the sages at the DoF like we could strike a deal where I don't criticise them and in turn, they dont tax me.

It seems the people of Ireland wouldn't mind a similar sort of deal - we've just had the largest tax strike in Irish history where the vast majority of Irish people expressed their refusal to fund the institutions which claim to be acting in their name.

@Later12

Just to clarify - I'm not complaining about the economic damage done by budget cuts in the short term.

Grand - just to clarify, that response was directed to Ulysses who seemed to think it some conundrum as to what would be done if you had no ability to borrow and spending outstripped revenue by 350 million a week.

So what has happened, if the above were to be realized, is that you have just cut €20 billion out of the economy for a deficit of 5% today, when under the TMU, we can reach the same 5% deficit by cutting €6.5bn over two years. Oh, and we don't have to make ourselves the European pariah or renege on any sovereign obligations.

Three things

1 - Ulysses scenario was that of a sudden stop in funding outside the Euro. In such a case, there would be no support to facilitate a long term phased reduction in the deficit. So there would be no choice of whats nice or nicer. You would simply have to cut spending to meet revenue ASAP.

2 - The Keynesian response to recessions is fairly sound from a logical point of view - markets are prone to manias, a short term effective response can be to act as a buyer of last resort. However, whilst Keynesian thought abounds in recessions, its nowhere to be found in economic booms when the mantra is spend, spend, spend, spend. So there is no facility to fund Keynesian responses in recessions. Also government tend not to view their role as a short term buyer of last resort - instead the tend to view themselves as some sort of picker of winners and losers and their efforts tend to *cause* market manias: look at the Irish property bubble and collapse - driving a property bubble was practically government policy throughout 2003-2008. They still dream of it today.

3 - A % GDP deficit lends itself to a certain sort of statistical obfuscation. In your scenario 2 above, cutting 13 billion over two years can only lead to the same % GDP deficit of cutting 20 billion in one if the economy grows hugely over those two years. So, in the specific Irish case...wheres the growth?

Holding off certain cuts in spending now, in favor of hoping for revenue growth in the future is always seductive to those who think only in the short term - politicians for example. We look back at the policy mistakes in the 1980s now and wonder "Why did they keep on spending what the economy could quite simply not afford for so long after it was obvious that it could not be afforded?" and the answer is they they too dreamed of future growth. Just over the horizon...any day now.

One other thing - Keynes was an economist devising solution for fairly closed and huge economies prevalent in the 1930s. Keynsian thought in tiny open economies like Ireland tends to lead to subsidies to foreign economies - the prime beneficiaries of the Irish government subsidy for car dealers were German car makers. The prime beneficiaries of Irish government spending in education tends to be the foreign economies qualified young Irish emigrate to.

later12

Sand wrote: »

1 - Ulysses scenario was that of a sudden stop in funding outside the Euro. In such a case, there would be no support to facilitate a long term phased reduction in the deficit. So there would be no choice of whats nice or nicer. You would simply have to cut spending to meet revenue ASAP.

No I don't think that's realistic, fiscal equalisation measures and ECB support would prevent that degree of depletion of investor confidence ever emerging.

The European currency and the core economies are too valuable to the rest of the world to render such a scenario credible.

3 - A % GDP deficit lends itself to a certain sort of statistical obfuscation. In your scenario 2 above, cutting 13 billion over two years can only lead to the same % GDP deficit of cutting 20 billion in one if the economy grows hugely over those two years. So, in the specific Irish case...wheres the growth?

No the economy doesn't have to grow 'hugely'.

The biggest problem here is looking to "the specific Irish case". The Irish economy is driven from outside of its borders these days, and any growth will be fed in from external sources. If we look at the technical assumptions underlying Irish growth forecasts over the next three years, we see unrealized, but pretty modest, assumptions like Euro area growth of an average of 1.3% per annum (0.3% this year, which is achievable). On the other hand, exchange rate profiles are likely to be more conducive to growth than when Ireland's deficit reduction programme was designed.

So while there is cause for concern at the slowing pace of global growth and Euro area recovery, any such recovery will lag into Ireland's domestic growth, which will in turn deplete the fiscal imbalance.

Whatever the growth rate that emerges, I think the Government have made it pretty clear that they intend to respond appropriately in order to achieve the stability programme targets. If GDP growth is 3 times smaller than originally forecasted, as the Central Bank forecasters say, then the government will just have to cut (or tax) proportionately. I think there is a very deep appreciation that the targets must be met, and while I too would rather see deeper austerity, I think your insinuation that expenditure cuts are being put on the long finger is un-necessarily cynical & disingenuous.

maninasia

maninasia wrote: »

I fail to see your point.

Ah well, seems you're not the only one.

Sand

Sand wrote: »

[.................................]

But what would you do?

daltonmd

http://www.rte.ie/news/2012/0416/spains-borrowing-costs-pass-6-level.html

"The yield, or interest rate, demanded by investors to hold 10 year Spanish debt touched 6.1% this morning."

Sea Sharp

The ECB should print a large stimulus package and use it to buy up toxic/surplus property around the peripheral European countries such as ourselves. the vast majority of problems in banks around the world go back to bad property debts.
the announcement of such a measure would increase the cost of such properties and cause a large influx of capital into Europe with people recognising the potential for a quick buck.

BettyM

It is, of course, economic folly to pretend that the crises across Euroland can be resolved by making bankrupt countries, the very cause of the crises, even more bankrupt by injecting more and more debt into their economies. Those who state the Euro will survive seem to do so more from a position of blind faith, rather than from a position of reasoned economic argument.

The underlying cause of Europe’s problems is the Euro itself, and all attempts to save it don’t resolve the problem, but merely exacerbate it.

The Euro can’t work in its present guise, and not facing up to that fact will lead to a worsening situation across the continent, and a worse situation when it eventually has to be resolved. In the meantime, we all have to put up with stagnant economies, negative growth, mass unemployment, widespread poverty and misery.

Unhappily, this situation will not improve, and we see the spectre of one of the many countries in the mire regularly coming back with some sort of crises or other every few months. Just Now it's Spain's turn.

The pride and vanity of those who will not accept what is staring them in the face, and what is seen by everyone else, is that the main problem is the Euro. Their folly and vanity in trying to save the Euro is wrecking not only the EU itself, but also many economies around Europe.

beeftotheheels

BettyM wrote: »

The pride and vanity of those who will not accept what is staring them in the face, and what is seen by everyone else, is that the main problem is the Euro. Their folly and vanity in trying to save the Euro is wrecking not only the EU itself, but also many economies around Europe.

How do you propose removing the euro without further wrecking the economies around Europe, including our own?