"Seismic shift" in EU policy following latest summit, & a better deal for Ireland

Dave!

http://www.irishtimes.com/newspaper/breaking/2012/0629/breaking1.html

Taoiseach says EU deal will ease Ireland's debt burden

ÉANNA Ó CAOLLAÍ

Fri, Jun 29, 2012

Taoiseach Enda Kenny has said a European Union agreement reached in Brussels in the early hours of this morning to bring down borrowing costs for indebted countries will reduce the debt burden on Ireland's taxpayers.

Responding to pleas from Irish, Spanish and Italian leaders, the midnight summit of the 17-member currency area agreed that euro area rescue funds could be used to stabilise bond markets without forcing countries that comply with EU budget rules to adopt extra austerity measures or economic reforms.

In addition to reducing costs, the deal reached at the Brussels meeting will create a single supervisory body for euro zone banks by the end of this year, a first step towards a European banking union.

Mr Kenny said the agreement represented a "seismic shift" in European policy and should open the way to "re-engineer the debt burden on our taxpayers".

“What was deemed to be unachievable has now become a reality and that principle has been established and decided and agreed upon by the council, by the heads of government,” he said in Brussels. “But for us the more immediate impact is that Ireland is named as getting equal treatment as other countries with difficulties here. “That means that heads of government’s decision will now be referred to the eurogroup for an analysis of how best this might be used in Ireland’s case to re-engineer the debt burden that is on our taxpayer, which is what we set out to do.”




Tánaiste Eamon Gilmore described last night’s deal as a "major game changer" for Ireland that will ease its path back to financial markets. "When the details are worked out between July and the end of the year, it will have a real impact on our debt level and will greatly improve our ability to get back into the market and not to need a second bailout," he told RTE’s Morning Ireland.

The agreement in Brussels by the leaders of the 17 euro zone countries came in the early hours of the morning after German chancellor Angela Merkel appeared finally to relent in the face of concerted pressure. Dr Merkel had come to Brussels insisting that there would be no short term fixes on the table.

However Spanish prime minister Mariano Rajoy and Italy’s Mario Monti made clear that they would block further progress at the unless they received assistance to curb their soaring borrowing costs. Crucially, they appeared to have been backed by French president Francois Hollande, attending his first EU summit, who has said tough austerity measures to cut deficits must be backed by support for growth.

The deal was announced at 4.30am by European Council president Herman van Rompuy after David Cameron and the leaders of the other nine non-euro zone members had left the summit, leaving the remainder to work out a deal.

“We are opening the possibilities for countries that are well-behaving to make use of financial stability instruments ... in order to reassure markets and get again some stability around some of the sovereign bonds of our member states,” Mr van Rompuy said.

He said that they had also agreed the establishment of a joint banking supervisory body for the euro zone.

A statement issued after the agrement was reached said it was "imperative" to break "the vicious circle" between banks and sovereigns. It said that once an "effective single supervisory mechanism is established" that the ESM could recapitalise banks directly. "This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution-specific, sector-specific or economy-wide and would be formalised in a memorandum of understanding," the statement said.

"The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme," it added.

"The process was tough, the outcome was good," Mr Monti told reporters, adding that Italy did not intend "at this time" to apply for the emergency support.

Countries that requested bond support from the rescue fund would have to sign a memorandum of understanding setting out their existing policy commitments and agreeing a timetable. But they would not face the intrusive oversight of a "troika" of international lenders to which Greece, Ireland and Portugal have been subjected, Mr Monti said.

Spain and Italy had earlier withheld their agreement to a €120 billion growth package at a European Union summit to demand emergency action to bring down their spiralling borrowing costs, which threaten to force the third and fourth largest economies in the euro zone out of the capital markets.

The euro soared 1.25 per cent to $1.2595 on the deal, having earlier hit a high of $1.2628, some way above its low of $1.2407 touched yesterday.

Whether investors regard the deal struck at the 20th summit since the crisis erupted in early 2010 as sufficient remains to be seen. Previous relief rallies have fizzled within days or hours as new doubts set in.

Euro zone leaders will return later today to discuss longer-term plans to build a much closer fiscal and banking union, on which they asked Mr Van Rompuy and the heads of the European Commission, ECB and Eurogroup finance ministers to present detailed proposals by October.

Spain formally applied for up to €100 billion in assistance this week to recapitalise banks laden with bad debts due to a similar burst housing bubble. Cyprus became the fifth country out of 17 euro zone members to appeal for a rescue due to the east Mediterranean island's heavy exposure to Greece's debt crisis.

As the leaders argued, Italy beat Germany 2-1 in the Euro 2012 soccer semi-final, the underdog knocking the favourite out of the contest.

Asked whether he expected Italy to go on to beat Spain in Sunday's final, Mr Monti deadpanned: "I never speculate about financial markets or football."

So is this a vindication of the Taoiseach's argument that we need to be patient and diplomatic, and then we'll get a better deal? Assuming it comes to fruition, it's a major win for the government.

What will this mean for tax payers? Will there be some respite from the "austerity"? Less need to tackle awkward areas in upcoming budgets? How will it affect the Croke Park Agreement?

Fr Tod Umptious

Dave! wrote: »

http://www.irishtimes.com/newspaper/breaking/2012/0629/breaking1.html




So is this a vindication of the Taoiseach's argument that we need to be patient and diplomatic, and then we'll get a better deal? Assuming it comes to fruition, it's a major win for the government.

What will this mean for tax payers? Will there be some respite from the "austerity"? Less need to tackle awkward areas in upcoming budgets? How will it affect the Croke Park Agreement?

It's another hole in the old FF election mantra that nothing could be re-negotiated on the bailout.

I assume that it takes the bank bailout off the books of the state on to the books of Europe.

And as a result we would be able to enter the bond markets again at more favourable rates.

antoobrien

The full text of the statement

We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly.

This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding. The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally.

We urge the rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for recapitalisation of its banking sector. We reaffirm that the financial assistance will be provided by the EFSF until the ESM becomes available, and that it will then be transferred to the ESM, without gaining seniority status.

We affirm our strong commitment to do what is necessary to ensure the financial stability of the euro area, in particular by using the existing EFSF-ESM instruments in a flexible and efficient manner in order to stabilise markets for Member States respecting their Country Specific Recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure.

These conditions should be reflected in a Memorandum of Understanding. We welcome that the ECB has agreed to serve as an agent to EFSF-ESM in conducting market operations in an effective and efficient manner.

We task the Eurogroup to implement these decisions by 9 July 2012.

The commission has already laid out some proposals for a banking union, which seems to be part of the mechanism for this deal.

The Clown Man

Assuming that this will be applied retrospectively on existing back debt (how could it not) what will be the new sum of national debt? We pumped in about every spare penny we could find (national pension funds etc) to Anglo, AIB, BoI et al so can we now get that back? Will the ESM buy AIB for what we paid?

Given that we are running a pretty impressive trade surplus in the circumstances does this mean we go from "poor struggling Ireland" to "model economy Ireland" overnight?

I realise that the immediate concern of returning to bond markets is probably now behind us but what other effect will this have on our economy in the medium term, budgeting etc.

Thanks.

ardmacha

So is this a vindication of the Taoiseach's argument that we need to be patient and diplomatic, and then we'll get a better deal? Assuming it comes to fruition, it's a major win for the government.

Yes, if this is true. What concerns me is that if money is put into banks by the ESM then it is lost, or at least cannot be repaid. Have Germany etc really agreed to this?

What will this mean for tax payers? Will there be some respite from the "austerity"? Less need to tackle awkward areas in upcoming budgets? How will it affect the Croke Park Agreement?

For tax payers it does not mean less "austerity", it does mean that the austerity is likely to work. It makes taxes etc easier to levy as money will not have gone into the banks, which greatly reduced the public support for ohter measures. For the Croke Park Agreement one hopes it means that they will carry on the restructuring, which is of lasting benefit, without engaging in stunts, which would be of long term dis-benefit.

DoesNotCompute

So assuming this deal is implementing for Ireland, does this mean that the government can scale back some of the austerity that is being applied? Or does it just mean we'll get cheaper rates on the bond markets when we return to them? If I understand it correctly, this deal was primarily intended for Spain, but Gilmore and Kenny are trying to sell it to the Irish people as a good deal for Ireland. What's really going on here?

The Clown Man wrote: »

Given that we are running a pretty impressive trade surplus in the circumstances does this mean we go from "poor struggling Ireland" to "model economy Ireland" overnight?

Given what we learned (or should have, at least) from the Celtic Tiger years, it would be unwise to view ourselves as a "model economy" on the basis of just one sector performing well.

Gurgle

The Clown Man wrote: »

Given that we are running a pretty impressive trade surplus in the circumstances does this mean we go from "poor struggling Ireland" to "model economy Ireland" overnight?

Not quite, but a big step in that direction.
We still have the problem of over-commitment, the bills are bigger than the paycheck.

With the banking debt off our books there will be a massive reduction in that commitment, the interest on the loan. That brings us closer to a balanced budget, but we still have to get the rest of the way.

The part of this that could really drag Europe out of recession is the effect of devaluing the currency. Short term this will hurt as we'll see it as energy prices shooting up, but this will be a major incentive to work towards energy independence and if the right measures are taken to encourage development then its all good long term.

antoobrien

The Clown Man wrote: »

Assuming that this will be applied retrospectively on existing back debt (how could it not) what will be the new sum of national debt? We pumped in about every spare penny we could find (national pension funds etc) to Anglo, AIB, BoI et al so can we now get that back? Will the ESM buy AIB for what we paid?

Scofflaw has put up a summary of the total cost of the bailout sources of cash.

It breaks down to (€bn)
NPRF - 20.7
Exchequer - 10.5
Promissory Note - 31.6 (only 1 actually paid of 3.1bn)

The exchequer & PN actually appear on the national debt, so if they buy the debt at cost we'll see a reduction of €40.5 bn on the GGD (reduce from about €165 bn).

The NPRF capital is a different issue - this money was invested as share capital. I'm not sure if I'd want this sold to the ESM as if the banks get profitable again, part of the dividend (as well as taxes) will be retruend to the NPRF.

NIMAN

Although this is good news, one thing's for sure, we only got a deal because Spain and Italy are about to get one.

Zamboni

NIMAN wrote: »

Although this is good news, one thing's for sure, we only got a deal because Spain and Italy are about to get one.

Akin to a child whinging 'humph, if they get one I want one too!'.

_Kaiser_

Gurgle wrote: »

Short term this will hurt as we'll see it as energy prices shooting up, but this will be a major incentive to work towards energy independence and if the right measures are taken to encourage development then its all good long term.

So to summarise today's developments as I understand it (feel free to correct any errors)

- New deal good for EU. MAY be good for Ireland IF applied retrospectively to our banking debt. This isn't yet a given (despite the backslapping by Enda and Co in the media this morning)

- "Austerity" to continue as is because we have yet to balance our books, meaning nothing is really going to change for those who actually are feeling some pain - except possibly get worse still

- Energy (meaning fuel) prices to shoot up so the already hard-pressed "average taxpayer" will see his cost of going to work increase still further

- Focus on Croke Park to continue officially, but this being Ireland, more likely the foot to come off the gas and "business as usual" to be resumed

That about right, or am I missing anything?

mike65

Zamboni wrote: »

Akin to a child whinging 'humph, if they get one I want one too!'.

Hardly, this should have happened anyway but Ireland is small enough to ignore - Spain and Italy clearly are not.

Pedant

I do say, it looks like we've been saved...

https://www.youtube.com/watch?v=WbOZwr5WLww

Gurgle

Kaiser2000 wrote: »

- New deal good for EU. MAY be good for Ireland IF applied retrospectively to our banking debt. This isn't yet a given (despite the backslapping by Enda and Co in the media this morning)

Its a given, otherwise its time to leave the EU and abandon (never mind write down or default) our external debts. Not applying the same rules to all member states would make a lie out of every founding principle of the EU.

Kaiser2000 wrote: »

- "Austerity" to continue as is because we have yet to balance our books, meaning nothing is really going to change for those who actually are feeling some pain - except possibly get worse still

More likely less bad, as we won't have to cover 15 years of repaying this part of the debt & associated interest. Still have to get to a situation where money in covers money out.

Kaiser2000 wrote: »

- Energy (meaning fuel) prices to shoot up so the already hard-pressed "average taxpayer" will see his cost of going to work increase still further

Yep

Kaiser2000 wrote: »

- Focus on Croke Park to continue officially, but this being Ireland, more likely the foot to come off the gas and "business as usual" to be resumed

I don't see any connection to the Croke Park deal.

Dave!

It was mentioned on the radio this morning that if the same deal weren't applied to us, we'd be able to sue for it.

_Kaiser_

Gurgle wrote: »

Its a given, otherwise its time to leave the EU and abandon (never mind write down or default) our external debts. Not applying the same rules to all member states would make a lie out of every founding principle of the EU.

Well given that we're in "uncharted territory" where the rules are being made up as we go, I wouldn't be surprised.
If it IS a done deal, why all the "hoping" it'll be good for us too.

I fear that, as has been the case all along, the EU will do whatever suits the big players and if it happens to benefit the rest then goody for them - if not.. "meh!"

More likely less bad, as we won't have to cover 15 years of repaying this part of the debt & associated interest. Still have to get to a situation where money in covers money out.

Agree, we need to balance our books and preferably start putting a bit aside for the rainy day (which being Ireland we inevitably get a lot of). I can't see the government giving anything back though even if things DO improve - eg: I can see the USC continuing long past any "need" for it, albeit in a different name

Yep

Wonderful. Which means that not only average Joe's diesel bill will go up but everything else with it. How is this a good thing again? (rhetorical)

I don't see any connection to the Croke Park deal.

Maybe not directly, but I can see this shiny new bauble being waved around enough so that the reforms needed are allowed to slide and then quietly be buried and before we know it we're back where we started (note: former PS worker myself so it's not that I'm having a go. There is a lot of wastage that should be addressed and that I fear if things 'get better' will never be)

antoobrien

Gurgle wrote: »

The part of this that could really drag Europe out of recession is the effect of devaluing the currency.

Why do you think this deal will devalue the currency? There's no mention of any QE (money printing) or debt write offs here so what will cause the value of the Euro to drop?

Dave!

Why will the cost of fuel shoot up? It's only after coming down! And I just bought a 2 L petrol Lexus

djpbarry

Kaiser2000 wrote: »

I fear that, as has been the case all along, the EU will do whatever suits the big players and if it happens to benefit the rest then goody for them - if not.. "meh!"

The EU will do what's good for the EU, which necessarily biases EU decision-making towards what's good for the larger EU members.

Why do people keep hinting at some sort of conspiracy? It's common sense.

Kaiser2000 wrote: »

Wonderful. Which means that not only average Joe's diesel bill will go up but everything else with it. How is this a good thing again? (rhetorical)

Why is the cost of everything going up (rhetorical)?

mike65

Dave! wrote: »

Why will the cost of fuel shoot up? It's only after coming down! And I just bought a 2 L petrol Lexus

Heard that, that's the way markets think - oh deal - more money - more demand - lets put up prices!

Gurgle

antoobrien wrote: »

Why do you think this deal will devalue the currency? There's no mention of any QE (money printing) or debt write offs here so what will cause the value of the Euro to drop?

Maybe I misunderstood, is the bailout money not coming from the ECB?

_Kaiser_

djpbarry wrote: »

The EU will do what's good for the EU, which necessarily biases EU decision-making towards what's good for the larger EU members.

Why do people keep hinting at some sort of conspiracy? It's common sense.

Not a conspiracy. Merely a massive inequality and (in my opinion) the reason why this whole concept will never work - in its current form - with such vastly differing circumstances (for want of a better term - I mean in terms of domestic economy, resources, industry, even social attitudes to politics and economic responsibility) between the different member states.

It was this approach that got us into the mess we're now trying to claw ourselves out of. How is continuing it going to help?

darkman2

Officially more expensive now for Spain to borrow money on the markets than for Ireland. That's the first time Spain's borrowing costs on it's benchmark bond have exceeded those of Ireland in this crisis. The market clearly likes this wrt Ireland. But how long will the rally last?

strandroad

But what kind of difference does it make if the banks have been taken over by the state? The funds will not be owed by the state itself, but by the banks belonging to the state... how is that beneficial? Apart from maybe reshuffling repayments, the money will still be owed. Unless the banks are sold off which is not likely in their sorry state and is it even possible for the former Anglo?

Dave!

mhge wrote: »

But what kind of difference does it make if the banks have been taken over by the state? The funds will not be owed by the state itself, but by the banks belonging to the state... how is that beneficial? Apart from maybe reshuffling repayments, the money will still be owed. Unless the banks are sold off which is not likely in their sorry state and is it even possible for the former Anglo?

Was also wondering that actually.

Wouldn't lenders see the banks as massive liabilities anyway, so we'll still owe the same amount, it'll just be via the banks?

djpbarry

Kaiser2000 wrote: »

Not a conspiracy. Merely a massive inequality and (in my opinion) the reason why this whole concept will never work...

The last number of decades have brought unprecedented peace and prosperity to Europe, but you think the EU isn't working?

That's an interesting perspective.

Kaiser2000 wrote: »

It was this approach that got us into the mess...

There was me thinking it was gross incompetence on the part of successive Irish governments.

_Kaiser_

djpbarry wrote: »

The last number of decades have brought unprecedented peace and prosperity to Europe, but you think the EU isn't working?

That's an interesting perspective. There was me thinking it was gross incompetence on the part of successive Irish governments.

Well maybe I'm looking at it a bit more selfishly in terms of what has it done for Ireland. After all if Germany, France, Spain etc use the EU as means to further their own national agenda, why not us?

Sure we got a lot of investment and we've given a lot back too (fishing rights and so on) and we got a few - as it turns out - pretty poorly built motorways with tolls on them, but really the big benefit to Ireland was "cheap" money/credit.

Yes of course our own shower of parochial gombeens jumped on this for all it was worth and we (and our children) will be dealing with the legacy of those decisions for decades... but let's not forget that it takes two to tango. Where did this money come from? We didn't just fire up the printing presses after all.

My point is that as long as individual members continue to put national - or even constituency - interests ahead of what's good for the EU as a whole (not just the "chosen few") then we will continue to have a situation where counties such as ourselves and Greece etc will be at the "mercy" of whatever fallout comes out of those decisions.

EDIT: I also think that BECAUSE each member state is so different industrially, politically and socially that we may NEVER get to a situation where we see ourselves as EU citizens first, Irish/German/whatever next which in my opinion is exactly what's needed if we ever are to make this work.

Personally, I think we should have never joined the Euro as it's caused us more problems than it solved. We should have instead have remained as a trading partner but retained control of our own affairs as it's surely been proven that the "one size fits all" approach hasn't worked - neither in the "good times" nor the bad

Scofflaw

Gurgle wrote: »

antoobrien wrote: »

Why do you think this deal will devalue the currency? There's no mention of any QE (money printing) or debt write offs here so what will cause the value of the Euro to drop?

Maybe I misunderstood, is the bailout money not coming from the ECB?

No - the bailout money comes from the ESM. The ECB doesn't provide bailout money for sovereigns, only loans for banks.

cordially,
Scofflaw

Gurgle

Scofflaw wrote: »

No - the bailout money comes from the ESM. The ECB doesn't provide bailout money for sovereigns, only loans for banks.

Isn't that what this is, lending money to banks rather than have the national governments do it?

Readyhed

Surely the question to be asked is that if moving bank debt from the sovereign to the banks will result in a lower budget deficit and mean that we don't need to cut 3 billion in the coming budget to comply with the fiscal treaty.

As the state basically owns the banks moving the debt from one to the other is only significant to the extent that it affects the way statistics are calculated.

antoobrien

Gurgle wrote: »

Isn't that what this is, lending money to banks rather than have the national governments do it?

Yeah but the money still has to be paid back - so (in theory) no devaluation of the Euro as the amount of money isn't increasing.

Readyhed wrote: »

Surely the question to be asked is that if moving bank debt from the sovereign to the banks will result in a lower budget deficit and mean that we don't need to cut 3 billion in the coming budget to comply with the fiscal treaty.

The PN wasn't considered part of the troika targets for the deficit anyways, and as far as Eurostat is concerned the PNs are already accounted for in the deficit (from 2010), so the 3 billion is irrelevant. It's the removal of the interest from the exchequer that will be of benefit - which won't amount to 3 billion a year.

Heads the ball

Anyone else here upset that now, Irish taxpayers will have to bail out Spainish and Italian banks?

After all the pain we had with bailing out our own banks we are now to bail out other banks?

djpbarry

Kaiser2000 wrote: »

Well maybe I'm looking at it a bit more selfishly in terms of what has it done for Ireland. After all if Germany, France, Spain etc use the EU as means to further their own national agenda, why not us?

Are you seriously going to try and argue that the EU has not benefited Ireland? I’m old enough to remember what 1980’s Dublin was like and, even in the current “crisis”, the Dublin of 2012 is a virtual utopia by comparison.

Kaiser2000 wrote: »

My point is that as long as individual members continue to put national - or even constituency - interests ahead of what's good for the EU as a whole (not just the "chosen few") then we will continue to have a situation where counties such as ourselves and Greece etc will be at the "mercy" of whatever fallout comes out of those decisions.

From where I’m sitting, it was the likes of Greece and Ireland putting national/constituency interests ahead of what was good for the EU that has us where we are.

Kaiser2000 wrote: »

I also think that BECAUSE each member state is so different industrially, politically and socially that we may NEVER get to a situation where we see ourselves as EU citizens first, Irish/German/whatever next which in my opinion is exactly what's needed if we ever are to make this work.

I will never be convinced by the “everyone’s too different argument”, but anyway. Plenty of people in the UK consider themselves English/Scottish/Welsh/Northern Irish first and British second, but the UK still works.

Kaiser2000 wrote: »

Personally, I think we should have never joined the Euro as it's caused us more problems than it solved. We should have instead have remained as a trading partner but retained control of our own affairs as it's surely been proven that the "one size fits all" approach hasn't worked - neither in the "good times" nor the bad

So after witnessing the monumental mistakes that were made by successive Irish governments over the last 10-15 years, you want to go back in time and give them a currency they can fiddle with too? Seriously?

sarumite

Dave! wrote: »

What will this mean for tax payers? Will there be some respite from the "austerity"? Less need to tackle awkward areas in upcoming budgets? How will it affect the Croke Park Agreement?

I think the government needs to mindful of such attitudes. The argument prior to this change in direction was that by giving countries in austerity programs leeway they would revert to old habits that got them in trouble in the first place. According to the EC, Ireland still has a PS that is on the high end of pay by international standards and our welfare system is still very generous. The banking debt isn't the sole reason we have a deficit and thus the next budget should reflect the economic challenges still facing us. While I welcome this new development, I think we shouldn't rest on our laurels in getting the budget and economy as a whole back to health.

Dave!

Indeed, if the Taoiseach overplays this then it'll make it more difficult for him to pass difficult budgets and negotiate with the public sector unions.

everdead.ie

Heads the ball wrote: »

Anyone else here upset that now, Irish taxpayers will have to bail out Spainish and Italian banks?

After all the pain we had with bailing out our own banks we are now to bail out other banks?

We will not be paying anything towards the spanish or Italien(if they need it) banks. We don't have any money to do so.

We are still running a massive deficit caused by the collapse of the construction Industry which has made 100,000's unemployed (directly and indirectly employed by the sector) and massively reduced our tax in-take, this means we still have to make progress in increasing our competitiveness and finding new ways to increase taxation.

Heads the ball

everdead.ie wrote: »

We will not be paying anything towards the spanish or Italien(if they need it) banks. We don't have any money to do so.

We are still running a massive deficit caused by the collapse of the construction Industry which has made 100,000's unemployed (directly and indirectly employed by the sector) and massively reduced our tax in-take, this means we still have to make progress in increasing our competitiveness and finding new ways to increase taxation.

We will be paing money into the ESM and thats now going to go straight to banks who need it.

Flex

Dave! wrote: »

Indeed, if the Taoiseach overplays this then it'll make it more difficult for him to pass difficult budgets and negotiate with the public sector unions.

Thats my concern out of all this. It will make passing difficult budgets much harder (along with the fact the government probably wont have the will to pass difficult budgets since they wont be able to simply blame the Troika for everything) and I can see the Public Sector demanding more pay increases off the back of any savings this may provide. Cautiously optimistic for the moment though...

everdead.ie

Heads the ball wrote: »

We will be paing money into the ESM and thats now going to go straight to banks who need it.

My understanding is the banks will be paying money in, still we have zero right to complain imo.

Heads the ball

everdead.ie wrote: »

My understanding is the banks will be paying money in, still we have zero right to complain imo.

You are incorrect. It is the State which will be paying money in.

Gurgle

Soooo, if I now have this straight:
We've signed up to this ESM, a fund for bailing out countries who can't borrow on the international bond markets due to oppressive interest rates.

But 'they' have decided to use this money to keep crashed banks afloat.
Isn't this the same solution as before, just scaled up? Taxpayers money given to banks.

And what happens when another country needs a sovereign bail out?
"Sorry, the ESM fund is empty, we gave it to the banks already"

ixtlan

Heads the ball wrote: »

We will be paying money into the ESM and that's now going to go straight to banks who need it.

Indeed, but we can hardly complain about this when our contribution will be small compared to others.

As to how this plays out over the next few months it's hard to say. I expect that when the fine details are worked out there'll be plenty in there for people to grumble about and continue to say we should have left the Euro. As the saying goes there's no such thing as a free lunch.

Still, looking at things positively, for once the EU has exceeded the (admittedly low) market expectations, and it is clear that for the moment at least, rumours of the end of the Euro have been greatly exaggerated.

Ix.

ixtlan

Gurgle wrote: »

Soooo, if I now have this straight:
We've signed up to this ESM, a fund for bailing out countries who can't borrow on the international bond markets due to oppressive interest rates.

But 'they' have decided to use this money to keep crashed banks afloat.
Isn't this the same solution as before, just scaled up? Taxpayers money given to banks.

The difference being that the cost in effect is being spread out among all the states, so the contribution we must make is much smaller.

Gurgle wrote: »

And what happens when another country needs a sovereign bail out? "Sorry, the ESM fund is empty, we gave it to the banks already"

It's a concern. I expect the hope is that with the bank debt removed, it's less likely that states will need a sovereign bailout. We have been arguing that without the bank debt we would not have needed one.

In practice whether this will really work will depend on the details and some luck, and since the details won't be known for a few months, there's at least that much breathing space.

Ix.

Heads the ball

ixtlan wrote: »

Indeed, but we can hardly complain about this when our contribution will be small compared to others.


Ix.

Our contribution will be €1billion but that can be increased to as much as €11billion. That is NOT small.

I think we are well entitled to query where our money is going.

There is a HUGE difference between Ireland lending to another sovereign (which was the stated position at the time we ratified the recent Treaty) and Ireland lending directly to a bank which is on its knees.

Heads the ball

Gurgle wrote: »

Soooo, if I now have this straight:
We've signed up to this ESM, a fund for bailing out countries who can't borrow on the international bond markets due to oppressive interest rates.

But 'they' have decided to use this money to keep crashed banks afloat.
Isn't this the same solution as before, just scaled up? Taxpayers money given to banks.

And what happens when another country needs a sovereign bail out?
"Sorry, the ESM fund is empty, we gave it to the banks already"

This is an excellent post. Taxpayers money now going straight to banks. Its the one decision in the past decade that has almost unaminous opposition: we never should have placed the bank debt on the Irish people but people now have no issue with us giving money that we can ill afford (think how many more teachers could be paid, or how many social welfare cuts could be reversed) to FOREIGN banks.

The ESM is a ponzi scheme.

antoobrien

Heads the ball wrote: »

The ESM is a ponzi scheme.

No A ponzi scheme is one where investor a get paid "profit" from investor b's money. This is a consolidated loan fund - think giant credit union - where the members deposit money and the ESM loans it out.

I think everybody here is ignoring the fact that the bond markets now have "competition" in funding the banks. The banks don't have to take ESM funding, nor do they have to accept market funding. The markets now have a choice when dealing with the banks: fund at lower levels or lose the potential to make profit. The market players that try to speculate and drive prices up will be priced out of the market because the ESM funding will be available at a certain price - effectively putting a ceiling on the bank bond prices.

djpbarry

Heads the ball wrote: »

...think how many more teachers could be paid, or how many social welfare cuts could be reversed...

You’re aware that Ireland is still running a massive deficit, right?

Heads the ball

djpbarry wrote: »

You’re aware that Ireland is still running a massive deficit, right?

Yes. That is why I am calling for careful scrutiny of where we put our money. And giving a bailout to bankia is not what i would do with it.

djpbarry

Heads the ball wrote: »

Yes. That is why I am calling for careful scrutiny of where we put our money.

No you're not - you're calling for a reversal of welfare cuts?!?

Einhard

Would anybody be able to explain how this works in practise, and how in particular it affects Ireland. If it's applied retrospectively, does that mean that the ESM would take over the debt that Ireland acquired in order to bail out the banks? I presume they would pay a significantly lower rate of interest on that debt, thereby reducing Ireland's interest payments. Is there anything more to it? From what I've read and heard, it seems that the debt would be taken from Ireland's books entirely, thereby reducing government debt, but how exactly would this happen?

Perhaps somebody could clarify for me?

Heads the ball

djpbarry wrote: »

No you're not - you're calling for a reversal of welfare cuts?!?

You are wrong. Nowhere did I suggest that we should reverse welfare cuts. I was simply asserting that the €1bn is in no way small when you consider the pain we have gone through in recent budgets (which included reduction in teachers, welfare cuts etc etc*).

* and that list is pretty long