Why has public debt not fallen under the troika programme?

If we are sticking to what the Troica wants how come out public debt has not come down.

ArmaniJeanss

Our deficit has indeed come down. It was always planned as a gradual thing though, never the intention to bring it zero in a few years.

EchoO

The target for this year is to bring the deficit within 8.6% of GDP, according to the troika's latest report we are on track to achieve this.

Slydice

We have a huge debt which we need to pay off. A big portion of it is because of the bankers. Something like 120 billion (not 100% on the amount though).

So that's like our fixed problem. Big debt.

Then there is our year problem. What we earn.

This is why we have been cutting 3-5 billion from the country budget each year. We were spending something like 20billion but only earning 10billion (again, not exactly sure of the figures but you get the idea) that meant we were adding to the 120 fixed problem.

So, with each cutting budget, we get closer to no longer being adding to our big debt. Like this:
Year 1: 20 - 10 = 10 adding to big debt
Year 2: Budget Cut of 3 so 17 - 10 = 7 adding to big debt
Year 3: Budget Cut of 3 so 14 - 10 = 3 adding to big debt
Year 4: Budget Cut of 3 so 11 - 10 = 1 adding to big debt
Year 5: Budget Cut of 3 so 9 - 10 = 1 being taken off the big debt

If we get the bank debt moved over to one of the euro things ESM or EFSF or ECB or whatever, then our big debt will come down but maybe to 40-60 billion. Either way though, we still have the big debt.

This is why the politicians want to go back to the "markets" :rolleyes:. If we can do that, we can "roll over" the big debt. We pay off some of the old big debt we our earnings but we can borrow new big debt from the markets and spend that now.

As you can imagine, that would mean no more tax hikes or social welfare cuts. Politicians love that because they would then get votes because they'd be spending money on the country again.

It'd kinda be funny if we completely cleared all our debts and balanced our books. The markets would probably offer shed loads of cash. You can only imagine how giddy the politicians would probably get in a situation like that. Completely not gonna happen though because buying votes today is more important than anything to politicians

antoobrien

Slydice wrote: »

A big portion of it is because of the bankers. Something like 120 billion (not 100% on the amount though).

Oh dear god, where do people get this tripe from?

Even if we count nama (about €30bn) on the debt (it's not) the absolute maximum contribution of the banks to GGD can come out at is in the region of €70bn-€75bn.

The total amount we've committed to is €62.8bn, the breakdown of how it has been funded is here (I hope Scofflaw will forgive me for re-arranging the original table):

Bank/Committed Funds (€bn)| NPRF| Exchquer| PN
AIB/EBS| 16| 3.9| 0.9
BoI | 4.7| 0| 0
IL& P| 0| 0 |2.7
IBRC (Anglo/INBS)| 0| 4| 30.7
Totals From Sources |20.7| 10.6| 31.6


Now here's the important bit - the NPRF is cash we already had (from the Eircom flotation among other items) - so this does not appear on GGD. So that reduces the impact of the banks to €42.1 bn (about 25%) of GGD (which doesn't account for cash positions or assets).

It's worth pointing out that due to accounting rules (Eurostat), we've included €28.5bn worth of unpaid PNs in GGD up front - so the true GGD figure (i.e. money that we have actually borrowed) is probably closer to €140bn - its currently around €170bn.

No the vast majority of the money that is on GGD is due to government borrowing - not supporting the banks. In 2008 the debt was €47bn.

N.B the BoI figure is net of the portion bought off the government during 2011.

Heads the ball

mariaalice wrote: »

If we are sticking to what the Troica wants how come out public debt has not come down.

One contributor (in no small part) is the punitive rate of interest being charged as part of our program

Slydice

antoobrien wrote: »

Oh dear god, where do people get this tripe from?

I think you've picked me up wrong, I was saying the total debt was around 120 and I was only guessing. I held my hands up in the post and said I wasn't sure about every figure. The OP didn't ask for specifics so I guessed the OP was trying to understand the situation.

In any event, I googled Ireland debt clock (http://www.google.ie/search?q=ireland+debt+clock) and got these three results which look like my guess at 120 billion was close:
130bn: http://www.financedublin.com/debtclock.php/
124bn: http://nationaldebtclocks.com/ireland.htm
125bn: http://www.debtclock.ie/

Either way, my post was only intended at helping the OP understand which is why I disclaimed that I wasn't sure about each of the figures. Seems to me like I was pretty close. The ones I was least sure about were the budget earnings/deficits and planned cuts but again, it was helping to understand that I was trying to get across.

Duggys Housemate

antoobrien wrote: »

Slydice wrote: »

A big portion of it is because of the bankers. Something like 120 billion (not 100% on the amount though).

Oh dear god, where do people get this tripe from?

Even if we count nama (about €30bn) on the debt (it's not) the absolute maximum contribution of the banks to GGD can come out at is in the region of €70bn-€75bn.

The total amount we've committed to is €62.8bn, the breakdown of how it has been funded is here (I hope Scofflaw will forgive me for re-arranging the original table):

Bank/Committed Funds (€bn)| NPRF| Exchquer| PN
AIB/EBS| 16| 3.9| 0.9
BoI | 4.7| 0| 0
IL& P| 0| 0 |2.7
IBRC (Anglo/INBS)| 0| 4| 30.7
Totals From Sources |20.7| 10.6| 31.6


Now here's the important bit - the NPRF is cash we already had (from the Eircom flotation among other items) - so this does not appear on GGD. So that reduces the impact of the banks to €42.1 bn (about 25%) of GGD (which doesn't account for cash positions or assets).

It's worth pointing out that due to accounting rules (Eurostat), we've included €28.5bn worth of unpaid PNs in GGD up front - so the true GGD figure (i.e. money that we have actually borrowed) is probably closer to €140bn - its currently around €170bn.

No the vast majority of the money that is on GGD is due to government borrowing - not supporting the banks. In 2008 the debt was €47bn.

N.B the BoI figure is net of the portion bought off the government during 2011.

That was as clear as mud.

sarumite

Heads the ball wrote: »

One contributor (in no small part) is the punitive rate of interest being charged as part of our program

We are borrowing at below marking rates. If the troika wanted to punish us, they just had to do nothing and let the markets do the work for them.

Scofflaw

Heads the ball wrote: »

One contributor (in no small part) is the punitive rate of interest being charged as part of our program

No, the rates are very far from punitive - they are roughly (at comparable maturities):

EFSM 2.97%
EFSF 3.06%
IMF 4.79%
UK 4.83%

Source: http://debates.oireachtas.ie/dail/2011/11/17/00058.asp

The high rates you refer to were dropped a short time after the start of the programme, and were never charged.

cordially,
Scofflaw

Scofflaw

mariaalice wrote: »

If we are sticking to what the Troica wants how come out public debt has not come down.

The short answer is because public debt coming down by this point wasn't ever part of the programme. The programme, on the contrary, always included a rising public debt, but rising at a diminishing rate.

That is, the troika programme did not require us to reduce our budget deficit to zero or turn it into surplus to pay off our public debt. It required us to reduce our deficit to the point where our public debt is growing more slowly than our economy, which would reduce our debt/GDP ratio. But a deficit of any size means public debt continues to increase in absolute terms.

Just to reiterate that last point - it's the ratio, not the absolute debt, that's supposed to reduce. Nobody is expecting - at the moment - to have to pay off any of the debt.

cordially,
Scofflaw

Heads the ball

Scofflaw wrote: »

No, the rates are very far from punitive - they are roughly (at comparable maturities):

EFSM 2.97%
EFSF 3.06%
IMF 4.79%
UK 4.83%

Source: http://debates.oireachtas.ie/dail/2011/11/17/00058.asp

The high rates you refer to were dropped a short time after the start of the programme, and were never charged.

cordially,
Scofflaw

This is wrong for the following reason.

When compared to the euribor rate that the ecb lends to banks (and lets face it we really only needed the bailout as propping up the banks pushed us over the edge), that rate is less than 1pc so in comparison it is punitive.

Scofflaw

Heads the ball wrote: »

This is wrong for the following reason.

When compared to the euribor rate that the ecb lends to banks (and lets face it we really only needed the bailout as propping up the banks pushed us over the edge), that rate is less than 1pc so in comparison it is punitive.

Whether the banks "pushed us over the edge" or not, the money that is being supplied through the bailout facility is primarily for the government deficit - indeed, none of the bailout money made available to the banks has actually been used for the banks at all. And were the bailout not available the government would not be borrowing on euribor either to meet the deficit or to put money into banks.

So comparing the bailout rate to euribor is entirely spurious.

cordially,
Scofflaw

Heads the ball

Scofflaw wrote: »

Heads the ball wrote: »

This is wrong for the following reason.

When compared to the euribor rate that the ecb lends to banks (and lets face it we really only needed the bailout as propping up the banks pushed us over the edge), that rate is less than 1pc so in comparison it is punitive.

Whether the banks "pushed us over the edge" or not, the money that is being supplied through the bailout facility is primarily for the government deficit - indeed, none of the bailout money made available to the banks has actually been used for the banks at all. And were the bailout not available the government would not be borrowing on euribor either to meet the deficit or to put money into banks.

So comparing the bailout rate to euribor is entirely spurious.

cordially,
Scofflaw

Its far from spurious,its apt as government debt is tied to the banks capital requirements. While the government could not borrow at euribor, the banks would typically borrow at euribor.

To artificially separate government and bank debt here is incorrect

golden lane

guaranteeing the banks with the public purse was a bad idea....did any other country do the same...????

Scofflaw

Heads the ball wrote: »

Its far from spurious,its apt as government debt is tied to the banks capital requirements. While the government could not borrow at euribor, the banks would typically borrow at euribor.

To artificially separate government and bank debt here is incorrect

Banks cannot borrow capital, which is what the government put into the banks. To claim that the two are really the same suggests an almost complete misunderstanding of everything about the crisis.

cordially,
Scofflaw

Heads the ball

Scofflaw wrote: »

Heads the ball wrote: »

Its far from spurious,its apt as government debt is tied to the banks capital requirements. While the government could not borrow at euribor, the banks would typically borrow at euribor.

To artificially separate government and bank debt here is incorrect

Banks cannot borrow capital, which is what the government put into the banks. To claim that the two are really the same suggests an almost complete misunderstanding of everything about the crisis.

cordially,
Scofflaw

This post is way wide of th mark and ignores the basic fact the the cost of funds in europe is less than 1pc and our interest rate is far in excess of that. Thats a basic undenial fact and it cant be argued otherwise

Scofflaw

Heads the ball wrote: »

This post is way wide of th mark and ignores the basic fact the the cost of funds in europe is less than 1pc and our interest rate is far in excess of that. Thats a basic undenial fact and it cant be argued otherwise

It can't be denied that one number is bigger than the other, but it's meaningless because apples and oranges are being compared.

cordially,
Scofflaw

Sponge Bob

Scofflaw wrote: »

It can't be denied that one number is bigger than the other, but it's meaningless because apples and oranges are being compared.

Like the fiction that we only used 'our' money to 'invest' in the banks on behalf of the state.

The Troika is a stabilisation and sanitation programme. It is not a net debt reduction programme. It aims to apply a brake over a period of years ending around 2014 or 2015.

That reduction programme would be the post 2015 era where we are straitjacketed by the ESM. I would point out that we never reduced the debt we accrued up to 1987 and then accounting for 100% of GDP/GNP. We 'inflated' it out of meaning instead.

Scofflaw

Sponge Bob wrote: »

Like the fiction that we only used 'our' money to 'invest' in the banks on behalf of the state.

I know - we've discussed that one at length, and it is strictly an accounting fiction. Nevertheless, it's an important accounting fiction both in terms of ownership of the banks (and thus responsibility for their debts), and in terms of the costs and mechanisms of raising the money in question.

If the government puts capital into the banks from "Exchequer cash", that capital is in fact borrowed money - but it is money borrowed by the government, not by the banks, making euribor or ECB rates to banks irrelevant. When it is put into place in the banks as capital, it is not, from the perspective of the banks, borrowed money, because they are not borrowing it.

The Irish banks have, of course, borrowed far extensively than the government since the start of the crisis, through the ECB and Central Bank ELA programmes, and that borrowing has been done at the low ECB rates Heads The Ball wants to compare governmental borrowing rates to - but the banks cannot borrow capital.

Sponge Bob wrote: »

The Troika is a stabilisation and sanitation programme. It is not a net debt reduction programme. It aims to apply a brake over a period of years ending around 2014 or 2015.

That reduction programme would be the post 2015 era where we are straitjacketed by the ESM. I would point out that we never reduced the debt we accrued up to 1987 and then accounting for 100% of GDP/GNP. We 'inflated' it out of meaning instead.

Well, inflated it on the one hand and grew the economy on the other - but, yes, we didn't pay it down in absolute terms. Nor are we expecting to pay down the current debts either.

cordially,
Scofflaw

Heads the ball

Scofflaw wrote: »

Sponge Bob wrote: »

Like the fiction that we only used 'our' money to 'invest' in the banks on behalf of the state.

I know - we've discussed that one at length, and it is strictly an accounting fiction. Nevertheless, it's an important accounting fiction both in terms of ownership of the banks (and thus responsibility for their debts), and in terms of the costs and mechanisms of raising the money in question.

If the government puts capital into the banks from "Exchequer cash", that capital is in fact borrowed money - but it is money borrowed by the government, not by the banks, making euribor or ECB rates to banks irrelevant. When it is put into place in the banks as capital, it is not, from the perspective of the banks, borrowed money, because they are not borrowing it.

The Irish banks have, of course, borrowed far extensively than the government since the start of the crisis, through the ECB and Central Bank ELA programmes, and that borrowing has been done at the low ECB rates Heads The Ball wants to compare governmental borrowing rates to - but the banks cannot borrow capital.

Sponge Bob wrote: »

The Troika is a stabilisation and sanitation programme. It is not a net debt reduction programme. It aims to apply a brake over a period of years ending around 2014 or 2015.

That reduction programme would be the post 2015 era where we are straitjacketed by the ESM. I would point out that we never reduced the debt we accrued up to 1987 and then accounting for 100% of GDP/GNP. We 'inflated' it out of meaning instead.

Well, inflated it on the one hand and grew the economy on the other - but, yes, we didn't pay it down in absolute terms. Nor are we expecting to pay down the current debts either.

cordially,
Scofflaw

Whats happens in reality is, government guarantees banks, government borrows money and government pays banks.

Your analysis is too sinplistics: "its not coming from excheqer cash so euribor isnt relecant"

This analysis is wrong as

1: the cost of funds in europe is less than 1% and any rate in.excess of that is a premium/
Penalty

2: your analysis stops once you say its not excheqer cash fails to see the wider picture of what the cash is used for

Sponge Bob

Scofflaw wrote: »

Well, inflated it on the one hand and grew the economy on the other - but, yes, we didn't pay it down in absolute terms. Nor are we expecting to pay down the current debts either.

If we repeat what we did between 1987 and 2007 we will freeze the debt at a HIGH level and progressively reduce the cost of servicing it but without ever paying it off.

If the troika scheme works we will be left with a stable €130-€140bn of Government debt which will continue to exist as long as we live. We inherited €30bn of that from the 1987 debt which was rolled over and over for the following 20 years...but at progressively lower servicing costs ( from 10% interest down to 2% over the years) . The 'other' €100-110bn of debt will have been incurred from 2008 to 2014.

Our chances of inflating the enhanced load out of significance are much lower than our chances were in the early 1990s. The economy will simply not grow as fast as it did in the 1990s.

Scofflaw

Heads the ball wrote: »

Whats happens in reality is, government guarantees banks, government borrows money and government pays banks.

Your analysis is too sinplistics: "its not coming from excheqer cash so euribor isnt relecant"

This analysis is wrong as

1: the cost of funds in europe is less than 1% and any rate in.excess of that is a premium/
Penalty

2: your analysis stops once you say its not excheqer cash fails to see the wider picture of what the cash is used for

Sigh. No, that's still rubbish. The point about where the money comes from is important because it tells you who borrows it. The government borrows the money to put into the banks. That makes the rates at which banks can borrow from other banks - euribor - irrelevant, because the banks are not doing the borrowing.

I'm not sure that this point can be made simpler. If the banks aren't doing the borrowing - and they're not, because they cannot borrow to provide themselves with capital - then the rate at which banks can borrow is irrelevant. Only the rates at which the government can borrow is relevant, because it's the government doing the borrowing.

patiently,
Scofflaw

Scofflaw

Sponge Bob wrote: »

If we repeat what we did between 1987 and 2007 we will freeze the debt at a HIGH level and progressively reduce the cost of servicing it but without ever paying it off.

If the troika scheme works we will be left with a stable €130-€140bn of Government debt which will continue to exist as long as we live. We inherited €30bn of that from the 1987 debt which was rolled over and over for the following 20 years...but at progressively lower servicing costs ( from 10% interest down to 2% over the years) . The 'other' €100-110bn of debt will have been incurred from 2008 to 2014.

Our chances of inflating the enhanced load out of significance are much lower than our chances were in the early 1990s. The economy will simply not grow as fast as it did in the 1990s.

That's likely the case - which means we're unlikely to see the debt/GDP ratio reduced from 95% to 35% over 7 years, as we did in 1994-2001. On the other hand, that's an extraordinary rate of reduction, and even a third of such a rate would diminish our debt/GDP ratio within 20 years.

So while we would be handing on the full debt to our children, it would proportionally be a very much smaller burden to them than to us.

cordially,
Scofflaw

[Jackass]

Reducing Public Debt is far from an option right now. What we are doing at present is reducing the budget defecit, i.e. the gap between money coming in and Government spending.

Once that's under control, then we can look at reducing public debt, but at the moment we're bridging the gap to be borrowing less and less on an annual basis in order to meet our budget, hence the reason for austerity in spending cuts and increased tax income, as well as trying to increase productivity in the economy to get more people working, paying tax, off benefits and to achieve greater tax receipts from corporate tax resulting from increased productivity etc.

Sponge Bob

Yes but the 1987 era public debt reduced to 65% of GDP within 11 years ( 1998) and shot below the key 60% ESM Constraint Ratio by around early 1999. So it took 12 years to get into what we accept is the comfort zone. It progressively dropped to 25% of GDP in 2007. All the while it remained constant at around €30bn. We also reduced €1.3bn of quasi public eircom debt to €0 in that period up to 1998.

One other iimportant fact that people seem not to notice is that 100% of GDP in 1987 was around 110% of GNP. Debt service Payments come out of GNP more than GDP which is largely an accounting fiction in this country. Our legacy 1987 debt reached 60% of GNP in perhaps 2000. I never worked out the exact figures and, instructively, neither has anyone else.

In 2015 100% of GDP will equal around 130% of GNP or more seeing as GNP is still dropping while GDP shows signs of stabilising.

We are already, relatively, as indebted as we were in 1987 by the GNP measure, probably since 2011 in fact, and this situation will dismprove further over the next 2-3 years.

It will take at least 25 years ( from 2015) to get to that 60% level again once adjusted for GNP.

And that is aside from the necessary rework of the Tracker mortgage loan books into some class of SPV in order to get our banking turds into self financing mode.

Heads the ball

Scofflaw wrote: »

Heads the ball wrote: »

Whats happens in reality is, government guarantees banks, government borrows money and government pays banks.

Your analysis is too sinplistics: "its not coming from excheqer cash so euribor isnt relecant"

This analysis is wrong as

1: the cost of funds in europe is less than 1% and any rate in.excess of that is a premium/
Penalty

2: your analysis stops once you say its not excheqer cash fails to see the wider picture of what the cash is used for

Sigh. No, that's still rubbish. The point about where the money comes from is important because it tells you who borrows it. The government borrows the money to put into the banks. That makes the rates at which banks can borrow from other banks - euribor - irrelevant, because the banks are not doing the borrowing.

I'm not sure that this point can be made simpler. If the banks aren't doing the borrowing - and they're not, because they cannot borrow to provide themselves with capital - then the rate at which banks can borrow is irrelevant. Only the rates at which the government can borrow is relevant, because it's the government doing the borrowing.

patiently,
Scofflaw

Look im not going to have another one of these arguments with you. I have made my points above and your response doesnt address them. Im not going to have a "black is white" argument.

Back on point, the punitive interest rate has been a factor in our debt problems.

Scofflaw

Sponge Bob wrote: »

Yes but the 1987 era public debt reduced to 65% of GDP within 11 years ( 1998) and shot below the key 60% ESM Constraint Ratio by around early 1999. So it took 12 years to get into what we accept is the comfort zone. It progressively dropped to 25% of GDP in 2007. All the while it remained constant at around €30bn. We also reduced €1.3bn of quasi public eircom debt to €0 in that period up to 1998.

One other iimportant fact that people seem not to notice is that 100% of GDP in 1987 was around 110% of GNP. Debt service Payments come out of GNP more than GDP which is largely an accounting fiction in this country. Our legacy 1987 debt reached 60% of GNP in perhaps 2000. I never worked out the exact figures and, instructively, neither has anyone else.

In 2015 100% of GDP will equal around 130% of GNP or more seeing as GNP is still dropping while GDP shows signs of stabilising.

We are already, relatively, as indebted as we were in 1987 by the GNP measure, probably since 2011 in fact, and this situation will dismprove further over the next 2-3 years.

It will take at least 25 years ( from 2015) to get to that 60% level again once adjusted for GNP.

And that is aside from the necessary rework of the Tracker mortgage loan books into some class of SPV in order to get our banking turds into self financing mode.

There's a couple of different points in there. Debt/GDP is the statistic people look at, because all of GDP is potentially taxable. In Ireland the gap between GDP and GNP is taxed through corporation tax, which has of course become a sacred cow in Irish public debate - however, one cannot simply wave away the money in the gap between GDP and GNP as if it wasn't part of Ireland's tax base, because it is not only a potential part of that tax base, but an actual part of it.

cordially,
Scofflaw

Scofflaw

Heads the ball wrote: »

Look im not going to have another one of these arguments with you. I have made my points above and your response doesnt address them. Im not going to have a "black is white" argument.

Back on point, the punitive interest rate has been a factor in our debt problems.

You can't avoid having a "black is white" argument, because you're the one claiming it. Your claim that the troika rates are "punitive" is based on comparing them to completely irrelevant rates.

The only other source for the money that went into the banks is the markets, and their rates are higher than the troika rates, not lower. The euribor rate is not relevant, because it is not the banks that are borrowing to provide the capital the government has put into them, nor could they do so.

And yes, every time you make the claim you'll get challenged on it, because it's utter rubbish.

regards,
Scofflaw

Heads the ball

Scofflaw wrote: »

Heads the ball wrote: »

Look im not going to have another one of these arguments with you. I have made my points above and your response doesnt address them. Im not going to have a "black is white" argument.

Back on point, the punitive interest rate has been a factor in our debt problems.

You can't avoid having a "black is white" argument, because you're the one claiming it. Your claim that the troika rates are "punitive" is based on comparing them to completely irrelevant rates.

The only other source for the money that went into the banks is the markets, and their rates are higher than the troika rates, not lower. The euribor rate is not relevant, because it is not the banks that are borrowing to provide the capital the government has put into them, nor could they do so.

And yes, every time you make the claim you'll get challenged on it, because it's utter rubbish.

regards,
Scofflaw

I'll try this once more and then im leaving it.

The ECB issues money to banks at 1%. Given that a lot of the governments needs was directly for the banks ilt is only fair to look at the destination for the cash and apply the relevant rate.

Sometines its important to look beyond the pure legal form of the transaction (the government is the borrower) and look at the substance of the transaction (that the money is meerley going "through" the government. This principle of substance over form is widely used and accepted in financial and accounting worlds).

What you are doing (repeatedly saying the government is the borrower*) is fine but its just an unsophisticated mantra that adds no value and neglects the substance of the transaction. In fact what you are doing is similar to what happened with the US mortgage crises: poor quality mortgages were wrapped into vehicles and stamped as "triple A". But they could never be triple A as they were junk in substance.

S* for the record i dont dispute it

If you dont agree with my analysis thats fine but please dont refer to it as rubbish when all you have is "the government borrowed it"

and for the record the cost of funds in europe is not an irrelant figure.

golden lane

italy is expecting to pay 7% percent on it's borrowing......considerably more than ireland.....

Scofflaw

Heads the ball wrote: »

I'll try this once more and then im leaving it.

The ECB issues money to banks at 1%. Given that a lot of the governments needs was directly for the banks ilt is only fair to look at the destination for the cash and apply the relevant rate.

Sometines its important to look beyond the pure legal form of the transaction (the government is the borrower) and look at the substance of the transaction (that the money is meerley going "through" the government. This principle of substance over form is widely used and accepted in financial and accounting worlds).

What you are doing (repeatedly saying the government is the borrower*) is fine but its just an unsophisticated mantra that adds no value and neglects the substance of the transaction. In fact what you are doing is similar to what happened with the US mortgage crises: poor quality mortgages were wrapped into vehicles and stamped as "triple A". But they could never be triple A as they were junk in substance.

S* for the record i dont dispute it

If you dont agree with my analysis thats fine but please dont refer to it as rubbish when all you have is "the government borrowed it"

and for the record the cost of funds in europe is not an irrelant figure.

OK, I too will try once more. You're saying the following: the cash is intended for the banks, so the rate at which banks can get cash is the appropriate comparison.

The minor mistakes in this are as follows:

1. the bailout money is not primarily for the banks. Since the bailout, the amount of money that has been put into the banks is €16.5bn.

2. the bailout money is not being used directly for the banks - none of the €16.5bn has been taken directly from the troika facility. You can view this as indirectly borrowed from the troika if you like, but it was borrowed from the troika facility intended for the government deficit, not the facility intended for the banks.

The major mistake is this:

3. the money that has gone into the banks is to provide the banks with capital. It therefore could not be money borrowed by the banks, because you cannot use borrowed money as capital. The banks cannot borrow money to use as capital or collateral - that's the nub of this. Therefore, when it comes to capital - and that's what the bank recapitalisations have been about - the banks cannot be the borrowers, and the rate at which they can borrow is a completely meaningless figure to compare to either the troika rates or the government's current bond market rates.

You might perhaps be under the impression that the government borrowed money to pay off the debts of the banks - many people are under that impression, but it's entirely wrong:

1. the banks are borrowing directly to pay off (well, roll over) their debts, and they are borrowing from the ECB to do it.

2. but they cannot borrow from the ECB without collateral.

3. in order for the banks to have collateral to allow them to borrow from the ECB, money must be given to them. You cannot (legally) use money you borrowed as collateral with which to borrow money. You can use money someone else has borrowed, as long as they have given - not loaned - it to you.

4. to put that more shortly, the only things you can use as collateral are things you own.

5. so, in order for the banks to have the collateral to borrow from the ECB to roll their debts over, they have been given money by the government - that's the money that was involved in the 'bank bailouts', the promissory notes, the NPRF taking equity stakes. All of those involved the government giving the banks money - not loaning it to them.

thus:

6. there is no way that the recapitalisation money in the banks could be borrowed by the banks themselves.

7. therefore, the rate at which banks can borrow money is irrelevant, because that is not even notionally an option here.

You can compare the troika rates with the bond market rates, because both of those are rates at which the government can borrow. It's meaningless to compare either of those rates to the euribor rates, because the banks could never have borrowed their capital or collateral on the interbank markets.

regards,
Scofflaw

Geuze

From this thread it's obvious that it's easy to get confused over interest rates, etc.

To add to the explanation:

The ECB sets the short-term refinancing rate, currently 0.75%. This is the rate it charges comm banks on typically short-term loans, usually from 1 night to 1 month to 3 months.

Note that not every bank borrows from the ECB, and any borrowings are just one past of a bank's list of liabilities. So 0.75% can't be said to be their cost of funds.

The recent LTRO, where the ECB gave approx 1000 bn of loans to banks at up to 3-yr maturity was very unusual.

Govts borrow from a range of sources, from retail savings (An Post) to short-term bills, to longer term bonds. Govts face a range of int rates on their borrowings.

The ECB main rate is just one factor that contributes to determining the bond yields. Lots of other factors affect bill/bond yields.

Heads the ball

Geuze wrote: »

The ECB sets the short-term refinancing rate, currently 0.75%. This is the rate it charges comm banks on typically short-term loans, usually from 1 night to 1 month to 3 months.

That still is the annual rate - its not a daily-3month rate. That is the annualised charge.

If its good enough to issue banks loans at 0.75% then they should have advanced the money to us to be used in the banks at this rate.

Geuze

Yes, all interest rates are quoted on an annual basis.

It is illegal for the ECB to give loans to Govts.

Even before the crisis, the CBs never made loans to Govts.

Even a hint of the ECB aiding Govts in fiscal distress would undermine the independence of the ECB.

Heads the ball

Geuze wrote: »

It is illegal for the ECB to give loans to Govts.

There are several options to overcome this:

1: Give the loan to the banks
2: Change the rules for the ECB to allow it to give loans to governments
3: Let the ECB lend into some vehicle which then lends to the government
4: Is there some "emergency override" clause in ECB's mandate?

On a more general note if the ECB really is so independent of these transactions, why dont we tell them to hump off every quarter that they show up with the IMF and the EC? I mean if they never gave us a cent why dont they butt out!

Another general observation is, there seems to be a healthy degree of "outside the box" thinking when it suits the European institutions - like setting up the EFSF and ESM and transferring private debt onto the public etc - but when its something that is genuinely good for the citizens of Europe no such thinking exists.

Sorry if this is turning into a rant, but for every loan we did get (IMF, EFSF and EC) wouldnt it have helped our interest greatly if the ECB "guaranteed" our loans? Wouldnt that really have helped the risk profile of our loan and the associated interest rate? I really dont buy the "independence" argument. I mean the government could have played that card when they were asked to bail out the banks (certainly not trying to re start a debate on the bailout) but you could see how such an argument would fail against the other side of the argument: the bank is about to collapse, society will fall apart, its an emergency etc etc. So why doesnt the ECB take a hit on its indepenence for the good of the European citizenry.

If one listens to the ECBs press conferences it frequently comments on areas which are strictly outside its remit.


So in an effort to stay on topic here, my net point is the interest rate is exaccerbating the debt woes and im not as happy as some people may be on here that we got a good deal when all the circumstances are considered.

Scofflaw

Heads the ball wrote: »

There are several options to overcome this:

1: Give the loan to the banks
2: Change the rules for the ECB to allow it to give loans to governments
3: Let the ECB lend into some vehicle which then lends to the government
4: Is there some "emergency override" clause in ECB's mandate?

On a more general note if the ECB really is so independent of these transactions, why dont we tell them to hump off every quarter that they show up with the IMF and the EC? I mean if they never gave us a cent why dont they butt out!

Because they manage the EFSF money.

Heads the ball wrote: »

Another general observation is, there seems to be a healthy degree of "outside the box" thinking when it suits the European institutions - like setting up the EFSF and ESM and transferring private debt onto the public etc - but when its something that is genuinely good for the citizens of Europe no such thinking exists.

Sorry if this is turning into a rant, but for every loan we did get (IMF, EFSF and EC) wouldnt it have helped our interest greatly if the ECB "guaranteed" our loans? Wouldnt that really have helped the risk profile of our loan and the associated interest rate? I really dont buy the "independence" argument. I mean the government could have played that card when they were asked to bail out the banks (certainly not trying to re start a debate on the bailout) but you could see how such an argument would fail against the other side of the argument: the bank is about to collapse, society will fall apart, its an emergency etc etc. So why doesnt the ECB take a hit on its indepenence for the good of the European citizenry.

If one listens to the ECBs press conferences it frequently comments on areas which are strictly outside its remit.

It would of course be extremely helpful - to Ireland - if someone else took on our debts, which is what you're asking to have happen there. But, notwithstanding the fact that the Member States are not at the moment allowed to take on each others' debts either directly or indirectly, why should they do so?

Why would any country which is already dealing with its own banking problems, and its own deficit problems - as virtually every EU country is - take on any of Ireland's debts?

Heads the ball wrote: »

So in an effort to stay on topic here, my net point is the interest rate is exaccerbating the debt woes and im not as happy as some people may be on here that we got a good deal when all the circumstances are considered.

That's because you're comparing the bailout rate with something irrelevant. It's like comparing your ability to sprint with that of a cheetah - it may make you unhappy, but it's not meaningful.

regards,
Scofflaw

Heads the ball

First of all I wasnt suggesting that anyone take on our debts - I was suggesting that the ECB guarantees our debts. Your are confusing guaranteeing versus taking-on debts.

Second pointing out that the ECB manages the EFSF money hurts the previous posters point re independence.

With all due respect I think your post is an excellent example of the point i was making earlier - that the rationale and mentality to problems is different when it suits the European institutions (or more like the French and German electorate). You have used a certain form of rationality here - lets call it "conventional rationality" (paraphrasing: "why would any country take on our debts"). Why indeed? But the answer is we have broken "conventional rationality" rules many time already in Europe so why not do it now when it would really help the citizens of Europe who are not German.

Also Im sure it doesnt need pointing out but even if the ECB DID "take on our debt" as you put it - that would not be "a country" (as you have suggested); it would be an institution with significantly more resources and tools than any "country."

You cant have pure rationality when you want to support certain proposals at a European level and then take it away arbitrarily like that. The bank bailout would never have happened if we said "why would the People, who are already dealing with debt problems of their own take on the debts of the banks"

Again, staying on point the above proposal would help our deficit hugely

Scofflaw

Heads the ball wrote: »

First of all I wasnt suggesting that anyone take on our debts - I was suggesting that the ECB guarantees our debts. Your are confusing guaranteeing versus taking-on debts.

A guarantee is an agreement to take on debts if they are not paid by the principal.

Heads the ball wrote: »

Second pointing out that the ECB manages the EFSF money hurts the previous posters point re independence.

No, because the independence of the ECB is political independence. The ECB acts as an agency for the EFSF, but has no interest in the EFSF.

Heads the ball wrote: »

With all due respect I think your post is an excellent example of the point i was making earlier - that the rationale and mentality to problems is different when it suits the European institutions (or more like the French and German electorate). You have used a certain form of rationality here - lets call it "conventional rationality" (paraphrasing: "why would any country take on our debts"). Why indeed? But the answer is we have broken "conventional rationality" rules many time already in Europe so why not do it now when it would really help the citizens of Europe who are not German.

I'm not sure what I should make of that. It's certainly true that I tend to use "conventional rationality" in the sense that I don't mix it up with emotive appeals. But I don't think that's what you mean - you mean that the greater good of all of Europe is served if Germany pays for the others. That's true, and is an argument which certainly has force in Germany, but it doesn't override the German right to factor their own good into the equation, given it's their money.

The argument in Europe is not that Germany should do something, after all - Germany is doing a lot, partly out of solidarity and partly out of self-interest - but that Germany should do yet more, and more, and more as the crisis grows.

Heads the ball wrote: »

Also Im sure it doesnt need pointing out but even if the ECB DID "take on our debt" as you put it - that would not be "a country" (as you have suggested); it would be an institution with significantly more resources and tools than any "country."

The distinction you're drawing is not there, because the ECB is funded by the eurozone countries.

Heads the ball wrote: »

You cant have pure rationality when you want to support certain proposals at a European level and then take it away arbitrarily like that. The bank bailout would never have happened if we said "why would the People, who are already dealing with debt problems of their own take on the debts of the banks"

Again, staying on point the above proposal would help our deficit hugely

Unfortunately, the answer to the last question is "because the government we elected chose to take the banks' debts onto the State's books rather than let them collapse" - and you should perhaps note that the government did that by guaranteeing their debts, which rather destroys your first claim in this post.

Yes, you're welcome to say you didn't vote for them, but that is also irrelevant, because all the citizens of the state are bound by the decisions of the government, not just those who voted for them.

Of course, you're obviously not going to complain about the government taking on the banks' debts, because in doing so you would be using the double standard you're accusing me of using - you'd be saying that we shouldn't have taken on the banks' debts, but the Germans should take on ours.

We know what was in the bank bailouts for us - the avoidance of a banking collapse. Had we, say, been able to reject keeping the banks afloat through a referendum (and, yes, I would have voted to keep them afloat), we would not now be dealing with the cost of the bank bailout, but instead the costs of the bank collapse. Would those costs be larger or smaller than the bank bailout? My feeling is that they would probably have been larger, and they would also have produced a period of chaos - the Ulster Bank problem, but extending to every bank and lasting for very much longer, without any reassurance that it was simply a technical issue.

Despite the complaints about the bank bailouts, Ireland has not suffered anything even remotely akin to what Greece is suffering, or what Argentina suffered when it defaulted. We have not suffered any sort of economic or social breakdown, despite the enormous magnitude of our crisis - instead, we have suffered the equivalent of a relatively run of the mill recession. That is an extraordinary achievement, when you consider that in previous decades we have regularly managed to achieve equal levels of economic misery without such a crisis - and a large part of that is our eurozone membership, and the solidarity already shown us, which we simply would not have had anywhere but in the EU.

It's highly unpopular to say so, but the crisis has been handled extremely well so far - almost as well as the boom was handled badly. It's not over, corners have not been turned, but then recessions are durable things, and those who are impatiently demanding to know why it hasn't been "sorted out" yet are being utterly unrealistic. We can fairly confidently expect another 5 years of grind, to take us to the full decade. There usually aren't any corners, just a long slow uphill slope back to normality.

cordially,
Scofflaw

Heads the ball

Scofflaw wrote: »

A guarantee is an agreement to take on debts if they are not paid by the principal.

Yes I know. Thats a lot different to your earlier claim that some other country would take on our debts. Its just that the ECB signs as a guarantor who are only required to pay IF we default. But if we have faith in the sterling job (and I am being sarcastic but just follow the line of reasoning) that the troika have done in putting together a bailout for us which is sustainable then the chances of us defaulting is slim. So the chance of the ECB ever having to pay our debt is remote, but we get the benefit of the lower interest rate. And who knows, maybe the markets will even like it and all of Europe benefits. So going back to my point, asking the ECB to guarantee our repayments would help us massively and it cannot be argued away as "thats unfair to ask another country to take on our debts" as (i) its not a country its an institution and (ii) they are only acting as guarantor and (iii) the likelihood of an intervention is remote.

Scofflaw wrote: »

No, because the independence of the ECB is political independence. The ECB acts as an agency for the EFSF, but has no interest in the EFSF.

Well its either independent or not and thats somewhat of a pedantic distinction you have drawn. I guess if you are saying it must be politically independent but it is allowed to be not independent in some other manner, I would ask "what is that other manner"?

But again let me relate it back to my original point. A poster earlier doesnt think its feasible for the ECB to lend to us because it would not be independent. Well I would argue that stability in Ireland and Europe (a direct humanitarian issue) should trump this "wooly" notion of independence. And even at that - a loan to Ireland could hardly be seen as a breach of political independence, it could be made on the grounds of (i) economic necessity (ii) better deal for Irish people (iii) recognizes that the issues arising in Europe are unprecedented therefore strict adherence to every term of every treaty which was drawn up - in when 1998? Or before? does not best serve us. It would not have to be a political matter at all.

We are not dealing with the founding of the United States here - we are dealing with a wide entity that doesnt even have a proper separation of powers so protecting the ECBs independence for the sake of it doesnt hold water with me.

Also Im literally watching the news here and I just heard: the ECB told finance ministers that some senior bondholders could have losses imposed on them. So if thats not outside their mandate I dont know what is. This is an example of the institutions breaking the rules when they want to.

So for the above reasons the independence argument doesnt stand up.

Scofflaw wrote: »

I'm not sure what I should make of that. It's certainly true that I tend to use "conventional rationality" in the sense that I don't mix it up with emotive appeals. But I don't think that's what you mean - you mean that the greater good of all of Europe is served if Germany pays for the others.

Fair enough -I suppose you could ask is there any such thing as "unconventional rationality" - I suppose there is but its just a figure of speech

I dont mix it with emotive appeals either. I just mean you replied with a very bland form of rationality of "why would anyone pay our debts". Now first of all I wasnt advocating someone paying our debts - thats addressed above. Im saying that that form of "first principles" rationality has been thrown out the window long ago in the crisis.

First principles and rationality would dictate that the people would not be saddled with the debt from the banks. You attribute this to the government but I attribute that to the ECB.

Either way, in light of the above I dont think you can just produce that card here because again - not asking for anyone to pay our debts and we have had people paying others' debts already

Scofflaw wrote: »

The distinction you're drawing is not there, because the ECB is funded by the eurozone countries.

Thats a misleading statement. Im not saying that member states do not contribute to the ECB but to make this statement here implies that if the ECB did pay a debt for us that there would be a call on all member states is wrong. The ECB controls the money supply and does have unlimited resources in that sense. So again the distinction I was drawing between the ECB guaranteeing our debt versus Germany paying our debt is very real.

Scofflaw wrote: »

Unfortunately, the answer to the last question is "because the government we elected chose to take the banks' debts onto the State's books rather than let them collapse" - and you should perhaps note that the government did that by guaranteeing their debts, which rather destroys your first claim in this post.

Yes, you're welcome to say you didn't vote for them, but that is also irrelevant, because all the citizens of the state are bound by the decisions of the government, not just those who voted for them.

No it doesnt destroy my first claim as it is completely different for the following reason. The banks were in serious trouble and they were given a no-strings-attached blank cheque. We were in serious trouble, but before the chequebook came out we underwent a "restructure" and a "plan" (in others words we were told to do XYZ differently and a long term plan was drawn up - THEN we were given a loan). So again if we got a guarantee from the ECB and if you believe that our current "program" is good then the ECB would never have to part with a cent - unlike the government having to pay into the banks immediately.

If you take your second paragraph to its logical conclusion: we are all bound by government action so if you disagree with them thats though because its a democracy; then we might as well not discuss anything here because everyone can pull out that line!

Scofflaw wrote: »

you'd be saying that we shouldn't have taken on the banks' debts, but the Germans should take on ours.

I never said that. I never said the Germans should take on our debts. I said that political will to do anything is correlative to what is tasteful to Germany (so I think their main objection to interferring by the ECB is probably the long term risk of inflation caused by long term interference).

Scofflaw wrote: »

Despite the complaints about the bank bailouts, Ireland has not suffered anything even remotely akin to what Greece is suffering, or what Argentina suffered when it defaulted. We have not suffered any sort of economic or social breakdown

I hold politicians to a higher degree of account than you do so. Im not satisfied with "at least its not as bad as Greece". I fundamentally and utterly and totally disagree with your final sentence there but we have been over and over that one already.

Scofflaw

Heads the ball wrote: »

Yes I know. Thats a lot different to your earlier claim that some other country would take on our debts. Its just that the ECB signs as a guarantor who are only required to pay IF we default. But if we have faith in the sterling job (and I am being sarcastic but just follow the line of reasoning) that the troika have done in putting together a bailout for us which is sustainable then the chances of us defaulting is slim. So the chance of the ECB ever having to pay our debt is remote, but we get the benefit of the lower interest rate. And who knows, maybe the markets will even like it and all of Europe benefits. So going back to my point, asking the ECB to guarantee our repayments would help us massively and it cannot be argued away as "thats unfair to ask another country to take on our debts" as (i) its not a country its an institution and (ii) they are only acting as guarantor and (iii) the likelihood of an intervention is remote.

Unfortunately, it's not legally distinct from other countries assuming responsibility for our debts, which is not currently allowed. Even the bailout loan facilities came under legal challenge as potentially being a case of Member States assuming the debts of other countries - an ECB guarantee would be legally impossible under the same terms, as well as under the ECB's own founding texts.

Further, such a guarantee could not possibly apply to Ireland alone, which means the ECB would be moving itself into the line of fire for Italy and Spain as well as Greece, Ireland, and Portugal. And that's basically a reprise of the Irish government's decision to guarantee debts that were too big for it to stand over, which would, in turn, cause the collapse of the ECB's credibility in exactly the same fashion as happened here - but there isn't then anyone to bail the ECB out.

Heads the ball wrote: »

Well its either independent or not and thats somewhat of a pedantic distinction you have drawn. I guess if you are saying it must be politically independent but it is allowed to be not independent in some other manner, I would ask "what is that other manner"?

What you've taken to be the meaning of "independent" there is, I think, "free from any commitments", which is not what independence means in terms of the ECB. You might also have meant "independent of any other interest in Ireland", which in effect it is, despite its agency for the EFSF, because it is not a decision-maker for the EFSF nor responsible for the EFSF's funds - it has placed its technical capacities at the service of the EFSF, no more.

Finally, you might mean that it is supposed to be even-handed in respect of countries, and not beholden to the interests of any one country - and that is part of its political independence.

Heads the ball wrote: »

But again let me relate it back to my original point. A poster earlier doesnt think its feasible for the ECB to lend to us because it would not be independent. Well I would argue that stability in Ireland and Europe (a direct humanitarian issue) should trump this "wooly" notion of independence. And even at that - a loan to Ireland could hardly be seen as a breach of political independence, it could be made on the grounds of (i) economic necessity (ii) better deal for Irish people (iii) recognizes that the issues arising in Europe are unprecedented therefore strict adherence to every term of every treaty which was drawn up - in when 1998? Or before? does not best serve us. It would not have to be a political matter at all.

We are not dealing with the founding of the United States here - we are dealing with a wide entity that doesnt even have a proper separation of powers so protecting the ECBs independence for the sake of it doesnt hold water with me.

Also Im literally watching the news here and I just heard: the ECB told finance ministers that some senior bondholders could have losses imposed on them. So if thats not outside their mandate I dont know what is. This is an example of the institutions breaking the rules when they want to.

So for the above reasons the independence argument doesnt stand up.

Well, not when you use your version of "independence", no, but that's because your version isn't the ECB's version, however pedantic that may sound. The ECB is politically independent - your equivalent would be, I think, "democratically unaccountable". In other words, the ECB doesn't answer to politicians.

I'm not sure why you think the ECB opposing or encouraging the burning of senior bondholders is somehow outside the ECB's remit - its remit is price stability and protection of the euro, and the question of whether Europe's distressed banks visit losses on their senior bondholders is very much part of that.

Heads the ball wrote: »

Fair enough -I suppose you could ask is there any such thing as "unconventional rationality" - I suppose there is but its just a figure of speech

I dont mix it with emotive appeals either. I just mean you replied with a very bland form of rationality of "why would anyone pay our debts". Now first of all I wasnt advocating someone paying our debts - thats addressed above. Im saying that that form of "first principles" rationality has been thrown out the window long ago in the crisis.

First principles and rationality would dictate that the people would not be saddled with the debt from the banks. You attribute this to the government but I attribute that to the ECB.

Either way, in light of the above I dont think you can just produce that card here because again - not asking for anyone to pay our debts and we have had people paying others' debts already

We haven't paid any of Germany's debts, which means we have no "fair exchange" argument that they should pay for ours. On the contrary, we dropped them in the red for €100bn through our Regulator's failure to regulate Depfa.

We object to paying for the mistakes of our banks - the Germans object somewhat more strongly to paying for the mistakes of our banks. What's odd or wrong there?

Heads the ball wrote: »

Thats a misleading statement. Im not saying that member states do not contribute to the ECB but to make this statement here implies that if the ECB did pay a debt for us that there would be a call on all member states is wrong. The ECB controls the money supply and does have unlimited resources in that sense. So again the distinction I was drawing between the ECB guaranteeing our debt versus Germany paying our debt is very real.

The ECB has capital of €80bn, and has to maintain certain capital adequacy ratios. If a chunk of the ECB's capital is tied up as a backstop for our debt, everyone puts in more money.

Heads the ball wrote: »

No it doesnt destroy my first claim as it is completely different for the following reason. The banks were in serious trouble and they were given a no-strings-attached blank cheque. We were in serious trouble, but before the chequebook came out we underwent a "restructure" and a "plan" (in others words we were told to do XYZ differently and a long term plan was drawn up - THEN we were given a loan). So again if we got a guarantee from the ECB and if you believe that our current "program" is good then the ECB would never have to part with a cent - unlike the government having to pay into the banks immediately.

To state that our current programme is an impressive achievement is not the same as blindly claiming nothing will go wrong with it! There are a lot of downside risks in our programme, and we are very close to the limits of debt sustainability, but not over them - something I said would happen right back at the start.

Heads the ball wrote: »

If you take your second paragraph to its logical conclusion: we are all bound by government action so if you disagree with them thats though because its a democracy; then we might as well not discuss anything here because everyone can pull out that line!

No, you're entitled to disagree as loudly as you like - you just can't repudiate any legal responsibility for the debt. We may not like the actions of our government, particularly if we didn't vote for the parties currently in power, but they remain legally binding on us.

Heads the ball wrote: »

I never said that. I never said the Germans should take on our debts. I said that political will to do anything is correlative to what is tasteful to Germany (so I think their main objection to interferring by the ECB is probably the long term risk of inflation caused by long term interference).

At the end of the day, asking any EU institution or arrangement to take on our debts, whether directly or through guarantees, is asking Germany first and foremost to do so.

Heads the ball wrote: »

I hold politicians to a higher degree of account than you do so. Im not satisfied with "at least its not as bad as Greece". I fundamentally and utterly and totally disagree with your final sentence there but we have been over and over that one already.

It's not just "not as bad as Greece", it's very much better. I think it's very easy to lose sight amidst the constant complaints and carping of the disparity between the sheer size of Ireland's crisis and the domestic effects of it. That's not to say there are no effects, but the fact that it's even possible for people to argue over whether Ireland has had "real austerity" or not is really quite amazing. Ireland's crisis is - according to an IMF paper - one of the largest crises since the Great Depression, but the effects are nothing compared to the effects of the Great Depression. Come to that, things aren't even as bad as the Eighties.

So, to be blunt, I don't think you "hold politicians to a higher degree of account" - I think you just have unrealistic expectations.

cordially,
Scofflaw

Heads the ball

Lets consider the substantive reasons why a guarantee is supposedly not possible.

Independence:

The independence issue has been neutralised as it frequently breaches independence. Examples are the managing of the EFSF and meddling in policy matters like burning senior bondholders (as reported last night).

The response to that from you was basically that they have a macro-agenda of price stability in Europe. But again, thats a classic example of the shifting goal posts I was talking about earlier for the following reason: to say that they have such a wide and broad macro agenda (of "stability") is fine, but you cant then pull out the card that "independence" is impigned. To put it another way: making a comment about what Spanish bondholders may be forced to take by way of losses is a breach of independence but you have chosen to rationalise it by saying basically that part of a wider madate of stability. Now I for one wouldnt have a huge problem with that reasoning to be honest with you. But if thats your line, then you cant just "dig in" on the independence argument about guaranteeing Ireland's debt; because I could similiarly pull the card that says: "but it does have a wider agenda of stability."

Also, any perceived breach of independence is usually as bad as actual breaches of independence.

So in sum, the independence argument doesnt hold here because: 1: a guarantee of Ireland's debts would not necessarily be a breach of independence, 2: the ecb has breached its independence on numerous occasions and 3: if the guarantee WAS seen as not independent it could be rationalised on the basis that it was in the overall interest of stability.

Everyone would look for it

You elluded to other countries looking for such a guarantee if Ireland got one and that undermining the ECB's credibility.

This argument does not hold either because the same logic could be applied to bailouts: better not bailout Country 1 because Countries 2, 3 and 4 will want one too. But they were bailed out. And if that has undermined the IMF (and i dont know that it has) so what?

So again, it seems that the argument of "everyone will look for a gaurantee" will be produced by you in this instance, without seeing that this concern has been passed over already in the context of bailouts.

Therefore it cant be a substantive reason why a guarantee of Irelands debt could not be given by the ECB.

Guarantee = taking over the debt

Its not. Nor is it, as you alledge, "legally" the same for the following reason.

An agreement to guarantee would read something like:

"I agree to pay X's debts should X default"

An agreement to take over X's debts would read something like:

"From now, I agree to pay all of X's debts"

So they are not legally, factually or virtually the same.

So for the above reason this argument fails.


Member States capital contributions

You refer to capital adequacy requirements. However, that would probably only be affected (I think) if the ECB did have to pay (which I established earlier is remote), but nevertheless if you dont buy that argument (and again Im just not sure), here are the solutions:

1: change the rules for capital adequacy for the ECB, or
2: if/when the ECB does have to pay and if it doesnt have the appropriate regulatory capital (bearing in mind how relatively small Irelands debt is - its unlike to push the ECB over the edge; although I would accept if many countries were guaranteed then perhaps that could affect capital) then just print the damn money!

So that would mean no cost to member states. Not alone would there be no costs to member states, there would probably be savings in respect of calmer markets etc...

So none of the arguments defeat the proposal that the ECB could guarantee our debt (which, relating back to the OP, would have a huge beneficial interest on our debt)

Heads the ball

Scofflaw wrote: »

At the end of the day, asking any EU institution or arrangement to take on our debts, whether directly or through guarantees, is asking Germany first and foremost to do so.

Well if you accept that - then you are accepting that the ECB is not in fact independent.

Scofflaw

I suppose we could have a really long debate about what "independence" means, but in the case of the ECB it means that they're not subject to politicians. How you turn this into an idea that they can't comment on the treatment of bondholders I think I can guess, but it's got nothing to do with the word "independent".

I think what you mean is "detached" and "neutral", and you mean that the ECB should take no part in any discussion apart from the ones you recognise as being within its remit - which is presumably, what, inflation?

The ECB is independent of political control by the European institutions, and also by the individual Member States. It pursues its own agenda, but it has to treat all countries evenly in a legal sense, although it has to take into account their relative economic weights.

So, to address some of your confusions:

To put it another way: making a comment about what Spanish bondholders may be forced to take by way of losses is a breach of independence but you have chosen to rationalise it by saying basically that part of a wider madate of stability.

No, that's not a breach of country-neutrality as long as the same rules are applied to Ireland and Spain at the same time. If the ECB says that senior bondholders should take losses in non-systemic small banks that are entering a legal resolution mechanism - which is what it has said - then that applies both to Spain and to every other country.

So in sum, the independence argument doesnt hold here because: 1: a guarantee of Ireland's debts would not necessarily be a breach of independence,

It would very much be a breach of country neutrality unless they guaranteed the debts of other countries on the same basis.

2: the ecb has breached its independence on numerous occasions

Based on your very personal interpretation only, I'm afraid. The marked absence of court cases is evidence you should take on board.

and 3: if the guarantee WAS seen as not independent it could be rationalised on the basis that it was in the overall interest of stability.

No, it really can't be. The ECB can only come up with a rule that is then applied to all countries. Any rule that brought Irish debt under an ECB guarantee would have to be run over everyone's debt to see if it qualified. It cannot be a rule that says "Ireland".

And that's only one hurdle - the bigger hurdle remains that the ECB can't legally do any such thing in the first place, and it's incredibly unlikely that it would be given the legal power to do it, all your quibbles about guaranteeing debt not "really" being the same as taking it on - despite the fact that the debt you would like the ECB to guarantee is around Ireland's neck as an immediate outcome of Ireland guaranteeing that debt!

At the end of the day, asking any EU institution or arrangement to take on our debts, whether directly or through guarantees, is asking Germany first and foremost to do so.

Well if you accept that - then you are accepting that the ECB is not in fact independent.

No, it simply reminds me to be exact in my phrasing, rather than handing you sticks you can grab the wrong end of.

Asking the ECB to take on our debt, were they able to do so, is not asking Germany to decide whether to take on our debt, which is one way of misinterpreting what I said. And looking at the other way you might be misinterpreting it, that Germany would bear the brunt of the costs of "the ECB" guaranteeing our debts doesn't make the ECB non-neutral either - it is simply a reflection of the numbers at the other end.

I can understand what you're saying here, but the various claims you make that rules have already been broken are simply wrong. They have certainly been bent, but that bending produced legal challenges which have made clear the limits of flexibility. Neither the ECB nor the Member State governments can simply wave the magic words "necessary for stability" at everyone to make everything work the way you would like them to work.

There can be no 'special solution' for Ireland except by reference to the special nature of Ireland's debts - I know you think Spain is getting a special solution, but it isn't. What applies to them will apply to us, and what applies to us would likewise apply to them. We have benefited from exactly that rule already, and it's pretty absurd to think that it's not a two-way street.

cordially,
Scofflaw

Heads the ball

Scofflaw wrote: »

I suppose we could have a really long debate about what "independence" means, but in the case of the ECB it means that they're not subject to politicians. How you turn this into an idea that they can't comment on the treatment of bondholders I think I can guess, but it's got nothing to do with the word "independent".

I think what you mean is "detached" and "neutral", and you mean that the ECB should take no part in any discussion apart from the ones you recognise as being within its remit - which is presumably, what, inflation?

The ECB is independent of political control by the European institutions, and also by the individual Member States. It pursues its own agenda, but it has to treat all countries evenly in a legal sense, although it has to take into account their relative economic weights.

So, to address some of your confusions:

To put it another way: making a comment about what Spanish bondholders may be forced to take by way of losses is a breach of independence but you have chosen to rationalise it by saying basically that part of a wider madate of stability.

No, that's not a breach of country-neutrality as long as the same rules are applied to Ireland and Spain at the same time. If the ECB says that senior bondholders should take losses in non-systemic small banks that are entering a legal resolution mechanism - which is what it has said - then that applies both to Spain and to every other country.

So in sum, the independence argument doesnt hold here because: 1: a guarantee of Ireland's debts would not necessarily be a breach of independence,

It would very much be a breach of country neutrality unless they guaranteed the debts of other countries on the same basis.

2: the ecb has breached its independence on numerous occasions

Based on your very personal interpretation only, I'm afraid. The marked absence of court cases is evidence you should take on board.

and 3: if the guarantee WAS seen as not independent it could be rationalised on the basis that it was in the overall interest of stability.

No, it really can't be. The ECB can only come up with a rule that is then applied to all countries. Any rule that brought Irish debt under an ECB guarantee would have to be run over everyone's debt to see if it qualified. It cannot be a rule that says "Ireland".

And that's only one hurdle - the bigger hurdle remains that the ECB can't legally do any such thing in the first place, and it's incredibly unlikely that it would be given the legal power to do it, all your quibbles about guaranteeing debt not "really" being the same as taking it on - despite the fact that the debt you would like the ECB to guarantee is around Ireland's neck as an immediate outcome of Ireland guaranteeing that debt!

At the end of the day, asking any EU institution or arrangement to take on our debts, whether directly or through guarantees, is asking Germany first and foremost to do so.

Well if you accept that - then you are accepting that the ECB is not in fact independent.

No, it simply reminds me to be exact in my phrasing, rather than handing you sticks you can grab the wrong end of.

Asking the ECB to take on our debt, were they able to do so, is not asking Germany to decide whether to take on our debt, which is one way of misinterpreting what I said. And looking at the other way you might be misinterpreting it, that Germany would bear the brunt of the costs of "the ECB" guaranteeing our debts doesn't make the ECB non-neutral either - it is simply a reflection of the numbers at the other end.

I can understand what you're saying here, but the various claims you make that rules have already been broken are simply wrong. They have certainly been bent, but that bending produced legal challenges which have made clear the limits of flexibility. Neither the ECB nor the Member State governments can simply wave the magic words "necessary for stability" at everyone to make everything work the way you would like them to work.

There can be no 'special solution' for Ireland except by reference to the special nature of Ireland's debts - I know you think Spain is getting a special solution, but it isn't. What applies to them will apply to us, and what applies to us would likewise apply to them. We have benefited from exactly that rule already, and it's pretty absurd to think that it's not a two-way street.

cordially,
Scofflaw

But independence must exist in its purest form. In a similar manner, you cannot be "half dead" nor can you be "almost alive". Its not possible to have the argument in the following way:

HTB: the ecb is not independent in respect of X SL: yes but they are independent in a different manner in that they are politically not accountable, oh and by the way your definition of independence is incorrect.

Independence must be real and apparent and objectively confirmable (ie not just visible to those who have an inside view on it).

If they are making decisions on Spanish bondholders (despite the fact you believe/hope they will apply it to Ireland too) then that is NOT independent. If they are making decisions on how Ireland runs its economy as troika members then that is NOT independent. If they are managing the EFSF then that is NOT independent.

So it can't be wheeled out at this stage to say "they shouldnt guarantee a loan as this would mean they are not independent."

golfwallah

Heads the ball wrote: »

But independence must exist in its purest form. In a similar manner, you cannot be "half dead" nor can you be "almost alive". Its not possible to have the argument in the following way:

HTB: the ecb is not independent in respect of X SL: yes but they are independent in a different manner in that they are politically not accountable, oh and by the way your definition of independence is incorrect.

Independence must be real and apparent and objectively confirmable (ie not just visible to those who have an inside view on it).

If they are making decisions on Spanish bondholders (despite the fact you believe/hope they will apply it to Ireland too) then that is NOT independent. If they are making decisions on how Ireland runs its economy as troika members then that is NOT independent. If they are managing the EFSF then that is NOT independent.

So it can't be wheeled out at this stage to say "they shouldnt guarantee a loan as this would mean they are not independent."

As I understand it, the primary role of the ECB is to maintain price stability (keep inflation low) and to administer monetary policy for Eurozone member states (not to guarantee loans).

The ECB is legally bound by treaties to act independently of Eurozone Governments and the latter are bound to respect this independence.

That being said, the ECB has some accountability to the European Parliament and other EU institutions.

I don’t accept the logic of your test that independence of the ECB fails because “they are making decisions on how Ireland runs its economy as troika members”. Certainly, the Troika wields a lot of power in monitoring the Euro debt crisis, but the plan to rectify Ireland’s finances is a construct of the Irish Government to resolve our debt problem.

The ECB has a role, which requires independent judgement, in monitoring progress against our own plan to ensure we stick to it.

It’s really as simple as that. Most rational people in this country understand that you have to pay your way in life (including paying your debts). Someone has to take on the role of ensuring that you carry out your promises (the scorekeeper) – not to provide guarantees that, if we decide not to pay, that the ECB will pick up the tab.

Saying this means the ECB is not independent and should guarantee loans makes no sense to me and I doubt if you could convince the majority in this country of your position, which is all that matters in the greater scheme of things.

Heads the ball

I think this is an interesting post in relation to the wider question of independence, but I dont want to go to far from my original proposal (which I accept is already a little off topic from the thread title).

Now Im not trying to constrict your argument, but are you saying there are any reasons why a guarantee should not be given?

I know you mentioned we must pay our own debts.

My answer to that is:
1: We still would pay our own debts, its just lenders would have the extra assurance that if we failed (and we dont think we are going to fail because we have a plan in place and are in a program etc) the ECB would make good on our debt,
2: I kind of addressed this notion in an earlier post to scofflaw who said "why would anyone want to pay our debts" and basically my point is we have abandoned that level of logic (and it is in my opinion very sound reasoning) a long time ago. I mean we bailed out the banks. Those on the opposing side to the bailout would have mostly said: "why should the people have to pay" (thats somewhat similar to your call) but those favouring it would point to wider consequences of not providing a bailout etc. So to reject my proposition on those first principles of "we have to pay our own debts" is a little unsophisticated.

sarumite

Heads the ball wrote: »

I
My answer to that is:
1: We still would pay our own debts, its just lenders would have the extra assurance that if we failed (and we dont think we are going to fail because we have a plan in place and are in a program etc) the ECB would make good on our debt,

My main disagreement with your proposal is that you are applying to diametrically opposed opinions . On the one the government should not have guaranteed the bank debts (something I perhaps agree with in principle, although in practice our economy needs functional banks) and on the other the ECB should guarantee Irish debt.

Heads the ball

OK lets look at it like this:

The bank bailout (which I am opposed to) happened. And the argument of "its not our debt" didnt hold then, so why should it hold now.

Give it another way:

The "its not our debt" argument didnt work to avoid us having to bail out the banks (lets call that an "unfavourable" transaction) whereas it seems the "its not the ECBs debt" argument ought to work now (when a potentially "favourable" to us transaction is being considered).

But even if you still think I hold contradictory views:

1: I am asking for a guarantee, not a "taking over"/novation of our debt.
2: The black and white mantra of "its not our debt" cant be applied to my proposal as that (very sensible rule) has been abandoned already in the overall interests of stability etc
3: my opinion on the bank bailout is moot in that it has already occured. Lets say for argument "I am in favour of the bailout which has happened" - it doesnt really make my case for the ECB guarantee any stronger. So having an opinion that we should have done X, not Y, way back then should not hurt my argument now.

golfwallah

Heads the ball wrote: »

I think this is an interesting post in relation to the wider question of independence, but I dont want to go to far from my original proposal (which I accept is already a little off topic from the thread title).

Now Im not trying to constrict your argument, but are you saying there are any reasons why a guarantee should not be given?

I know you mentioned we must pay our own debts.

My answer to that is:
1: We still would pay our own debts, its just lenders would have the extra assurance that if we failed (and we dont think we are going to fail because we have a plan in place and are in a program etc) the ECB would make good on our debt,
2: I kind of addressed this notion in an earlier post to scofflaw who said "why would anyone want to pay our debts" and basically my point is we have abandoned that level of logic (and it is in my opinion very sound reasoning) a long time ago. I mean we bailed out the banks. Those on the opposing side to the bailout would have mostly said: "why should the people have to pay" (thats somewhat similar to your call) but those favouring it would point to wider consequences of not providing a bailout etc. So to reject my proposition on those first principles of "we have to pay our own debts" is a little unsophisticated.

Bad enough that our government ended up taking the decision to guarantee our banks (given that the alternatives were even worse) but asking the ECB to do likewise for all other states ...... well, I guess you'd have to put that to the people who fund the ECB.

Good luck to you and wouldn't it be great if you could pull it off.

But my guess is that this would be seen as a moral hazard situation, creating even more tendency to take undue risks because the costs are not borne by the party taking the risk.

Wouldn't it be grand if everyone had the option of running away from debt, when someone else had to pay the bill. Yes, it's simple and unsophisticated that "we have to pay our own debts".

Don't know what kind of alternative universe you would like to live in - but that's the way the world I live in actually works.;)

View

Heads the ball wrote: »

Guarantee = taking over the debt

Its not. Nor is it, as you alledge, "legally" the same for the following reason.

An agreement to guarantee would read something like:

"I agree to pay X's debts should X default"

An agreement to take over X's debts would read something like:

"From now, I agree to pay all of X's debts"

So they are not legally, factually or virtually the same.

So for the above reason this argument fails.

Politically speaking, the first and second statement would be viewed (by others) and would in practice almost certainly amount to the same thing.

The first after all is what the state gave back in October 08 for the banks, the second is what the state will, after recapitalizing the banks, largely end up having done.

Second, once such a guarantee were given, the whole debate here and elsewhere would be even more centred on populist calls to default and "let others pay the debts" to the bond holders (whether they be Irish or other). It massively increases the risk of it happening in other words.