Bank Guarantee decision taken without consulation - Tricher

Godge

There was an interesting interview with the former ECB chief on Newstalk this morning.

http://www.newstalk.ie/Former-ECB-chief:-I-will-not-appear-before-banking-inquiry

http://www.independent.ie/business/irish/former-ecb-head-jean-claude-trichet-i-wont-be-appearing-in-front-of-banking-inquiry-30252122.html

In the interview he clearly states that the government bank guarantee decision was a decision taken by the FF/Green government without consultation either with the ECB or other European countries.

This has been suspected for a long time. All other decisions in relation to the banking mess flow from this deeply flawed decision of 30 September 2008. It was supposed to be the cheapest bailout ever but ended up being one of the most costly.

By guaranteeing the banks that day, the Government left itself in the position that a reversal of that decision at a later date (e.g. by burning the bondholders) would cause a huge credibility problem for the whole European banking system and the Euro. Hence the intense pressure from Europe not to burn the bondholders. However, this was all a consequence (and a foreseeable one) of the decision the government took by itself. To me, it is futile blaming the Europeans for our mess, it was our own government that brought this upon us - Brian Cowen and Brian Lenihan. We should remember this when we go to the polling booth later this month.

What was a pity was the fact that Trichet said he wouldn't appear before the banking inquiry. A further explanation of the consequences of the Government's own decision would have been welcome.

antoobrien

Godge wrote: »

In the interview he clearly states that the government bank guarantee decision was a decision taken by the FF/Green government without consultation either with the ECB or other European countries.

We knew that already, among others Alister Darling was furious that he heard it from BBC radio.

spoon_fed

trichet was a truly awful ECB president , his superb successor draghi shows him up for the obtuse mandarin he was

id pay little attention to the idiot

Scofflaw

From the FT, 2008:

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It is not so much the proverbial Irish solution to an Irish problem as an Irish solution to what is a global problem.

Yet Tuesday’s guarantee offered by the Irish government to its six national banks to safeguard €400bn ($563bn) of deposits and bank debt is causing ructions in Brussels, where there is concern the Irish move shatters any hope of pan-European regulatory response to the turmoil.

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Brian Lenihan, finance minister, said he had notified the European Commission of the plan but “a member state is responsible for the stability of its own banking system and I am responsible for the stability of these particular banks.

“In the absence of a Europe-wide system, there is an onus on the Irish government as the sovereign body with responsibility in this state to take action.”

A few weeks ago, Mr Lenihan described it as his “misfortune” to become finance minister at a time when the domestic housing boom was “coming to a shuddering halt”.

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On Tuesday, he conceded that Ireland might be accused of reverting to economic nationalism and ignoring pan-European solutions to the market turmoil.

He said: “I accept it is a tendency towards economic nationalism but we’re on our own here in Ireland and the government had to act in the best interests of the Irish people”.

The deal covers Bank of Ireland, Allied Irish Banks, Anglo Irish bank, Irish Life & Permanent, Irish Nationwide building society and the Educational Building Society. The state is guaranteeing for two years bank deposits, both corporate and retail and interbank deposits and various types of bank capital such as covered bonds and subordinated bank debt.

The only liabilities not covered are hybrid Tier II capital, understood to amount to about €100bn.

The deal was finalised only at 3am on Tuesday at a meeting attended by Brian Cowen, the prime minister; Mr Lenihan, the central bank governor and the Irish regulator; plus the chairmen and chief executives of Bank of Ireland and AIB.

The government move followed what one ministry official described as “large scale cash movements” out of the Irish banks on Monday.

http://www.ft.com/intl/cms/s/0/b514c10a-8f2e-11dd-946c-0000779fd18c.html#axzz314iCoJRs

The mythologising is in full swing again today, though. A big boy made us do it.

Ah well.

wearily,
Scofflaw

realitykeeper

In fairness to Trichet he did explain his reasons for not planning on going to the enquiry ie his was not empowered to make a decision. Decisions could only be made by all 12 members of the governing council. (Brian Cowen was one of the 12). On the Oireachtas inquiry, I disagree with it because TDs get paid extra to sit on it. We have a courts service to prosecute crime. The politicians will probably blame Brian Lenihan for everything because he is dead so he can`t be held to account.

Sand

The mythologising is in full swing again today, though. A big boy made us do it.

They certainly stopped us correcting the mistake when they realised it was to their advantage.

The government move followed what one ministry official described as “large scale cash movements” out of the Irish banks on Monday.

On Tuesday, he conceded that Ireland might be accused of reverting to economic nationalism and ignoring pan-European solutions to the market turmoil.

Out of curiosity, back in 2008 what was the pan-European solution on the table to deal with large scale cash movements out of a member states banking system?

What is the solution today?

Scofflaw

Sand wrote: »

They certainly stopped us correcting the mistake when they realised it was to their advantage.

How would we have "corrected the mistake"? Is there some way in which we could have retrieved the 80-90% of bonds that were paid off under the guarantee?

I would put it rather that the ECB required us to persist with the implications of our chosen course of action to the bitter end, rather than destabilise the rest of the eurozone's banking system to save a bit of money on the dregs of the bank bonds - as a quid pro quo they gave their continued support for the majority we'd already taken on. And to this day all the evidence suggests that the Irish government was only willing to contemplate stiffing bondholders if it could do so while claiming the ECB/IMF made them do it, and not only abandoned the idea of doing so the moment the ECB frowned, but turned around and supported the ECB's position.

To be fair, that makes sense, if we assume the Irish government wanted to be seen as a good bet by the financial markets (and the finance industry more generally) - and, again, all the evidence says that that was indeed very high on the list of Irish government priorities both before and during the crisis. So it made sense to only be prepared to burn bondholders if we could claim a big boy made us do it - and the only time we did burn bonds (€16bn of them) was under the troika (and given the political unpopularity of repaying bonds, it's almost amazing how little publicity was sought by the government when bonds were burned).

Sand wrote: »

Out of curiosity, back in 2008 what was the pan-European solution on the table to deal with large scale cash movements out of a member states banking system?

What is the solution today?

More a case of him ignoring the option of a pan-European solution. There wasn't one in place at the time, although one was created shortly afterwards (early October). The solution, now as then, is various government guarantees.

I've stated before that the guarantee wasn't the insane response people often believe it to be, given the state of knowledge about the Irish banks, the views on their likely needs, and the willful blindness of the Irish government to the property bubble. Admittedly, those were pretty insane in themselves, but given them as a premise, the guarantee made sense. Unfortunately, a side-effect of the guarantee - not an intended one - was to transfer the liabilities of the banks from market lenders who could have been haircut to official lenders who couldn't be.

cordially,
Scofflaw

gaius c

We had to guarantee some of the banks, primarily BOI & AIB but the guarantee should have been limited to deposits only and not extended.

Anglo (the one with no ATM's) and PTSB should never have been included in that guarantee.

antoobrien

Scofflaw wrote: »

the only time we did burn bonds (€16bn of them) was under the troika (and given the political unpopularity of repaying bonds, it's almost amazing how little publicity was sought by the government when bonds were burned).

Not really the whole point of the public calls for burning the bondholders was supposed to save voters people money, while burning the big bad banks and investors.

What actually happened was the ones that could be burned - the subordinated bonds - cost "ordinary savers" money e.g. Wexford Credit Union.

antoobrien

gaius c wrote: »

We had to guarantee some of the banks, primarily BOI & AIB but the guarantee should have been limited to deposits only and not extended.

That couldn't happen as deposits were (not sure if the still are) subordinate to senior bonds. In order to guarantee deposits, senior bonds must also be guaranteed.

gaius c

antoobrien wrote: »

That couldn't happen as deposits were (not sure if the still are) subordinate to senior bonds. In order to guarantee deposits, senior bonds must also be guaranteed.

The government are the law.
But yeah, point taken. Senior bonds guaranteed and the others told to sit and spin would have been the minimum amount of sense expected but it does look like the ECB said "grand so lads, you've made your bed. Now go sleep in it" and "forced" us to keep the guarantee.

Idbatterim

If the government at the time said we will cover everyone except Anglo for example, would the ECB have had a fit about it due to possible ramifications, or would there have been absolutely nothing they could do about it? To use an analogy they would have been amputating a limb to save the patient, although it terms out it wasnt terminal either way, just unbelievably costly...

Scofflaw

Idbatterim wrote: »

If the government at the time said we will cover everyone except Anglo for example, would the ECB have had a fit about it due to possible ramifications, or would there have been absolutely nothing they could do about it? To use an analogy they would have been amputating a limb to save the patient, although it terms out it wasnt terminal either way, just unbelievably costly...

As far as I know, that question has come up in legal/economic discussions about the guarantee, and the answer given was that there would have been nothing the ECB could have done about it. Quite possibly, there would have been nothing the ECB would have wanted to do about it, either - the reaction of the EU overall was highly disapproving, and the approval rather grudging.

Come to that, I don't think there's anything the ECB could have done had the Irish government chosen not to do anything to save the banks. It's not possible for the ECB or the EU to require a government to expend taxpayers' money in such a way. It's possible for them to ask them not to do so, if the scheme in some way breaks the state aid rules, but even there, the only EU power is to fine them for the breach - and in this case, the government relied on one of the treaty exemption clauses which allows such actions in order to remedy serious disturbances (see (see, for this: http://ec.europa.eu/eu_law/state_aids/comp-2008/nn048-08.pdf)).

The point where the ECB was able to dictate - de facto rather than de juro - to the Irish government was the point at which the Irish banking sector was reliant on the ECB to the tune of over €100bn. At the time of the guarantee, the ECB had no such practical hold, and it never has had the legal powers to compel the Irish state in such a matter in any way.

cordially,
Scofflaw

Sand

Scofflaw wrote: »

I would put it rather that the ECB required us to persist with the implications of our chosen course of action to the bitter end, rather than destabilise the rest of the eurozone's banking system to save a bit of money on the dregs of the bank bonds - as a quid pro quo they gave their continued support for the majority we'd already taken on.

I'm amused that the ECBs help can be summed up even by their defenders as making sure we never ran out of rope with which to hang ourselves.

Why exactly does Ireland have any responsibility for stabilising the rest of the Eurozone banking system? That is the job of the ECB and the Eurozone as a whole - not Ireland specifically.

More a case of him ignoring the option of a pan-European solution. There wasn't one in place at the time, although one was created shortly afterwards (early October). The solution, now as then, is various government guarantees.

Do you think the Irish banking system - with already significant outflows occurring - would have survived to early October, with the treatment of bondholders and depositors in Irish banks up for public debate at the EU?

There *is* a lot of myths around the guarantee. One of them is the Irish government went on some daft solo run without taking up the readily available and practical EU option. The facts are simple. There was no EU option. There was no realistic possibility of getting a EU deal in place before the banks imploded. And there is still no EU option even today. Its no wonder nobody consulted with Trichet - if the Irish government had told him the Irish banks were failing, he would have pulled the plug on their credit - the ECB can't support a bust bank afterall.

Ireland went with a (stupid) national guarantee. The solution today is still a national guarantee. Ireland used the tools available to it.

Ireland should never have guaranteed the banks - it should have left it to be the ECBs and the bondholders problem and only stepped in as needed to pick up the pieces. But if you consider it an absolute necessity to bail out the banks, then you have to go with a national guarantee, even today.

bcmf

Sand wrote: »

The facts are simple. There was no EU option. There was no realistic possibility of getting a EU deal in place before the banks imploded.

^^^ This.
There was no other option apart from the nuclear option.
If the guarantee hadnt been put in place at least one bank wouldnt have opened its doors/had no access to cash-credit that day.
This would have brought the whole euro party crashing down very quickly.
Given how deep foreign banks were into Irish banks the gaurantee had to cover all banks to stop a run.

fullaljackeen

bcmf wrote: »

^^^ This.
There was no other option apart from the nuclear option.
If the guarantee hadnt been put in place at least one bank wouldnt have opened its doors/had no access to cash-credit that day.
This would have brought the whole euro party crashing down very quickly.
Given how deep foreign banks were into Irish banks the gaurantee had to cover all banks to stop a run.

No. The run on the banks happened before the guarantee in the case of Anglo. It was broken and couldn't be fixed by a guarantee. Thats what we know now. Thats what we knew then.

Scofflaw

Sand wrote: »

I'm amused that the ECBs help can be summed up even by their defenders as making sure we never ran out of rope with which to hang ourselves.

But that rather slanted summary results from you disagreeing with the government as to the right thing to do. It's not the ECB's job to do that if the results don't impinge on their responsibilities. The Irish government says "we're saving our banks", the job of the ECB is to assist them in doing that.

Sand wrote: »

Why exactly does Ireland have any responsibility for stabilising the rest of the Eurozone banking system? That is the job of the ECB and the Eurozone as a whole - not Ireland specifically.

No, it's also the job of every eurozone country to assist in stabilising it - in this case only by not destabilising it.

Sand wrote: »

Do you think the Irish banking system - with already significant outflows occurring - would have survived to early October, with the treatment of bondholders and depositors in Irish banks up for public debate at the EU?

There *is* a lot of myths around the guarantee. One of them is the Irish government went on some daft solo run without taking up the readily available and practical EU option. The facts are simple. There was no EU option. There was no realistic possibility of getting a EU deal in place before the banks imploded. And there is still no EU option even today. Its no wonder nobody consulted with Trichet - if the Irish government had told him the Irish banks were failing, he would have pulled the plug on their credit - the ECB can't support a bust bank after all.

Ireland went with a (stupid) national guarantee. The solution today is still a national guarantee. Ireland used the tools available to it.

Ireland should never have guaranteed the banks - it should have left it to be the ECBs and the bondholders problem and only stepped in as needed to pick up the pieces. But if you consider it an absolute necessity to bail out the banks, then you have to go with a national guarantee, even today.

Well, yes and no. The options are indeed national guarantees - the EU can't go guarantor for any Member State or their banks. But you can agree the shape of that guarantee, and the timing of that guarantee, with the other EU members.

The Irish government had been working on the bank problem for more than just a day, yet there seems to have been virtually no attempt to consult with, or advise, other Member States, or the EU, or the ECB in advance on the preparations. The most that was done seems to have been to have asked the EU for its opinion on a number of possible options in a theoretical kind of way - again, some time in advance, so it's not as if there was no notion any of this was coming.

That's what makes it a solo run. It becomes pseudo-justifiable because the government didn't do anything until the brown stuff was apparently about to hit the fan from very short range. But while the guarantee decision may have been taken suddenly, the preparations for it weren't, and they didn't include preparing anyone else.

cordially,
Scofflaw

Scofflaw

bcmf wrote:

^^^ This.
There was no other option apart from the nuclear option.
If the guarantee hadnt been put in place at least one bank wouldnt have opened its doors/had no access to cash-credit that day.
This would have brought the whole euro party crashing down very quickly.
Given how deep foreign banks were into Irish banks the gaurantee had to cover all banks to stop a run.

It could hardly have made any difference around the eurozone, in fact. The much-reported "exposure of eurozone banks to Irish banks" was a mirage created by journalists who didn't distinguish between "banks in Ireland" and "Irish domestic banks". Total exposure of eurozone banks to the banks we guaranteed was quite small - about €16bn or so spread out around the eurozone.

Far from stabilising anybody else's banks, the form of the guarantee was such as to suck deposits out of their banks and into ours at a time when they too were suffering quiet bank runs. At least one of our banks had to be rapped over the knuckles for overtly using the fact of the government guarantee as a sales pitch for tempting deposits out of UK banks - but the fact of its existence was well publicized, and a strong draw. In the first month of the guarantee, the Irish banks covered by the guarantee picked up an extra €32bn in foreign deposits - not eurozone deposits, by the way, but almost certainly UK deposits.

So, while one can make the claim that we couldn't have waited for a "European solution" - that is, to agree the form of our guarantee with the other Member States - it's not possible to claim we did it for anybody but ourselves. And even the claim that we couldn't have waited is pretty damned weak. We could have brought other governments in on it the week before, so that if they wanted to, they could also have announced that Monday morning that they would also be issuing guarantees to their banks. That would have stopped the flow of deposits from them to us.

At the very least, we could have coordinated with the UK, whose banks we knew were in trouble, and whose depositors were always going to be the most likely to move to our banks - given BOI and AIB at least have high street branches there. Instead, we sprang it on them as a complete surprise, and benefited handsomely.

We're not good guys here. Our government acted in a way that can at best be described as panicked and thoughtlessly selfish, but which it's quite possible to characterise as deliberately predatory and amoral.

cordially,
Scofflaw

Sand

Scofflaw wrote: »

But that rather slanted summary results from you disagreeing with the government as to the right thing to do. It's not the ECB's job to do that if the results don't impinge on their responsibilities. The Irish government says "we're saving our banks", the job of the ECB is to assist them in doing that.

But the ECB didn't "assist" them. It forced them to continue to pay out on bondholders when the Irish government didn't want and the IMF advised them not to. Purely to benefit the ECB.

Like I said, there is a couple of myths circulating around the bailout. The ECB was not a disinterested white knight that arrived to save the feckless Irish from themselves.

No, it's also the job of every eurozone country to assist in stabilising it - in this case only by not destabilising it.

You're confusing principles with legal (and in this case fiscal) responsibility. Ireland has absolutely no responsibility to pick up the bill for monetary stability in the Eurozone. That is the ECBs job along with the Eurozone as a whole. In this case, the entire costs were dumped on one specific member.

Well, yes and no. The options are indeed national guarantees - the EU can't go guarantor for any Member State or their banks. But you can agree the shape of that guarantee, and the timing of that guarantee, with the other EU members.

Well, yes and yes. In the midst of a bank run you cannot wait weeks or months to convene a EU meeting to publicly discuss and debate an EU solution for Irish banks. The proposed EU solution is a mirage.

The Irish government had been working on the bank problem for more than just a day, yet there seems to have been virtually no attempt to consult with, or advise, other Member States, or the EU, or the ECB in advance on the preparations. The most that was done seems to have been to have asked the EU for its opinion on a number of possible options in a theoretical kind of way - again, some time in advance, so it's not as if there was no notion any of this was coming.

That's what makes it a solo run. It becomes pseudo-justifiable because the government didn't do anything until the brown stuff was apparently about to hit the fan from very short range. But while the guarantee decision may have been taken suddenly, the preparations for it weren't, and they didn't include preparing anyone else.

Why would they tell the ECB or the wider EU governments their banks were going to fail? It would be leaked to news within a couple of hours, much like the news of the bailout negotiations was leaked back in 2010 - it would completely cut the legs out from under the Irish government and force them to accept any conditions whatsoever. Just like they did in the 2010 bailout.

A national guarantee was always going to be a relative advantage to Irish banks, was always going to hurt other EU banks. Why would any EU member state back in any way a state guarantee which would lead to deposits fleeing their accounts at a time of very little liquidity? Why would Germany agree to some EU wide guarantee which would put their taxpayers on the hook for hundreds of billions, if not trillions?

Scofflaw, you're not being serious if you think there was some EU solution on the table. There wasn't. It was every man for himself at EU level, and has continued to be so for the past 6 years and still is today. The Irish govt did a very stupid thing in 2008, but it was deciding to try save the banks in the first place. Once that stupid decision was made you've got to move fast and without telegraphing your move to anyone who might seek to take advantage of it.

View

Sand wrote: »

But the ECB didn't "assist" them. It forced them to continue to pay out on bondholders when the Irish government didn't want

The ECB has no powers to force a member state to do anything it doesn't want to. It is up to each government to make the decisions at the end of the day and to live with the consequences of its decisions.

The ECB can only provide assistance to a member state if it believes the member state is acting in a manner that will not endanger the Eurozone (including its banking system) by its decisions. The ECB cannot provide a member state with assistance if it believes otherwise.

View

Sand wrote: »

You're confusing principles with legal (and in this case fiscal) responsibility.

In the EU treaties all member states have BOTH a general obligation to work towards the achievement of the objectives of the EU AND a specific obligation to refrain from acting contrary to those objectives.

Scofflaw

Sand wrote:

But the ECB didn't "assist" them. It forced them to continue to pay out on bondholders when the Irish government didn't want and the IMF advised them not to. Purely to benefit the ECB.

No, the evidence points to the Irish government being OK with continuing to pay out on bondholders - do you not remember Morgan Kelly being amazed, and the IMF referring to the Irish government as having "Stockholm Syndrome" when they sided with the ECB.

We had just spent two years paying absolutely every single bond, from senior bonds right down to the most flyweight of subordinated bonds - and there's still a belief that the government had so radically changed its position that it was eager to burn the last 10-20% of senior bonds in the banks, thereby undoing anything they might have been said to have achieved over the previous two years.

I don't believe it at all, I'm afraid. I'm kind of embarrassed for people who do.

Like I said, there is a couple of myths circulating around the bailout.

Yes indeed. This one, for example:

Sand wrote:

You're confusing principles with legal (and in this case fiscal) responsibility. Ireland has absolutely no responsibility to pick up the bill for monetary stability in the Eurozone. That is the ECBs job along with the Eurozone as a whole. In this case, the entire costs were dumped on one specific member.

I'm sorry, but you really believe that? Do you even know what the costs were?

I have to say, I always had you down as someone whose cynicism sprang from some knowledge and experience, but it seems more that you're just drinking a particular brand of Koolaid, because that really is a complete myth, and an easily broken one too.

The ECB was not a disinterested white knight that arrived to save the feckless Irish from themselves.

I'm not sure who's claiming they were. They had two legally mandated jobs to do - support the Irish government in its preferred course of action, and protect/support the eurozone's financial system in general. Had the Irish government really wanted to burn senior bonds, there would have been a conflict, and given the serious potential consequences of the ECB being seen allowing Ireland to burn senior bank bonds, and the minimal amounts of money Ireland would have saved by doing so (c. €6-8bn, according to Seamus Coffey), the latter would certainly have taken precedence. That would have been the right thing to do, in my opinion, but it would nevertheless give us an argument of moral force for some kind of reparations once the dust had settled.

But I don't particularly see that the Irish government wanted to burn senior bonds. As far as I can see, absolutely no burning of bonds, of any description, took place under the aegis of the Irish government. Instead, we had two years of Lenihan telling us "pari passu", and how we couldn't burn senior bonds without him having to stick his hands in your savings, and how all the bonds were owned by poor widows.

Haircutting of junior bonds only happened when it was mandated by the troika, and it was done with so little publicity that I think most people are unaware that we saved €16bn that way. The government doesn't really refer to it, even when they're faced with the anti-austerity "not our debt" crowd baying for political blood.

To me, the two recent Irish governments have walked like people who didn't want to burn bank bonds, and talked like people who didn't want to burn bank bonds, just as they also handed the banks whatever else they wanted, be it enabling legislation or light touch regulation. Asking me to believe that in one specific instance - and the one time where it's particularly possible for them to blame someone else for their policy of bond protection - they totally abandoned their otherwise ironclad and invariable historical policy, just doesn't fly for me.

cordially,
Scofflaw

Sand

View wrote: »

The ECB has no powers to force a member state to do anything it doesn't want to. It is up to each government to make the decisions at the end of the day and to live with the consequences of its decisions.

The ECB can only provide assistance to a member state if it believes the member state is acting in a manner that will not endanger the Eurozone (including its banking system) by its decisions. The ECB cannot provide a member state with assistance if it believes otherwise.

That's true, it has no powers to force a member state to any particular course of action.

It does have a lot of powers though. Which it uses to force weak, minor member states to particular courses of action.

In the EU treaties all member states have BOTH a general obligation to work towards the achievement of the objectives of the EU AND a specific obligation to refrain from acting contrary to those objectives.

So? Why hasn't Germany bailed out the rest of the Eurozone? I presume it too has a general obligation to work towards the achievement of the objectives to the EU and a specific obligation to refrain from acting contrary to those objectives?

Or is this one of those obligations that assigns responsibilities and duties only to the weaker members of the EU? Is the burden of being good Europeans wholly for the smaller, weaker states?

You are confusing feel good generalities with specific obligations. In no treaty does is say Ireland specifically has to pay the costs of policies to achieve wider Eurozone stability.

@Scofflaw

No, the evidence points to the Irish government being OK with continuing to pay out on bondholders - do you not remember Morgan Kelly being amazed, and the IMF referring to the Irish government as having "Stockholm Syndrome" when they sided with the ECB.

Sure, much as the victim of a tiger kidnapping is "okay" with robbing a bank.

We had just spent two years paying absolutely every single bond, from senior bonds right down to the most flyweight of subordinated bonds - and there's still a belief that the government had so radically changed its position that it was eager to burn the last 10-20% of senior bonds in the banks, thereby undoing anything they might have been said to have achieved over the previous two years.

Do you believe the government between 2008 and 2010 never actually took a pause to consider the actual bill? That they never thought - wow, this dumb guarantee we rushed into was actually a pretty awful idea?

The ECB has completely turned its policies around drastically in the past few years - it has gone from being a contributing factor to the chaos under Trichet and LBS to at least attempting to be part of the solution under Draghi. You see that happen, yet you completely rule out the Irish government having any thought in its head of trying to mitigate what was very clearly a disastrous policy?

I'm sorry, but you really believe that? Do you even know what the costs were?

Believe what? That Ireland doesn't have a specific treaty obligation to pay the costs of a policy aimed at stabilising the wider Eurozone? That's not a controversial view. The inverse is.

I have to say, I always had you down as someone whose cynicism sprang from some knowledge and experience, but it seems more that you're just drinking a particular brand of Koolaid, because that really is a complete myth, and an easily broken one too.

I've never been able to place the source of your particular brand of unquestioning certainty on topics tbh.

Lets not forget you started with:

The mythologising is in full swing again today, though. A big boy made us do it.

You're quite clearly in agreement with the idea that the banks had to be rescued at all costs. Simultaneously you imply the bank rescue was a bad idea with the "a big boy made us do it" line. You grudgingly acknowledge that there was no EU solution to saving the banks in existence or on the table. And given you refuse to comment on it, I take you accept it would be ridiculous to try and produce one that satisfied all national interests in the midst of the crisis while the banks were leaking cash daily. You acknowledge that, actually, a national guarantee was the only effective tool the government had available to rescue the banks. You linked an FT article quoting Brian Lenihan saying exactly that back in 2008.

And you hold that contradictory set of views and you're so certain about it you're throwing around comments about drinking Koolaid. I really cant place the source of expertise required.

But I don't particularly see that the Irish government wanted to burn senior bonds.

And to this day all the evidence suggests that the Irish government was only willing to contemplate stiffing bondholders if it could do so while claiming the ECB/IMF made them do it, and not only abandoned the idea of doing so the moment the ECB frowned, but turned around and supported the ECB's position.

Again, I love the certainty on what the government was *thinking* - something you cant possibly know. What evidence do you have on the governments thinking that rises beyond the anecdotal? You dismiss the idea that the Irish government wanted to burn senior bondholders. Yet only a few posts ago in this very thread you say they abandoned the idea after the ECB "frowned". To abandon an idea, you have to hold it in the first place, right? Yet you argue with me that the ECB didn't "frown" on a plan to eliminate some of the debt taken on, forcing a change of course.

K-9

I'm pretty sure Patrick Honahan was quoted as saying FF didn't put any pressure on the Troika to burn bondholders.

Scofflaw

Sand wrote: »

So? Why hasn't Germany bailed out the rest of the Eurozone? I presume it too has a general obligation to work towards the achievement of the objectives to the EU and a specific obligation to refrain from acting contrary to those objectives?

Or is this one of those obligations that assigns responsibilities and duties only to the weaker members of the EU? Is the burden of being good Europeans wholly for the smaller, weaker states?

You are confusing feel good generalities with specific obligations. In no treaty does is say Ireland specifically has to pay the costs of policies to achieve wider Eurozone stability.

And Ireland didn't. Ireland paid for its banks. Germany paid for its banks. Ireland, before becoming a programme country, contributed to the Greek bailout package. Germany has contributed to the bailout packages.

Do you believe the government between 2008 and 2010 never actually took a pause to consider the actual bill? That they never thought - wow, this dumb guarantee we rushed into was actually a pretty awful idea?

The ECB has completely turned its policies around drastically in the past few years - it has gone from being a contributing factor to the chaos under Trichet and LBS to at least attempting to be part of the solution under Draghi. You see that happen, yet you completely rule out the Irish government having any thought in its head of trying to mitigate what was very clearly a disastrous policy?

Well, no, because I don't see any actual evidence for it. The government has not changed the policy of keeping the banks whole, and even the wrap-up of Anglo was a decision taken externally.

Believe what? That Ireland doesn't have a specific treaty obligation to pay the costs of a policy aimed at stabilising the wider Eurozone? That's not a controversial view. The inverse is.

An obligation to support agreed policies does usually include paying one's share for them, yes. But that's not your silly claim - this is your silly claim:

Sand wrote:

You're confusing principles with legal (and in this case fiscal) responsibility. Ireland has absolutely no responsibility to pick up the bill for monetary stability in the Eurozone. That is the ECBs job along with the Eurozone as a whole. In this case, the entire costs were dumped on one specific member.

What I was asking was whether you really believe that "the entire costs were dumped on one member" - that the total cost for monetary stability in the eurozone was paid by Ireland. And I asked whether you even knew what those costs were.

I get the impression that the answers are "yes, you do", and "no, you haven't a clue".

Sand wrote:

I've never been able to place the source of your particular brand of unquestioning certainty on topics tbh.

Following the evidence. Your certainty, on the other hand, appears to come from some inner emotional source. But perhaps you don't realise that you come across as aggressively certain of your views?

Sand wrote:

You're quite clearly in agreement with the idea that the banks had to be rescued at all costs.

Sigh, no. That's the kind of thing I mean - you assert as obvious something which is not at all true.

I accept that there's a case for doing so, and I accept that the government did so, and was legally entitled to do so. Much of their reasoning was spurious, and their decision-making poor, and reliant on poor information.

Simultaneously you imply the bank rescue was a bad idea with the "a big boy made us do it" line.

Again, no. Your readings are extremely black and white. Here I acknowledge that lots of people think it was a bad idea, usually for spurious reasons, and generally without any acknowledgement that there's a counter-case.

You grudgingly acknowledge that there was no EU solution to saving the banks in existence or on the table. And given you refuse to comment on it, I take you accept it would be ridiculous to try and produce one that satisfied all national interests in the midst of the crisis while the banks were leaking cash daily. You acknowledge that, actually, a national guarantee was the only effective tool the government had available to rescue the banks. You linked an FT article quoting Brian Lenihan saying exactly that back in 2008.

Christ on a bike. A "European solution" != "Europe paying for bank rescues". Can we start off with that?

There was a European solution, which happened in early October 2008. It consisted of national guarantees, which were the only tools available at the time, but it was a European solution because these were coordinated.

And you hold that contradictory set of views and you're so certain about it you're throwing around comments about drinking Koolaid. I really cant place the source of expertise required.

It just requires the ability to think in more than black and white, frankly.

Again, I love the certainty on what the government was *thinking* - something you cant possibly know. What evidence do you have on the governments thinking that rises beyond the anecdotal? You dismiss the idea that the Irish government wanted to burn senior bondholders. Yet only a few posts ago in this very thread you say they abandoned the idea after the ECB "frowned". To abandon an idea, you have to hold it in the first place, right? Yet you argue with me that the ECB didn't "frown" on a plan to eliminate some of the debt taken on, forcing a change of course.

The answer is that I don't see that the government ever considered burning bondholders in a way which made it clear they were the ones choosing to do so. I think they may have considered burning senior bonds as long as they could get the ECB or the IMF to be seen to be the ones making them do it, and abandoned that idea as soon as the ECB 'frowned' at it.

All of this is uncertain, but it's a good fit to the evidence. From the period in question , what evidence do we have of Irish government intentions?

Q. Do we have any evidence of a "plan" to burn senior bondholders? Any publicly announced intention of doing so that was subsequently struck down by the ECB?

A. No. Any claim by the Irish government that they had any such intentions doesn't mention an actual plan, comes from after the bailout negotiations, and takes the form "we might have done it but they wouldn't let us". Even the first mentions of such an intention come from a period well after the bailout negotiations.

Q. Do we have any evidence that suggests that the Irish government's policy was in fact not to burn the bondholders?

A. Yes, we do:

In November 2010, when the Irish government was negotiating with the European Union (EU) and other transnational bodies on schemes to resolve Ireland’s financial problems, the International Monetary Fund (IMF) came up with a proposal that would have involved the major bondholders taking a significant ‘haircut’, in the process reducing the Irish debt to a potentially manageable level. The European Central Bank (ECB) strongly opposed any ‘haircut’ for the bondholders, insisting that the Irish state pay all the debts incurred by the privately-owned Irish banks, even though this would most likely bankrupt Ireland. In this dispute, the Irish government officials sided with the ECB, leading one IMF staff member to describe the Irish government negotiators as displaying elements of the ‘Stockholm syndrome’, a situation whereby hostages sometimes come to identify with their captors

Q. Were any bank bonds given haircuts before the troika intervention?

A. No. Not even the most junior of debt.

Q. Were any bonds haircut during the troika intervention?

A. Yes. €16bn of haircuts in junior and subordinated bonds, which contributed most of the €24bn recap needed after the PCAR exercises.


That's why I think the Irish government did not in fact change its policies with respect to bank bonds, and that the troika had a stronger policy of burning bonds than the Irish government, and that the Irish government was only willing to be seen burning bonds under the impulse of an external force.

Because it's the most coherent explanation of the evidence, as far as I can see. You're free to explain the same evidence differently - but I would suggest you actually start with the evidence, otherwise it becomes a tedious round of mere expostulation.

cordially,
Scofflaw

View

Sand wrote: »

That's true, it has no powers to force a member state to any particular course of action.

It does have a lot of powers though. Which it uses to force weak, minor member states to particular courses of action.

You are contradicting yourself here.

A member state can decide to pursue a particular course of action which the ECB disagrees with. If so, the ECB is not obliged to assist the member state. The member state though remains free to forgo the ECB's assistance if it so chooses. It isn't forced to accept it, it is up to the member state if it wants assistance or not.

Sand wrote: »

So? Why hasn't Germany bailed out the rest of the Eurozone? I presume it too has a general obligation to work towards the achievement of the objectives to the EU and a specific obligation to refrain from acting contrary to those objectives?

It has participated in all the bailouts, hence - to most people - it has worked towards the EU's objectives. You are free to lodge a complaint that they haven't, if you feel so inclined.

Sand wrote: »

Or is this one of those obligations that assigns responsibilities and duties only to the weaker members of the EU? Is the burden of being good Europeans wholly for the smaller, weaker states?

See above.

Sand wrote: »

You are confusing feel good generalities with specific obligations. In no treaty does is say Ireland specifically has to pay the costs of policies to achieve wider Eurozone stability.

No I am not. You are inventing paper tigers so you can beat them up.

The obligations to work towards the EU objectives is there in the treaties. It is clearly specified, not a feel good fantasy. You may dislike that but it still remains nevertheless.

Sand

Scofflaw wrote: »

Following the evidence. Your certainty, on the other hand, appears to come from some inner emotional source. But perhaps you don't realise that you come across as aggressively certain of your views?

I would be certain that having examined the evidence I can express my views clearly and consistently. If I don't know or I'm not sure, I tend not to. So it might seem that I'm very certain on topics only because I tend not to comment on topics where I don't have enough information to reach a view.

In this case, I can be quite certain on my views: The banking guarantee was a disastrous move. The government should not have guaranteed them and only put together a backup plan to step in to maintain the banking infrastructure. The solution should have been reached (or not) between the banks and their creditors and the ECB. Having said that, if the bank rescue policy is taken as a requirement then a national guarantee was the only policy tool available in the short term so there is no point sniping at the government for using the only tool available to it.

See? Not so hard to say what you think without needing a table of contents, addendum's, appendices and glossary to terms. Speaking of which, lets try decipher what you think.

Scofflaw arguing that the Irish state did not want to burn bondholders as part of the 2010 "bailout".

Well, no, because I don't see any actual evidence for it.

I don't particularly see that the Irish government wanted to burn senior bonds.

Scofflaw arguing that the Irish state *did* want to burn bondholders but was influenced by the ECB

I think they may have considered burning senior bonds as long as they could get the ECB or the IMF to be seen to be the ones making them do it, and abandoned that idea as soon as the ECB 'frowned' at it.

all the evidence suggests that the Irish government was only willing to contemplate stiffing bondholders if it could do so while claiming the ECB/IMF made them do it, and not only abandoned the idea of doing so the moment the ECB frowned

Well, I'm glad that's clear. By following the evidence you managed to simultaneously rule out that the Irish government wanted to burn bondholders, whilst also discussing the thinking the Irish government had on its plan to burn bondholders. Brilliant.

It just requires the ability to think in more than black and white, frankly.

There *is* a school of thought that confuses muddled thinking with complex thought. Personally, I find the information and evidence is complex - the trick is to get to a conclusion whilst acknowledging what is not known. I think I'm pretty good at thinking in more than black and white - I just tend to express my views clearly. Views up to and including "I don't know"

I think the problem is you to want to be simultaneously on all sides of an issue. As I demonstrated above, you're going to trip over yourself as you try to hold opposing views so strongly that you argue with people who contradict one of them. I really have no idea if we agree or disagree. I know what my views are - I have no idea what yours are.

An obligation to support agreed policies does usually include paying one's share for them, yes. But that's not your silly claim - this is your silly claim:

No, that really is my silly claim. You stated earlier (see below) in relation to the ECBs role in the 2010 bailout negotiations that:

I would put it rather that the ECB required us to persist with the implications of our chosen course of action to the bitter end, rather than destabilise the rest of the eurozone's banking system to save a bit of money on the dregs of the bank bonds

You introduced the continuation of the banking guarantee as an aspect of wider ECB policy to avoid destabilisation of the Eurozone banking system. I didn't. I did note that the Irish state took on the full cost of continuing that policy which was of such clear benefit to the wider Eurozone that the ECB "strongly opposed" any haircut, from your own source.

The survival of the banks is a different issue. The state wasn't going to cut them loose - it was talking about applying haircuts to creditors of the banks.

What I was asking was whether you really believe that "the entire costs were dumped on one member" - that the total cost for monetary stability in the eurozone was paid by Ireland.

Clearly I don't. The total cost for Eurozone stability as it related to bonds up for debate in November 2010 was. That was a policy preferred by the ECB, which it used its leverage over the Irish government to achieve - something respected economists like McCarthy believe should be referred to the ECJ for a ruling on if it was an abuse of ECB powers.

Sigh, no. That's the kind of thing I mean - you assert as obvious something which is not at all true.

I accept that there's a case for doing so, and I accept that the government did so, and was legally entitled to do so. Much of their reasoning was spurious, and their decision-making poor, and reliant on poor information.

Right. So then you agree with me that the government should not have rescued the banks? Because I agree with everything you said there, though I would add that "was legally entitled to do so" is a fairly damning indictment of Irish standards of governance.

Again, no. Your readings are extremely black and white. Here I acknowledge that lots of people think it was a bad idea, usually for spurious reasons, and generally without any acknowledgement that there's a counter-case.

There's a surprise. Okay, so you don't agree with me that the government should not have rescued the bank.

Having "followed the evidence" your view is that some people think it was a good idea. And that some people think it was a bad idea. Through my own examination of the evidence, surprisingly enough I did already know that.

I still don't know what your opinion is despite you posting about the guarantee for several years. You see the problem, right?

Christ on a bike. A "European solution" != "Europe paying for bank rescues". Can we start off with that?

When it comes to a banking crisis then any solution, European or national, comes down to who is going to pay for the rescue. Anything that doesn't involve picking up the bill (potential or otherwise) isn't a solution.

There was a European solution, which happened in early October 2008.

Great - The Irish banking crisis came to a head in September 2008. Can you see the problem?

If anything, the Irish guarantee and its follow on effects prompted the so called European solution.

Because it's the most coherent explanation of the evidence, as far as I can see.

I don't know about that.

You're free to explain the same evidence differently - but I would suggest you actually start with the evidence, otherwise it becomes a tedious round of mere expostulation.

I have started with the evidence. I have arrived at a conclusion, subject to new evidence becoming available, which I can express and which I feel able to defend. Have you?

Sand

View wrote: »

You are contradicting yourself here.

No, I'm not. I didn't think the point I made was *that* subtle. "Powers" carries a different meaning depending on context.

View

Sand wrote: »

No, I'm not. I didn't think the point I made was *that* subtle. "Powers" carries a different meaning depending on context.

There is no subtlety needed here.

Either the ECB has formal legal powers to force a government to do something it does not wish to do, or, they do not.

If they do not, a government has a free choice. They are not forced to go with the ECB's preferred option.

Scofflaw

Sand wrote:

Well, I'm glad that's clear. By following the evidence you managed to simultaneously rule out that the Irish government wanted to burn bondholders, whilst also discussing the thinking the Irish government had on its plan to burn bondholders. Brilliant.

Well, yes. Come one, it's not that subtle, as you might say yourself. It's not really any more complicated than, say, "I don't want to sell my house, but I need the money".

I'm saying they didn't want to do it, but may have considered it as a cost-reduction measure if they could get someone else to take the rap for it.

You see? You have:

(a) what they want or don't want

(b) what they need to do or not do

They don't want to burn bonds (a), but will consider it because they need to reduce the costs of the banking bailout (b).

Hence being so easily put off by the ECB not liking the idea, and/or being unwilling to take the rap for it. It's the easiest thing in the world to put someone off doing something they don't want to do anyway.

I am occasionally, and not entirely unfairly, accused of being Jesuitical, but I hardly think this is one of my Jesuitical moments.

cordially,
Scofflaw

Scofflaw

Sand wrote:

When it comes to a banking crisis then any solution, European or national, comes down to who is going to pay for the rescue. Anything that doesn't involve picking up the bill (potential or otherwise) isn't a solution.

Well, by that definition, fair enough. Obviously if the member states are picking up the tab, then the solution is, in your terms, "national".

And I guess in your definition, there's no difference between doing it whenever you feel like it, without any previous warning to those who might also be affected by it, and maybe bringing those other countries/institutions in on it.

So, as said, fair enough within the narrow scope of your definition. But I'm not in any way obliged to use your definition, I'm afraid. I'm likely to go on referring to the idea of consulting and coordinating as a "European solution", and hopefully you'll bear that in mind.

cordially,
Scofflaw

Sand

Scofflaw wrote: »

Well, by that definition, fair enough. Obviously if the member states are picking up the tab, then the solution is, in your terms, "national".

And I guess in your definition, there's no difference between doing it whenever you feel like it, without any previous warning to those who might also be affected by it, and maybe bringing those other countries/institutions in on it.

So, as said, fair enough within the narrow scope of your definition. But I'm not in any way obliged to use your definition, I'm afraid. I'm likely to go on referring to the idea of consulting and coordinating as a "European solution", and hopefully you'll bear that in mind.

cordially,
Scofflaw

I'm pretty objective. There is no sturdy digging tool with a thick handle and a heavy, flat blade that can be pressed into the ground with the foot in my garden shed. Your very loose definition of "solution" is absurd.

Hey, maybe if we redefine "problems" as "opportunities" then we wont need "solutions" at all.

I am occasionally, and not entirely unfairly, accused of being Jesuitical, but I hardly think this is one of my Jesuitical moments.

I remain bemused that you felt it was worth 3 pages of arguing against the view that the ECB stopped the government from trying to correct the error of the guarantee. Essentially when you cut through all the blather, you agree that the government was stopped by the ECB saying no to the idea of bond haircuts.

Now maybe, there's some slight philosophical but terribly important accent to your view that I'm not appreciating, but its not worth 3 pages of arguing about differences in view that are so terribly minor.

@View

If they do not, a government has a free choice. They are not forced to go with the ECB's preferred option.

Given the leverage the ECB had over the Irish government, and given the quite frankly crazed pronouncements of the ECB under Trichet and LBS (threats that included withdrawing support from banks already in trouble, in a credit crisis) it would take quite a bit of spin to describe Ireland as having "a free choice" in the matter. The actions of the ECB in the November 2010 negotiations are a best...questionable...in legal terms. It is very much unclear if they have the authority to use their powers to influence any particulars governments policy (they can of course set polices at a Eurozone level).

I don't presume that going against the ECB in 2010 would have been costless. You seem to think it would have been.

View

Sand wrote: »

Given the leverage the ECB had over the Irish government, and given the quite frankly crazed pronouncements of the ECB under Trichet and LBS (threats that included withdrawing support from banks already in trouble, in a credit crisis) it would take quite a bit of spin to describe Ireland as having "a free choice" in the matter.

As a sovereign nation Ireland always has a free choice as to what it does or does not do.

As an independent central bank - and we approved it to be - the ECB is not there to cheerlead our government's proposals, it is there to act independently.

It sets conditions in the arrangements it enters into just like a local bank does. I presume you aren't going to argue the local bank "forces" you to take out a loan (with associated conditions) when it is up to you whether or not you want one, right?

Sand wrote: »

The actions of the ECB in the November 2010 negotiations are a best...questionable...in legal terms. It is very much unclear if they have the authority to use their powers to influence any particulars governments policy (they can of course set polices at a Eurozone level).

Yet oddly enough these "questionable" actions have NOT been questioned by any of the Eurozone states (including ours). And, each and every, government of a Eurozone state has a clear interest in doing so should the ECB be over-stepping its legal boundaries - even if that means altering the treaties to roll back the boundaries of the ECB's authority.

So, where are the court cases if the ECB's actions were so "questionable"?

Sand wrote: »

I don't presume that going against the ECB in 2010 would have been costless. You seem to think it would have been.

I make no such presumption. There are always costs associated with choices even an optimal one (and that presumes anyone could ever be certain what the optimal solution is in advance of a decision).

Scofflaw

Sand wrote: »

I'm pretty objective. There is no sturdy digging tool with a thick handle and a heavy, flat blade that can be pressed into the ground with the foot in my garden shed. Your very loose definition of "solution" is absurd.

Hey, maybe if we redefine "problems" as "opportunities" then we wont need "solutions" at all.

It's not the definition of "solution" that's different, but the definition of "European". You've defined it as "Europe pays", I've defined it as "Europe agrees".

Sand wrote: »

I remain bemused that you felt it was worth 3 pages of arguing against the view that the ECB stopped the government from trying to correct the error of the guarantee. Essentially when you cut through all the blather, you agree that the government was stopped by the ECB saying no to the idea of bond haircuts.

Now maybe, there's some slight philosophical but terribly important accent to your view that I'm not appreciating, but its not worth 3 pages of arguing about differences in view that are so terribly minor.

There's a big difference:

Sand: government strongly wanted to burn senior bonds, and would bravely have gone ahead if the ECB had not prevented them through threats of retaliation.

Scofflaw: at best, the government was possibly prepared to burn senior bonds if and only if they weren't seen to have made the decision themselves and could make it look like the ECB wanted them to do it. ECB declined. Government abandoned the idea.

Those are quite different propositions as far as I'm concerned, although perhaps you regard them as nuance, or possibly I'm over-representing the definiteness of your position. My view is that yours fails to explain the lack of any announced government plan to burn senior bonds, or even preparatory kite-flying, and the Irish government's support of the ECB's position in negotiations with the IMF.

My version is not a pro-ECB version (I'd agree broadly that the ECB under Trichet was much more part of the problem than the solution), it's just more critical of the Irish government than yours. I don't think they ever mustered the courage or the will to "reverse the mistakes of the guarantee" - I think they rather limply "raised the issue" of burning senior bonds, and were easily put off by the ECB.

cordially,
Scofflaw

Sand

Scofflaw wrote: »

It's not the definition of "solution" that's different, but the definition of "European". You've defined it as "Europe pays", I've defined it as "Europe agrees".

I remain puzzled as to why the Irish taxpayer who is actually paying for the only practical solution cares at all if "Europe" agrees or disagrees. If Europe wants a vote, they need to buy one.

Trying to pretend there was any "European solution" on the table in October 2008 that fitted either the description of "European" or "solution" is an adventure in Newspeak. It is up there with people in the ECB and the EU claiming nowadays that they were Ireland's friend. Solidarity is becoming more plentiful again now that all the bills have been paid for.

There's a big difference:

No, theres not.

Sand: Govt entered negotiations looking to burn remaining bondholder. IMF supported this. ECB disagreed. Govt followed ECB line.

Scofflaw: Govt entered negotiations looking to burn remaining bondholder. IMF supported this. ECB disagreed. Govt followed ECB line.

There is only differences in the spin you put on things which betrays one of your few well staked out positions. Namely, EU or Euro Institutions>Irish Govt>People who disagree with Irish Govt and/or Irish voters.

I on the other hand believe the Irish government to be a group of morons, seized by a dreadful inertia and mental collapse from 2009 onwards as they realised how badly they had failed. Portraying my view of them as being in anyway positive ("strongly", "bravely", etc) is amusing given my own views on them. The key difference is I don't presume the ECB were any better simply because they were European. The ECB was either in full out panic or actively attempting to *cause* chaos to force a fiscal transfer union throughout Trichet's handling of the crisis - I'm just not sure which.

My view is that yours fails to explain the lack of any announced government plan to burn senior bonds, or even preparatory kite-flying, and the Irish government's support of the ECB's position in negotiations with the IMF.

Why would the government fly kites about burning senior bondholders? Who would they be flying them for? Lazy *talk* on a beach between Sarkozy and Merkel about burning bondholders caused significant problems without solving any of them. A football manager retains the full support of the board right up to the moment they sack him.

I can only put the Irish governments collapse against the ECB in negotiations down to that inertia and mental collapse I referred to earlier. View above is puzzled as to why the Irish government didn't fight the ECB. With the support of the IMF, I think they could have. Afterall, you claim all they wanted was a big boy to tell them to do it - didn't the IMF count? The problem with your analysis is the ECB was never ever ever publicly going to either state they forced the Irish government to burn bondholders, or not to. That would be a clear breach of their role - forcing a member state government to do anything. But the IMF seemed happy enough to be the bad people, it is a role they play across the world - taking the heat for necessary decisions.

So, the Irish govt could have fought. But they didn't. Do we really expect that the Cowen and Lenny show that had so badly fumbled in 2008 retained the confidence and bravado to have a stand up fight with the ECB in 2010?

I doubt it. So much of the "deals" Ireland accepted were just appallingly bad. There is quite a few of our "European friends" now emerging to comment on how unfairly (I don't like the word - you get what you take) Ireland was treated. I'm sure Cowen and Lenny were aware how domestically popular it would have been to burn bondholders, and how they were getting stiffed, but I also believe they had completely lost confidence in themselves. Deservedly so, but it was a shame Ireland was represented by parties like the Greens and Fianna Fail who were so poorly led and so obviously lacking in any confidence that retained any popular mandate from the Irish people.

K-9

Sand wrote: »

I remain puzzled as to why the Irish taxpayer who is actually paying for the only practical solution cares at all if "Europe" agrees or disagrees. If Europe wants a vote, they need to buy one.

Trying to pretend there was any "European solution" on the table in October 2008 that fitted either the description of "European" or "solution" is an adventure in Newspeak. It is up there with people in the ECB and the EU claiming nowadays that they were Ireland's friend. Solidarity is becoming more plentiful again now that all the bills have been paid for.



No, theres not.

Sand: Govt entered negotiations looking to burn remaining bondholder. IMF supported this. ECB disagreed. Govt followed ECB line.

Scofflaw: Govt entered negotiations looking to burn remaining bondholder. IMF supported this. ECB disagreed. Govt followed ECB line.

There is only differences in the spin you put on things which betrays one of your few well staked out positions. Namely, EU or Euro Institutions>Irish Govt>People who disagree with Irish Govt and/or Irish voters.

I on the other hand believe the Irish government to be a group of morons, seized by a dreadful inertia and mental collapse from 2009 onwards as they realised how badly they had failed. Portraying my view of them as being in anyway positive ("strongly", "bravely", etc) is amusing given my own views on them. The key difference is I don't presume the ECB were any better simply because they were European. The ECB was either in full out panic or actively attempting to *cause* chaos to force a fiscal transfer union throughout Trichet's handling of the crisis - I'm just not sure which.



Why would the government fly kites about burning senior bondholders? Who would they be flying them for? Lazy *talk* on a beach between Sarkozy and Merkel about burning bondholders caused significant problems without solving any of them. A football manager retains the full support of the board right up to the moment they sack him.

I can only put the Irish governments collapse against the ECB in negotiations down to that inertia and mental collapse I referred to earlier. View above is puzzled as to why the Irish government didn't fight the ECB. With the support of the IMF, I think they could have. Afterall, you claim all they wanted was a big boy to tell them to do it - didn't the IMF count? The problem with your analysis is the ECB was never ever ever publicly going to either state they forced the Irish government to burn bondholders, or not to. That would be a clear breach of their role - forcing a member state government to do anything. But the IMF seemed happy enough to be the bad people, it is a role they play across the world - taking the heat for necessary decisions.

So, the Irish govt could have fought. But they didn't. Do we really expect that the Cowen and Lenny show that had so badly fumbled in 2008 retained the confidence and bravado to have a stand up fight with the ECB in 2010?

I doubt it. So much of the "deals" Ireland accepted were just appallingly bad. There is quite a few of our "European friends" now emerging to comment on how unfairly (I don't like the word - you get what you take) Ireland was treated. I'm sure Cowen and Lenny were aware how domestically popular it would have been to burn bondholders, and how they were getting stiffed, but I also believe they had completely lost confidence in themselves. Deservedly so, but it was a shame Ireland was represented by parties like the Greens and Fianna Fail who were so poorly led and so obviously lacking in any confidence that retained any popular mandate from the Irish people.

What evidence do you have that they sought to burn the remaining bondholders? Patrick Honahan was quoted as saying FF put little to no pressure on the issue and barely raised it.

The rest of your post actually backs that up. The level of incompetence was so high it is highly plausible FF didn't make an issue of it all.

coolshannagh28

K-9 wrote: »

What evidence do you have that they sought to burn the remaining bondholders? Patrick Honahan was quoted as saying FF put little to no pressure on the issue and barely raised it.

The rest of your post actually backs that up. The level of incompetence was so high it is highly plausible FF didn't make an issue of it all.

FF and the night of the guarantee and its repercussions may have been a comedy of errors but Honohan did not do the Irish government any favours at this crucial juncture and judging by his actions by precipitating the bailout it is possible he put his role on the ECB ahead of Irelands best interests.

Scofflaw

Sand wrote: »

I remain puzzled as to why the Irish taxpayer who is actually paying for the only practical solution cares at all if "Europe" agrees or disagrees. If Europe wants a vote, they need to buy one.

Trying to pretend there was any "European solution" on the table in October 2008 that fitted either the description of "European" or "solution" is an adventure in Newspeak. It is up there with people in the ECB and the EU claiming nowadays that they were Ireland's friend. Solidarity is becoming more plentiful again now that all the bills have been paid for.

A "European solution" is one which is agreed by other European countries because other European countries are affected by each other. That's not Newspeak, it just puts things in context.

The guarantee looks to me like something of a 'stroke' - get ours in before anyone else does, and deposits would flow to the Irish banks, as actually happened.

Sand wrote: »

INo, theres not.

Sand: Govt entered negotiations looking to burn remaining bondholder. IMF supported this. ECB disagreed. Govt followed ECB line.

Scofflaw: Govt entered negotiations looking to burn remaining bondholder. IMF supported this. ECB disagreed. Govt followed ECB line.

There is only differences in the spin you put on things which betrays one of your few well staked out positions. Namely, EU or Euro Institutions>Irish Govt>People who disagree with Irish Govt and/or Irish voters.

I on the other hand believe the Irish government to be a group of morons, seized by a dreadful inertia and mental collapse from 2009 onwards as they realised how badly they had failed. Portraying my view of them as being in anyway positive ("strongly", "bravely", etc) is amusing given my own views on them. The key difference is I don't presume the ECB were any better simply because they were European. The ECB was either in full out panic or actively attempting to *cause* chaos to force a fiscal transfer union throughout Trichet's handling of the crisis - I'm just not sure which.

I don't think the ECB was better, I approve of the fact that it considered a wider picture than did the Irish government. And, yes, panicked over it, and reacted by digging in its heels and standing on the letter of its mandate while breaching the spirit of it. But I don't approve of the Irish government acting without any concern for other European countries.

Sand wrote: »

Why would the government fly kites about burning senior bondholders? Who would they be flying them for? Lazy *talk* on a beach between Sarkozy and Merkel about burning bondholders caused significant problems without solving any of them. A football manager retains the full support of the board right up to the moment they sack him.

And in that case, as in the case of the guarantee, the board's minutes will show it not to have been the case. At this stage, we should have seen the plan that had been prepared in advance, but it doesn't exist.

Sand wrote: »

I can only put the Irish governments collapse against the ECB in negotiations down to that inertia and mental collapse I referred to earlier. View above is puzzled as to why the Irish government didn't fight the ECB. With the support of the IMF, I think they could have. Afterall, you claim all they wanted was a big boy to tell them to do it - didn't the IMF count? The problem with your analysis is the ECB was never ever ever publicly going to either state they forced the Irish government to burn bondholders, or not to. That would be a clear breach of their role - forcing a member state government to do anything. But the IMF seemed happy enough to be the bad people, it is a role they play across the world - taking the heat for necessary decisions.

So, the Irish govt could have fought. But they didn't. Do we really expect that the Cowen and Lenny show that had so badly fumbled in 2008 retained the confidence and bravado to have a stand up fight with the ECB in 2010?

I doubt it. So much of the "deals" Ireland accepted were just appallingly bad. There is quite a few of our "European friends" now emerging to comment on how unfairly (I don't like the word - you get what you take) Ireland was treated. I'm sure Cowen and Lenny were aware how domestically popular it would have been to burn bondholders, and how they were getting stiffed, but I also believe they had completely lost confidence in themselves. Deservedly so, but it was a shame Ireland was represented by parties like the Greens and Fianna Fail who were so poorly led and so obviously lacking in any confidence that retained any popular mandate from the Irish people.

They had the confidence and bravado to attempt to bluff the whole show with their "Ireland is well funded for 6 months" back in October 2010, so it's obviously not the case that they simply sat down and accepted whatever was happening. You know they did that, I seem to recall you commenting on it at the time.

As such, I can't find an explanation based on paralysis very convincing.

cordially,
Scofflaw

Sand

Scofflaw wrote: »

The guarantee looks to me like something of a 'stroke' - get ours in before anyone else does, and deposits would flow to the Irish banks, as actually happened.

The guarantee was a ridiculously bad decision, but you're putting an exceptionally negative spin on the government by trying to portray it as a cute whoor stroke. The govt had a crisis in late September. They couldn't wait till to October to solve it. They acted at the time of the crisis with the toolset they had available at the time.

I don't think the ECB was better, I approve of the fact that it considered a wider picture than did the Irish government.

I love how you contradict yourself in practically a single sentence. Not better, but considering the a wider picture than the Irish government.

I see Fintan O'Toole has drawn attention to a book by Philippe Legrain, an ex-member of Barroso's staff as President of the EC (Barroso being no friend of Ireland). Some interesting quotes from "European Spring",:

had Irish banks defaulted on all their debt at the end of September 2010, German banks would have lost €42.5 billion, British ones €27.5 billion and French ones €12.3 billion.

Euro zone policymakers, notably ECB president [Jean–Claude] Trichet outrageously blackmailed the Irish government into making good on its guarantee, by threatening to cut off liquidity to the Irish banking system – in effect, threatening to force it out of the euro . . . This was a flagrant abuse of power by an unelected central banker whose primary duty ought to have been to the citizens of countries that use the euro – not least Irish ones. Bleeding dry Irish taxpayers to repay foreign debts . . . was . . . shockingly unjust.”

What's interesting is that he manages to be pro-European whilst also highly critical of European institutions and their role in the crisis. I suppose if the Irish government feared the ECB would cut off liquidity to the Irish banks they were anchored to, and drive them out of the Eurozone, that would explain "stockholm syndrome" that so baffled the IMF. They were afterall, being held hostage.

But I don't approve of the Irish government acting without any concern for other European countries.

You've stated before that Ireland's banking system had hardly any connection to the rest of the Eurozone. National guarantees was the established solution (and remains the established solutions). Our fellow Europeans couldn't claim to be surprised that they might be used. And the Europeans had nothing at stake in Irelands banks, hence no vote. If they wanted one, they should have bought one.

As it is, all the above is on top of the point that the level of communication between Ireland and the EU around the banking issue is subject to debate, ranging from at least theoretical discussions over the preceding weeks and months to wild claims that the ECB directed Lenny personally on the night itself.

And in that case, as in the case of the guarantee, the board's minutes will show it not to have been the case. At this stage, we should have seen the plan that had been prepared in advance, but it doesn't exist.

Sigh - you're back to denying the government wanted to burn bondholders, despite already acknowledging that they wanted to burn bondholders. Do you think the ECB would ever publicly acknowledge that they forced the Irish government to burn bondholders?

They had the confidence and bravado to attempt to bluff the whole show with their "Ireland is well funded for 6 months" back in October 2010, so it's obviously not the case that they simply sat down and accepted whatever was happening.

That's not confidence or bravado - that's stupidity. They lacked any clear identification of Ireland's interests, any clear plan as to how to protect them and any confidence or courage to carry it out.

They simply drifted along, accepting any terrible deal forced upon them by external groups, waiting to be put out of our misery by the voters. Taxpayers, especially younger generations, will have to pick up the tab whilst the perpetrators escape with golden handshakes. So much for moral hazard.

Good loser

I do not find Phillipe Legrain's thesis atall convincing. You'd think an economist would at least get the figures right - I'm referring to the €64 bn.

Wonder what Scofflaw thinks of him?

Scofflaw

Good loser wrote: »

I do not find Phillipe Legrain's thesis atall convincing. You'd think an economist would at least get the figures right - I'm referring to the €64 bn.

Wonder what Scofflaw thinks of him?

He seems to have built much of his thesis on inaccurate data, which I don't ever find impressive. I think a lot of people have posed as economic experts through the crisis who have at best a "journalistic" interest in checking their data.

And yes, I'm looking forward to getting Piketty's book.

cordially,
Scofflaw

Good loser

Two articles on Piketty's book in 'The Economist' - or editorial + article - probably two weeks back.

Sand

Piketty has been taken to task by the FT for the errors, incorrect formulas and cherry picking in his work. Has Legraine?

Sand

I did check, and it appears Seamus Coffey took at shot across the bows of the good ship Phillipe Legrain on his blog, Economic Incentives. Basically SC agreed with the bulk of Legrains thesis, but tackled some of the details.

The sentiments expressed in the second paragraph [Legraines sentiments that the ECB's actions in the Irish "bailout" were disgraceful] here are not in serious dispute. It was the case that the Irish government, through then Minister for Finance Brian Lenihan, did ”raise the issue” of a “dishonouring of senior debt”. It was then the case that haircuts to senior bank bondholders were ruled out and the ECB had a key role in this though the detail behind the decision are unclear...Regardless, it is now clear that the prospect of enforcing losses on senior bondholders in Anglo and Irish Nationwide was ruled out, in large part, at the insistence of the ECB. But it is hard to see how this decision was made to save German, French or UK banks. The decision was made to save the skin/face of the ECB.

Given Mr Coffey is often approvingly quoted by contributors to this thread, I hope we can finally all agree that yes, the government did have plans to burn the senior bondholders in 2010, and yes they were overruled by the ECB - legally or otherwise. [Really, please, can we acknowledge that and move on? It's getting to the stage where it might require a forum rule like that on The Dublin Regulation].

However, Mr Coffey also goes on to tilt at windmills. He assigns a claim to Legraine that the ECB was motivated by a desire to save the German banks and goes on to attempt to disprove this. To save some time, Mr Coffey proves that Legraines figures are accurate, but not entirely a good fit. He provides figures which are also accurate, but which he agains acknowledges an entirely good fit. Inescapably, its clear that foreign banks did benefit from the ECB action to force a full payout at Irish taxpayer expense. All that is up for argument is the scale. However, Mr Coffey finishes by claiming Legraine is wrong, that the ECB action was intended purely to save itself.

The ECB did not force Ireland into a bailout and require the repayment of senior bond in Anglo and INBS to save German and French banks; it was done to save the ECB itself which was owed €150 billion by the Irish banks and was trying, and failing, to keep the European banking system fluid. The ECB was ensuring that it got its €150 billion euro back and was trying to save face because as a central bank it can’t go bust.

However, all of that is a misdirection. As I note, Mr Coffey is tilting at windmills. Reading Legraines book, and the passage Mr Coffey aims to tackle in his blog, I never see Legraine ascribe ECB action to a desire to save German banks. Instead, Legraine's central thesis is that the ECB made a catastrophic error in handling the Greek *insolvency* as actually a matter of *illiquidity*, mainly for reasons of pride and arrogance. Instead of allowing the IMF to intervene into the affairs of a Eurozone member, they extended and pretended. The ECB thus created a "doom-loop" and with the assistance of EU governments (mainly Germany) and EU institutions, exacerbated it over the following 4-5 years. Legraine describes the ECB under Trichet as "deeply compromised" and "the hardest of the hardliners" against the sensible and inevitable Greek default and "placing its own narrow interests as a creditor ahead of its wider duty to eurozone citizens"

Basically Mr Coffey spends a lot of time proving Legraine [probably?] wrong on a claim he did not make, whilst agreeing with him on the ECBs motivation.

I think its important to consider this in light of the recent European elections where significant results, if not victories, have been recorded by anti-European forces. EU and Eurozone institutions have been wrong headed, stubborn, stupid and divisive. They have spread self serving and incorrect moralistic narratives rather than actually demonstrating they deserve respect, either as leaders or as capable technocrats. I'm very pro-EU. I think Ireland has on balance been very well served socially and economically by its participation in the EU. I roll my eyes at the irony of anti-European forces arranging cross border co-operation to...oppose cross border co-operation. However, the EU and the Eurozone has badly, badly fumbled in the past 5-6 years. That should not be controversial. My exasperation with the phrase "European solution" is rooted in the incomprehension that anything from the EU/Eurozone in the past while could be viewed as either genuinely "European" in vision, or as a "Solution" in competency.

People who seem to be almost fanatically Pro-EU *institutions* ought to recall that they are supposed to achieve better results for the European people than they have over the last few years. The problems of the past decade were exaggerated by the Eurozone, whilst the solutions were actively hindered by Eurozone institutions for reasons of arrogance and stupidity. Ireland by itself would have been less "boomier" without the Eurozone, and would have more easily coped by devaulaton. I do believe EU and the Eurozone can deliver higher standards and better results for European people than national solutions (like devalauation) alone but they need to start actually delivering the proof, rather than simply claiming it. Its clear a sizeable minority of the voters have already lost patience with arrogant claims of competence and morality.

Good loser

Sand wrote: »

I did check, and it appears Seamus Coffey took at shot across the bows of the good ship Phillipe Legrain on his blog, Economic Incentives. Basically SC agreed with the bulk of Legrains thesis, but tackled some of the details.



Given Mr Coffey is often approvingly quoted by contributors to this thread, I hope we can finally all agree that yes, the government did have plans to burn the senior bondholders in 2010, and yes they were overruled by the ECB - legally or otherwise. [Really, please, can we acknowledge that and move on? It's getting to the stage where it might require a forum rule like that on The Dublin Regulation].

However, Mr Coffey also goes on to tilt at windmills. He assigns a claim to Legraine that the ECB was motivated by a desire to save the German banks and goes on to attempt to disprove this. To save some time, Mr Coffey proves that Legraines figures are accurate, but not entirely a good fit. He provides figures which are also accurate, but which he agains acknowledges an entirely good fit. Inescapably, its clear that foreign banks did benefit from the ECB action to force a full payout at Irish taxpayer expense. All that is up for argument is the scale. However, Mr Coffey finishes by claiming Legraine is wrong, that the ECB action was intended purely to save itself.



However, all of that is a misdirection. As I note, Mr Coffey is tilting at windmills. Reading Legraines book, and the passage Mr Coffey aims to tackle in his blog, I never see Legraine ascribe ECB action to a desire to save German banks. Instead, Legraine's central thesis is that the ECB made a catastrophic error in handling the Greek *insolvency* as actually a matter of *illiquidity*, mainly for reasons of pride and arrogance. Instead of allowing the IMF to intervene into the affairs of a Eurozone member, they extended and pretended. The ECB thus created a "doom-loop" and with the assistance of EU governments (mainly Germany) and EU institutions, exacerbated it over the following 4-5 years. Legraine describes the ECB under Trichet as "deeply compromised" and "the hardest of the hardliners" against the sensible and inevitable Greek default and "placing its own narrow interests as a creditor ahead of its wider duty to eurozone citizens"

Basically Mr Coffey spends a lot of time proving Legraine [probably?] wrong on a claim he did not make, whilst agreeing with him on the ECBs motivation.

I think its important to consider this in light of the recent European elections where significant results, if not victories, have been recorded by anti-European forces. EU and Eurozone institutions have been wrong headed, stubborn, stupid and divisive. They have spread self serving and incorrect moralistic narratives rather than actually demonstrating they deserve respect, either as leaders or as capable technocrats. I'm very pro-EU. I think Ireland has on balance been very well served socially and economically by its participation in the EU. I roll my eyes at the irony of anti-European forces arranging cross border co-operation to...oppose cross border co-operation. However, the EU and the Eurozone has badly, badly fumbled in the past 5-6 years. That should not be controversial. My exasperation with the phrase "European solution" is rooted in the incomprehension that anything from the EU/Eurozone in the past while could be viewed as either genuinely "European" in vision, or as a "Solution" in competency.

People who seem to be almost fanatically Pro-EU *institutions* ought to recall that they are supposed to achieve better results for the European people than they have over the last few years. The problems of the past decade were exaggerated by the Eurozone, whilst the solutions were actively hindered by Eurozone institutions for reasons of arrogance and stupidity. Ireland by itself would have been less "boomier" without the Eurozone, and would have more easily coped by devaulaton. I do believe EU and the Eurozone can deliver higher standards and better results for European people than national solutions (like devalauation) alone but they need to start actually delivering the proof, rather than simply claiming it. Its clear a sizeable minority of the voters have already lost patience with arrogant claims of competence and morality.

I have read Seamus Coffey's article and I do not think it corresponds much to your contribution.

Didn't read Legrains book but did hear him debate these matters with the German ambassador to Ireland on RTE. To me in that interview he attempted to talkover the German reiniscent of a guy who knew his 'facts' were dodgy.

Surprised to see only two paragraphs of his book referred to Ireland.
Whatever about his overall thesis re EU/ECB behaviour.

Sand implies/states SC only argues with the detail. The figures I guess you mean. But these are astonisingly large differences. Legrain has us out to the German/French/English banks for €82.3 bn when SC says the exposure was €5 bn in Nov 2010.

Also you say SC said Legrains figures were accurate! SC shows how Legrain in his figures predicates a 100% default by the six covered banks as well as how he (Legrain) includes the exposures/liabilities of banks in the IFSC - which were never at risk of default.

Sand

Good loser wrote: »

Whatever about his overall thesis re EU/ECB behaviour.

Sand implies/states SC only argues with the detail.

He says so himself in his blog that Legrain observations on Ireland in his second paragraph is not in serious dispute, as I quoted. He does only try to tackle Legrain on the details.

The figures I guess you mean. But these are astonisingly large differences. Legrain has us out to the German/French/English banks for €82.3 bn when SC says the exposure was €5 bn in Nov 2010.

Lets look at two forests. One forest has 500 trees in it. Another forest has 5000 trees in it. That is a large difference. But they are both still forests.

What I'm trying to say is Legrain never claims that the ECB's action in Ireland 2010 was motivated by a desire to save German banks. So arguing over what the exact figures "saved" by the German banks is not relevant to Legrains argument. No matter if the figure is 5 billion or 50 billion it is still true that ECB action benefited the German banks at Irish taxpayer expense. But the ECB was not motivated by that - it was abusing its powers to try to save itself.

SC basically assigned a claim Legrain did not make, and then spent a fair bit of time trying to disprove it.

Also you say SC said Legrains figures were accurate!

He does.

The figures are precisely true for what they represent: claims of foreign banks on banks in Ireland. The figures are precisely useless for what they are most frequently used to represent: losses avoided by foreign banks from the rescue of the six ‘covered’ banks in Ireland.

The problem with SC's point is that Legrain does not actually state that the figures he mentions are "losses avoided by foreign banks from the rescue of the six ‘covered’ banks in Ireland". SC has to acknowledge this by being careful to use the phrase "what they are most frequently used to represent". I.E. he cant point to Legrain actually using them in the way he is complaining about so its guilt by association instead.

SC shows how Legrain in his figures predicates a 100% default[/B] by the six covered banks as well as how he (Legrain) includes the exposures/liabilities of banks in the IFSC - which were never at risk of default.

SC didn't have to work too hard to show Legrain presumes a 100% default. Legrain stated it himself.

For example, had Irish banks defaulted on all their debt at the end of September 2010, German banks would have lost €42.5 billion, British ones, €27.5 billion and French ones €12.3 billion.

SC doesn't dispute the figures as they were used, he changes the question and then disputes them! He focuses on "Irish headquarted banks" and relies on a research note from the Central bank, but acknowledges that the definition of "Irish headquarted bank" includes banks other than the 6 guaranteed banks. He shows that this demonstrates most funding came from the UK. However, he inadvertently reveals a weakness in his source

And the chart is done on a residence basis. If Irish banks got funding from affiliates abroad it would be included in the above chart. Most of the covered banks had operations, of varying sizes, in the UK. So if AIB-UK provided funding to AIB in Ireland it is counted as UK-sourced funding in the above chart.

Equally, if a subsidiary of a German bank resident in the UK provided funding to AIB in Ireland it is counted as...UK-sourced funding in the above chart.

SC does acknowledge another weakness in his figures and sources:

Of course, the above data doesn’t allow us to pierce through and see where the affiliated foreign banks were getting the funding they were providing to their Irish parents.

Basically, Irish affiliates in the UK could raise funds from Germany, but again, as the last link in the lending chain is resident in the UK - counts as UK sourced financing. It should be clear by now that talking about "Irish" or "German" or "UK" banks is entirely pointless. Even a "German" bank could have US or UK shareholders. Banks do not have passports, and they have no national loyalty.

ALL of the above is not a useful line of inquiry because Legrain is not claiming the ECB was motivated by a desire to save German banks, so arguing over how much exposure German banks had to Irish banks is at best a waste of time.

The difference between the two men is SC is making some very strong, very specific claims on very soft ground. Legrain is not, limiting himself to only state exactly what the figures imply - not presuming they mean one thing or the other. The only right answer to the question "How much exposure did German banks have to Irish covered banks in November 2010" is "I have no earthly idea".

Philippe Legrain is right to point out that ECB forced Ireland into costly actions such as the repayment of €6 billion of senior unsecured (and by that time unguaranteed) bonds in Anglo and INBS. He is wrong to say it was to save German and French banks.

As I said before, I hope those who approvingly quote SC when it suits them will acknowledge where SC says the ECB forced Ireland into costly actions. Really I do.

The problem with his second point - that Legrain is wrong to say it was to save German and French banks is very misleading. Legrain *never* said that and SC cant seem to quote him saying so.

Good loser

SAND
The problem with his second point - that Legrain is wrong to say it was to save German and French banks is very misleading. Legrain *never* said that and SC cant seem to quote him saying so.[/QUOTE]

From my recollection in his debate with the German ambassador on RTE that is precisely what Legrain said.

Sand

RTE radio player for that interview is throwing up errors so I cant hear the interview. I can only go by what he has written in his book, where he ascribes ECB motivation to its *own* interests as a creditor. He does state that German, British, French banks benefited from the ECB actions (this is indisputable) but he does not state it as the motivation for the ECBs acts. I would imagine the German ambassador would clash with Legrain on the idea that German banks benefited unjustly at Irish taxpayer expense but he'd be wrong.

Colm McCarthy, another Irish economist had this to say about Legrain's book:

In his recent book*, Philippe Legrain argues that the handling of the eurozone crisis by the EU Commission, and particularly by the European Central Bank, has been inept, deeply politicised and damaging to the broader European project. He is no eurosceptic; indeed his strictures are the more compelling because his concerns are those of a supporter of European integration.

Legrain is particularly scathing about the actions of the European Central Bank under the presidency of Jean-Claude Trichet, including its dealings with Ireland....Misdiagnosis leads to quack cures and the initial European response, which persisted from the onset of the crisis into 2012, was that the eurozone's problems derived from excessive budget deficits run by the countries experiencing the greatest liquidity strains. This line was peddled most vociferously by the European Central Bank whose line was followed slavishly by the EU Commission. With the solitary exception of Greece, the eurozone crisis was a banking bubble, not an orgy of fiscal excess. From a long list, Legrain picks the botched bailout of Greece in May 2010 as the original sin of the euro debacle. European politicians led by German chancellor Angela Merkel insisted that Greece, which was heavily indebted to French and German banks, was solvent and worthy of official credit when just about nobody else shared that view...When sanity finally prevailed and creditor losses were imposed, the default was inadequate – and Greece remains borderline insolvent to this day.

The blanket guarantee decision, which eventually cost enough to push the Irish State into insolvency and the tender mercies of the troika, remarkably still finds its defenders. In fairness to the European institutions, this initial decision appears to have been an Irish solo run but Legrain is clear-eyed about what the ECB did two years later. He writes: "Eurozone policymakers, notably ECB President Trichet, outrageously blackmailed the Irish government into making good on its guarantee by threatening to cut off liquidity to the Irish banking system – in effect threatening to force it out of the euro." He goes on: "This was a flagrant abuse of power by an unelected central banker whose primary duty ought to have been to the citizens of countries that use the euro – not least Irish ones."

The same performance was repeated in April 2011, when ECB threats were again used against the incoming Fine Gael/Labour Government on the same issue.

Legrain goes on to outline the reforms which would turn Europe's dysfunctional and mismanaged common currency area into a proper monetary union, steps which have to date been taken only in part – to wit, the parts which least disturb the survival of the largely unreformed French and German banking systems.

Legrains book is not about Ireland (yes folks, the world does not revolve around Ireland), it is about the failure of European and Eurozone institutions. Ireland is only discussed as a *symptom*, not the cause. Legrains primary criticism of the ECB action in Ireland is that Trichet abused the powers of the ECB to bully a member state into a policy he preferred - the implications of that are very dangerous. He *does* criticise German, French and British banks but as institutions which have caused delays and objections to proper banking reform.

Legrain is not making the argument SC wishes he was. I have to say, I do remember when criticising the ECB or Trichet was almost blasphemy to some. At least the defenders of Trichet's wise stewardship and monitoring of the terrible Greek CDS deathstar are a little more reserved. Growing recognition of the immense errors made has come too late for Ireland though - I guess it is true that the market can stay irrational longer than you can stay solvent.

Good loser

When/if Trichet 'outrageously blackmailed the Irish Govt in 2010' (Nov) was it for the relatively small beer of €5 bn?

Was that for INBS and Anglo bonds only?

Sand

Only Trichet knows the exact reasoning he applied. The ECB are refusing to release the letter they sent Lenihan (So you know its good stuff) and so far the Irish government is too deferential and forelock tugging to release it either. You cant rule out idealogical zealotry (Trichet had a preferred solution for the crisis), a desire to punish the Irish government or quite simply panic. And while I don't think it is the primary cause, you cant rule out that Trichet was being lobbied intensively by the European banking industry.

However, from an objective standpoint a number of observers (including SC in that blog) do point out a likely motivation - the ECBs huge and growing exposure to Irish banks. As everyone agrees, foreign funding (be it French, German or UK) was fleeing "Irish" banks since 2008. 70 billion in deposits alone fled in 2010. This greatly accelerated after the Greek crisis in early 2010.

The ECB had been forced to step in to provide liquidity to the Irish banking system. They had lent the "Irish" banks an exceptional amount of money against collateral already. However, during 2010, the Irish banks ran out of assets that the ECB would accept as collateral for further loans. The covered Irish banks (chiefly the IRBC) instead turned to the Irish Central bank, which greatly expanded ELA (Exceptional Liquidity Assistance) which extended loans against assets the ECB would not accept. This was all strictly legal under Irish law - but the ECB viewed it grimly as a form of monetary financing - to the tune of 25% of Irish GDP(!!!). The ECB could have voted (by two thirds majority) to stop the ICB from operating its ELA programme, but where then would Irish banks get the money to pay it's creditors -including the ECB - as they came due? Tricky one. But you can see how personalities at the ECB, like Trichet, might begin to develop a grudge against the Irish government by forcing them to acquiesce to something they despised on an idealogical basis.

Now depositors are fleeing Irish banks. Why? Some of it is undoubtedly an Irish problem. But all through 2010 the EU and ECB had handled the Greek crisis in a quite frankly stupid manner. Firstly, they tried to circumvent the "no-bailouts" rule to lend money to Greece by publicly inventing an existential Euro crisis to justify it. This spooks people who begin to fear the Euro itself is at risk. Secondly, they divide the Eurozone into "good" Creditor Eurozone, and "bad" debtor Eurozone. Debtors like the GIPSIs are in "bad" Eurozone. The EU and ECB publicly threaten to throw out and punish "bad" Eurozone which scares the creditors and depositors in "bad" Eurozone and encourages a flight to "good" Eurozone. Thirdly, they eroded a huge amount of credibility in their competence and honesty by claiming Greece is solvent when anyone can see it is insolvent. Again, this spooks people. The ECB and EU choose this path down to arrogance and pride - the idea of the IMF managing the affairs of a Eurozone member state is seen as a blow to the prestige of the currency. The majority of Legrain's early chapters dwell at length on this subject.

When you think about it, on its own merits, an insolvency issue in a small member state like Greece suddenly causing the stability of large member states like Spain and Italy to be called into question is nonsensical. What caused the "eurozone crisis" was the hamfisted handling of a fairly minor problem like Greece by the Eurozone authorities in a fashion that terrified the markets which had presumed the Euro was an irrevocable and inviolable currency union. The EU and the ECB itself publicly called the survival of the Euro into question and the ECB publicly reduced its commitments to support banks of "bad" Eurozone member states.

Hence people fleeing "Irish" banks ("bad" Eurozone) in droves through 2010 whilst the ECB and EU continue their stupid moralising approach, turning a national crisis (Greece) into a Eurozone wide crisis. I say "Irish" banks because all indications are the bulk of the deposit flight in 2010 was from the non-domestic Irish banks as Eurozone banks began planning for the breakup of the Eurozone the ECB and the EU seemed hellbent on - i.e. the flight was caused by systematic issues, not Irish domestic ones. I'm just pointing out that the ECB wasn't a blameless victim of the conniving Irish - the deposit flight was primarily caused by the ECB/EU policies. So the problem the ECB had in Ireland (and indeed throughout the Eurozone periphery) was their mistakes coming home to roost. That the deposit flight was unconnected to Irish domestic issues is shown as it *continued* after the November 2010 bailout. A further 75 billion left. It would after all take until 2012 for the ECB to reverse course and announce it would do "whatever it takes" to defend the Euro.

The November 2010 crisis is directly caused by a huge spike in Irish sovereign yields in September 2010. As late as early August Irish 10 year gilts had been below 5% (down from slightly higher yields during the summer). Pressure began to build again in early September, with the ECB muttering darkly and publicly [Draghi, Nowotny, Stark, Weber, Mensch - all on Reuters] about the need to cut off liquidity funding to peripheral banks. This directly increased pressure on Irish banks - and by extension, the Irish sovereign. Things really began to kick off when our friends in Europe announced on October 18th that private investors would be "bailed-in" in future. Yields rocketed up to 9%.

The infamous LBS notes the ECB attitude at the time:

We were seeing that the banks – particularly in September when they were not able to refinance themselves were increasingly resorting to the liquidity provided by the ECB and the Central Bank of Ireland. The amount of the exposure with the ECB was in the order of tens of billions and going up...the perspective that the ECB would replace entirely the market was not acceptable.

Basically the ECB was trying to extricate itself from the problem it had created by forcing the Irish government to accept debt, and use that to recapitalise the Irish banks so that they could wrap up that ELA programme they hated and reduce the ECB exposure to Irish banks. The bailout has been successful in that aim, with ECB exposure now only 25% of what it was in 2010. Why was Trichet so bloody minded about paying off all the debt? Even the non-guaranteed stuff? It seems even the Bundesbank was in favour of a debt haircut in Ireland cases [ indicative of German banks lack of direct exposure possibly? Or just a objective view by analysis/reference to "buyer beware" morality]

Like I said, only Trichet knows for sure, but my view is that even if Trichet was too proud and too stupid to acknowledge the ECBs mistakes, he wasn't blind to the flight from the periphery to the core. I believe he feared the wider implications of a debt haircut, which could encourage the rush to the exit in places like Spain. He and many of the ECB hawks didn't like Ireland to begin with given all the ELA messing. He could have halted the panic by publicly and unequivocally renewing the ECBs commitment to the Euro (as Draghi did in 2012) but that was a bridge too far for a zealot. Instead he tried to send a message by ensuring every creditor in the Irish banking system would be paid out in full, but at the expense of the Irish taxpayer, not the ECB. Basically Trichet had multiple pressures (Idealogical, personal, industry lobbying) to force a full payout and only minor pressures (morality) to not do so.

Scofflaw

Philippe Legrain, writing in the New York Times:

The primary cause of the crisis was the reckless lending of German and French banks (both directly and through local banks) to Spanish and Irish homeowners, Portuguese consumers and the Greek government. But by insisting that Greek, Irish, Portuguese and Spanish taxpayers pay in full for those banks’ mistakes, Chancellor Angela Merkel’s government and its handmaidens in Brussels have systematically privileged the interests of German and French banks over those of euro zone citizens.

http://www.nytimes.com/2014/04/22/opinion/euro-zone-fiscal-colonialism.html?_r=0

cordially,
Scofflaw