€80bn From The ECB?

Lenny Lovett · 18-10-2010 01:23PM #1

I was listening to Ivan Yates in an interview at the weekend and he was saying that he can't understand why the Government don't just go to the ECB and borrow €80billion at the 3% and pay back the 7% bond holders and wind down the bad banks and pay all other debts and at least then we can draw a line in the sand finally and concentrate on the future and working towards paying that one major debt at the substantially lower rate. It sounds, to me, to be the most sensible and simple option. Am I missing something or does it sound correct?

Byron85 · 18-10-2010 01:39PM

Lenny Lovett wrote: »

I was listening to Ivan Yates in an interview at the weekend and he was saying that he can't understand why the Government don't just go to the ECB and borrow €80billion at the 3% and pay back the 7% bond holders and wind down the bad banks and pay all other debts and at least then we can draw a line in the sand finally and concentrate on the future and working towards paying that one major debt at the substantially lower rate. It sounds, to me, to be the most sensible and simple option. Am I missing something or does it sound correct?

The problem is that it would be an admission of guilt and failure by the Government. They are still intent on purveying the idea that we are solvent as a country and that they are capable of managing the mess. Everyone knows that they are not capable of the above but the Government is in denial. They are sure that they are fooling everyone; the markets, the Irish people and even themselves.

If they went to the ECB it would destroy their self-reinforcing delusion. Also it would be a fair assessment to make that nobody would lend to the country or invest here for a long time. Why would they? Would you put your money into a company that has to take out massive loans to pay off its debts on loans for other debts? I realise that countries do this anyway but what we'd be doing would be declaring that we simply can't raise the money ourselves, which would be the norm, from the few investors that are remaining and instead we have to resort to a loanshark; albeit a rather bureaucratic one.

Lenny Lovett · 18-10-2010 01:43PM

Byron85 wrote: »

Also it would be a fair assessment to make that nobody would lend to the country or invest here for a long time. Why would they? Would you put your money into a company that has to take out massive loans to pay off its debts on loans for other debts?

I don't agree. I believe that if we did take an ECB loan and repaid all our debts and got the ship afloat again, so to speak, they would lend to us again. Greece did a similar transaction last year and are moving forward quite well.

gandalf · 18-10-2010 02:56PM

The real factor here is decisive action. So far the current government have been very limp wristed in their response to this crisis. I think the idea that Ivan Yates has floated makes a lot of sense and when the next Government get into power it is an idea that they should seriously consider to clear the decks so to speak. We were told by Paul Gogarty the official Twitter Spokesman for the government that they were taking the "hard" decisions, from my perspective they are doing everything but making any hard or decisive decisions at all.

Did anyone who heard this broadcast this morning hear if Ivan put it to any Government Politicians and if so what their response was to the idea?

neilster · 18-10-2010 03:23PM

to pick up on Lennys point and reply about Greece faring well , Greece have been given €200bn at favourable terms which was meant to draw a line on the situation but it hasnt .

The idea was to reform their economy in terms of pensions costs collecting more tax , the black economy etc and then in several years tap the markets again now as a reformed newer brighter Greece but this is failing . The chatter in the markets is that after their debt crisis and the eventual rescue that there isnt a market for Greek bonds at anything like realistic levels for the greek government if they tried to conclude a plaing on the markets.

In other words the markets are penalising them in much the same way as a bank penalises a bad debtor on mortgage finance and having to go cap to the ECB instead of providing a mid-term respite ....has sunk the Greeks. Now someone may argue that the ECB can always rescue them but here is a sovereignty issue . The Markets view an ECB solution as a political solution not a financial one (the strength of the euro) and rightly they view it with suspicion. The Markets view an ECB solution as in the long rung affecting the value of bonds and therefore prefer not to entertain Greek Bond-holdings at all

I think this stark truth is the one and only reason we have Commisioner Olli Rehn knocking the Irish political heads together on this in the last few weeks for a consensus approach .

The ECB does not want an ECB rescue as the bonds are toast , they know this

as for the other person replying about the economy havent to be rescued , i wouldnt be as pessimistic but that doesnt mean it wont hurt , it is precisely that fact that the ECB knows there is room for cuts is why they will insist on it

if we do this :

1) end private reliefs - €500m
2) bring pension relief back to 30% - €500m
3) the infratructure cuts already flagged €2bn

that 3bn quickly without tackling anything else

no family under 30k or indiviual pays any tax effectively
2nd lowest corpo tax in OECD
we have no real taxes on wealth , in sweden ay property over €100k values has an annual tax of 1.5% (except transactional)
you have a national school teacher married to a guard on a 120kish income attaining entitlements on child allowance and other things that any other country would means-test against
no taxes on water

we have severe room for efficiencies in the public sector in procurement , croke park agreement etc and a whole number of costs

we may fool ourselves that the economy may need to be rescued but the ECB knows and the IMF knows that we have the very painful ability to do this ourselves and because of the straightjacket of the euro , they will make us do it

Scofflaw · 18-10-2010 03:39PM

as for the other person replying about the economy havent to be rescued , i wouldnt be as pessimistic but that doesnt mean it wont hurt , it is precisely that fact that the ECB knows there is room for cuts is why they will insist on it

That's the basic truth of our situation - we can make the necessary cuts, so that's the road we have to go down, even though we won't enjoy it much. The idea that we can simply borrow a load more, or repudiate our debts, are kind of silly - we're not in a position where we can't get out of it the hard way, so taking a soft option will be entirely optional, and send a very clear message of our unreliability as borrowers.

To be honest, I think that's something that the majority of the country accepts, which is why we haven't seen massive street protests and civil disquiet. Like the Icelanders, we seem to have accepted that it's what we have to do, even if we disagree on exactly how it should best be done.

cordially,
Scofflaw

FreudianSlippers · 18-10-2010 03:59PM

Lenny Lovett wrote: »

I don't agree. I believe that if we did take an ECB loan and repaid all our debts and got the ship afloat again, so to speak, they would lend to us again. Greece did a similar transaction last year and are moving forward quite well.

I have to agree with you here but there are steps that must be taken in order to show the ECB that we're responsible enough for a loan.

1) we need to cut the fat. We are haemorrhaging money all over the place. It's clear that cheques were being signed without any question of where the money was going. This is clear from FAS and others. Everyone is complaining about cuts, but realistically we are also spending hand over fist on social welfare payments to those who don't deserve it at all or are being overpaid.

2) we need reform of the political system. We need transparency in government. We need to know who is spending what on what and why. Sure, some things are necessary and we shouldn't be sweating the small stuff like cars and escorts (Garda, not prostitutes). But at the same time we need to make sure that the people representing us in government aren't claiming expenses fraudulently. If we cut down on the fraud (lets face it it's never going away entirely) then we won't be hurt as much by legitimate expenses.

3) We need to show the world and ECB that we have fixed or are fixing the banking problem. We are in this problem mainly because we allowed our banks to follow a generally approved practice established in the USA of subprime lending with little to no down-payment. We need to reform our banking structure to ensure that all lenders meet criteria to keep their banks monetised (just like a company in administration or liquidation). We need to ensure that all banks follow a practice of independent investigation into not only the actual current worth of the property in question but also the realistic potential future worth of the property. Sufficient money ought to be put down on that mortgage or loan and mortgage/loan repayment insurance MUST be mandatory on all these transactions.

4) Reform of An Bord Pleanála. We need to make sure that competent people are making these decisions regarding planning permission. We need transparency and we need a finite amount of time for making appeals and objections. There needs to also be a number of times one can object and a sort of locus standi obligation to bring an objection.

What do we do when we get the money? Well we re-liquidate the banks I think - we give a 3-6 month mortgage holiday for everyone so that they can arrange their finances with the bank and/or arrange a method of payment that suits them until they are re-employed. Then if the people continue to fail to pay after the holiday repossessions must occur and must occur swiftly - these properties are then re-sold in turn for value.

We also fast-track infrastructure projects. Lets get Metro North and the Interconnecter going, lets build/refurbish the hospitals and schools.
Construction is probably the hardest hit area of the economy and if we can get these workers back in employment the money will start flowing again.

There is a lot of complaining about the "Celtic Tiger" but I think people were wrong.
Yes, partially that period was built on an artificial high on property - but with proper safeguards in place and a sturdier economic and political foundation, property can be guided by the invisible hand to an appropriate level, one which balances the right number of houses in the correct areas to match demand.
We can be prosperous again I think - and this time we know our mistakes and we know what not to do.

Dannyboy83 · 18-10-2010 04:15PM

Lenny Lovett wrote: »

I was listening to Ivan Yates in an interview at the weekend and he was saying that he can't understand why the Government don't just go to the ECB and borrow €80billion at the 3% and pay back the 7% bond holders and wind down the bad banks and pay all other debts and at least then we can draw a line in the sand finally and concentrate on the future and working towards paying that one major debt at the substantially lower rate. It sounds, to me, to be the most sensible and simple option. Am I missing something or does it sound correct?

They're afraid if they do that, then we lose "economic sovereignty" and we receive Ts+Cs
e.g. Increase Corporate Tax Rate

jimmycrackcorm · 20-10-2010 11:33PM

Lenny Lovett wrote: »

Am I missing something or does it sound correct?

What's to stop the rest of the PIIGS following suit with such an easy out.... Then where will the euro go? TBH this sort of plan is the territory of the IMF compunded with serious Public spending cuts.

OhNoYouDidn't · 21-10-2010 02:45PM

Scofflaw wrote: »

That's the basic truth of our situation - we can make the necessary cuts, so that's the road we have to go down, even though we won't enjoy it much. The idea that we can simply borrow a load more, or repudiate our debts, are kind of silly - we're not in a position where we can't get out of it the hard way, so taking a soft option will be entirely optional, and send a very clear message of our unreliability as borrowers.

To be honest, I think that's something that the majority of the country accepts, which is why we haven't seen massive street protests and civil disquiet. Like the Icelanders, we seem to have accepted that it's what we have to do, even if we disagree on exactly how it should best be done.

cordially,
Scofflaw

But the issue is that we are borrowing for the Anglo bailout, so why not at a cheaper rate?

Its basic financial management, get it where you can cheapest. But the Merril Lynch 'advisors' are no doubt in Finances ear encouraging them to tap the capital markets at 7%.

Its a further sign of either incompetence or corruption.

€80bn From The ECB?

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