October 27, 2011

Euro Deal: Ireland never misses an opportunity to miss an opportunity

Posted in Euro · 37 comments ·
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When you walk up one of Ireland’s deserted main streets, it is difficult to reconcile the talk of Ireland doing well and being the model for other European countries to follow with the reality of living here. The reality here is that retail sales have collapsed and are not recovering. Anyone dependent on the domestic economy is just about surviving. No credit is being made available to anyone and unemployment is devastatingly high, while emigration continues apace.
That is what is going on in the “Real Ireland”.

Contrast this with the “Invented Ireland”. In the Invented Ireland, we are, supposedly, showing the rest of Europe the way out. We are the poster boys for austerity and the one indicator that the supporters of Invented Ireland obsess about is the bond yield on Irish government debt, which has fallen from 14% to 8% in recent months. This is significant but as we are not active in the market because we have been locked out of it, there is not that much value in this figure. However, in the world of Invented Ireland, the economy has “turned the corner”, where the skies are blue and Ireland is the star pupil of the EU. This is despite having the second highest level of unemployment in Europe – but in Invented Ireland unemployment doesn’t matter as long as the figure for GDP is increasing.

The figure for GDP is rising because the contribution to the economy from multinationals is rising as exports from the same multinationals rise. It is worth noting that multinationals — while accounting for over 90% of Irish exports — employ less than 7% of the Irish workforce. This is why the increases in GDP don’t filter down, because there is no way for it to filter down in any meaningful way.

Do you remember the 1980s? How did it feel? Did it feel like a decade when the economy as measured by official statistics grew in every year bar one? This is true. In the 1980s, GDP — the preferred figure of Invented Ireland — only fell in one year yet unemployment averaged 16% plus and 450,000 people emigrated.

Today, we see the same pattern. The disconnect between the Real Ireland of people’s mortgages, negative equity, dole queues and empty shops on main streets and the Invented Ireland of the selective economic statistics, is growing by the day.

For example, talk to anyone in the main banks and they will tell you that arrears are building and that most people on “interest only” mortgages will be coming off those interest only mortgages this year and next. This is because most of those products were five to seven year products and as a consequence, the first time buyers of the top of the boom will have to go on interest and capital deals from next year. A significant proportion of these people will not be able to afford these new higher mortgages. This will prompt a second wave of mortgage defaults.

Armed with these observations about the Real Ireland, let’s head to Brussels and today’s “Save the Euro” negotiations.
But before we do, let’s understand that the only way Real Ireland will recover is if its debt burden is reduced. There are two ways of doing this. We can seek to reduce it slowly or quickly.

The slow way is the government’s chosen way. This means that ordinary people pay off all this mortgage debt — for houses that will never be worth what they paid for them – over the next twenty years. The more they pay out of their take home, after tax wages, the less money they will have to spend in shops and the more depressed retails sales and domestic demand will be. This is a recipe for permanently higher unemployment. So we can go down this “deleveraging” path, which is one of profound economic stagnation.

The other way is to look for a “me too” deal and ask for the same treatment as Greece.

Today Greece got 50% of its debt written off (looked for 60% initially). The world realizes that Greece needs massive debt forgiveness to recover. It simply can’t shoulder this debt on its own. Sure there will be lots of shouting and roaring, but ultimately Greece will end up with a much lighter debt burden next week than it has this week.
The big fear in Europe is that we would ask for the same type of deal. And why wouldn’t we? After all, we are locked out of the market and we are encumbered with huge bank debts which will take years to pay off , all incurred in order prevent contagious bank defaults across Europe two years ago. In addition, every cent we pay for the likes of Anglo, AIB or Nationwide, the less we will have to spend on the Real Ireland economy and the longer the stagnation will be.
There is a direct connection between the debt deals in Europe today and Ireland’s empty shops and high unemployment. Imagine if we had a 60% write down on our debts like the Greeks. Our total national debt is €170 billion. So the figure would be €102 billion written off. So imagine a scenario where we decide to be good boys and suggest that although we are “entitled” to such a deal based on equal treatment for all the Eurozone’s members, we would only aim to have all the rogue banks’ debts cancelled. The figure on debt cancellation would be in the region €50 billion. This would be just over 32% of GDP. Imagine how much breathing space this would give us? And we wouldn’t even be asking for equal treatment with the Greeks.

But France and Germany are particularly keen to break this link and to ensure that Greece is a special case because French and German banks are on the hook here to Irish banks. This is why President Sarkozy has gone on a smarmy charm offensive.

Last Sunday, ahead of the Eurozone negotiations, Sarkozy a man who had tried to kick us when we were down a year or so ago, adopted the new approach of Gallic Flatterer, when he publically said Ireland was the model economy that all of Europe’s other weaker economies should follow. How pathetic. And do you know what? We lapped it up.
We are being killed by flattery and rather than taking this enormous opportunity to clean up our balance sheet, we are succumbing to cheap flattery because we are insecure.

The government tells us that they are paying all the bank debts in order to get back into the bond market but anyone who knows anything about the bond market will know that we would get back into the bond market quicker with a better balance sheet. And debt write offs make the balance sheet stronger — that’s the point of the exercise.
But yet again the lack of real self-confidence and an absence of logical analysis means that we will not use the crisis to our own ends. Today is a huge opportunity but it will be forsaken. This reinforces the perception that in this economic crisis, when it comes to dealing with Europe, national insecurity means that the Irish establishment never misses an opportunity to miss an opportunity.

David Mc Williams hosts Ireland’s only economics festival www.kilkenomics.com from November 3rd. See www.davidmcwilliams.ie


  1. Morning,

    I reposted this because the last one didn’t have enough spaces between paras.

    Best
    David

    • Dorothy Jones

      David
      -What are the consequences for Ireland resultant from this engineered default by Greece? [if the requisite 50-60% write-down were demanded by IE]

      [Note: International Swaps and Derivatives Association says this morning: 'Based on what we know it appears from preliminary news reports that the bond restructuring is voluntary and not binding on all bondholders. As such, it does not appear to be likely that the restructuring will trigger payments under existing CDS contracts. In addition, it is important to note that the restructuring proposal is not yet at the stage at which the ISDA Determinations Committee would be likely to accept a request to determine whether a credit event has occurred.'] hmmm…

      - The pending French downgrade renders the concept of a bolstered EFSF untenable, yet this is this tabled as a solution,….why?

      - Germany is ‘leading’ the process, yet their Bank exposure as thus far known, is significant. Criticism of approach within the German press is more scathing than in any other country. What is preventing IE taking advantage of its strong negotiating position? Hunting / Shooting season begins on Mon….

  2. wills

    Coupla points continuing the articles theme and on news today.

    First, the Trillion Euro bazooka.

    Coming out of thin air because the troika have said so. They will be leveraging 5 times a set amount.

    Plus, the Greek bondholders 50% debt writedown.

    Taken 3 years to decide to DO this?!

    If one follows the remorseless logic of this one concludes that if they are doing it now they could’ve done it 3 years ago. They didn’t though, do it three years ago. My point is is that there has been a slow progressing narrative building the citizenry of EU toward these realities taking place.

    If the Troika informed the people of Europe 3 years ago they where going to print run one trillion Euro to shore up the scale of debts the private banks in Europe ran up in their drunken sailor credit bubble ponzi scam, riots and rebellion on the streets would’ve rapidly followed. This way the Insider running the EU and the banking industry get what they want and with minimal fuss.

    This is what we are all face with. The levers of power and finance and policy makers are running an economy based on free money flowing to a small Insider set of the chosen few. The way all of this crisis is playing out proves that the economic system is rigged and operated according to a value system of Insiders and outsiders and access to monetary machinery rigged and wired to turn tash into treasure on the backs of the outsiders staying blissfully ignorant regarding how money comes into existence and whose pockets the money flows into along the daisy chain.

    The system functions along an axis of construction-destruction of wealth and finance and ethics.

  3. wills

    *…trash into treasure.*

  4. Sure there will be lots of shouting and roaring, but ultimately Greece will end up with a much lighter debt burden next week than it has this week.

    Now THAT remains to be seen and no one will be able to comment on the de facto debts that are written off until next year, January the earliest.

    It is still considered voluntary, and every single bank has a right to say, sorry but no can do!

    We are being killed by flattery and rather than taking this enormous opportunity to clean up our balance sheet, we are succumbing to cheap flattery because we are insecure.

    I disagree strongly here, IMHO the picture you paint is a misrepresentation of reality. Did you hear Leo ‘Wryneck’ Vradkar last night? This is the reality David, and not a picture of an insecure and flattered Irish government. On the contrary, they are secure in their fatalistic EPP ideology, and behind closed doors more than likely promises are made to have Ireland prostitute itself as the Troika success story, what you call invented Ireland, I call scripted reality, and we are d’accord on this aspect.

    No David, they are not insecure, they are corrupted, Wryneck-Leo cheered the sale of Anglo Irish Bank assets, and claimed that the Tax payer would suffer no losses November 2nd, as Anglo would pay the bondholder themselves.

    What a blatant and impertinent misrepresentation!

    - Vradkar deliberately hides facts from the public and presents a distorted view on purpose, this is as dishonest as can be, and he knows damn well that he is lying through his teeth!

    a) no law forces us to pay out subbies or senior unsecured. As per denifitionem, if a bank fails, these bondholders are supposed to get… NADA, ZILCH, not a penny! That is why they are called subbie and/or unsecured.

    b) The money from the asset sale in Anglo Irish Bank was stolen from the taxpayer to begin with, so the recovering of money through this sale belongs to the Taxpayer and should be at his disposal to decide whether he wants to use it for hospitals, paying home helps a more decent wage, and nurses, or shelter the homeless and feed the poor, or stimulate retail sales.

    To take this money and pay back bondholders is elitist theft, sanctioned by people like Vradkar, Noonan, Kenny and his gang. One-fucking-billion USD!

    No David, this is no sign of insecurity, it is a clear sign of elitist insider deals, it is treason on the people, it was treason 2 years ago, and still is treason today

  5. Deco

    Real Ireland. Invented Ireland. Love the terms. They capture the essence of the PR stunt, from the Ponzi-scheme advocates.

    Perfect description.

    Real Ireland. The daily grind.

    Suicide. Unemployment. Debt. Mortgage reschedules. The Repo man. The local authorities and their extortion rackets putting small businesses out of existence. The TV “licence” and the Montrose Millions. Mick Wallace-the TD with dodgy finances in the Dail-will he be impeached.

    “Invented” Ireland. A creation of fiction.

    The Business Supplement to the Irish Times. The Sunday Independent “lifestyle” section, with a special on the interiors of the well to do. Eamon Gilmore telling us he is behind the interest rate cut, that comes as a result of Europe having to drop the rate for Greece, when the Greeks refuse to pay. The Two Pillar Bank strategy. Brian Hayes, telling us six months ago that the property market has reached “the bottom of the bottom”. (It is still going down). NAMA. Lenihan assuming that emigration would help the state’s finances (the state is more important than the people, in case you have not noticed, and the establishment are the priority of the state). Kenny telling us “Is Feidir Linn”.

    For your survival, you have to grasp what is going on.

    • According to Noonan, we’re not broke, we shouldn’t get a writedown of Anglo debt, as we’ve got loans from Europe to pay it back at 3% ???

      Europe is on the cusp of a boom, Enda Kenny and Noonan are too proud and shy to ask for a reduction in their debt eg Anglo unguaranteed debt……

      The term ‘shysters’ comes to mind

      • Deco

        The same Baldy Noonan – announced that we should take the positive aspect in, when Belgium, Spain and others were dropped two notches, and that our rating had not dropped.

        We were still rated below the countries being dropped notches – and they were able to buy cheaper than us….

        Don’t worry – he does not have any positions of responsibility….does he ? Oh No !!!!

  6. Deco

    The headline captures the essence of a lot of the nonsense that the establishment in this country thinks.

    Not just today – but for decades.

    Just look at the debacle in Rossport. The biggest problem faced, was how to prevent authority being made look bad.

  7. Deco

    {
    But France and Germany are particularly keen to break this link and to ensure that Greece is a special case because French and German banks are on the hook here to Irish banks. This is why President Sarkozy has gone on a smarmy charm offensive.
    }

    Yes. They are in an exercise of ensuring the get their gambled bets back.

    And there is the issue of “pretext”.

    Spain’s statistics are baffling to me. The unemployment rate is the real measure of Spain’s economic collapse. The commentary of the Spanish politicians and bankers is worthless. But the lobbyists behind Berlin, Paris and Brussels, want to get “proof of concept” out of Ireland – so that they can acheive a confidence trick.

    I do not think that the Spanish ediface will last another six months. And besides, if there is a change of government, there will be every incentive for a release of more honest statistics, when the changeover occurs, like has happened in Ireland and in the UK in the last 18 months – when the new regime suddenly found out that things were actually much worse than they were being told….

  8. goldbug

    APOLOGIES -> DAVID ASKED TO REPOST

    WHY ALL THE MISSED OPPORTUNITIES…?

    WHAT HAPPENS WHEN THERE IS NOTHING LEFT TO STRIP?

    LETS ASK HEAD OF PRIVATE BANKERS CLUB -> TRICHET

    “A second stage should be envisaged for a country that persistently fails to meet its programme targets. Under this second stage, euro area authorities would gain a much deeper and more authoritative role in the formulation of that country’s economic policies. This would move us away from the present concept where all decisions remain in the hands of the country concerned. Instead, it would be not only possible, but in some cases compulsory, for the European authorities to take direct decisions.”

    http://www.ecb.int/press/key/date/2011/html/sp111024.en.html

    THE CURE IS “INTEGRATION” WHICH IS WHAT THEY WANT ANYWAY.

  9. That’s very odd, couple of comments seem to have been deleted from the blog including this one from me at that was visible at 12:47 ????

    The commercial realities of the wider economies of Europe have little to do with the Greek haircut. Wills above states they “they where going to print run one trillion Euro to shore up the scale of debts the private banks in Europe ran up in a drunken sailor credit bubble” David doesn’t delve into this aspect of where the money for the Greek default and the recapitalization of the European banks eg Dexia financial nappies will come from. That’s where Suds comes in. He’s been very busy. On the one hand, reality of haircut 50% for Greece is default. So lots of banks in France are in danger of closing and with those and with with similar banks including eg Dexia
    http://www.dexia-investments.ie/ note their large IFSC operation, lots of local authorities across the world would collapse, if they went, because they would not be able to pay back their exposure to borrowing from the likes of Goldman, not only European would fall, but also eg JP Morgan would disappear, along with the euro and big losses against eg Goldman.

    The solution is to set up a huge ponsi loan to bailout the losses of French banks. Now our Big Zero Kenny should have been in at this point to say our AIB/Anglo ugly sisters should be bailed out as well. I mean compared to the sovereign bailout of Greece, surely, we could at least have a 50% bailout of the ugly sisters? Not so, I think he may have come up with the idea himself, that this solution would have caused contagion and other countries such as Portugal, Italy might want to scut on the back of that lorry.

    So, my point is, lads, follow the money. Examine carefully if eg Goldman is funding some of the bailout for the EFSF, if its making a profit on the deal. I’m guessing it has done so well out of this that a)all potential losses will be paid back in full b)the commission/interest on the loans it is extending as part of the bailout will generate a huge percentile profit out of the crisis on the Goldman books.

    I’ll make the point again as its being shrouded in the witches brew the summit concocted, where is the money coming from; 2, what banks are getting bailed out with what money; why arn’t our ugly sisters being bailed out as part of the deal?

    Know this, no credit will flow into EMU economies as a result of the summit rubbish. Money has been generated for banks to refinance themselves, not to extend loans into communities, but to enable them pay back loans already on their books.

    Because of lies and secrets no stress tests have been done on European banks exposed to losses against Greece. This needs to be done to expose those lies. If only to see where our money is going.

    The summit has been a victory for the bankers, for the bankers, by the bankers. Champagne for Mr Suds, unemployment, social discord, slow meltdown for Europe.

  10. Also Maria 0 comment at 12:33 seems to have been deleted, this was:

    “maria o says:
    October 27, 2011 at 12:33 pm
    David the term ignorance is bliss comes to mind understanding how badly the country is being managed just adds to the stress of living in real Ireland.Lucinda Creighton thinks it is great that we are not Greece as does the rest of them in government I am now back at a salary i last had in the nineties lucky for me that is when i took out my mortgage and i am struggling to keep all the balls in the air can’t imagine what young children and unemployment on top of negitive equity must be doing to people but least we are not Greece or Iceland just stupid Paddies laughing stock of Europe we really cannot give up our colonial past just swapped for a new master”

  11. Also Maria 0 comment at 12:33 seems to have been deleted, this was:

    Her comment was:

    “maria o says:
    October 27, 2011 at 12:33 pm
    David the term ignorance is bliss comes to mind understanding how badly the country is being managed just adds to the stress of living in real Ireland.Lucinda Creighton thinks it is great that we are not Greece as does the rest of them in government I am now back at a salary i last had in the nineties lucky for me that is when i took out my mortgage and i am struggling to keep all the balls in the air can’t imagine what young children and unemployment on top of negitive equity must be doing to people but least we are not Greece or Iceland just stupid Paddies laughing stock of Europe we really cannot give up our colonial past just swapped for a new master”

    • sorry about duplicates, said original was a duplicate comment, then it posted a duplicate, perhaps webmaster should take a look at these errors?

    • Dorothy Jones

      Some anatomy parts missing in the Irish partof the equation:

      -spine
      -brains
      -balls

      Ireland has huge leveraging power currently…and the opportunity is wasted
      Paul would have been best placed to represent IE; DSE has a lot to answer for…

    • Deco

      +1

      But our “reputation” has been “copperfastened”.

      What is our repututation ? – as the EUs Poster gob….. !!!

      Vote Yes for nobs…

  12. Paul C

    Gilmore just said on the radio that we MUST pay 100% back to the bondholders “so that Ireland can return to the bond markets soon” to borrow more …..

    Think about that. Does it make sense to you?

    Here’s a MAD idea for the State … BALANCE the budget, STOP borrowing – that’s REAL economic sovereignty! We ran budget surpluses up to a few years ago. It’s not rocket science.

    Do whatever it takes to win back our freedom – tear up Croke Park, stiff the gilt-edged pensioner Ministers, polliticians and so called senior civil servants who fell asleep at the wheel years ago while the bankers ran riot. “Oh we have to pay them. They have a contract” they’ll plead – nonsense! EVERY contract has a ‘Force Majeure’ clause that waives all duties – Why will they never even mention it? This IS the mother of all Crises …. JUST GROW A PAIR and DO IT, FFS

    • Now, now Paul C, this is a great deal for Ireland and for Europe that will both boom because of it.

      Lol don’t be thinking of dead cats bouncing as the Kilkenny team emigrate FFS

      As Hal said in 2001 Space Odyssey, ‘There are some extremely odd things about this mission”

    • Gilmore is a traitor, full stop!

    • JOHNNYD

      The budget surpluses up to a few years ago were the result of taxes taken on the property and consumer driven boom,which was borrowed money.
      We have never had a true successful independant indigenous economy in Ireland.
      The nearest we came to it was Devs policies of the forties/fifties which were a disaster.
      Arse licking is all we know.

    • coldblow

      Yes, but force majeure is a concept that can cover a multitude. Eg, have you got any property? Under FM rules you might find your ownership called into question.

  13. Geek Boy

    Here Is How The 50% Greek Haircut Is Actually Just 28%
    http://www.zerohedge.com/news/here-how-50-greek-haircut-actually-just-28

    Smoke and mirrors as usual…

    • If Greek pension funds are gone 50% as that says, there will be trouble.

      Add in the fact that its a bit like the Tommy Cooper disappearing rabbit, now you see it, now you don’y see it. Couple of days ago we were told banks were refusing the deal. Then we have announcement some International Banking Federation had agreed to it??? Was it these http://www.iif.com/

      Its a bit like the guy who buys a house at an auction, but the bank hasn’t cleared him for a loan.

      Between now and December a lot of arm twisting will be done to get banks on board.

      We should look carefully at the announcements from the meeting of finance ministers when these negotiations are concluded; a) exactly where the money for the EFSF booster is coming from; b) what banks are being bailed out and who is getting what.

      You never know what they’ll find in the attic:

      http://www.youtube.com/watch?v=RF-PuHFwGZc&feature=related

    • There appears to be more coming out re the haircut. On the face of it, according to your figures and the blogger you link to, the cuts are straight up discounts 1:1 so 1:1 becomes 1:.28 per your figures. Apparently, this is not the case, I’m extrapolating from Radio One Conor Brophy remark he made amongst many other on the subject.

      I stand to be corrected on this, this is what I understand:

      Say there is a discount window of 50%, lets first apply the Geek Boy conditions above, so lets say only 50% of Greek sovereign debt qualifies for discounts.

      As I understand this so far, the 50% discount of the tranche of Greek sovereign debt that qualifies for discount, say that amounts to 50% of GSD(Greek sovereign debt), will occur in the following way.

      Each of eg French banks who hold that debt will be asked to switch the terms of their loans from say a loan/bond with a ten year window, to a bond that will have a 30 year window. If this is agreed with the French bank, that switch will mean a 50% saving to the Greeks. Note the money still has to be repaid in full. Note also there is another complication re CDS. Technically switching out of one bond into another amounts to a default. Thats where the art of negotiation comes in.

      They’ll put pressure on CDS holders to not pull the trigger. I’m thinking there could be some wheeling and dealing and bonuses/commissions/tips changing hands here.

      Point is the above exercise will limit the exposure of French banks. Their losses will be minimised for the moment.

      As to why we did not demand our own banks not subject to a similar exercise on the grounds we don’t need it, amounts to criminal negligence and incompetence of the utmost degree.

      Obviously what’s good for French banks, is not good for Irish banks.

      Sarkozy must be laughing his head off at the Big Zero Kenny, our Light Brigade led by the three stooges, Kenny, Noonan and Honahan and the deal Sarkozy has landed for his French banks, compared to the anchors and guillotine handed out to the Irish banks.

      I think Sarkozy threw Kenny a bone with s throwaway remark European Investment Bank would look favourably to some investment in Ireland…..suckers…lol

  14. Adam Byrne

    subscribe.

  15. Malcolm McClure

    David writes:”The big fear in Europe is that we would ask for (50% haircut). And why wouldn’t we? After all, we are locked out of the market and we are encumbered with huge bank debts that will take years to pay off, all incurred in order prevent contagious bank defaults across Europe two years ago.”

    David seems to vacillate between “it’s not fair .” and “Let’s stick it to them.”

    Existentialists know that life is not fair. To succeed in getting concessions from the powerful, one always prepares for brinkmanship and never expects concessions on the basis of fairness. This is bread and butter for Union leaders and accounts for Papandreou’s success in gaining much of what he wanted for Greece.

  16. Karl Lewis

    Does anyone have any comments on the following article by Will Hutton out of the Observer?

    http://www.guardian.co.uk/commentisfree/2011/oct/30/will-hutton-eurosceptics-euro-reform

    It seems it is a primal instinct to feel we are all fecked.

  17. Malcolm McClure

    Will Hutton was severely rattled on ‘This Week’, Thurs Night BBC1, by Andrew Neill’s sceptical questioning about the Euro deal. This article is Hutton’s attempt to regain his composure and credibility.

    His interpretation of the stock market rally as a vote of confidence is mistaken as it is simply what has been called a ‘melt-up’ –caused by short covering. Watch what happens next week.

    I think Hutton has lost the plot.

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