Goldman's Take On The Irish Bailout

Tyler Durden's picture

For what it's worth, here is Goldman's take on the Irish bailout. Since it was Goldman's endless currency swaps that allowed Europe to lie about their deficits and true debt levels, this should certainly be required spin.

From Francesco Garzarelli

Earlier tonight, Ireland applied for conditional funding assistance and will therefore be the first Eurozone sovereign accessing the EU-IMF support framework instituted in May. The latest European Economics Analyst provides background. There are still several uncertainties surrounding the deal, including the government’s political support (a by-election is due this Thursday), and negotiations on the banks. The yield spread between 5-yr Irish government bonds and their German counterparts has fallen by around 100bp from the 600bp highs reached on 11 November. At this point, we see scope only for a further 50bp tightening. That said, we think that this represents an important step towards a resolution of EMU sovereign woes, and a gradual relaxation of the risk premium that has built up in Italy and Spain, and in Eastern Europe.

Main Points

According to EU sources quoted by the newswires, the size of the package will be in the region of EUR 80-90bn. But this has still to be finalized, including the implications, if any for the Irish banks’ debt.  The amount is broadly in line with our estimates, and can easily be covered. Consider that the EFSM is endowed with EUR 60bn and EFSF has borrowing capacity of EUR 428bn (the portion guaranteed by Germany and France amounts to EUR 220bn). Additional IMF funding is available for up to 50% of the total amount drawn from the EFSM/EFSF with a ceiling of EUR 250bn. Both the UK and Sweden have announced they stand ready to provide bi-lateral loans.
Discussions on the cost of funds are also underway. We expect the EFSF (AAA-rated) to borrow in the region of 2.5% at the 5-yr maturity.  Assuming the terms are in line to those applied to Greece (which should represent a ceiling, given the different credit position of the two countries), the funding cost to Ireland would be along these lines:

  • EFSM/EFSF: Up to 3-yr maturity, Euribor or fixed swap + 300bp; Above 3-yr, Euribor or fixed swap +400bp; 50bp handling fee; (3-mth Euribor is currently 97bp)
  • IMF: Up to 3-yr maturity, SDR rate + 200bp; Above 3-yr, SDR rate + 300bp; Commitment fee, 50bp (est.) + 50bp service charge; (the Euro SDR rate is linked to 3-mth Euripo and is currently around 26bp)
    Using these figures and under a no IMF funding hypothesis, the savings for Ireland relative to the secondary market rates as of last Friday’s close would be in the region of 100bp (notice that the ECB has been intervening in this market, and that this is not indicative of primary access costs).
  • Ireland April 2013 yields 6.30% (bid); corresponding Eurozone funding 2.00%+300bp=5.00%
  • Ireland April 2016 yields 7.40% (mid), corresponding Eurozone funding  2.40%+400bp=6.40%

These, we stress, should be taken as ceilings. A ballpark of 60-30 from the EFSM/EFSF and IMF would result in funding cost closer to 3.5% on a 3-yr horizon.

Broader Market Implications

As discussed in our notes over the past fortnight, and in our latest Fixed Income Monthly, EMU Spreads: Navigating the Issues, we are of the view that the activation of external help should not lead to an escalation of systemic risk as seen in the aftermath of the Greek multi-lateral ‘bail-out’. A pre-agreed institutional framework is now in place, and the ‘stress tests’ have provided information on the distribution of risks across the Euro-zone banking sector.

Other than the evolution of the Irish discussions (size of the package and terms), the near term focus will also remain the Iberian peninsula. A workers strike in Portugal this Wednesday will re-kindle the debate on the much needed structural reforms. Spain unveiled a list of these last Friday, but investors remain uncomfortable about the contingent liabilities stemming from the non-listed cooperative banks.

Our opinion is that Portugal remains a possible candidate for external help, should market pressures remain high. But its systemic relevance is much smaller than that of Ireland’s or Greece’s (the largest foreign creditor is Spain). We remain of the view that Spain is in a different debt sustainability position, and the depth of its domestic market should allow it to withstand market pressures.

We continue to recommend holding 30-yr Greek paper, and would look for opportunities to re-establish long positions in intermediate maturity Italian and Spanish government bonds relative to the ‘core’ countries.

Finally, it is worth recalling that the EFSF will not pre-fund, and its funding instruments will have broadly the same profile as the related loans to Ireland. Its issuance program could lead to a marginal cheapening of bonds issued by supra-national institutions such as the European Investment Bank, the German-based KfW and the French CADES. Note, however, that these institutions have borrowing programs of EUR 60-70bn per annum, while the corresponding annual EFSF issuance would be likely quarter of that amount.

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Bearster's picture

Ireland is "only" adding, what, $31K debt per person on top of all the other debts those straw-burdened camels are carrying.  No problem.

Oh, and per capita income will be falling due to austerity, if not the Greater Depression.

But good thing that the EU/IMF will allow them to continue adding to their debt burden.  We wouldn't want borrowing anywhere to stop!

It's not a problem until it's a problem.

Now, just imagine if the Fed didn't have this insane zero interest rate policy.  And just imagine that people weren't so desperate for yield that they would have to buy Irish bonds.  The imagine shudders--shudders, I say!--to think what interest rate the bankrupt Irish sovereign would have to pay, if they were able to borrow at all!

And yet Goldman says the good times will roll again (for a short while) and yields will improve by 100bps.

It's not a problem until it's a problem.

infiniti's picture

"Ireland is "only" adding, what, $31K debt per person on top of all the other debts those straw-burdened camels are carrying.  No problem."


It's much much worse than that. There are only 1.35 million privately employed people in Ireland.


We're talking about more than $75,000 per taxpayer. Why is the market up? Those people can never ever ever pay all this debt.

ZeroPower's picture

When has the market ever been a barometer of debt/capita?

chrisina's picture

Why are you saying that Ireland is adding more debt? Please correct me if I'm wrong but wasn't the debt already there? First it got shifted from the private to the sovereign when AIB got nationalised and NAMA was created. Now it's being covered by the EU/IMF bail out, but the debt burden hasn't changed.

moneymutt's picture

this is equivalent to several years of all the income tax on Irish people going straight to banks investors....not sustainable. People can declare bankruptcy, but countries can't? Always austerity for the people and no loss for the rich. Its the Irish people, their schools, hospitals, their old people, that have to lose, essentially saying to working people, screw you, you should take a huge loss so that bond holders don't. Ireland is cutting off basic social services and choking their economy because banks lent money foolishly.

Instead of taking a painful debt clearing bust and moving on with their lives they will be bled dry with way too much soveriegn debt for next 30 years like 3rd world countries were decades ago.  Why is the Irish peoples problem?

Bad business decisions lead to bankrupt businesses, end of story.

Instead you have a bankrupt country that is not even allowed to default and now is essentially imprisoned in the poor house, so that rich do not have to take a loss. Unsustainable BS.

Atomizer's picture

Not one person has commented on the Lisbon Treaty. Why?

The Treaty of Lisbon amends the EU's two core treaties, the Treaty on European Union and the Treaty establishing the European Community. The latter is renamed the Treaty on the Functioning of the European Union. In addition, several Protocols and Declarations are attached to the Treaty.

Follow the money

voltaic's picture

Is Iceland the only country with a set? Just asking.

lunaticfringe's picture

Yes. They are what we were.

Fred Hayek's picture

You're forgetting Sweden.  Back in the 90's, they had a problem of their big banks becoming insolvent.  They quickly broke them up, reorganized them and set them back out into the  market in revised form, basically what Japan, the U.S., U.K. and EU should have done but didn't because of regulatory capture of their governments by the big banks.

HarryWanger's picture

As with Greece, this too will fade with time. Remember the Greeks rioting? Remember the French rioting? Remember the UK rioting? Ah, yes. Lots of rioting and then business as usual. 

In this case, we won't even see the Irish riot. What's the point? It's beyond most people's comprehension anyway. The Greeks who rioted look pretty foolish now that the country's back on track. 

Id fight Gandhi's picture

Owned. Lol. CDS still near year highs. Some forgetting they're doin

ZeroPower's picture

Greece is back on track?

Harry come on man, honestly, give us something to actually dispute with you. The Greeks being back on track to anything besides default is laughable.

taraxias's picture

Greece is back on track ?!?!?

Where did you pull this one out of HarryWanker?

You should stick to buying AAPL me thinks......

tickhound's picture

Or maybe they look smart.. As they rejected the very thing you define as "back on track"

Ho hum, but what do I know... Back to Eagles/Giants.

John Law Lives's picture

You are always good for some comic relief.

Keep the laughs coming.

Christobevii3's picture

If you followed anything with Greece you would see they are still rioting, their finances are continously reported worse than before, and the government is dealing with regular strikes/threats now.  Just because it isn't shown on US news because it was determined detrimental to the greater good doesn't mean they are working as planned now.

doggings's picture

"back on track" ? - my arse. what planet's coolaid are you back on now Harry?

you are correct in that business will go on as usual for a bit longer but this is all going to blow up so high in a massive chain reaction at some point and it really wont matter how much you had previously made in Apple at that point.

Atomizer's picture

Ireland votes YES to the Treaty of Lisbon (THANK YOU IRELAND)>> 2009

Again you voted for something we warned you not. Americans cheered you in 2008.

Now your owned. Read the treaty link above.

palmereldritch's picture

Goldman Sach is simply thrilled that their God's work is re-introducing snakes to the Emerald Isle.

BigDuke6's picture


A leprechaun's pox upon them all.

RobotTrader's picture

Basically, the PPT has pretty much stick-saved everything since the 2008 crash.

They have it down now.

Future convulsions, tremors, spasms, etc. will be treated the same:

Step 1:  Wait around and let things get worse

Step 2:  Let the news create fear and hysteria

Step 3:  Allow huge bearish bets to build

Step 4:  Step in at the last minute and throw huge amount of bailout cash at the problem

Step 5:  Bearish bets are unwound, risk asset prices start skying, and positive sentiment builds as a result.

Wash, Rinse, Repeat...

MountainHawk's picture

Exactly, just when you think the bottom's going to fall out, the next day all is good, the markets gapped up 2%

Dr. No's picture

Free lunches for everyone too?

PolishHammer's picture

You mean like food stamps...of course.

Small price to pay for peace in our time.

M.B. Drapier's picture

Now let them try it with a medium-sized country like Spain. Then one or two more of 'em.

Atomizer's picture

EU's central economic 10-year plan will fail again - Nigel Farage MEP

I respect Nigel for his honestly

Everybodys All American's picture

The thing that is amazing about all of this is the power grab the EU has placed on Ireland. Without a shot they have taken over Ireland. It is simply amazing. Almost as if it were planned. Huh!

desgust's picture

Just FUCK YOU, Goldman Sachs, damn you and your likes and all fucking politicians all over the world! And YOU too, sheeple as you don't care to educate yourself!

F.U.C.K. Y.O.U.4ever

revenue_anticipation_believer's picture


per ZH...

"..Since it was Goldman's endless currency swaps that allowed Europe to lie about their deficits and true debt levels, this should certain by required spin reading..."

[Keynes 1932: Bloombury Group, London] "not one man in a thousand can penetrate the veil of money/bonds...",

Except..... bankers/speculators/brokers who know, Very Well, the technical trade-offs regarding universal use of money (paper OR Gold, no matter) to take a little off the to lie a to parasite a little...

The Social Construction, re-inforcement, stagecraft of Political/Economic Reality certainly is/has been WELL KNOWN for millenia....traders, brokers, salesmen, lawyers,..

Socratic Rhetoric since before 450 BC in the Ancient Western World....Plato/Aristotle both wrestled with the concept of NIV 33 AD 'What is Truth' (really? Roman Law being the core of Political/Economic violence well articulated, improved, applied TODAY/NOW 


Well, Politics 101,

English/American nuanced...

Safires New Political Dictionary...900 pages of well known turns of speech, recent use 'rank and file' 'rattle the cage' 'ship of state' 'sunset law' 'sunrise law''giveaway'....BASIC STUFF

Then "Hatchet Jobs and Hardball" [Barrett] Business Politics 101, absolute necessity for boardroom and Exec suite....

Then for Ordinary Social Party-Talk Political ranking-skills...."Catchphrases" The Oxford Dictionary of..."I know nothing" "I hear you" "famous for fifteen minutes"

Ordinary PhD-ranking Party Talk...."The World in a Phrase" James Geary...'truths are illusions of which one has forgotten they ARE illusions' [Neitzche, Fredrick..beyond good and evil..]


you must know the Economics Violence Schema outlined, and the proper historic attitude to be taken...MUST READ..of course..


max2205's picture


now they can cover into the bailout. How predictable

max2205's picture

Oil is acting wierd. 10% swing trades. Ummmm

The Answer Is 42's picture

"We continue to recommend holding 30-yr Greek paper, and would look for opportunities to re-establish long positions in intermediate maturity Italian and Spanish government bonds relative to the ‘core’ countries."

ORLY? Then sit back and watch Italian, Soanish, and Greek bonds, beginning with long and intermediate maturities, getting hammered soon -- from a few days to a few months.

Bose Einstein OracIe's picture

Heh I'll match your sit back and watch with some puts. Good call! The fade GS trade is a blind freddy and the buzzards are just waking up over europe.

Money_for_Nothing's picture

The Irish government has caved. It's still to be seen if the Irish people have.

Bose Einstein OracIe's picture

I'm gonna go with caved. The whole world seems mesmerized by the BAAAAAAA sound of all the sheep.

M.B. Drapier's picture

In order to stay solvent under this plan, Ireland has to smash the all-time European three-year fiscal adjustment record, and to do that it will need to get lucky about global growth and inflation.

moneymutt's picture

yes, this is what is irrational about this, Ireland already did austerity better than most but their spending decreases were followed by equal or more decrease in economic activity/ now they have to cut more and their economy is going to grow? Won't work, even if every last one of Irish gives up all their disposable and non disposable income

Coldfire's picture

We continue to recommend holding 30-yr Greek paper.

The balls on this guy. With regard to other people's money.

ebworthen's picture

They will play this game until trade wars and inflation worsen.

When things get bad enough there will be riots, real riots.

Nationalism will be stoked, and politicians can enact protectionist policies or be voted out or shouted down or hung from an overpass.

Then the alliances are formed, then the War starts.

Read history; happens every time.

Mentaliusanything's picture

Shouldn't this read "Irish bailout of German and UK banks approved by EU and IMF - Goldman to handle the IPO"


Paralleled universe. Beam me up Scotty no intelligent life forms exist here 



Mentaliusanything's picture

And now for some light hearted chuckles


“As good as this barrrr is," said the Scotsman, "I still prrrreferrrr

the pubs back home.   In Glasgow, there's a wee place called

McTavish's.   The landlorrrrd goes out of his way for the locals.

When you buy fourrrr drrrrinks, he'll buy the fifth drrrrink."


  "Well, Angus," said the Englishman, "at my local in London, the Red

Lion, the barman will buy you your third drink after you buy the first



"Ahhh, dat's nottin'," said the Irishman, "back home in moy favourite

pob, de moment you set foot in de place, dey'll boy you a drink, den

another, all de drinks you loike, actually.   Den, when you've had

enough drinks, dey'll take you opstairs and see dat you gets laid, all

on de house!"


The Englishman and Scotsman were suspicious of the claims.   The

Irishman swore every word was true.   "Did this actually happen to



"Not meself, personally, no," admitted the Irishman, "but it did

happen to me sister quoite a few toimes."


Being screwed over in Ireland seems Par for the course