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Ireland’s Titanic Bailout at Risk, Iceland looms ahead

Jack H Barnes's picture




 

The
announcement by Brian Cowen that he was resigning as the leader of the
Fianna Fail party, but is going to stay on as Taoiseach (Prime Minister)
until the March 11 election, has put the Irish bailout into question. 
The November bailout of the Irish economy consisted of a series of
different financing packages being combined into a larger total.

The first funds available under the bailout were provided by the
raiding of the Irish retirement fund by its bankers.  The next steps
were to be funded by the EU and IMF funding sources, once the people of
Ireland were legally subjected to the bailout requirements.  The bailout
never made it to a full vote before the collapse of the Fianna Fáil
party.

This leaves Ireland in the unique position of being able to reclaim
its future, by denying its past.  The citizens of Ireland have not
accepted the bailout.  The coalition is not expected to be able to put
the matter to a vote before the election.

“All we know is we are going to get an election on or before March 11
but that is about it,” said Micheal Marsh, professor of politics at
Trinity College Dublin, calling the events of the past week “bizarre.”

“If the conditions in which all of this was going on were not so serious it really would be farcical.”

The people are clear they plan on voting for anyone who will fight
the bailout.  This makes the chances of a post-election bail out vote of
acceptance unlikely.  If the Bailout fails to be voted on in the coming
days, it may never make it to a vote.

The Irish people are overwhelmingly against the loss of their
Sovereignty because bankers were allowed to take outsized risk.  The
fact that these same bankers were allowed to book extremely large
bonuses for bankrupting the nation is at the core of the problem.

The
Iceland solution, the iceberg in the European bailout process, is
becoming harder and harder to ignore as a solution to the problems of a
Sovereign state.  Iceland has managed to abandon its banks, right size
its economy, and regain organic growth.

“We’re at an important turning point in many ways,” Finance Minister Steingrimur J. Sigfusson said.
“We’re mainly trying to present our own case, which we think is good
enough to make a convincing story that Iceland is a safe place to lend
money to.”

“The economy is turning to growth and we think it’s about time to
start seriously preparing to make a move on the international financial
markets,” he said. “The long-term developments have been very favorable
and the CDS on Iceland is now lower, or around the same, as it was well
before the banking crisis.”

Today, Iceland’s Sovereign CDS swaps are at levels before the
crisis.  They have dropped below the level of Portugal and Spain.  The
nation had its first organic growth in the last two years, from July
through September.

CDS on Iceland’s five-year debt traded at 310 basis points on Jan.
10, compared with 359.6 for Spain and 650 for Portugal, according to CMA
data available on Bloomberg.

Iceland is sitting on large FX reserves, and due to its small number
of actual citizens, it is in no need for actual funding.  The first bond
offering since the crisis will be small in size, but large in symbolic
terms. Iceland will be fully rehabilitated; no one can say the same
about any of the EU states following the proscribed internal deflation
approach.

Iceland
has embraced hard pain upfront, abandoned its overleveraged banks, and
has weathered the storm.  It is growing again, and is able to fund
itself.  These events are a beacon to any nation that could follow the
same path.

The only question about Ireland today, is if they are going to stay
debt slaves of their banks, or are they going to embrace a return of
Sovereignty to the Emerald Island.

H/T TD @ Zerohedge

Links of interest to the story

Confessions of a Macro Contrarian www.jackhbarnes.com

 

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Mon, 01/24/2011 - 04:15 | 898262 co2010
co2010's picture

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Sun, 01/23/2011 - 21:42 | 897923 Jack H Barnes
Jack H Barnes's picture

Three Irishmen walk into a bar and the barman says "Are you the Cabinet?"

Sun, 01/23/2011 - 11:55 | 897038 Horatio Beanblower
Horatio Beanblower's picture

The Green Party in Ireland has just announced that it is leaving the country's coalition government - http://www.rte.ie/news/2011/0123/politics1.html

 

Happy days are here again!

Sun, 01/23/2011 - 11:15 | 897015 anony
anony's picture

The entire global debt structure has been pictorialized a long time ago by  M.C. Escher

Sun, 01/23/2011 - 11:03 | 897007 virgilcaine
virgilcaine's picture

Dean Wormer to Mr. Brian Cowen..

http://www.filmsite.org/wavfiles/animalhouse3.wav26

Sun, 01/23/2011 - 09:09 | 896954 overmedicatedun...
overmedicatedundersexed's picture

screw the EU and the banksters..let them fail, and then print your own GD money..walk away the world will not end!  the misery of being a slave to Brussels and the banksters (the debt) will fall from your shoulders and melt like snow in spring.

Sun, 01/23/2011 - 09:00 | 896950 tom
tom's picture

I fear that Pipsqueak is coincidentally correct on this one, but not for the reasons he gives. The fact is the Irish people just want to vent, they aren't prepared to face the serious consequences of defying Germany.

I'm all for fiscal responsibility and austerity, but consider how deeply bankrupt the Irish are and just how much pain they would have to take without a Eurozone bailout. They would need to reduce public spending first by the amount they are currently borrowing through the bailout, and then by an additional 3-4 times more to compensate for the reduced tax income as all their banks implode, all their mortgages go further deep underwater, unemployment spikes further, and all their demand and savings accounts are acknowledged to have been lost (and the insured portion would need to be reconstructed from future taxes). They would then return to natural growth and gradually pull themselves out, but they're in a far, far deeper hole than Iceland. I don't believe the Irish want to face that much immediate hardship.

Sun, 01/23/2011 - 09:14 | 896956 hooligan2009
hooligan2009's picture

I need to do more research on this. I start from the premise that a very large majority of the population were not part of the beggar they neighbour policies behind the "Irish Tiger" mentality. Sure, immigrants came into Dublin and bid up the prices of property and took out mortgages and yes, the effects were felt across the country. It may be impossible/impractical to isolate the impact of the immigrant boom and consequent necessary bust (who will want to live in Ireland when there are competing peripheral European countries who are crying out for these sorts of immigrants).

Still, like I said, I only know what I have read. The major UK banks have loaned a lot of money, but without an answer to the question "what for?" and soon, there is no way to form an informed (and hopefully helpful) opinion.

I know that rather makes my previous post conjecture, but hey, I wonder if the guys in the IMF/EU do anything more than state the obvious with no thought for who pays and why.

Sun, 01/23/2011 - 08:05 | 896929 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

It makes no difference who makes up the next government of Ireland as the people - as always - will never be given the choice to prevent the theft of their sovereignty and their economy and their childrens futures. Whoever comes into power will deploy the bailout as intended,the real farce is that Brian Cowen,by standing down as FF's leader, considers himself unfit to run his party yet at the same time thinks it is OK to continue as the country's premier for another two months!

The decisiions that should be made to ensure Ireland's future will never be made for fear of upsetting the banksters and the timidity that means that appearing to be "good Europeans" is more important than deciding what is best for Ireland.

David McWilliams make some excellent arguments on his website for what needs to be done:

http://www.davidmcwilliams.ie/2011/01/08/if-i-was-taoiseach-what-i-would-do-to-save-ireland

http://www.davidmcwilliams.ie/2010/12/29/we-still-have-the-financial-means-to-save-ourselves

http://www.davidmcwilliams.ie/2010/12/22/last-gasp-bluff-is-now-a-debt-sentence-for-us-all

Sun, 01/23/2011 - 06:17 | 896886 hooligan2009
hooligan2009's picture

I do see this as the corrollary of Ireland guaranteeing the entire banking sector at the outset of the banking crisis that began in summer of 2007 and peaked in March 2009.

Ireland is an offshore banking unit for many "much bigger than Ireland" banks. When Ireland provided the guarantee, international banks could shift borrowings to Ireland, compounding the problem, until Ireland had the same creditworthiness as the weakest (culprit) banks.

Irleand was bailed out when the ECB made funds available to it to continue a few years ago. The issue since then is how these funds and the extra funds resulting from falling tax revenues (GDP collapse) could be financed and repaid.

For me, the Irish people can be rational, (given the choice by a political party within Ireland) and say as Mr Barnes has pointed out, the banking crisis has very little to do with 95% of the Irish economy. 5% of an economy cannot operate in isolation to game the system and hold sway over the vast majority. This is reminiscent of the nationaliation fervour that gripped Britain's doomed car industry and the stranglehold the unions took over the economy in the 1970's.

Ireland has benefitted by the growth in its financial sector, by offering tax breaks that cheat other countries tax models. So does Luxembourg. So does Switzerland and many regions within countries. However, saying "No" to bank bail-outs is a better option since it involves less pain for the Irish who had nothing to do with the failure of the system and will otherwise pay around 10% of GDP for 50 years to pay it back.

Servitude is not a good option.

 

Sun, 01/23/2011 - 08:42 | 896943 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Well put.

Sun, 01/23/2011 - 06:43 | 896882 ivars
ivars's picture

Somehow this should be applicable also to Latvia. Since we are not in Eurozone but have accepterd IMF bailout, we can still, in case of double dip, blame the international banking system, devaluate our currency a bit faster than EUR and USD , and make haircuts on Senior debt ( IMF) as well as Swedish bank EUR denominated loans to citizens of Latvia.

Let us have a precedent in Ireland.

Sat, 01/22/2011 - 23:39 | 896662 Dr. Porkchop
Dr. Porkchop's picture

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Fuck The Banksters

Sun, 01/23/2011 - 12:16 | 897067 Bananamerican
Bananamerican's picture

"...da fockin' wankin' bankers"

Sun, 01/23/2011 - 03:37 | 896839 jomama
jomama's picture

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Sun, 01/23/2011 - 13:07 | 897141 Dr. Porkchop
Dr. Porkchop's picture

ascii picard facepalm... nice.

Sat, 01/22/2011 - 22:51 | 896596 apberusdisvet
apberusdisvet's picture

God; I hope the Irish get some balls and give a big middle finger to the banksters

Sun, 01/23/2011 - 11:45 | 896515 The Talmud Kid
The Talmud Kid's picture
Lord Acton – “… the issue which has swept down the centuries and will have to be fought sooner or later is THE PEOPLE VERSUS THE BANKS.”

 

I'm ready NOW.

 

And by "banks", he meant "jews".

Sat, 01/22/2011 - 21:08 | 896500 strannick
strannick's picture

Effen A Iceland!! Woooo!!!

Sat, 01/22/2011 - 20:10 | 896446 topcallingtroll
topcallingtroll's picture

Headline risk. Not much else. If you wait until the all clear signal is given you have missed out on most of the gains. Germany will suck it up for the time being and the emu will qe by buying sovereign bonds. The can is kicked down the road and growth in the meantime will ease the pain. It all depends on economic growth now. Nothing else matters. Ignore other headlines except for gdp growth and inflation

Sat, 01/22/2011 - 20:46 | 896484 Traianus Augustus
Traianus Augustus's picture

Real economic growth or bailout economic growth...or doesn't that matter to you?

Sat, 01/22/2011 - 19:29 | 896404 sangell
sangell's picture

Ireland's problem is a little different than Icelands in that it needs to borrow to fund its governments operations or cut 25% or so of spending... immediately if it rejects the IMF/EU funds. Whether the Irish public is willing to face that prospect is probably the real issue.

There is also the problem of emigration. Up to now it has been mostly foreign immigrants returning home but native born Irish emigration is increasing and for a small nation like Ireland losing two or three percent of the population in next couple of years ( even higher percentage of the working age population) as some have projected is not going to help the property market and amplify bank losses. The Irish are in a tough spot no matter what path they choose.

Sat, 01/22/2011 - 23:13 | 896626 sushi
sushi's picture

There is another problem.

 

Much of Ireland's past decade of growth was due to firms locating there in order to service the rest of Europe from within a low-tax, english speaking host nation.

If Ireland defaults and also abandons the Euro then I would expect they would also loose the key attribute responsible for much of the "true" growth (as opposed to speculation in golf courses and housing estates).

 

A great many of the firms that located in Ireland are IT related and there has to be someone on the continent quietly calculating the benefits to their nation of they can arrange the transfer of those IT firms to a location within mainland Europe.

Sat, 01/22/2011 - 20:14 | 896447 topcallingtroll
topcallingtroll's picture

Ireland is irrelevant. It has what? The gdp of virginia? Contagion is the only risk and the emu will be buying impaired sovereign bonds and.doing the qe dance before they will let that happen. Moral hazard be damned.

Sat, 01/22/2011 - 19:18 | 896390 Dr. Porkchop
Dr. Porkchop's picture

The answer is there. Arrest the criminals, let the bankers take their medicine.

Sat, 01/22/2011 - 18:48 | 896345 Miles Kendig
Miles Kendig's picture

And there it is in the plain.  Thanx Jack.

Sat, 01/22/2011 - 18:28 | 896303 godzila
godzila's picture

Well one of the obvious difference is that Iceland had and has it's own currency...

Sat, 01/22/2011 - 19:06 | 896364 Jack Donaghy
Jack Donaghy's picture

The idea that Ireland couldn't default simply because it's a Eurozone member is a fallacy. Of course it can default and it will have serious ramifications for the Euro if it does in fact default. I don't accept the argument that Ireland should sacrifice it's economic soverignty in order to save what is essentially the political vanity project of French and German bureaucrats.

Sat, 01/22/2011 - 19:37 | 896409 Fred Hayek
Fred Hayek's picture

That's only part of it.  It's to save the big banks of Britain, France and Germany who would take massive losses if the irish default.  That's what it's all about.  Screw all the irish people so that the Euro TBTF banks don't absorb losses.

Sat, 01/22/2011 - 21:51 | 896533 MGA_1
MGA_1's picture

In all honesty, I really don't see this as just a big bank issue - I really see it as a Euro issue.  If Ireland bails (and I think they'll have to form they're own currency), then probably other euro nations will follow and we'll see the breakup of the european union.  Remember, the last century saw the two greatest war ever centered in Europe that result in the deaths of millons of people.  I think Ireland should default and leave the union, but I would imagine this is some of what is going through people's minds.

Sun, 01/23/2011 - 09:42 | 896975 kaiten
kaiten's picture

Ireland, Greece, Portugal and Spain leaving eurozone would strengthen the euro, not weaken it. Where do you live? And others have no reason to leave.

Sun, 01/23/2011 - 12:00 | 897037 ivars
ivars's picture

Sure, the ones that does not comply with united currency rules must leave. I see no problem. There might be some (like Estonia) which can join with sound finances.

In the end, it will be anyway the new German/Nordic empire, the Eurozone. Already today German economy drives directly lives of about 150 million people in Central Europe -Poland, Hungary, Czekh, Slovakia.  That number may grow as German economy which experienced no bubble starts to motor away from the pack.

I live in Latvia. We are not in Eurozone, but we have been bailed out because we saved one local bank and few Swedish banks, that helped us to live in a bubble from 2002-2007.

Sun, 01/23/2011 - 08:54 | 896946 ivars
ivars's picture

Next BIG war will be in Asia and Pacific, if. Not Europe.

Sat, 01/22/2011 - 19:57 | 896434 Jack Donaghy
Jack Donaghy's picture

That to. Perish the thought we'd have anything remotely resembling capitalism, mind. 

Sat, 01/22/2011 - 17:45 | 896238 max2205
max2205's picture

And are we the US going to be slaves to the banks? Are we; we are.

Sun, 01/23/2011 - 04:31 | 896854 Sudden Debt
Sudden Debt's picture

Would the US be able to fund itself if it defaulted on it's debt and started over?

YES

They economic system of the US is so big that in fact it could go without any other country.

The total turnaround for industry and agriculture would only take between 5 to 10 years.

THE US DON'T NEED NO CHINESE CRAP! The US used to make quality products, it can do so again.

 

Sun, 01/23/2011 - 05:58 | 896881 i.knoknot
i.knoknot's picture

while i agree that the potential is (and has been) there, i fear it will take more cultural change than we can manage peacefully.

a good many amerikans have gotten chubby, soft, lazy, and feel entitled to much more than the gravity (the only guarantee) that pulls them deeply into their lazy-boy chairs...

cheers

Sun, 01/23/2011 - 00:49 | 896742 Freddie
Freddie's picture

The American public cares more about Snooki, American Idol or other garbage on TV and would rather be slaves to The Federal Reserve.

Sun, 01/23/2011 - 05:56 | 896879 jeff montanye
jeff montanye's picture

it's not clear to me that many, at all, realize a choice is being made.

Sat, 01/22/2011 - 16:48 | 896151 Jack H Barnes
Jack H Barnes's picture

When I wrote this, I believed there was an additional vote of approval necessary for the release of the bailout funds.  In further reading, it appears all necessary legal votes have been taken.

I was wrong.

Jack H Barnes

Sun, 01/23/2011 - 10:13 | 896989 lieutenantjohnchard
lieutenantjohnchard's picture

my hope for ireland is that if they can vote to accept it then maybe they can vote again to reject it.

Sun, 01/23/2011 - 03:27 | 896832 M.B. Drapier
M.B. Drapier's picture

It's complicated. I'm not an expert on anything and I don't have detailed references to hand, but I'm pretty sure I have this basically right:

 

  1. The EU/IMF agreement with the Irish government is a memorandum of understanding, not a formal treaty, which means that its terms are not binding (on any party), and which in turn means that it (probably) doesn't require parliamentary approval. Cowen had parliament vote to approve the deal anyway, for low political reasons, but that still doesn't make it a treaty obligation. That's not to say that there won't be a solemn sovereign obligation to replay the loans themselves as soon as each loan is made, but the surrounding agreement to offer a certain schedule of loans in exchange for certain actions etc. isn't similarly binding.
  2. So the EU/IMF weren't demanding that parliament approve the deal, but the deal is or was conditional on the budget passing. The budget itself has passed, but the budget's associated Finance Bill is still to be voted on, and if that were to fail then the budget would retroactively fail as well. If the budget were to fail, or if the Finance Bill were tweaked in ways that displeased the EU/IMF, then the deal would be off and no further credit would be handed out, until and unless the government and EU/IMF agreed a new budget which was then passed. The same thing would happen if the new government were to pass an emergency budget which changed things in ways displeasing to the EU/IMF.
  3. But the real kicker is that it's likely that the agreement doesn't actually require the Irish government to bail out senior bank debt not covered by the Irish government's unilateral bank guarantee, indeed not even senior bank debt which is covered by the Irish guarantee. Such an undertaking could be buried in the secret side-letter to the agreement, but it seems likely that there isn't one in the side-letter, presumably because the ECB and friends don't actually want clarity about the fact that they're forcing the Irish government to bail out the bank seniors. In that case they'll be relying on the ECB's never-quite-publicly-stated threat to withdraw "liquidity" support from the government-guaranteed Irish banks to keep the Irish government in line. So it's very likely that an incoming Irish government could still haircut bank seniors without breaching any treaty obligation - and without even violating the terms of the memorandum of understanding - if it feels ready to rumble with the ECB.

So it seems that the new government could indeed still go Iceland on the bank seniors. It probably won't, though, partly or mainly because it will be too scared to mix it with Frankfurt.

Sun, 01/23/2011 - 11:19 | 897018 dearth vader
dearth vader's picture

Mr Drapier,
I'm afraid your conclusion might be correct. I must say, I was very, very disappointed by the Irish second vote on the Lisbon Treaty. They seem to get it right at first, but spoil the party given a second try. Most important to the outcome this time, will be the visibility of the people's anger in the open. They should make their demands clear by demonstrating fervidly to boost the feeble negotiating power of their newly chosen government against the ECB/IMF hyenas, and turn down any offer by the banksters to reconsider and have another vote on the same subject.

Sat, 01/22/2011 - 23:05 | 896618 gwar5
gwar5's picture

I hope the Irish can pull this out. It needs to start somewhere in the EU. Iceland was a good example.

The Irish seem like they may be up to the task. The rest of the EU may follow in 2-3 years when they are still suffering.  

Better to have hardship for a short time, and be free, than to give it all up and be a slave forever.

The EU countries were fools to compromise their sovereignty anyway, but especially to the banks? Who's in charge anyway? 

This boils down to a stark battle for the human right to self determination, perhaps for the next 200 years. That's a big deal. Free Ireland!

.

Sun, 01/23/2011 - 05:57 | 896880 bigkahuna
bigkahuna's picture

It is to the point now that it seems if the Irish politicians try and step out of line and pull an "Iceland" they will be made an example of somehow. I hope they do step out of line--because others will follow they and Iceland. It will take courage, and I would bet on some public figures experiencing slander to ruin their careers and perhaps blackmail -- death threats to they and their families. If you are Irish, you should be ready to do whatever it takes to support your leaders who are trying to get you guys out of the bailout. Or you could just lay down and take it like we do here - call it "American style".

Sun, 01/23/2011 - 05:52 | 896877 bigkahuna
bigkahuna's picture

It is to the point now that it seems if the Irish politicians try and step out of line and pull an "Iceland" they will be made an example of somehow. I hope they do step out of line--because others will follow they and Iceland. It will take courage, and I would bet on some public figures experiencing slander to ruin their careers and perhaps blackmail -- death threats to they and their families. If you are Irish, you should be ready to do whatever it takes to support your leaders who are trying to get you guys out of the bailout. Or you could just lay down and take it like we do here - call it "American style".

Sat, 01/22/2011 - 21:44 | 896528 bunkermeatheadp...
bunkermeatheadprogeny's picture

Although there was approval from the existing unpopular regime, it doesn't mean that Ireland can't reneg on the bailout later.

I think an Iceland approach to Ireland is likely, especially when the Irish start feeling the deep economic pain.

I also thnk that a likely Irish "take this EU / IMF debt and shove it" populist uprising is why Goldman analysts are long the USD/EUR.

It's also why I think JPM is long copper.  Bankrupt nations that want to reissue a new currency can do so in copper so as to prevent hyperinflation of the new currency if they can't afford to issue a new currency in silver.

Sun, 01/23/2011 - 07:46 | 896923 theprofromdover
theprofromdover's picture

In case anyone forgets, a nation is not its government, a nation is its army (of people).

If a new coalition of independents and mavericks choose to walk from the enslaving bail-out, just you watch them do it.

I was stunned when the Irish first let the cowboys in Brussels make them re-vote on the European Treaty (having voted no the first time round). I was doubly stunned when the were forced into voting yes to it on the re-run, and I was thirdly stunned when they rolled over for the bail-out ransom.

Every feckin' Irishman I have ever known, was intelligent, articulate, conscientious, and sometimes drunk. Everyone of them could figure out right from wrong, and also face the consequences of any necessary action. In addition, they could always get absolution from the Pope when they sinned (which was often).

So where are you now, my Irish firebrands?

 

 

Sat, 01/22/2011 - 19:07 | 896370 Eternal Student
Eternal Student's picture

Thanks for the correction. Those three words are seldom seen, even far after events have unfolded. And that includes a number of ZH contributors, especially.

Personally, I was a little disappointed about the article until I saw that. No offense, but I've seen this info before. It certainly needed saying, but it doesn't include the most important thing; namely, are the Irish politicians actually going to change things after a new election? That's impossible to say, of course, right now. But personally, I am skeptical after being wrung through the hope-n-change BS we've had here. Still, that is the key question right now.

So, I wasn't overwhelmed by the article. But I was impressed by your correction, and look forward to seeing more of what you have to write.

Sat, 01/22/2011 - 20:43 | 896480 Jack H Barnes
Jack H Barnes's picture

Eternal Student,

Do you happen to know the status of the Irish Finance Bill, and how it would affect the bail out package if the finance bill is not ratified?  It was what I thought was holding up the bailout funds. 

I honestly do not know the Irish specifics well enough to guess what happens if the finance bill is not voted on before the general elections are called.  It is highly unliked, and the next governement obviously does not want to have to force it through to start their tour.

I honestly wonder what happens to the bailout, if the Finance bill is not passed.

http://www.bbc.co.uk/news/world-europe-12253510

 

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