Ireland Demands Rescheduling Of Bailout Terms, Or How Dublin Went From M.A.D. To S.A.D.

Tyler Durden's picture

So in Europe socialist beggars can be choosers. According to Reuters, "Ireland  wants to reschedule debt issued under its EU/IMF rescue package and will not accept less favorable treatment than other bailed out countries in changing the deal, its public expenditure minister said on Thursday. Brendan Howlin told Reuters that the government intended to seek to reschedule the International Monetary Fund/European Union portion of its debt in due course. "Obviously long-term rescheduling of debt is something that would be desirable and we will deal with it," Howlin, appointed in March to the newly created expenditure department, said." Congratulations to Ireland- having been boxed into a corner so deep, Ireland has now downshifted from Mutual Assured Destrcution to Self-Assured Destruction unless its ultimatum is met.

This sets up an interesting dynamic: on one hand Irish politicians will be delighted by Europe and the IMF agreeing to this ultimatum; on the other Irish citizens will perceive that this outcome will be beneficial (when in reality it will merely prolong the pain), but most importantly, on the third hand, the actual rescuers, who just happen to be the same entities that will be wiped out should Ireland implode, will also enjoy lowering the interest rate (and extending the maturity) for Irish bailout bonds, as it means they still get to bleed Ireland dry, only at a slower, and thus less volatile rate, which will guarantee a longer payment period on their loans by the Irish taxpayers. So who would be against this? Ironically, it should be the taxpayers of other EU countries (and Americans who fund the IMF, but they couldn't be bothered to think about what this means), as it will mean recoupment of initial capital will come much slower and will likely allow bailed out countries to have far greater leverage to dictate rescue terms in the future. Although with nobody at this point believing Europe will survive in the long-term, it is very likely that nobody will object to this last ditch attempt at keeping the game theory in place for a few extra months.

More from Reuters:

Ireland is hoping to get a cut in the cost of its loans from the EU but Howlin said Dublin would also like a longer-term commitment from the European Central Bank (ECB) on the provision of emergency liquidity to Irish banks.

"We want a better interest rate and we want affordable long-term liquidity for the banks. We had some comfort from the statement from the ECB after the recapitalization announcement but it is difficult when it is on a medium term basis and that is something we are working on still."

On the other hand, since all of Europe's banks now rely exclusively on the ECB for funding, it is not like the relative situation could get any worse if there is no interbank market following an event that would increase the risk profile for European countries.

ECB policymaker Luc Coene told Reuters in Brussels on Thursday that the central bank was still working on a special facility for banks frozen out of the interbank market and reliant on the ECB for funds.

In the meantime, Ireland has refused to budge on the one key topic of debate: it corporate tax rate.

Ireland is under pressure from some euro zone members, chiefly France and Germany, to raise its iconic 12.5 percent corporate tax rate in return for a one percentage point cut off the average 5.8 percent rate of its loans.

Why anyone cares what Irish corporate taxes are at this point is beyond us: most countries are already likely considering shifting to other offshore tax havens, which, for a change, are not bankrupt, and threatening to shoot themselves if the "or else" part is not granted.

More from Reuters:

Greece got a similar reduction in March after it pledged to raise 50 billion euros by selling state assets by 2015.

However, with Greece currently in talks with the EU and IMF over improving its loan terms, Howlin said it would be unreasonable for one country to get better terms than another or to force Ireland to surrender something to do so.

"It is unreasonable to piggyback domestic issues (on the interest rate cut)," Howlin, a member of the junior coalition Labour party, said.

Some euro zone officials have said Dublin could help its case for an interest rate cut by accelerating its program of cutbacks but Howlin ruled that out too.

"I don't see further austerity as being part of the bargaining chip on an interest rate deal," he said.

"It would be entirely unreasonable if interest rate reductions that are available to others wouldn't be available to ourselves ... We certainly don't want to be treated and won't accept treatment less favorable than other euro zone partners."

Howlin reiterated that raising Ireland's corporate tax was off the table but that the government would examine the effective rate of corporation tax with its European partners if that is what they wanted.

And more such Self-Assured Destruction drivel. Full think can be read here.