Deal on Irish legacy bank debt unlikely - Barroso

Deal on Irish legacy bank debt unlikely - Barroso - Suzanne Lynch → irishtimes.com/business/econ … -1.1634215

not really surprising despite what the government have told us, we can’t be the best boys in class and at the same time receive debt writeoffs on bank debt which lenihan assumed for us.

“Cheapest bailout ever!”

Pascal Donoghue (FG rodent) seems to agree with Barroso. “Previous government’s fault. What could we possibly do about it?

Micheál Martin on the wireless now attacking Barroso. Reminding the listeners about the warning about the “bomb will go off if bondholders burnt”
Cut off suddenly.

Unfortunately in the absence of our ‘green jersey’ media, some context / translation is needed here.

The ECB has given Ireland (in very very rough numbers) some large ‘carry trades’ (incl. free interest trades):

  1. 30bn via the prom note at (effectively) 0%
  2. +30bn via NAMA which at the latest re-fi, due to the ECBs support, is a almost 0%
  3. +50bn in the Irish banks which backs trackers at (almost) 0%

We have over 200bn of gross sovereign debt.
The ECB has therefore created a ‘carry vehicle’ that effectively reduces the interest on half this debt to 0%.
You can have a view, but with a ‘junk’ bond rating, we should be paying c. 4-5% on this (even this is historically too low).
The ECB is effectively pumping c. 5bn into Ireland every year (and can do so indefinately).

These ‘carry trades’ don’t show up on our sovereign deficit but appear via other routes.
This is why you see ECB demanding the Irish Gov. stick to their austerity targets (the absolute debt is still huge).
However you see the Irish Gov. hinting at tax cuts etc. (i.e. they will use the ‘carry trades’ to give a lift pre next election).

Anybody who has ever studied what Draghi did as Italian Bank Governer know that he is an expert in ‘carry trades’.
Italian sovereign debt has magically stayed at c. 120% of GDP for a long time (which means is it really much higher).
His attepmt to keep Bank of Sienna alive for years after it was insolvent (google it) with ‘carry trades’ is another example.
‘carry trades’ are much more politicaly acceptable as they are less obvious with no specific debt writedown.
The example of Italy however shows that with very high debt levels, banks remained too terrified to lend properly.

The problem Barroso / Draghi has is that some of the above (especially the prom note) is monetary financing (to paraphrase Buffett, if it is not monetary financing, what is it). It therefore MUST have the support of the Germans etc. as monetary financing is illegal under EU rules. In the EU’s / Barroso mind, they have gone above and beyond to help Ireland.

Noonan has being making the arguement that as the ECB is willing to roll +50bn at 0% continuously in Irish banks, why don’t they just take 50% of the Irish resi-mortgage book as permament collateral (50bn of loans) and park it in another NAMA vehicle or inside the ECB (let it become a Fannie Mae / Freddie Mac). This converts a ‘carry trade’ into a more substantative take on of credit risk (who would buy 50bn of Irish resi mortgages in a country with 0% foreclosure rate). Obviously this would be transformational for the Irish economy but is clearly a bridge too far.

It is ‘carry trades’ for the foreseeable future…

We could have burned all subordinated bondholders and have had a chat about senior bondholders if the rest of Europe’s banks and the USA’s banks weren’t fcked too. The gobshites in the Irish banks didn’t pick the billions out of their holes when they were borrowing it. Barroso is no end of a cnt and his permanent staff in the Commission must be of the same ilk for this kind of thing to be said. Never forget it.

oh give me a fricken break please!!

the whole Euro crisis (in a multi-trillion euro economy) was because of a €64bn hole in Irish banks.

admit it Barosso, Big Euro banks fucked up big time.

Lets recognise the real dymanic of ‘sovereign carry trades’.
They allow an insolvent country to offset more serious sovereign deficit re-alignment (‘kick the can’ etc.)
The people who negociate these ‘sovereign carry trades’ are public servants + politicans.
They are the beneficiaries of avoiding deficit re-alignment - the winners of ‘can kicking’.
Not by accident that is becomes route #1

Did it not come out earlier this year that most of the debt in Irish Banks was owned by British Banks and not German Banks?

I’d put it as the **PIIGS **behaved like little pigs at a trough, and the only fault of the Germans and other more ‘grown-up’ European countries was to treat the PIIGS as grown-ups. They OUGHT to have viewed us in a more true light as irresponsible children, but would that have been a realistic proposition, politically? Anyway, at least now we are learning something about consequences. We’ll get there (to responsible economic adulthood) with a bit more economic paternalism (and handouts) from our northern European ‘partners’ I think.

+1

Did Barroso somehow miss the Irish’s government’s painstaking, transparent, and comprehensive investigation of every facet of the Irish financial crisis?
Has he overlooked the many actions of the Irish authorities to hold those responsible to account and to ensure that nothing similar could happen again?

Excellent point.

What do you do though? How do you do it?

The way I think of it is like having a 20 year old son. On one hand, the best way for him to learn about the world is to do it all himself, start from scratch, and build it all up himself. But you know in this environment, it will take him a very long time, and you have plenty of resources yourself with which to give him a hand. But how does he learn about responsibility and the value of money?

One thing is for sure. You can’t FORCE it in an obvious way like you suggest. You only get a petulant reaction and willful behaviour.

No, the only way is to ‘give em enough rope’ but not enough to totally hang themselves.

That’s how I read Barosa’s actions anyway.

We’re slow learners for sure.

We all did, at least I have done.

You’ve lost me - what was I suggesting should be FORCED in an obvious way?

Reading the article, my conclusion was simply that Barroso might be leery of helping those who don’t appear ready to help themselves.

I read you as suggesting that Barrosa had it in his power to somehow force the Irish government to make a transparent, and comprehensive investigation of every facet of the Irish financial crisis; to force them to hold those responsible properly accountable… Maybe he does have it in his power, but I was pointing out the wielding of that power could make things a lot more difficult. Apologies if I misinterpreted your post.

No worries - I don’t think Barroso can oblige the Irish govt to do much, but he might have the capacity to influence certain decisions. If he felt that there’d been a root and branch reform of Irish banking, along with a clear message from government that dodgy practices won’t in the future be tolerated, he could conceivably become a supporter of better terms on Irish debt.

Hell; if he holds on for a year, we might even have FF back in power again !

Europe is not recovering any time soon, if anything Germany will struggle to grow at all over the next 3 years, France the same or worse, and anywhere else that may register decent recovery growth will not have significant impact. The golden egg of renewed growth and recovery has not happened for all the cheering and priming, Ireland still has a current account deficit that shows little sign of real improvement, the structural issues remain, and FDI remains highly linked to low corp taxes and not so wonderful levels of employment. the agricultural industry is in for a big challenge over the next couple of years, imo, tourism will likely improve, consumer spending will likely maintain or improve slightly, bottom line is there is no reason to have any great sense of hope and Barroso is just pointing out the obvious as the prxxk is apt to do. That the EU/ECB landed Ireland with all the bank debt was disastrous and they know it, unfortunately the blind pissheads at the DOF and in government let that all fly through a long time ago and there has been much water under the bridge since, the reality may only be dawning on Noonan that his colleagues will at best provide low interest loans, as pointed out above, but forget about sharing the real pain.
Happy Christmas from Brussels! 8DD