Ireland goes bust: Requires EU bailout worth billions

[Comrade Wolfie's Very Nearly Banned Adventures]

The Irish central bank governor this morning gave the first official confirmation that a rescue package worth "tens of billions" of euros was being prepared to shore up Ireland's embattled banking sector.
Speaking as Ireland prepared to open its books to financial experts from the European Union, European Central Bank and International Monetary Fund, Patrick Honohan said he was expecting a "very substantial loan" from the EU and the IMF.


He told RTE's Morning Ireland: "It's my expectation that will happen yes … absolutely. It will be a large loan because the purpose of the amount to be advance or to be made available to be borrowed is to show Ireland has sufficient fire power to deal with any concerns of the market.
He added: "The ECB would not send large teams if they didn't believe first of all that they could agree to a package, that there is a programme that is fully acceptable to them that could be designed, and that it is likely to be accept to the Irish government and the Irish people."
Asked how much the loan would be worth, he said: "Tens of billions, yes. I don't know that any precision has been put on it yet."
City analysts believe that any loan from the IMF would be offered at a lower rate than borrowing from the financial markets.
David Buik at BGC Partners said: "The facility is rumoured to have a coupon of 5% on it – a hell of a lot cheaper than the bond market, which will metaphorically take the skin off your face."
Irish borrowing costs fell on the news, with the yield – or interest rate – on 10-year Irish bonds dropping from 8.3% last night to 8.1%.
Stock markets rallied this morning as investors awaited the outcome of the meetings. The FTSE 100 index climbed over 60 points to 5754. In Asia, Japan's Nikkei closed 2.06% higher at 10,013.63 while Hong Kong's Hang Seng was up 1.82% at 23,637.39 and South Korea's benchmark index rose 1.62% to 1927.86.


Giulia Comotti, currency analyst at Barclays Capital, said a decision on the type of financial aid for Ireland is expected to be taken within days.
"Key elements to stabilise the financial system should include a full and prompt resolution of non-viable banks, as well as considerably higher capital buffers in viable banks than currently available – such buffers would help reassure depositors and financial markets of the sufficiency of capital to absorb any additional unexpected losses in viable credit institutions. It seems indeed that the rescue package could be delivered fairly quickly," Comotti said.


French economy minister Christine Lagarde also tried to calm fears that the crisis could split the eurozone.


"No, there is no risk of [the EU] breaking up," Lagarde told France Inter radio this morning.


How much money will be spent to prop up capitalism this time?

Any comments from our Irish members, I don't really know much about it aside from the fact the Republic is broke.

[Cultural Revolution]

The IMF will bail Ireland out, and due to its need to repay, it will whore its resources off, so the rich stay rich, the working class will pay the tab.

[Comrade Wolfie's Very Nearly Banned Adventures]

The IMF will bail Ireland out, and due to its need to repay, it will whore its resources off, so the rich stay rich, the working class will pay the tab.

Buisniess as usual then.

[RadioRaheem84]

I cannot believe structural adjustment policies have finally reached the developed world!

I never thought I would live to see this.

[Cultural Revolution]

Capitalists love nations going bankrupt, alot of people do not get this.
Its like when marxists go, oh the USA lost in vietnam, or the USA are being defeated in Afghanistan.

The aims were not a clear millitary victory, it was for the capitalist class to make money from the conflicts, and in the case of vietnam, to stop the spread of marxism, the capitalists have won from both wars.

The American empire may be becoming weak, but the capitalist class has never been fatter.

[~Spectre]

I cannot believe structural adjustment policies have finally reached the developed world!

I never thought I would live to see this.

We'll see. Though some lunatic capitalists are trying to get the U.S. to go in this direction due, you'll notice that the U.S. government is still, as Chomsky points out, doing the exact opposite.

[KC]

The issue of whether or not Ireland will take an EU bailout is a huge deal for the course of events to follow. This is basically posing the question of the survival of the Euro and the Eurozone as a viable economic bloc. Right now Ireland basically has a choice between bailing itself out as a country and letting the Irish banks fail or vice versa.

I personally don't think the EU will let the Irish banks fail, but that gets into a whole political mess as to whether or not they have that power - I think they do. In that case Ireland will be fully economically and politically totally subordinated to the EU. This is a good thing from the perspective of those leading the EU such as Germany, but a bad thing as this is going to lead to more bailouts - Portugal and Spain will likely follow - which will test the limits of the EU's ability to fund such bailouts.

That question is one that can't really be answered at this time, as it depends on a variety of variables and how they play out in the next couple of weeks/months.

But I think that many people - both on this site and in general - don't understand how close the Eurozone is to completely collapsing. This possibility has been discussed by major media outlets such as Bloomberg, the NY Times, Financial Times and others. Major heads of the EU have even come out to attempt to explain the extent of the situation, basically saying that the Eurozone is on the verge of collapsing (too lazy to search for quotes).

This is some serious shit. If the Eurozone collapses it will set off shockwaves throughout the global economy. It will also have profound political consequences, as former EU members strive to fix their own individual economies/currencies and will be a huge impetus towards the foreboding trade war.

[Palingenisis]

Basically this is due to a stupid thing called NAMA where the goverment decided to bail out private banks rather than let them go bust or nationalize them...And the banks in return ripped the goverment off. Its a sick joke but when whats left of our health service goes I wont be laughing.

[punisa]

Any more sources on Irish crisis and potential breakdown of the Eurozone?
Thanks

[KC]

Any more sources on Irish crisis and potential breakdown of the Eurozone?
Thanks

I read a bunch of articles over the past week or so about this. Unfortunately news websites update their content frequently and it is difficult to find older articles. I'll try looking them up and if I find them I'll post here.

EDIT: Here is an article on the current state of the Irish question as I posed it in my previous post. I said that Ireland had the option of either bailing out the banks at the expense of its sovereignty or remaining sovereign from the EU while allowing its banks to fail. This Bloomberg article from tonight says exactly that:


Bloomberg - Cowen Scorned as Irish Mourn Loss of Sovereignty With Bailout (http://www.bloomberg.com/news/2010-11-19/irish-mourn-loss-of-sovereignty-as-cowen-scorned-before-german-bailout-.html)

Irish rebels fought for independence during World War I, boasting they served “neither King nor Kaiser.” Ireland may now have to do exactly that to qualify for a bailout partly funded by both Britain and Germany.

Prime Minister Brian Cowen (http://search.bloomberg.com/search?q=Brian%20Cowen&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja) is edging toward accepting a rescue package that may threaten the country’s low-tax policies and put voters on the hook to repay loans the central bank says may be worth “tens of billions” of euros. For critics of Cowen’s Fianna Fail party, which governed Ireland through its decade-long boom, national pride is at stake.Here (http://www.wsws.org/articles/2010/nov2010/euro-n18.shtml) is a WSWS article outlining the crisis and why the issue of the Irish bailout is so important. I'd like to point out some key points in the article:


EU Council President Herman Van Rompuy on Tuesday declared, “We’re in a survival crisis,” and warned that the future of the European Union was at stake. German Chancellor Merkel said, “Everything is at stake. If the euro fails, then Europe will fail, and with it fails the idea of European values and unity.”


These are some of the quotes I was referring to earlier. Leading heads of the EU recognize the seriousness of the situation, as do leading heads of state of the various member countries.


The post-World World II system of world economic relations is breaking down, driven in the first instance by the vast economic decline and decay of American capitalism. The growth of centrifugal forces tearing apart the European Union and its single currency is one expression of this international crisis. In particular, tensions are mounting between those countries with a relatively low level of debt and currently enjoying growth—such as Germany and the Netherlands—and a host of other countries saddled with mounting debts and economies either in recession or stagnation, i.e., Ireland, Portugal, Greece and Spain.

This refers to the problem at the heart of the Eurozone crisis. The problem is twofold (although they could both be considered two parts to the same problem):

1. A currency crisis. The reason that this crisis is so difficult to deal with is because the currency of every member country is the Euro. A single currency with a single monetary policy presiding over many different countries poses a huge problem, as it basically rules out most monetary policy to combat crisis, which is one of the most powerful tools that governments have for doing so. Greece, for example, would have been able to navigate itself out of crisis (or at least the crisis in Greece would have been nowhere near as bad as it got) if it would have been able to enact monetary policy to defend against the crisis. This wasn't the case, so the only other option was fiscal, which leads to my second point:

2. An imbalance of debt. As this quote above states, the EU is full of countries with wildly different Current Accounts. The necessity for fiscal policy, due to the impotence of monetary policy, means that domestically the countries with the heaviest debt must cut costs and increase taxes. It also means that, since this has proven not to work, those countries with a surplus must fund the recoveries of the debtor countries. This was realized in Greece and is now being realized in Ireland through the issuing of loans through the IMF, that essentially does away with any sovereignty that these countries might have had from the EU.

It also poses the most crucial question of all, which is the viability of this policy. How long can countries retaining a surplus go on funding the bailouts of debtor countries? How long before they decide that it is either no longer desirable to their interests, or no longer possible? This is one point at which the Eurozone could possibly collapse.




In a grim editorial published Wednesday, headlined “Europe Heads Back into the Storm,” the Financial Times warned that the Irish crisis is only the prelude to a wider collapse.


“Only months after congratulating itself on a narrow escape,” the newspaper wrote, “the eurozone is again hurtling back toward contagious defaults. Its fumbling approach to the explosive instability of the Irish banking system leaves little hope that the other ticking bombs with which Europe’s economies are riddled are going to be disarmed in time.

“Ireland’s basic problem is that it now has to choose between its own sovereign solvency and the solvency of its banks. Other European countries—in and out of the eurozone—may soon face the same choice. In such a world, keeping banks afloat with public capital risks sinking the sovereign—and with it, the whole banking system.”

Here the Financial Times is saying basically exactly what I am saying. Not only are the heads of state addressing this as a very realistic possibility, but the bourgeois press itself is coming out and saying that Europe is in some serious shit, and they're going to have a hell of a time avoiding collapse, if that's even possible.

I read some other articles, if I find them I'll post them up.

EDIT #2: Forgot about this one. Here is a Bloomberg editorial (http://www.bloomberg.com/news/2010-11-16/euro-dominos-will-fall-until-currency-is-split-commentary-by-matthew-lynn.html) explicitly stating that the Euro is going to collapse. Not maybe, not probably, is going to. It's an editorial, so it's not really news, but the fact that Bloomberg would publish it is telling:


This crisis will keep moving from country to country. The only permanent fix is splitting up the euro into more manageable currency areas. Until the euro area’s leaders recognize that simple truth, every bailout they come up with is only going to shift the attacks elsewhere.

I hope this spells out the severity of the situation to everyone reading this. I was quite disappointed to find a single thread with a handful of worthless responses on this, as it's arguably the most important development in the past couple weeks/months.

EDIT #3: Attention is already starting to shift to Portugal:



As Ireland Nears Bailout, Portugal Waits in Wings

LISBON — As Dublin moves begrudgingly toward accepting a European Union bailout (http://www.nytimes.com/2010/11/19/business/global/19euro.html?hp), attention is rapidly shifting to Portugal (http://topics.nytimes.com/top/news/international/countriesandterritories/portugal/index.html?inline=nyt-geo), the country perceived to be as weak a link in the euro zone as Ireland, though for different reasons.

While Portugal’s leaders, like Ireland’s, insist that they have enough money for now and are making brave and necessary cuts to government spending, in fact the Portuguese government is both divided and stalemated. It has shaken the markets by letting spending rise over the last four months well beyond its stated promises, and it has not done enough structural reform to foster strong economic growth.

FULL STORY (http://www.nytimes.com/2010/11/19/world/europe/19lisbon.html?_r=1&ref=world)

Sorry about all the edits, I'm updating as I look around.

[KC]

The "rescue team" (IMF, European Central Bank, and European Commission officials) arrived today so in the next couple of days we should be getting some more information on the terms of the bailout.

Irish bank customers have withdrawn 11% (http://www.ft.com/cms/s/0/28d67dca-f285-11df-a2f3-00144feab49a.html) of deposits over just a few weeks. That figure is shocking.

[S.Artesian]

1.Essentially, the Irish government turned the entire country into a "bad
bank" to take over the non-performing assets of Anglo-Irish and other banks.

The government created the National Asset Management Agency [NAMA] to buy
the non-performing instruments from the banks. The banks themselves were
less than candid about the quality of the loans, and their own exposure, and
the government being a sucker never got the even break, paying about 75% of
the face value for the equivalent of euro 77 billion in "assets."

The assets have since been devalued, requiring further injections from the
government to keep the banks afloat. In October 2008, the govt. state that
it would need to inject euro 1.5 billion into Anglo-Irish bank to
"stabilize" the institution. As of October 2010 the actual amount has been
about euro 23 billion, with another 11-12 billion to come.

The "haircut" now on the assets the banks still hold is now at 56% and the
amount the Irish govt will need to supply the banks to meet collateral
obligations and maintain day to day operations is expected to reach euro 46
billion, an amount equal to 33% of all goods and services produced in
Ireland this year.

2. Enter Merkel, the arch-Angela of death. Angela was bit perturbed over
being compelled to support the bailout of Greece, and the establishment of
EFSF-- European Financial Stability Facility-- that big
"off-balance sheet" funding vehicle designed to bail out any country stupid
enough to turn to it and the IMF for help. The EFSF will issue
"instruments"-- i.e. debt, to provide funds to said country and the debt
will be secured by... by the budgets of the governments of the EU countries
themselves, in essence turning all of the EU into a big bad bank.

Anyway despite the fact that the EFSF has 3 years left to go on its
contract, and has a no-trade clause, Angela tested the market, and roiled
the waters, by demanding that the EU look at a successor to EFSF that would
require the private debt holders, the bond buyers, the banks and their
customers, to shoulder more of the burden, to take a bigger haircut. But
nobody wants to sit in the chair when Sweeney Todd is the barber.

The bond market freaked, or pretended to freak knowing that nothing
separates a fool from his money quicker than fear, and started to drive down
the face value of Irish debt, particularly sovereign debt, thereby driving
up interest rates and the spread in yields between Irish bonds and German
bonds of similar maturities. In addition the price of insuring Irish bonds
against default, those world famous credit default swaps which proved so
problematic for AIG, and made so much money for Goldman Sachs, Deutsche Bank
etc. soared.... soared so much in fact that it effectively swallowed the
interest anyone might earn from insuring a 5 year note against default.

This is the highly leveraged structured investment asset backed paper
version of your house being underwater. Literally and metaphorically.

So.... so those holding the Irish debt can't sell in the secondary markets
without risking a razor cut below the chin line; nor can they purchase CDSs
against default without losing anything they might receive in interest.

Thank you Angela.

Ireland's finance minister, a certain Mr. Lenihan thinks this is all a
tempest in a teapot, that the markets are overreacting, that there is no
cause for alarm because Ireland has enough cash reserve to fund its
operations through the end of the year and into 2011, thus avoiding the
need, the embarrassment, not to mention the expense of going back to the
bond markets to raise cash. Does that sound Greek to you? It sounds Greek
to me.

Now to make things even better, while the initial distress was precipitated
by the collapse in commercial real estate, and commercial real estate loans,
Ireland's residential mortgages are faltering with the number overdue 90
days or more increasing by 50% in 2009 to 4.6% of the number outstanding.

What's the big worry? Our friend, Mr. Contagion. If Ireland goes, what
about Portugal, what about Spain? What about Italy, whose debt mass dwarfs
that of Spain, Portugal and Ireland, debt accrued in large part to keep
Berlusconi supplied with underage pole-dancers. Anybody got a lead shoe we
can throw at his recently reconstructed face?

So, on Friday everybody was waiting for markets to open on Monday and how
the market would value Irish debt since Angela Lansbury Merkel Lovett opened
up her new meat pie take out shack featuring Irish meat. Apparently the
opening was a success, and the patient is close to dying.

3. Now it gets even better as ECB did some accounting of its own balance sheet and uh-oh, realizes the Irish banks now account for about euro 130 billion or one quarter of the direct loans it has given out. So if it's given out that much in loans, and NAMA has purchased so much else, what can be left in the banks themselves to use as collateral? Only stuff that's so bad not even the ECB will accept it as collateral; which must give us pause... Meanwhile, corporations are pulling their deposits from Ireland's commercial banks.

Pause over. . the ECB's own balance sheet now shows assets [essentially the collateral accepted for loans-- in short, liabilities] at 21 times its own equity capital as reported by the Financial Times 17 November. So now we can see another reason why the EU is pushing so hard for Ireland to accept the bailout-- it's the only way to save the ECB.

God, I love it when a plan comes together.

[bricolage]

I cannot believe structural adjustment policies have finally reached the developed world!

I never thought I would live to see this.
The UK had a loan from the IMF in the 70s if that counts.

[Kiev Communard]

The EU seems to have hit an impasse. I wonder if they would manage to "re-adjust" once again.

[crazyirish93]

love how the government keeps lying to us about not needing a bailout