• It has come to our attention that some users may have been "banned" when they tried to change their passwords after the site was hacked due to a glitch in the old vBulletin software. This would have occurred around the end of February and does not apply after the site was converted to Xenforo. If you believe you were affected by this, please contact a staff member or use the Contact us link at the bottom of any forum page.

does every bailout have to be provided under conditions determined by the state to be bailed out ?


dancl2000

Well-known member
Joined
Sep 17, 2011
Messages
517
After bailouts to Ireland, Greece, Portugal there seems to be an idea that the eu has to provide a bailout, and it's up to the insolvent country to decide what bailout conditions are acceptable

This manifests in cyprus as protesters targetting anger at Angela Merkel and Germany. In our own case we had similar anti german anger.

In reality there's no obligation on eu or eurozone members to bail out another member state. An insolvent member state has some negotiating weight which is what the other member states stand to lose economically by the insolvency + whatever political goodwill exists.

Economic losses to other member states are made up of outstanding ecb liquidity, holdings of that sates bonds, outstanding deposits in that state + outstanding target2 imbalances. Also the probable loss of exports to that state

We dont really know what a member state will lose by defaulting. In Irelands case there was a lengthy debate about whether we'd be better off defaulting or getting bailed out. Defaulting was never really considered by the govt so the answer is we dont know if that's better. We may be about to find out and whatever happens will probably serve as an example for a future italian re-election

So given that we're going to be contributors to future bailouts rather than recipients, what conditions do we want to put on the recipient before we pony up the cash ?

- Do we want the bailout be repaid or are we ok to make a gift to the other country ?
- Do we insist the country changes whatever got it into trouvle so we dont need to bail them out again a few years down the road ?
 

Ulster-Lad

Well-known member
Joined
Oct 26, 2006
Messages
10,092
No the conditions are provided by the troika. The state being bailed out can accept it or not.
 

Howya

Well-known member
Joined
Feb 29, 2012
Messages
1,690
The obligation for the EU/ECB to support countries in difficulty comes from the basic concept of the European project - either we work together for the benefit of all or we don't and it's every country for itself.
 

Lempo

Well-known member
Joined
Jun 30, 2012
Messages
6,314
The obligation for the EU/ECB to support countries in difficulty comes from the basic concept of the European project - either we work together for the benefit of all or we don't and it's every country for itself.
I love how there are cooked-up constructional obligations after the actual ink-on-the-paper ones about deficit targets, debt targets, sound national economics etc. got discarded by most. Some might say they didn't sign up for this sh!t...
 

patfitzbally

Well-known member
Joined
Dec 11, 2011
Messages
1,023
After bailouts to Ireland, Greece, Portugal there seems to be an idea that the eu has to provide a bailout, and it's up to the insolvent country to decide what bailout conditions are acceptable

This manifests in cyprus as protesters targetting anger at Angela Merkel and Germany. In our own case we had similar anti german anger.

In reality there's no obligation on eu or eurozone members to bail out another member state. An insolvent member state has some negotiating weight which is what the other member states stand to lose economically by the insolvency + whatever political goodwill exists.

Economic losses to other member states are made up of outstanding ecb liquidity, holdings of that sates bonds, outstanding deposits in that state + outstanding target2 imbalances. Also the probable loss of exports to that state

We dont really know what a member state will lose by defaulting. In Irelands case there was a lengthy debate about whether we'd be better off defaulting or getting bailed out. Defaulting was never really considered by the govt so the answer is we dont know if that's better. We may be about to find out and whatever happens will probably serve as an example for a future italian re-election

So given that we're going to be contributors to future bailouts rather than recipients, what conditions do we want to put on the recipient before we pony up the cash ?

- Do we want the bailout be repaid or are we ok to make a gift to the other country ?
- Do we insist the country changes whatever got it into trouvle so we dont need to bail them out again a few years down the road ?
we will do whatever angela tells us to
 

dancl2000

Well-known member
Joined
Sep 17, 2011
Messages
517
The obligation for the EU/ECB to support countries in difficulty comes from the basic concept of the European project - either we work together for the benefit of all or we don't and it's every country for itself.
I'm not saying dont help them, i'm asking under what conditions should that help be provided.

If we accept that bailing out a fellow member state is money out of our pockets then there can come a point where we ourselves become insolvent (again) through the cost of bailing out other member states.

Or if we dont accept that providing a bailout costs money to those providing the bailout, then we're basically saying that money isnt real and there's no impact from inventing unlimited amounts to support a state that spends more than it takes in
 

dancl2000

Well-known member
Joined
Sep 17, 2011
Messages
517
No the conditions are provided by the troika. The state being bailed out can accept it or not.
In theory, in the cyprus case the country rejected the conditions under which the bailout was offered and protesters resented the eu and germany specifically for putting such onerous conditions on the bailout. There is similar resentment in Ireland to the conditions placed on our bailout

So the question is, what kinds of conditions are reasonable for a bailed out country to accept or should money be provided with no conditions and repayment terms as loose as is politically acceptable in that country
 

emulator

Well-known member
Joined
Oct 20, 2010
Messages
10,262
They're not "Bailouts" but simply loans with interest....

The organisations and Countries giving the loans are usually only too happy to help....
 

dancl2000

Well-known member
Joined
Sep 17, 2011
Messages
517
They're not "Bailouts" but simply loans with interest....

The organisations and Countries giving the loans are usually only too happy to help....
it's only a loan if it gets paid back.

if there are no conditions, then the country receiving the bailout can continue doing whatever got it into financial trouble, requiring additional bailouts. At whatever point further bailouts are not forthcoming, the country will default meaning no repayment of any of the bailout loans + everything else outstanding at the point of the first bailout
 

ibis

Well-known member
Joined
Mar 12, 2005
Messages
12,359
They're not "Bailouts" but simply loans with interest....

The organisations and Countries giving the loans are usually only too happy to help....
That's a bit too sweeping, as I'm sure Lempo will tell you. It's easier to get a Cypriot bailout deal through the German parliament than through the Cypriot parliament, but it's not an open and shut deal.

We don't see this here because the Dáil makes no difficulties for the government, and so far governments around the eurozone, as opposed to parliaments, have been willing to provide bailouts as needed.

On the OP, I'd have to say it's obvious that the lenders have to set conditions. The final guarantor of government loans to bailed out countries are the taxpayers of the lending country, and it is irresponsible for governments to put their taxpayers in hock without conditions. Solidarity means that loans are available - nobody has been refused a bailout - but not that the credit of one countries' taxpayers should be handed to another without any strings.
 

westie12

Well-known member
Joined
Jun 23, 2008
Messages
858
it's only a loan if it gets paid back.

if there are no conditions, then the country receiving the bailout can continue doing whatever got it into financial trouble, requiring additional bailouts. At whatever point further bailouts are not forthcoming, the country will default meaning no repayment of any of the bailout loans + everything else outstanding at the point of the first bailout
I would say it is still a loan, but one that has been defaulted on. If you gave me a loan of €1000, and I did not pay it back, would you say "sure that's grand, I gave it to you free anyway"?
 

Dimples 77

Duplicate Account
Joined
May 9, 2012
Messages
19,488
After bailouts to Ireland, Greece, Portugal there seems to be an idea that the eu has to provide a bailout, and it's up to the insolvent country to decide what bailout conditions are acceptable

This manifests in cyprus as protesters targetting anger at Angela Merkel and Germany. In our own case we had similar anti german anger.

In reality there's no obligation on eu or eurozone members to bail out another member state. An insolvent member state has some negotiating weight which is what the other member states stand to lose economically by the insolvency + whatever political goodwill exists.

Economic losses to other member states are made up of outstanding ecb liquidity, holdings of that sates bonds, outstanding deposits in that state + outstanding target2 imbalances. Also the probable loss of exports to that state

We dont really know what a member state will lose by defaulting. In Irelands case there was a lengthy debate about whether we'd be better off defaulting or getting bailed out. Defaulting was never really considered by the govt so the answer is we dont know if that's better. We may be about to find out and whatever happens will probably serve as an example for a future italian re-election

So given that we're going to be contributors to future bailouts rather than recipients, what conditions do we want to put on the recipient before we pony up the cash ?

- Do we want the bailout be repaid or are we ok to make a gift to the other country ?
- Do we insist the country changes whatever got it into trouvle so we dont need to bail them out again a few years down the road ?


You stated the crux of the isssue well:

In reality there's no obligation on eu or eurozone members to bail out another member state.

It's like an individual borrowing money - you ask the lender for a loan and they set the terms. As others have said you're free not to get yourself into the deal being offered.

I think the problem is that stupid people think that they can have it both ways, so that they don't have to suffer much. Thus you get people out on the streets demanding that government spending be kept at levels that caused a lot of the current problems.

Basically they want cost-free bailouts.
 

clearmurk

Well-known member
Joined
Apr 27, 2012
Messages
3,019
On the OP, I'd have to say it's obvious that the lenders have to set conditions. The final guarantor of government loans to bailed out countries are the taxpayers of the lending country, and it is irresponsible for governments to put their taxpayers in hock without conditions. Solidarity means that loans are available - nobody has been refused a bailout - but not that the credit of one countries' taxpayers should be handed to another without any strings.
Hold on a minute. Is it not the ECB which is supposed to be bailing out the Cypriot banks? What has this to do with taxpayers or the credit of EU countries?

Consider this. If Cyprus was not in the Euro, what would the Central Bank of Cyprus be doing right now. In all probability running the printing presses to act as lender of last resort to the bust Cypriot banks. This would have exchange rate and inflation impacts, but the banks would survive.

Now revert to the ECB scenario. The ECB is supposed to be the lender of last resort. It controls the printing presses. But what it is choosing to do is not to run these, rather to require the taxpayers of Cyprus to take the load. So effectively it is now implementing a political policy far beyond its remit.

Consider this also. The bailout required by Cyprus is supposedly of the order of 16 billion euro. Compare this against the Jan 2013 M2 euro money supply of some 9000 billion euro. The Cyprus bailout, if it involved running the printing presses, would result in an increase of some 0.2% in the euro area M2 money supply. This compares to an existing annual growth rate of M2 in Jan 2013 of some 4%. Again, by not running the printing presses, the ECB is not doing its job.

There is a greater political agenda at play, and the ECB as an independent institution is compromised.

Latest - 2.3 Monetary statistics - 2 Money, banking and investment funds - Monthly Bulletin - ECB Statistical Data Warehouse
 

dancl2000

Well-known member
Joined
Sep 17, 2011
Messages
517
Hold on a minute. Is it not the ECB which is supposed to be bailing out the Cypriot banks? What has this to do with taxpayers or the credit of EU countries?

Consider this. If Cyprus was not in the Euro, what would the Central Bank of Cyprus be doing right now. In all probability running the printing presses to act as lender of last resort to the bust Cypriot banks. This would have exchange rate and inflation impacts, but the banks would survive.

Now revert to the ECB scenario. The ECB is supposed to be the lender of last resort. It controls the printing presses. But what it is choosing to do is not to run these, rather to require the taxpayers of Cyprus to take the load. So effectively it is now implementing a political policy far beyond its remit.

Consider this also. The bailout required by Cyprus is supposedly of the order of 16 billion euro. Compare this against the Jan 2013 M2 euro money supply of some 9000 billion euro. The Cyprus bailout, if it involved running the printing presses, would result in an increase of some 0.2% in the euro area M2 money supply. This compares to an existing annual growth rate of M2 in Jan 2013 of some 4%. Again, by not running the printing presses, the ECB is not doing its job.

There is a greater political agenda at play, and the ECB as an independent institution is compromised.

Latest - 2.3 Monetary statistics - 2 Money, banking and investment funds - Monthly Bulletin - ECB Statistical Data Warehouse
without getting into the details of cyprus, if the bailout were to the value of eur16bn then cypriot debt gdp would be over 160% and in effect unsustainable, therefore the bailout wouldnt be paid back. If there's no realistic hope of a bailout loan being paid back then we should call it a transfer from the outset and we're into a situation where richer eu countries give money to poorer eu countries.

I'm not against such transfers, but if everything is unconditional, then the country receiving transfers can use them to fund whatever policy they want. (e.g that country might have loose bank regulation banks paying 5% interest rates to attract russian bank deposits, and those banks eventually get into trouble by investing those deposits in risky assets seeking to fund the interest liability). In this case the support need is ongoing, it's not a once off bailout, money has to be continually given to the insolvant country so they can support the otherwise unsustainable policy. Do we want to agree to fund that country without demanding they solve the underlying problem that led them to need a bailout ? If nothing changes then that country will need further bailouts

Otherwise bailouts dont come from the ecb, the bailout funds are the european stability mechanism and the european financial stability mechanisms. all member states have made a contribution to these funds e.g. the efsf is a fund of eur440bn of which ireland gaurantees eur7bn. so under this structure there is a limited amount available for bailouts and it's not structured to make transfer payments such as would be necessary to provide unconditional bailouts

under some other structure, the ecb could fund bailouts and print as much money as it needs to do that. As europeans we could all agree that bailouts are available for all, no strings attached, the ecb will print whats needed. the US does this indirectly to fund its defecit and many in the US are scared of the long term consequences of this policy. however even in the US they limit what they will fund in this way. If such a thing was in the ECB mandate, then it's hard to imagine no consequences from unlimited quantitive easing. is that something we want to risk to fund unconditional bailouts ?
 

ibis

Well-known member
Joined
Mar 12, 2005
Messages
12,359
Hold on a minute. Is it not the ECB which is supposed to be bailing out the Cypriot banks? What has this to do with taxpayers or the credit of EU countries?

Consider this. If Cyprus was not in the Euro, what would the Central Bank of Cyprus be doing right now. In all probability running the printing presses to act as lender of last resort to the bust Cypriot banks. This would have exchange rate and inflation impacts, but the banks would survive.

Now revert to the ECB scenario. The ECB is supposed to be the lender of last resort. It controls the printing presses. But what it is choosing to do is not to run these, rather to require the taxpayers of Cyprus to take the load. So effectively it is now implementing a political policy far beyond its remit.

Consider this also. The bailout required by Cyprus is supposedly of the order of 16 billion euro. Compare this against the Jan 2013 M2 euro money supply of some 9000 billion euro. The Cyprus bailout, if it involved running the printing presses, would result in an increase of some 0.2% in the euro area M2 money supply. This compares to an existing annual growth rate of M2 in Jan 2013 of some 4%. Again, by not running the printing presses, the ECB is not doing its job.

There is a greater political agenda at play, and the ECB as an independent institution is compromised.

Latest - 2.3 Monetary statistics - 2 Money, banking and investment funds - Monthly Bulletin - ECB Statistical Data Warehouse
The ECB isn't financially involved in the Cypriot bailout. It's not financially involved in ours either. It's only involved in providing liquidity to the Cypriot banks - but if the Cypriot banks default on that ELA then the other eurozone countries take the hit, because they/we collectively are the ECB.

And printing money to meet every eventuality is printing money to meet every eventuality. People have forgotten what damage high inflation does, and keep suggesting it as the saviour of everything. It isn't - it's something that has a huge negative impact on economies and households. It's not a solution any more than the next silver bullet.
 

YouKnowWhatIMeanLike

Well-known member
Joined
Apr 13, 2011
Messages
7,224
You need a new EU treaty first and remove Article 125 of the Treaty on the Functioning of the European Union. this should be a rather sizable task.
 

clearmurk

Well-known member
Joined
Apr 27, 2012
Messages
3,019
dancl2000 said:
under some other structure, the ecb could fund bailouts and print as much money as it needs to do that. As europeans we could all agree that bailouts are available for all, no strings attached, the ecb will print whats needed. the US does this indirectly to fund its defecit and many in the US are scared of the long term consequences of this policy. however even in the US they limit what they will fund in this way. If such a thing was in the ECB mandate, then it's hard to imagine no consequences from unlimited quantitive easing. is that something we want to risk to fund unconditional bailouts ? .
You need a new EU treaty first and remove Article 125 of the Treaty on the Functioning of the European Union. this should be a rather sizable task.
I guess I am registering a fundamental dissatisfaction with the way the Eurozone and ECB is set-up.

The US model, while having its drawbacks also, appears to be bringing the US economy back to growth, while the EU staggers on with its ECB imposed austerity. An ECB, which in my opinion, is the embodiment of the democratic deficit inherent in the EU.
 

dancl2000

Well-known member
Joined
Sep 17, 2011
Messages
517
I guess I am registering a fundamental dissatisfaction with the way the Eurozone and ECB is set-up.

The US model, while having its drawbacks also, appears to be bringing the US economy back to growth, while the EU staggers on with its ECB imposed austerity. An ECB, which in my opinion, is the embodiment of the democratic deficit inherent in the EU.
I think that's defensible.. we dont know what the long term consequences of the us policies will be, but they seem to be getting some gains at least in the short term

I dont know if you can call it a democratic failure though, a lot of people are scared of loose monetary policy - it's not clear that a majority of europeans or even irish people would back that. And to all extents and purposes the ECB does do monetary easy through other channels (LTRO, emergency liquidity assistance and target2 imbalances amount to significant money creation)

That's reallly another point though, those policies can exist independently of whether its fair to impose conditions on bailouts. The question here is if it's fair to give bailouts only if they can be repaid and only if the receiving country is willing to fix whatever got it into a financial mess
 

ibis

Well-known member
Joined
Mar 12, 2005
Messages
12,359
I guess I am registering a fundamental dissatisfaction with the way the Eurozone and ECB is set-up.

The US model, while having its drawbacks also, appears to be bringing the US economy back to growth, while the EU staggers on with its ECB imposed austerity. An ECB, which in my opinion, is the embodiment of the democratic deficit inherent in the EU.
But the US model is based on federalism, and the EU is not a federal entity - if it was, Germany would call most of the shots most of the time, because it would permanently be in the position of paymaster that currently and temporarily gives it additional weight. I can't imagine a situation where the paying countries simply hand over money to the receiving countries without exercising the same level of political control the centre does over the periphery in other federal systems - and given the extent to which people in bailed out countries object to the conditions attached as too strict, while those in the lending countries object to the conditions as too loose, I can't see that being a runner on a day to day basis at all.

As to the ECB, they're a central bank, and no more or less democratic than our central bank. The ideas behind independent and unelected central banks are pretty well established ones that came out of the appalling historical record of politically controlled central banks, which governments tended to treat as slush funds. I think that what you're basically asking for from the ECB is exactly the kind of thing - acting as a slush fund for governments - that led to the creation of independent central banks in the first place. Democratic control over a central bank consists of the legislature being able to set the parameters of operation of the central bank, but its immunity to day to day control by politicians is deliberate because necessary.
 
Top