Münchau: Will it work? No. What can Ireland do? Remove the bank guarantee and default

ivnryn

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Default is not a free lunch. Getting rid of the debt is "paid for" by no more loans. There is a quid pro quo in a default.
If the default is targeted at the bank debt, then national bonds would still be possible.

They may even be at lower interest, since we are in a better financial position (though granted that could go either way).
 


goosebump

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There are no simple solutions or easy ways out of this mess. Some of the 'default now' brigade are beginning to sound like they think it would be a free lunch.
Indeed, there's always a better and easier solution just around the corner.

No doubt when we defaulted, and the hospitals and schools started to close, there'd be another solution, like evacuating the population to the moon or something.
 

anewbeginning

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Here's a radical idea.

We tell the EU we simply don't have the cash to pay back all the soverign and banking debt we owe to creditors in Europe. For the reason that the Irish taxpayer didn't generate the banking blackhole, the likes of Seanie, Fingers, Bertie and Cowen were behind that problem.

Just as the people of the Congo shouldn't have to pay for the billions given to Mobutu, we shouldn't have to pay back the billions given to Seanie and Fingers.

We tell the EU go stuff themselves. We also tell them the money has disappeared into the bank accounts of the likes of Seanie, Fingers (and his pension) and David Drum and there is no hope of us ever seeing it again.

After that the EU should simply print up the lost money. The fact that inflation is running at a record low/virtual zero in the EU at the moment shows there is a cash shortage.

FFS print some new money and give it to our creditors.

Ireland simply cannot pay. Time for Fianna Fail, Cowen and the EU to stop this charade of believing Ireland can pay all it's debts. We can't.

And it's time for us all to demand the printing of new money, Quantitive Easing in Europe. To hell with the people who say QE is a mistake, let's just do it and be done with it. It's inevitable in Europe anyways, because there is a shortage of cash in the EU economy at the moment.
 

Padraigin

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In order for the EU/IMF to renegotiate, they need to be persuaded that Ireland is serious about defaulting on the whole thing.

No wishy-washy, "pretty please, may we?" talk.

This requires steely determination and should be presented as a final ultimatum before we in fact default.

Ireland should not negotiate any more but deliver an ultimatum: either (1) all bank debt is put on bond holders and the Irish government is discharged in full from any of these obligations, leaving only the sovereign debt, in which case Ireland will agree to repay this amount only and stay in the eurozone or (2) Ireland defaults on everything and leaves the eurozone effective [date].

To make the ultimatum credible, Ireland needs to start preparing for a default, openly and visibly. Punts should start being printed. A budget should be prepared for next year based wholly on current tax revenues and allocating zero money to service foreign debt.

Even if the EU/IMF rolls over this time and agrees to the first option, serious consideration should be given as to which option is truly best for Ireland. Default may still be in the national interest.

After what has happened, Ireland should view both the EU and IMF as hostile imperial brutes who are enemies of the Irish people. There is no reason on God's green earth to do anything whatsoever to make their lives easier. They were more than happy to screw the Irish people, and turn about is fair play. If it is in our best interests to screw them, then we should.
 

goosebump

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If the default is targeted at the bank debt, then national bonds would still be possible.

They may even be at lower interest, since we are in a better financial position (though granted that could go either way).

It doesn't work that way.

When it was rumoured that there was going to be a move against the senior debt, yields on all Irish bonds - sovereign, corporate and financial - went out.

The markets understand that a unilateral default on any senior debt would cause chaos in the eurozone banking system, so any sort of PIIGS debt would be sold by the truck load.
 

goosebump

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After what has happened, Ireland should view both the EU and IMF as hostile imperial brutes who are enemies of the Irish people. There is no reason on God's green earth to do anything whatsoever to make their lives easier. They were more than happy to screw the Irish people, and turn about is fair play. If it is in our best interests to screw them, then we should.
The only people in the entire world who are willing to lend us money are "hostile imperial brutes"?

Tell you what, if you really want a default, why not create your own 'mini-default'.

Go to the nearest ATM. Withdraw all you cash in €50 notes. Cut them half.

Hey! Hey! You just defaulted!
 

anewbeginning

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The heads of the EU and ECB seem to be as daft as Cowen and Lenihan in believing Ireland can pay off both it's soverign and banking debts.

The EU heads are as out of touch with reality as Cowen and Lenihan. We can just about struggle to pay the soverign debt over several decades, and several decades of austerity at that.

There isn't a snowballs chance of us paying off the banking blackholes, and that's probably the area we will default. It's only economic illiterates like Cowen and Lenihan who believe we can pay it back.

Again I say, if Congo shouldn't pay back the billions given to Mobutu, then the Irish people shouldn't pay back the billions given to Fingers and Seanie.

Forcing the Irish taxpayer to pay billions to cover the mistakes made by scum like Cowen, Seanie and Fingers is completely unacceptable.
 

Padraigin

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The heads of the EU and ECB seem to be as daft as Cowen and Lenihan in believing Ireland can pay off both it's soverign and banking debts.

The EU heads are as out of touch with reality as Cowen and Lenihan. We can just about struggle to pay the soverign debt over several decades, and several decades of austerity at that.

There isn't a snowballs chance of us paying off the banking blackholes, and that's probably the area we will default. It's only economic illiterates like Cowen and Lenihan who believe we can pay it back.

Again I say, if Congo shouldn't pay back the billions given to Mobutu, then the Irish people shouldn't pay back the billions given to Fingers and Seanie.

Forcing the Irish taxpayer to pay billions to cover the mistakes made by scum like Cowen, Seanie and Fingers is completely unacceptable.


Doing the math makes a full default the better choice.

And, frankly, I consider the fact that a default would make it impossible for the Irish government to borrow money anymore and incur more debt to be the third "bonus" of a default.

Forcing the Irish government to live within its means is exactly what needs to be done to get the economy back on a firm footing again.

Most of the government debt was wasteful spending, leaving very little long term benefit to the Irish people.

Once the Irish government shows the world that it is capable of managing its finances responsibly, it can enter the bond market again but not until then.
 
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The heads of the EU and ECB seem to be as daft as Cowen and Lenihan in believing Ireland can pay off both it's soverign and banking debts.
Thats really naive.
When a child throws its dinner on the ground, thats daft. There are any number of daft things children do but if the child aquires a gun, positions itself in the chair facing the door, then shoots you in the face when you open the door, its time to reconsider its motives.
 

quackquack

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Have any of you lads the slightest notion what would happen in a default senario?
Ye make it sound like christmas and your birthday at once.

Unfortunately, it's far from that.

Plus, you'd swear that all the houses, cars, foreign holidays, pay rises etc etc bought themselves during the boom. It wasn't just the government that was living beyond it's means.
 

anewbeginning

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Doing the math makes a full default the better choice.

And, frankly, I consider the fact that a default would make it impossible for the Irish government to borrow money anymore and incur more debt to be the third "bonus" of a default.

Forcing the Irish government to live within its means is exactly what needs to be done to get the economy back on a firm footing again.

Most of the government debt was wasteful spending, leaving very little long term benefit to the Irish people.

Once the Irish government shows the world that it is capable of managing its finances responsibly, it can enter the bond market again but not until then.
Agreed.

I am beginning to believe those who run the ECB and the EU are as dumb and out of their depth as our own Irish politicians.

And yes indeed, it is a case of simple maths. 250-300 billion national debt for a country with 1.8 million people working and struggling to break even. No chance of us doing anything other than struggling to service the interest payments.

The EU and ECB need to come up with a credible policy soon.

Of course their first mistake was doing a deal with the Fianna Fail crooks who brought about the mess in the first place. Once a crook, always a crook I'm afraid.

Makes you wonder also about the credibility of the EU and the ECB. Maybe they are all as crooked as each other and the Irish government.
 

anewbeginning

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Have any of you lads the slightest notion what would happen in a default senario?
Ye make it sound like christmas and your birthday at once.

Unfortunately, it's far from that.
I am willing to listen to this argument if you are willing to consider what happens if we are forced to pay back the tens of billions that Seanie, Fingers and co. gambled away on such projects as the Irish Glass Bottle site. Or the billions gambled away by Sean Quinn, which have now been written off by Anglo. Or the 400 gambled by the golden ten and now written off as bad debt, which needs to be "recapitalised".

Maybe default is not the solution. But the solution is definitely not to force the taxpayer to pay for the mistakes of clowns like Fitzpatrick and Fingers and their allies in politics. That's not the solution.

There has to be a third way and I suspect it will involve QE in Europe. If it means Ireland doesn't have to pay back close to 100 billion in banking debts, then it's worth it.
 

Mitsui2

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I am willing to listen to this argument if you are willing to consider what happens if we are forced to pay back the tens of billions that Seanie, Fingers and co. gambled away on such projects as the Irish Glass Bottle site. Or the billions gambled away by Sean Quinn, which have now been written off by Anglo. Or the 400 gambled by the golden ten and now written off as bad debt, which needs to be "recapitalised".

Maybe default is not the solution. But the solution is definitely not to force the taxpayer to pay for the mistakes of clowns like Fitzpatrick and Fingers and their allies in politics. That's not the solution.

There has to be a third way and I suspect it will involve QE in Europe. If it means Ireland doesn't have to pay back close to 100 billion in banking debts, then it's worth it.
Absolutely spot on.

Speaking as a longterm Europhile whose Europhilia survived the p1sspoor EU response to Bosnia, I am mad as hell at the damage the ECB & co have done to the entire EU project by imposing this wretched deal, knowing as they did so that they were dealing not just with a government of irresponsible crooks but - politically more important - a completely discredited and outgoing government of crooks.

"These effers will sign up to anything!" seems to have been the guiding principle. "We already know they don't give a toss about their own people - hit them hard!"

Eff that!
 

Padraigin

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The only people in the entire world who are willing to lend us money are "hostile imperial brutes"?


Yep. They make the lending of mafia loan sharks look like charity.

At least the mafia does not steal everything you have before making a "loan" at an extortionate rate of interest.
 

Old Mr Grouser

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Default is not a free lunch. Getting rid of the debt is "paid for" by no more loans. There is a quid pro quo in a default.

However, with a default, Ireland is in control of what happens. The Irish people, acting through its own (new) government, get to decide how Irish tax monies are spent, on what, and in what amounts, and no tax money leaves the country to service debt to foreign banks or bond holders. We get to control our own economy and our own fiscal policy. With good leadership, the bad effects of a default can be minimized. Ireland takes in enough tax revenues to keep things on an even keel, and may even be able up its financial reserves with the "default bonus" (no more servicing old debt).

And so long as we default before the EU/IMF strips us of our assets, we have a financial buffer for the transition period.

Default is the best and only solution. ...
But if Ireland does default then it will have defaulted, among many other things, on its sovereign-state responsibilities for the supervision of the country's bloated finance sector, and the liability it has for its gross negligence in that regard.

I can't see the IFSC lasting very long if Ireland were to default;, so you'd be kissing goodbye to over 10,000 Dublin jobs, and billions of euro every year in Corporation Tax.
 

JCR

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Whats Munchau's financial position on an Ireland default? Who does he work for?

A lot of people bleating from Bloomberg etc will make a lot of money on an Ireland default now. From an Irish perspective, any rational position would say, not now. In fact Ireland Inc can make a lot of money out of the current position with enough savvy, its just a pity we haven't got anyone in power willing to do it. Ireland can easily beat the markets and bondholders at their own game courtesy of the EU and IMF, its a pity the Irish electorate elect such a bunch of ignorant gombeens.
 

Padraigin

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But if Ireland does default then it will have defaulted, among many other things, on its sovereign-state responsibilities for the supervision of the country's bloated finance sector, and the liability it has for its gross negligence in that regard.

I can't see the IFSC lasting very long if Ireland were to default;, so you'd be kissing goodbye to over 10,000 Dublin jobs, and billions of euro every year in Corporation Tax.

The IFSC is an office complex with tenants. It has nothing to do with the business of its tenants directly. If a tenant bank goes out of business, for example, it may lose some lease money, but it can lease the space to the next tenant.

When one bank closes, another bank gets chartered. That is the way of the free market system. Badly managed companies are supposed to be weeded out by market forces, so that better managed companies can take their place.

The most deadly direct threat to a place like IFSC is the Debt Enslavement Deal. As the Irish economy shrinks and and continues to shrink month after month, year after year, under the onerous reparations being demanded by the EU/IMF (even after they have stripped Ireland of all of its wealth and its best assets), more and more tenants will be closing their doors in the IFSC, and there will be no comparable tenants to take their place.

The best hope for a place like the IFSC is a quick and speedy default before any futher damage is done to the Irish economy.
 

The100Project

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Our current political system and establishment cannot lead us through this. We need to do something that can provide the opportunity for change to occur. Would be interested in your thoughts on this proposal.....
It's Your Vote
 

Old Mr Grouser

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The IFSC is an office complex with tenants. It has nothing to do with the business of its tenants directly. If a tenant bank goes out of business, for example, it may lose some lease money, but it can lease the space to the next tenant.

When one bank closes, another bank gets chartered. That is the way of the free market system. Badly managed companies are supposed to be weeded out by market forces, so that better managed companies can take their place.

...
If a bank is allowed to come into the country then it isn't just a matter of leasing them some office-space. The state takes on a responsibility of oversight.

Ireland as a a sovereign state is responsible for regulating and inspecting any financial institution that it allows to operate within its jurisdiction. If it were to walk away from that responsibility now then the country's future future reputation as a banking base would be shredded.

It would be very difficult for any Irish bank to operate overseas or for an overseas bank to operate in Ireland without falling foul of its own home regulator.

For example - in the UK the 1979 Banking Act stipulated:"in the case of an institution whose principal place of business was in a country or territory outside the United Kingdom, the Bank might regard itself as satisfied that the criteria in Schedule 2 regarding those responsible for the management of the business and the prudence with which its business was being conducted were fulfilled if the relevant supervisory authorities informed the Bank that they were satisfied with respect to them and the Bank was satisfied as to the nature and scope of the supervision exercised by those authorities."

That example is out-of-date in detail but the principle is still the same - in the UK and everywhere else in the western world. There has to be proper supervision, which entails paying compensation in cases where the state-supervision has been negligent.
 

Padraigin

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If a bank is allowed to come into the country then it isn't just a matter of leasing them some office-space. The state takes on a responsibility of oversight.

Ireland as a a sovereign state is responsible for regulating and inspecting any financial institution that it allows to operate within its jurisdiction. If it were to walk away from that responsibility now then the country's future future reputation as a banking base would be shredded.

It would be very difficult for any Irish bank to operate overseas or for an overseas bank to operate in Ireland without falling foul of its own home regulator.

For example - in the UK the 1979 Banking Act stipulated:"in the case of an institution whose principal place of business was in a country or territory outside the United Kingdom, the Bank might regard itself as satisfied that the criteria in Schedule 2 regarding those responsible for the management of the business and the prudence with which its business was being conducted were fulfilled if the relevant supervisory authorities informed the Bank that they were satisfied with respect to them and the Bank was satisfied as to the nature and scope of the supervision exercised by those authorities."

That example is out-of-date in detail but the principle is still the same - in the UK and everywhere else in the western world. There has to be proper supervision, which entails paying compensation in cases where the state-supervision has been negligent.

Banking regulations would either remain unchanged or even become more stringent after a default. Newly chartered banks would have to meet the requirements of all banking laws as a condition of their charter. Nothing would change in the way that banking is done after a default. There will likely be new currency - or should I say a return to old currrency, the punt - but entirety of the banking sector would carry on with normal banking.

If I were the new Irish government handling the default, though, I would take some of that default "bonus" money and use it to beef up the bank regulatory authorities. Enforceent is needed more than any new regulations, and the way to get better compliance is to have bank regulators looking over the shoulder of every bank. One of the best ways for Ireland to get back on track with its finances is for the Irish banking sector to be squeaky clean under a new regime. Ireland should try to establish itself as the country that has zero tolerance for bank irregularities.

The US went through a flurry of bank and S&L closures in the early 1990s. The closed banks disappeared quick and fast and their assets were taken over and managed by the Resolution Trust Corporation, a government-owned asset management company that was charged to get as much value out of the assets as possible to offset the government guarantee of deposits. They managed a lot of office building, shopping centers, and other foreclosed commercial properties for a while, but they did not sell anything until they got a decent price. There are those who say that the RTC made a profit for taxpayers through its asset management.

However, while the RTC was managing assets, new banks were being chartered to take over the locations of the old closed ones. If you read what happened, even after hundreds of bank closures, there were no less banks afterward than there were before. The names changed that was all.

In other words, a bank closing should be no more traumatic than any other business closing its doors and declaring bankruptcy. Setting up procedures to handle a bank closure smoothly and efficiently should be part of any new regulations. There may be existing regulations to take care of this process, but it may be a good idea to look them over and update them if needed.
 


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