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

Old Mr Grouser

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... 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. ...
But a vital part of that regulation is accepting that the state is financially liable when its banking regulator has been negligent, that there may be situations where the government will have to pay foreign bond-holders compensation - in the past as well as in the future.
 


Padraigin

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But a vital part of that regulation is accepting that the state is financially liable when its banking regulator has been negligent, that there may be situations where the government will have to pay foreign bond-holders compensation - in the past as well as in the future.

.... unless you default, which means that those liabilities disappear as well.

Default is the reset button. Once you start over, though, you can incur new liabilities.

The smart way to handle the banking sector problem is to close all the bad banks and liquidate their assets (which should have been done when they first failed).

Then require all banks to get a new charter after default and when the new currency is introduced. That way you have a clear dividing line between old and new. The government would accept no liability for old bank debt, but it would certainly face potential new liablity for any problems developing in the new banks.

Another safety net would be to cap government liaibility to a fixed sum with respect to anything for which governmental immunity has been waived - and to see if governmental immunity may need to be restored for any high risk activity, like the banking sector.

Depositor accounts should still be guaranteed, but the cap on the guarantee may need to be reset to something that would not stress the government after default.

This is the kind of advice that economists and other financial specialists need to give the new government - how to do this right and minimize the pain for everyone.
 

Boy M5

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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.
No way Herr Doktor Weber would allow that, after all Germany is in the sweetspot, low inflation, a strong export led economy & its foolish bankers are protected by the firewall created around Ireland. So those island monkies are being taught a lesson and maybe we get their low corporation tax one way or another......
 

Boy M5

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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.
Good post.
 

He3

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.... unless you default, which means that those liabilities disappear as well.

Default is the reset button. Once you start over, though, you can incur new liabilities.

The smart way to handle the banking sector problem is to close all the bad banks and liquidate their assets (which should have been done when they first failed).

Then require all banks to get a new charter after default and when the new currency is introduced. That way you have a clear dividing line between old and new. The government would accept no liability for old bank debt, but it would certainly face potential new liablity for any problems developing in the new banks.

Another safety net would be to cap government liaibility to a fixed sum with respect to anything for which governmental immunity has been waived - and to see if governmental immunity may need to be restored for any high risk activity, like the banking sector.

Depositor accounts should still be guaranteed, but the cap on the guarantee may need to be reset to something that would not stress the government after default.

This is the kind of advice that economists and other financial specialists need to give the new government - how to do this right and minimize the pain for everyone.
Where do you go for that advice?
 


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