on the imploding economy of ireland - Tilted Forum Project Discussion Community

roachboy · 11-22-2010, 07:48 AM

Quote:

In Ireland, Call for Election and Warning From Moody’s
By LANDON THOMAS Jr. and MATTHEW SALTMARSH

DUBLIN — Ireland’s decision to accept a rescue package worth more than $100 billion prompted a call Monday for early elections and a warning from a major ratings agency that the bailout could prove to be a “credit negative” for the country.

European Union officials, who had been pushing Ireland to accept help, quickly agreed to the request late Sunday, committing a significant amount of money to an ailing member for the second time in six months. The total amount was not announced, but several officials said it would be 80 billion to 90 billion euros, or $109 billion to $123 billion. Last spring, Europe disbursed 110 billion euros to Greece to save it from default.

The move, which will allow Ireland to shore up its faltering banks and operate without having to borrow money at budget-breaking rates, was welcomed by Ireland’s neighbors on Monday, although financial markets were more cautious. There were also rising worries about political stability in Ireland as a result of the bailout and the angry public backlash it engendered.

The Green Party, the junior partner in Ireland’s coalition government, announced it would pull out of government once a series of fiscal packages and budgets were in place next month — and called for early elections after that.

“We have now reached a point where the Irish people need political certainty to take them beyond the coming two months,” the Greens said in a statement, according to Reuters. “So, we believe it is time to fix a date for a general election in the second half of January 2011.”

The parties in Ireland’s coalition government include Fianna Fail, the Greens and a few independents, and it has a slim majority in Parliament.

Meanwhile, Moody’s Investors Service said its current review of Ireland’s credit rating could result in a “multi-notch downgrade” as a result of the bailout, although it would still be investment grade.

The aid will “crystallize more bank-contingent liabilities on the government balance sheet, and increase the Irish sovereign’s debt burden,” a Moody’s senior credit analyst, Dietmar Hornung, said in a research note. That would be a “credit negative” for Ireland, “and, consequently, the credit quality of bank deposits and debt that the sovereign explicitly and implicitly supports.”

Moody’s put Ireland’s Aa2 credit rating on negative outlook last month. Ireland has a stable outlook at Standard & Poor’s and Fitch Ratings.

In the markets, the initial positive reception turned to a more stark assessment as investors focused on the problems that lie ahead for Ireland and the broader euro area.

The Euro Stoxx 50 index, a barometer of euro zone blue chips, was up at the open but by midday was down 1.1 percent. The FTSE 100 index in London was down by a similar amount. The euro fell to $1.3644 from $1.3673 late Friday in New York.

The reaction of bond prices was muted. The Irish 10-year yield fell 11 basis points, but — at 7.73 percent — still carried a hefty premium to the comparable German bond, the European benchmark, at 2.67 percent.

Simon Ballard, senior credit strategist at Royal Bank of Canada in London, said the aid was a “short-term positive for risk assets and the Irish sovereign,” but he added longer-term worries remain about the state of banks and the outlook for growth.

“The devil will be in the detail as always, particularly on the conditionality attached to the funds,” he said. “We see the bailout as weighing on financial spreads in the coming days as we work through the uncertainty.”

The loans to Ireland were necessary in large part because of the faltering state of the nation’s banking system, underscoring the extent to which ailing banks remain a threat to recovery two years after the financial crisis rippled through economies and pressured banks around the world into accepting bailouts.

Ireland’s aid will come from a rescue mechanism worth roughly $1 trillion that was set up in May by the European Union and the International Monetary Fund to help euro zone countries spiraling toward default.

Officials said they hope that the large commitment of money will calm investors and keep the crisis from spreading to Portugal and even Spain. It was fear of a market panic and looming contagion that prompted officials to press Ireland to accept aid early before its debt problem got out of control.

On Monday, the British chancellor of the Exchequer, George Osborne, said Britain’s share would be about 7 billion euros, or $11 billion, via bilateral aid as well as through its I.M.F. commitments.

“We are not part of the euro and don’t want to be part of the euro,” Mr. Osborne told the BBC . “But Ireland is our very closest economic neighbor so I judged it to be in our national interest to be part of the international efforts to help the Irish.”

The French economy minister, Christine Lagarde, praised Dublin for taking what she called “courageous but necessary” steps to rectify its economic problems. She added the financial aid would not affect France’s budgetary situation as the aid that it would provide would be in the form of guarantees to a European financial stability fund.

The request for help was a humbling turnabout for Ireland, which just last week was insisting it could manage its own finances. It does not view itself as being as profligate or irresponsible as Greece was in running up deficits, and has been preparing a four-year budget plan filled with sharp cutbacks that is intended to reduce its deficit to 3 percent, from 32 percent, of gross domestic product.

But the Irish government has been sinking further and further into debt since its 2008 decision to protect its banks from all losses. The banking system had become so weakened that it could not afford to wait any longer for help.

Banks, which issued loans recklessly during the real estate boom, have losses of about 70 billion euros, almost half the country’s economic output. A new set of bank stress tests will be imposed, and the number of banks will be pared down, officials said.

Some economists have pointed out that the yields Greece must pay on its bonds are higher now than before its rescue, raising concerns that confidence in the fiscal health of troubled countries remains low.

Others, however, say that decisive action is what is needed to shift momentum toward recovery. “This may be an inflection point, when we stop digging a hole and start creating the conditions for reversing where we have slipped to,” said Pat Cox, an economist and former president of the European Parliament.

Mr. Cowen said Sunday night that there would be two funds. One will back up the country’s failing banks, and another will allow Ireland to continue government operations without turning to the bond markets for help, something Dublin has said it cannot afford. The package should allow Ireland to operate without funds from the markets for as long as three years.

While a precise breakdown was not given, analysts and people involved in the talks said that about 15 billion euros was probably to go to backstop the banks. As much as 60 billion euros would go to Ireland’s annual budget deficit of 19 billion euros for the next three years.

Mr. Cowen said that a negotiation would begin with the International Monetary Fund to discuss the specifics of the loan, although it was made clear that the interest rate would be lower than the 8 percent demanded by the market.

The quicker-than-expected action over the weekend was prompted by fears of a bank run when the markets opened Monday morning, people briefed on the discussions said.

As much as 25 billion euros has flown from large banks like Allied Irish and Anglo Irish in the past months and officials say that the pace had quickened in the last week.

Mr. Cowen said that the government’s budget plan would involve 15 billion euros of savings — 5 billion euros in tax increases and the rest in spending cuts. He said the plan would be published Wednesday and the budget issued on Dec. 7. Ireland will not be required to raise its low corporate tax rate of 12.5 percent, something it had strongly resisted.

“The I.M.F. will not micromanage the Irish economy,” Mr. Cowen said, in response to questions that the government was being held hostage. “And we are not ceding any policy sovereignty.”

So far, there have been few strikes in Ireland. People have been conditioned to believe that the deficit must be cut and that Ireland, as a small open economy, has little choice but to pay its debts and take the tough policy choices.

But there is likely to be a limit to this patience as spending cuts hit social services that by and large have remained protected. Irish unemployment is around 12 percent, and services like universal child benefits remain generous by European standards.

In another sign of public mood, the Sunday Independent newspaper displayed the photos of Ireland’s 15 Cabinet ministers on its front page, expressing hope that the International Monetary Fund would order the Irish political class to take huge cuts in pay and benefits. It also called for the “slaughter” of Prime Minister Brian Cowen’s Fianna Fail party at the next election.

http://www.nytimes.com/2010/11/23/bu...ef=global-home

meanwhile:

FT.com / Europe - Ireland plunged into political turmoil

it appears that the political meltdown alluded to in the ny times piece, visible through the soporific language, is already starting to happen.

o and last week featured a run on the main banks in ireland.

here's a link to the financial times background coverage of the irish situation:

Ireland fiscal crisis: In depth news, commentary and analysis from the Financial Times

which is quite good as resources go.

so...

what do you think is happening here?
what do you think it means for the european union? for england? for the international capital flow systems?

it's clear that the crisis of transnational capital that blew up a couple years ago is still unfolding, that political and ideological paralysis continue to make coherent approaches to dealing with it almost impossible as people run away from considering the harder choices that would break with neo-liberal ways of thinking and retreat into neo-fascist style nationalism that dresses itself up in the same economic bromides that enabled the crisis in the first place.

at the same time, it's also clear that one result of the series of implosions that began with greece, had portugal and spain teetering and which is now eating ireland has resulted in something like a reversion to bretton woods, with the imf being transformed away from the ad hoc role it accumulated after the 1970s of engine of structural crisis in the southern hemisphere under the figleaf of "structural adjustment" back into a kind of governor (in the engine sense) on currencies.

and we're watching something new and curious being worked out here.

what you do you see as happening?
what do you think should happen?

this could get real interesting...

---------- Post added at 03:48 PM ---------- Previous post was at 03:46 PM ----------

addition: this link takes you to the guardian's "live coverage" blog, which is also pretty interesting:

Ireland bailout - live coverage | Business | guardian.co.uk

Seaver · 11-22-2010, 08:20 AM

The great thing about the Euro is that it simplified inter-European trade and fostered a mini-boom for the better industrialized nations there.

The bad thing is they can no longer adjust the currency ratio between countries which traditionally been used to correct problems like this. They can't simply lower the value and watch as investors flood in to turn a profit.

The EU will definitely have to either set very stringent GDP/Debt requirements or figure out some other way to prevent these. If Germany is asked many more times to bailout the countries, they're very likely to drop the EU.... which would effectively kill the organization.

ASU2003 · 11-22-2010, 09:02 PM

We need to learn the lessons of what really is causing these problems around the world. And it's been happening since the collapse of the USSR... How many countries will be mismanaged or be left when some other country offers a unsustainable teaser tax rate for corporations. And maybe having too many government workers is part of the problem in the long term, but it is good for the current politicians because they pay taxes and buy things. But these economic problems have happened lots of times in the past 20 years (Argentina, Japan, Greece, Somalia,...), yet we will allow other countries to go down the same path in the future.

I'm not an economist, but a large unbiased group of them need to get together and model the world economy and causes and effects in a multi-variable system.

TheCrimsonGhost · 12-19-2010, 07:09 AM

I am concerned that the USA is too busy worrying about everyone else's economic position to realize that we are really not outta this depression and things are about to get worse.

ASU2003 · 12-19-2010, 10:18 AM

Quote:

Originally Posted by TheCrimsonGhost

I am concerned that the USA is too busy worrying about everyone else's economic position to realize that we are really not outta this depression and things are about to get worse.

I wouldn't even call the last two years a recession. After driving around yesterday and doing some shopping... yeah.

I wish that they would refine the terms.

Recession = 25% involuntary unemployment, people spend savings and sell things of value, people ride bicycles to save money, eat cheaper food, and reduce all monthly costs.

Depression = 40+% involuntary unemployment, people have no savings and nothing of value, eat only donated handouts and farm leftovers, ride bicycles because they sold the car, had to cut all monthly bills.

Willravel · 12-19-2010, 11:43 AM

what do you think is happening here?
Put simply, the so called PIIGS (Portugal, Ireland, Italy, Greece, Spain) have all been quite irresponsible with public debt, which has lead to a shit storm in Greece and looming shit storms in Ireland, Portugal and Spain. Greece basically had to cook their own books due to massive mismanagement and the global financial crisis that started here in the US was the straw (1100 lb. straw) that broke the camel's back. They're getting loans and cutting spending like crazy, but it's lead investors to realize that bonds from other governments could be shit.

what do you think it means for the european union? for england? for the international capital flow systems?
This means the EU has to grow up. The Euro was a massive gamble that still could pay off, but they're going to need to take continent-wide steps to stabilize the markets or the whole thing could collapse. International finance is a deck of cards that will fall eventually, but there are steps that can be taken to minimize the damage.

what you do you see as happening?
The EU has to start legislating banking rules as a union. I called this years ago, kinda, when I said that the EU was going to eventually have to behave as one state the way that the United States act. Germany can't carry the load of the entire continent on their backs and loaning out money is really only a poor, temporary solution. They need to pass government debt legislation that's union-wide. They'd also be very smart to break away from the United States and China as much as possible, because the US will collapse some time in the next maybe 2 decades, and China will follow.

what do you think should happen?
The largest international financial investigations in history, followed by public trials and severe sentencing. In the future, when people are tempted to take massive risks and cook books, I want them to think back to 2011 and shudder with fear.

Seaver · 12-19-2010, 12:59 PM

Quote:

Recession = 25% involuntary unemployment, people spend savings and sell things of value, people ride bicycles to save money, eat cheaper food, and reduce all monthly costs.

Depression = 40+% involuntary unemployment, people have no savings and nothing of value, eat only donated handouts and farm leftovers, ride bicycles because they sold the car, had to cut all monthly bills.

Read more: http://www.tfproject.org/tfp/tilted-...#ixzz18aqKu5HR

The Great Depression... the worst in history only had 25% unemployment. You may be just fine, but I'm making 20% of what I was making only a year ago after 9 months of unemployment. I may not be in the "unemployed" category but I'm still losing $600/month in bare living expenses and I have nothing more to cut at this point. To claim this is not a recession is asinine.

Quote:

Put simply, the so called PIIGS (Portugal, Ireland, Italy, Greece, Spain) have all been quite irresponsible with public debt, which has lead to a shit storm in Greece and looming shit storms in Ireland, Portugal and Spain. Greece basically had to cook their own books due to massive mismanagement and the global financial crisis that started here in the US was the straw (1100 lb. straw) that broke the camel's back. They're getting loans and cutting spending like crazy, but it's lead investors to realize that bonds from other governments could be shit.

Read more: http://www.tfproject.org/tfp/tilted-...#ixzz18arA1Se8

It's a little more than that. Greece is a very different culture than we have here. I spent 2 years in business to business sales in Chicago where 80% of our customers were 1st Generation Greek immigrants. In their culture, if you have trick/screw the next guy it's not a negative trait. They actually respect you more if you can screw over the next guy because they see it as you're smarter/quicker than the other guy was. This was a big part in screwing the government out of taxes. When they started going through the books they realized there was no pools for any of the houses in the entire country, realizing something was up they looked further. There was a tax on personal pools, so no one claimed them on their taxes. Once the Government started going to Google Maps for satellite pictures, they started putting camouflage tarps over the pools to avoid the taxes.

When you have a lax government who allows people to claim their own income/property/etc. with no government checks in a culture where screwing the next guy is an art and not a flaw.... you have a recipe for collapse.

Hell almost makes you want to go to your nearest IRS agent and hug him.

Willravel · 12-19-2010, 01:36 PM

Sounds like Greece could have used some socialistic altruism.

eribrav · 12-19-2010, 04:52 PM

Quote:

Originally Posted by Willravel

what do you think should happen?
The largest international financial investigations in history, followed by public trials and severe sentencing. In the future, when people are tempted to take massive risks and cook books, I want them to think back to 2011 and shudder with fear.

You wish, and I wish, but it ain't happening.
There have been ZERO criminal prosecutions in the US from the recent criminal fleecing of the American public. Not a single person from Lehman, AIG, Fannie etc. has faced jail time as a result of their actions.

ASU2003 · 12-19-2010, 09:16 PM

Quote:

Originally Posted by Seaver

The Great Depression... the worst in history only had 25% unemployment. You may be just fine, but I'm making 20% of what I was making only a year ago after 9 months of unemployment. I may not be in the "unemployed" category but I'm still losing $600/month in bare living expenses and I have nothing more to cut at this point. To claim this is not a recession is asinine.
.

And my great depression was 2003-2004 when I was unemployed, and I still live like it was 1932 even today. Living in poverty changes you long term, even if you start doing ok.

Go read the thread about preparing yourself for the end of society to find out what is really important in life and what you can still cut. I'm not saying that you should cut more, just that living a 3rd world lifestyle surviving with no money is possible. And I think it's a shame that with all the technological advances we have made that living with no money isn't exactly a simple and decent life.

I would define this as an artificial bubble popping leading to the loss of quite a bit of money people think they had.

Baraka_Guru · 12-20-2010, 02:57 PM

This pretty much sums it up. We say "Ireland" here, but as we can see, these things don't tend to really recognize any borders.

YouTube - Irish Wanking Bankers.flv

james t kirk · 01-04-2011, 09:40 PM

Quote:

Originally Posted by Willravel

what do you think is happening here?
Put simply, the so called PIIGS (Portugal, Ireland, Italy, Greece, Spain) have all been quite irresponsible with public debt, which has lead to a shit storm in Greece and looming shit storms in Ireland, Portugal and Spain. Greece basically had to cook their own books due to massive mismanagement and the global financial crisis that started here in the US was the straw (1100 lb. straw) that broke the camel's back. They're getting loans and cutting spending like crazy, but it's lead investors to realize that bonds from other governments could be shit.

.

Actually, from what I have read about Ireland, they are "different" than the rest of your examples.

The "Irish Crisis" was brought about by the Irish Banks foolish behaviour, not that of the Government spending money they did not have. In fact, the Irish Gov't had been behaving quite prudently. (Unlike Greece say where they had (and continue to have) various overly generous social programs that they cannot afford.)

No, the Irish banks were investing very heavily in land speculation and writing huge mortgages for properties that were not worth what they thought they were worth. When the credit crisis in the states hit - it hugely impacted Ireland and Britain also. Real estate values plummeted and investors and land owners simply "walked away" leaving the bank holding the back and essentially bankrupting the bank.

The Gov't of Ireland was literally between a Rock and Hard place. Either let the Irish banks go broke (and completely decimate your economy) or bail out the banks with money you don't have to a point where you can not make even the interest payments on the loans because the loans are so fucking huge. In short, you can't run the day to day goverment things (education, health care, public works, etc. AND pay the interest on the debt your incurred bailing out the banks).

Willravel · 01-04-2011, 10:08 PM

Quote:

Originally Posted by james t kirk

Actually, from what I have read about Ireland, they are "different" than the rest of your examples.

The "Irish Crisis" was brought about by the Irish Banks foolish behaviour, not that of the Government spending money they did not have. In fact, the Irish Gov't had been behaving quite prudently. (Unlike Greece say where they had (and continue to have) various overly generous social programs that they cannot afford.)

No, the Irish banks were investing very heavily in land speculation and writing huge mortgages for properties that were not worth what they thought they were worth. When the credit crisis in the states hit - it hugely impacted Ireland and Britain also. Real estate values plummeted and investors and land owners simply "walked away" leaving the bank holding the back and essentially bankrupting the bank.

The Gov't of Ireland was literally between a Rock and Hard place. Either let the Irish banks go broke (and completely decimate your economy) or bail out the banks with money you don't have to a point where you can not make even the interest payments on the loans because the loans are so fucking huge. In short, you can't run the day to day goverment things (education, health care, public works, etc. AND pay the interest on the debt your incurred bailing out the banks).

This is interesting. After a bit of Googling, it appears I was wrong to couple Ireland with the other examples, despite the clever PIIGS thing. Now would appear to be an excellent time for Ireland to regulate their real estate industry to as to prevent this in the future. Undoubtedly, the Irish public are furious about what's going on, assuming they're informed well enough by their media to understand what's going on. With enough public support, even an army of bank lobbyists couldn't stop reform now. I would say that getting financial reform in place should be the priority, even above the question of bailing out vs. failing.

Perhaps it would be smart to nationalize, then cut up the banks and sell them off. The banks would still exist, the money from selling them could contribute to fixing the problem, and future banks will understand that there are consequences for this level of irresponsible behavior.

Strange Famous · 01-10-2011, 11:30 AM

The real question is how long the German people are prepared to pay for the sins of their fathers and keep bailing people out

If Portugal goes, Spain is next in the sights and if Spain goes the Euro is dead.

Is this, in fact, the final crisis of capitalism? The internal conflicts of capitalis, finally breaking free of the controls of state and corporation and tearing it asunder?

I personally always believed that the oil crisis would tip capitalism over the edge... but maybe we are far closer. A lot of people dont realise how close we already have come to the collapse of the banking system. If RBS had not been able to open on Monday morning (which in the height of the second credit crisis was a real possibility) who would have been left standing?

11-22-2010, 08:20 AM	#2 (permalink)
Seaver Junkie Location: Fort Worth, TX	The great thing about the Euro is that it simplified inter-European trade and fostered a mini-boom for the better industrialized nations there. The bad thing is they can no longer adjust the currency ratio between countries which traditionally been used to correct problems like this. They can't simply lower the value and watch as investors flood in to turn a profit. The EU will definitely have to either set very stringent GDP/Debt requirements or figure out some other way to prevent these. If Germany is asked many more times to bailout the countries, they're very likely to drop the EU.... which would effectively kill the organization. __________________ "Smite the rocks with the rod of knowledge, and fountains of unstinted wealth will gush forth." - Ashbel Smith as he laid the first cornerstone of the University of Texas

01-10-2011, 11:30 AM	#14 (permalink)
Strange Famous follower of the child's crusade?	The real question is how long the German people are prepared to pay for the sins of their fathers and keep bailing people out If Portugal goes, Spain is next in the sights and if Spain goes the Euro is dead. Is this, in fact, the final crisis of capitalism? The internal conflicts of capitalis, finally breaking free of the controls of state and corporation and tearing it asunder? I personally always believed that the oil crisis would tip capitalism over the edge... but maybe we are far closer. A lot of people dont realise how close we already have come to the collapse of the banking system. If RBS had not been able to open on Monday morning (which in the height of the second credit crisis was a real possibility) who would have been left standing? __________________ "Do not tell lies, and do not do what you hate, for all things are plain in the sight of Heaven. For nothing hidden will not become manifest, and nothing covered will remain without being uncovered." The Gospel of Thomas

11-22-2010, 09:02 PM	#3 (permalink)
ASU2003 immoral minority Location: Back in Ohio	We need to learn the lessons of what really is causing these problems around the world. And it's been happening since the collapse of the USSR... How many countries will be mismanaged or be left when some other country offers a unsustainable teaser tax rate for corporations. And maybe having too many government workers is part of the problem in the long term, but it is good for the current politicians because they pay taxes and buy things. But these economic problems have happened lots of times in the past 20 years (Argentina, Japan, Greece, Somalia,...), yet we will allow other countries to go down the same path in the future. I'm not an economist, but a large unbiased group of them need to get together and model the world economy and causes and effects in a multi-variable system.

12-19-2010, 07:09 AM	#4 (permalink)
TheCrimsonGhost Upright Location: Los Angeles, CA	I am concerned that the USA is too busy worrying about everyone else's economic position to realize that we are really not outta this depression and things are about to get worse.

12-19-2010, 11:43 AM	#6 (permalink)
Willravel ... a sort of licensed troubleshooter.	what do you think is happening here? Put simply, the so called PIIGS (Portugal, Ireland, Italy, Greece, Spain) have all been quite irresponsible with public debt, which has lead to a shit storm in Greece and looming shit storms in Ireland, Portugal and Spain. Greece basically had to cook their own books due to massive mismanagement and the global financial crisis that started here in the US was the straw (1100 lb. straw) that broke the camel's back. They're getting loans and cutting spending like crazy, but it's lead investors to realize that bonds from other governments could be shit. what do you think it means for the european union? for england? for the international capital flow systems? This means the EU has to grow up. The Euro was a massive gamble that still could pay off, but they're going to need to take continent-wide steps to stabilize the markets or the whole thing could collapse. International finance is a deck of cards that will fall eventually, but there are steps that can be taken to minimize the damage. what you do you see as happening? The EU has to start legislating banking rules as a union. I called this years ago, kinda, when I said that the EU was going to eventually have to behave as one state the way that the United States act. Germany can't carry the load of the entire continent on their backs and loaning out money is really only a poor, temporary solution. They need to pass government debt legislation that's union-wide. They'd also be very smart to break away from the United States and China as much as possible, because the US will collapse some time in the next maybe 2 decades, and China will follow. what do you think should happen? The largest international financial investigations in history, followed by public trials and severe sentencing. In the future, when people are tempted to take massive risks and cook books, I want them to think back to 2011 and shudder with fear.

12-19-2010, 01:36 PM	#8 (permalink)
Willravel ... a sort of licensed troubleshooter.	Sounds like Greece could have used some socialistic altruism.