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Eurocrisis: can 80bn euro bailout restore calm?

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Paul Mason | 17:27 UK time, Tuesday, 16 November 2010

I'm in Brussels at the Ecofin meeting. Here's a few thoughts about what's being briefed to the press and what I think it means.

There are clearly talks going on to stage a bailout of Ireland, rumoured to be around 80bn euros. Ireland wants this to be a complex mixture of sovereign debt bailout and banking bailout.

But I've just spoken to the Dutch FinMin, Jan Kees de Jager who was insisting that, if Ireland asked for an European Union (EU)/International Monetary Fund (IMF) bailout, Dutch voters would only support it if there were strict rules attached. He listed them and I interrupted: "It's that or nothing?" "That or nothing," he replied.

And that's the problem. Ireland doesn't want an EU bailout because it knows it's going to get the scale and timing of its national budget taken over by the EU. Despite that I expect maybe in the next two hours the basics of a deal to be hammered out.

But here's the problem: here, amid the bureaucratic steel and glass of the EU quarter, is the bit they can control. The horsetrading between countries.

Out there, there is the uncontrollable bit - and that's the bond market. It was the bond market that staged a run on south European debt in May; and which has staged one on Ireland's debt this week. The reason is always the same - the fear that they are about to lose some of their money.

Europe's leaders have bent over backwards to avoid investors losing money; they have inflicted pain on taxpayers and service users, and humiliation on national governments in order to stave off the idea of investors losing money.

But everybody knows this is going to happen. That's why a resolution of the Irish crisis needs to happen. As one bondmarket participant told me:

"No-one in the markets thinks that a new treaty is a goer, with the ink not yet dry on Lisbon and a growing number of malcontents in the eurozone making the possibility of such a thing passing in the next few years appear dim."

Absent a new Treaty, the bond markets know the eurozone authorities are going to get pushed from pillar to post as they try to defend one bad debt casualty after another.

Incidentally I don't think this is "speculation": though there are speculators in the sovereign debt market, the market's violent reactions seem to be driven by non-speculative investors suddenly realising how poor their understanding of sovereign risk is. They realise they are actually going to lose money: but they are frantically trying to project incremental judgments and valuations into a space that has become (a) black and white and (b) where there is no real market, only political decisions.

Ireland matters because, (i) once it is sorted, attention turns to Portugal - the last of the small, saveable countries. After that, Spain - and there are even murmurings about France. Never mind if these are rational: once the murmurings start in the bondmarket it's a case of "all that is real is rational" - you just have to deal with it.

(ii) The stress tests for the European banks were organised to exclude the possibility of sovereign debt default - or a controlled default known as restructuring. But as one bond source told me: that went out of the window when Chancellor Angela Merkel started talking about imposing restructuring - ie losses on investors - through a new version of the Lisbon treaty.

A third issue is the perceived failure of the Irish anti-crisis strategy: swift bank bailouts in 2008; swift austerity in 2009. This was the model others were urged to emulate, especially because Ireland had not cooked the books like Greece. With the rest of the world (except America and China) now looking at some form of turn to austerity, they will look at the plight of the Fianna Fail government and mutter: this is how they were treated, what happens to us?

Whatever happens tonight the fundamental crisis of the eurozone is not solved. Only today Austria is reported to have suspended its bailout payment to Greece because it alleged Greece had not met the stringent conditions - which takes me back to the Dutch FinMin and my previous blogs: it's about north Europe imposing fiscal controls on Ireland and southern Europe.

And it's not over.

Comments

  • Comment number 1.

    WHEN A SYSTEM MOVES BEYOND KNOWN PARAMETERS - WHICH WAY IS 'UP'?

    This applies equally to Irish money, EU money, world money and the inside of any head that thinks it understands.

    Off to buy tinned food now.

  • Comment number 2.

    I want to know what the Dutch would demand in order to save Eire?

    If it is not breaking 'doctor/patient' confidentiality, can you share this with us Paul?

  • Comment number 3.

    Sounds like important and fascinating events going on and you are (journalistically) right at the heart of the fight for the collective european soul, trouble is... I dont think there is a european soul to fight for except in the minds of those who inhabit the bureocratic architecture of the Eurozone.

    Sooner or later they will find this out

    So will NN be going live to Brussels at 22:30 for an update on these important strategic events or live to Buckingham palace?

    Lets ee shall we.





  • Comment number 4.

    . . . the rich do as they do, while the poor suffer as they must.

  • Comment number 5.

    There are clearly talks going on to stage a bailout of Ireland. The last I heard, Ireland did not want a bailout; in fact, Ireland is financed until June, 2011.
    Dutch FM, Jan Kees de Jager who was insisting that, IF Ireland asked for an EU/IMF bailout..."IF" is the key word, but Ireland does not want a bail-out; Ireland is not asking.
    The Irish budget is due December 7, 2010. I'd suggest that we at least wait till the budget is presented to see what Ireland says financially about its own future.
    But I'll tell you right now I do not believe Ireland's national budget is being planned towards an EU take-over. Why on earth would the EU want to take over Ireland? Would it not be better to expel Ireland?
    A resolution of the Irish crisis needs to happen; so why can't we simply calm down and let the Irish make it happen?
    You don't think this is "speculation".
    Yes, it is speculation; Officially, it's called
    - betting against soverign debt, or
    - negative credit default swap.
    There is one country in particular that enjoys this type of roulette wheel, and the country to which I refer is not even European. If the bond market is being manipulated, look to this same country for the manipulation before you look anywhere in Europe.
    Personally, I see nothing so terribly frightening about the possibility of a controlled default known as "restructuring". As for imposing restructuring, I don't believe that Ireland is there yet, or even close.
    Whatever happens tonight the fundamental crisis of the Eurozone is not over, and an outside party does not want it over. This country's Wall-Street Boys have been negative-sovereign-debt betting all over the place; the Wall-Street Boys have a vested interest in the fall of all the STUPID PIIGS.
    And it's not over.

  • Comment number 6.

    The Eire should ignore the EU and go to the IMF for help , let the IMF negotiate with the creditors for a bailout deal.

  • Comment number 7.

    Paul,

    Thanks so much for keeping us updated on this. I may be the only one who feels that THIS is the most important news item of the day (The other news being widely expected).

    I was very interested in your explaination of the the rise in Irish bond yields. The fact that the penny has just dropped that you may not get several percent over German bonds for nothing (On the basis that no EZ country could be allowed to default or restructure) is extraordinary.

    I know I'm not alone in feeling how terribly WRONG all of this is ..

    Very highly paid bankers across Europe lent vast ammounts of money to Anglo Irish, knowing full well that Ireland was undergoing a classic debt fuelled property bubble which would at some point pop. Yet those banks and their customers will never have to suffer any of the consequences of their actions.

    However an Irish Pensioner who has worked and saved all their life and has invested in Irish government bonds. On the basis that they may not offer a stellar return (like Anglo or the Icelandic banks) but that they are reliable and holding them is good for the country.

    I'm not sure of the exact figures but if someone bought the bonds 4 years ago and for whatever reason needed to sell them now then they would have to take a pretty serious haircut.

    So it's bad news for patriotic pensioners and good news for bank executives and the "Magic Circle" of borrowers who are presently living overseas ..

    As I see it if Ireland does not get a bailout from the EU this evening then that would be the best outcome for Ireland. They would then have to let the banks go bust as they should have done two years ago ...

    (In case you are wondering I'm English and live in Henley .. no Irish connection at all ..)

  • Comment number 8.

    Hi Paul
    What's the process being pursued - is it the EFSF? If so, has Ireland made a formal application for funds. Does anyone know what interest rate is chargeable - the investor brochure says borrowers can be asked to contribute additional amounts from the loan advance to ensure tripleA rating for the Fund. So, arrangement fees to be added to TripleA interest plus additional margins plus compensation to ensure TripleA...just wondering how this would compare to bond markets.

    ..or is this another process

  • Comment number 9.

    Now the illusion of democracy gets shattered!

  • Comment number 10.

    Great Depression 2: Return of the Bond Vigilantes

    Coming to a street near you!

    But seriously, when did the voters decide it was preferable to bail the banks out with their taxes rather then let them fail and allow new ones to replace them, you know? Capitalism?

    What we have today is a fascist corporatocracy with a symbiotic relationship between politics and big business (especially the financial sector). All this talk about providing credit for SMEs, easing the quantatives, saving the eurozone ect is just a smokescreen for the real purpose of all this economic hokus pokus, TO SAVE THE POWER ELITE.

    The power elite can't be allowed to lose ANY money, beacause if they did then the whole house of cards they have built up over the years to leach off the working man would collapse. "The bond holders can't take a haircut" means "the power elite must be allowed to continue their scam undisturbed".

    And to tell you the truth, I'm getting sick of hearing about how "the free markets" or "government overspending" are to blame, I'll tell you who's to blame, the CRIMINALS who have been allowed to practise fraud, corruption and blackmail in order to line their pockets or save their skins. Start locking up the criminals (politicians, bankers, high ranking military and law enforcement personel ect) and we'd be fine. The problem with this is obvious, that's why we need to take the government back ourselves or end up picking cotten on JPM farm for 2 bancors a day.

  • Comment number 11.

    Too right duvinrouge.

    We clearly are in a deflationary period for the Western economies but due to the printing of dollars by Bernanke, and to a lesser extent by King and the EU Central Bank, we have inflation in commodities as people look for returns from gold, silver, oil, wheat, etc.

    The printing by the Bernanke, the King, etc, is not helping the hundreds of millions of people in the West. It is merely helping the banks and the bankers - who must be biting their lips and laughing inside that they have got away with it.

    The result is that for hundreds of millions of people the everyday cost of their food, their fuel, their heating and even their clothing is soaring. People have no spare cash in order to go out and buy the TVs, the PCs, the cars, the luxury goods. Instead of getting people out there spending the net result is people are holding onto every penny they have in order to pay for the necessities of life.

    Only a fool cannot see what is going on.

    It is, IMPO, a heist on a scale that no Hollywood writer could ever dream up. Worse, as long as the likes of Bernanke and King are in place there is no chance of this policy changing. I get the impression that both men will not stop until the super rich are even richer and the rest of us are impoverished - and they will have used tax-payers' money to achieve it.

    You would hope that there would be some smart cookie politicians who could see what is going on - some hope. I suspect most do not have the slightest clue and, judging by that Channel 4 documentary the other night, most do not even know the difference between the national debt and the national deficit.

    But this is all what bailing Eire out is about.

    It is not about getting the Irish people back to work, to paying down debt and to stopping them becoming poorer. No, the Eire bail-out is merely about protecting the banks and the bankers - not just in Eire but in London, across Europe and probably in the US also.

    It is about protecting the system and continuing the Bernanke policy of using tax-payers' money to enrich the new ruling class.

    Two years ago bankers nervously were removing their belongings from offices in Wall Street and The City fearful of physical attack by a Public angry at the global turn-down.

    Two years on the global economic situation is far worse for the majority in the West but those same bankers have had two incredible years of profit and bonus that they could never have imagined back in November 2008.

    I can't help think that the men and women who fought for so many of the rights, the freedoms, the democracy that we all now take for granted must be looking down in disgust at what is happening. I hope the Dutch or the Austrians or someone somewhere stands up and says "Enough is enough!".

    The last best hope for freedom in Europe may even turn out to be the German People.


    -------


    On a side note, frankly I am disgusted that Paul has flown to Brussels and is not now encamped outside the Welsh Assembly awaiting the Welsh Budget ;-)

    I assume that the Newsnight lear jet is on standby for an early morning Brussels to Cardiff dash? Snails in Brussels for breakfast and cockles and lavabread in Cardiff for lunch. What more can a globe-trotting economics' journalist ask for.

    Perhaps Jeremy could interview that nice man from Plaid Cymru again tomorrow night?

  • Comment number 12.

    #11 tawse 57

    great post

  • Comment number 13.

    Paul's last remark must be the understatement of the decade. "What we have today is a fascist corporatocracy with a symbiotic relationship between politics and big business (especially the financial sector)." No. 10 I treasure that phrase - it sums our system up in a few words. But what exactly is the pressure on the Irish to be force fed with Euros or dollars and have to accept all sorts of conditions. If it is correct that the Irish debt is funded until the middle of next year why have they got to worry about the 'spread' now? Do they have to be bailed out when they have shipped no water. Here take this loan so that we do not have to help the Portuguese/Greeks/Spanish/Italians and by the way you have got to do what we tell you from now on. This is an offer they can refuse?

  • Comment number 14.

    Good performance from Mr Mason tonight I thought. It was quite telling how Gavin got quite frustrated at one point in the midst of late night finance minister meetings, spooked bond markets and role playing Irish finance ministers.

    ''but what does it all mean'' !!!

    There is the rub, I don't think a significant quantitity of people sufficient to change anything will 'know what it means' until the cash machines close or they get that letter from the pension fund who invested heavily in PIIG debt informing them their pension has taken a 40% 'haircut' with immediate effect.

    The powers that be know that and are, therefore, doing absolutely everything they can to avoid people ''knowing what it means'' on the lines as explained in #11 above by Tawse 57.

    It is a shame NN led with the Royal engagement, by all means cover the story, it is important, this country badly needs a positive disciplined role model family to aspire to and counteract the current crop of degenerate glamour model and football player 'role models' we have.

    They seem genuine enough and a disciplined couple with sound values and I like the way they have conducted themselves through the years in general. I hope the engagement the wedding and their continued conduct is a source of positive inspiration at a time when it will badly be needed.

    Having said all that, Paul's story should have run first and NN should employ producers who are numerate and would therefore 'know what it means' and understand why it should have been the lead story tonight.

    One can only keep trying.







  • Comment number 15.

    Which poster to these blogs did we read the most?...and why did we attack them the most?

    Why are we so cruel and sadistic?

  • Comment number 16.

    #15 Debtjuggler

    and apparently being airbrushed from history as you type, now only referred to as a number

  • Comment number 17.

    It appears that the UK will contribute around £7bn for a fund to let the EU take control of the Irish economy.

    Our banks are in it up to their necks in Ireland which the UK effectively guarantees.

    Surely David Cameron could do a deal direct with the Irish where the UK takes control instead which would support many dominoes, he said he wanted to be radical.

  • Comment number 18.

    Tawse57 this is completely off topic but I think you might enjoy it, remember Mark and Lard from radio one? Well this is my favourite clip. http://www.youtube.com/watch?v=CWgAntl5o-A
    Enjoy!

  • Comment number 19.

    Now we are moving into contracted textspeek to describe things and folk, having read around I think the title of those describing the spiraling around the sink hole as 'EeekEd' is probably appropriate.

  • Comment number 20.

    I think this is a dread piece of blogging; Paul Mason needs some basic background in how markets work.

    Most reputable firms have already divested themselves of peripheral Eurozone sovereign debt. There are also well founded concerns about France's finances when you look at a repercussions across Europe of haircuts for Bond holders.

    Rather than pointing at the Banks attention should be drawn to the reckless ineptness of those in the driving seat of Eurozone and EU institutions.

  • Comment number 21.

    6. At 8:08pm on 16 Nov 2010, Steve-London wrote:

    "The Eire should ignore the EU and go to the IMF for help , let the IMF negotiate with the creditors for a bailout deal."

    Unfortunately, Ireland has already taken about 130B Euros from the ECB, so the latter might ask for that back if Ireland decides to go outside the euro club.

  • Comment number 22.

    #17"It appears that the UK will contribute around £7bn for a fund to let the EU take control of the Irish economy.

    Our banks are in it up to their necks in Ireland which the UK effectively guarantees.

    Surely David Cameron could do a deal direct with the Irish where the UK takes control instead which would support many dominoes, he said he wanted to be radical.
    --------------------------------------------------------------
    From NN last evening Paul intimated that UK would be contributing BI-laterally and that suggests considerably more than £7bn. PM also indicated that we would wait for a deal until Gideon arrives (so UK are going to be underwriting debt in a deal brokered by Gideon, that makes my blood run cold). GO just doesn't get it and is not experienced enough to do this deal. Granted the UK have a huge stake in keeping Ireland going (export market) and I'm sure UK banks are exposed up to their neck. Maybe there is a worry that there will be mass emigration across the Irish Sea? Questions I would like answered are why is Non-Euro UK bailing out EZ-Ireland? Surely this is entering the EZ by the back door, funding Ireland in the shoes of Germany. Will there be a vote on the UK funded rescue in Parliament? I'm all for co-operation and that has to be at the root of any solution. Just don't get why we are standing in for the EZ. What are the conditions on any UK led bailout?

  • Comment number 23.

    "I'm sure UK banks are exposed up to their neck"
    With good reason see Peston's blog today
    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/11/ireland_how_much_punishment_fo.html#comments

  • Comment number 24.

    `It appears that the UK will contribute around £7bn for a fund to let the EU take control of the Irish economy.'

    Poor old Michael Collins must be spinning in his grave.

  • Comment number 25.

    #18. Cmoore wrote:

    Tawse57 this is completely off topic but I think you might enjoy it, remember Mark and Lard from radio one? Well this is my favourite clip. http://www.youtube.com/watch?v=CWgAntl5o-A
    Enjoy!

    -----

    That's hilarious.

    Sadly, such people do exist. We call them the Taffia and they are running the country.

    LOL!

    :-)

    :-(

 

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