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Ireland: The big uncertainties

Robert Peston | 15:38 UK time, Thursday, 18 November 2010

This morning's interview with the Governor of the Central Bank of Ireland, Patrick Honohan, is a gem and Mr Honohan has instantly become a hero of mine.

Patrick Honohan

 

The reason is that Mr Honohan is refreshingly frank. He is the antithesis of the buttoned up, central bankers that are typical of his secretive and rarefied trade.

My favourite moment was when he was asked whether the Irish central bank has given super-special emergency loans to Irish banks that have been unable to obtain funding from the markets and from the European Central Bank's emergency liquidity facility.

This is what he said:

"All I'll say is there has been such a need, but I don't really want you to press me on that, because I'm not allowed to talk about these things on a current basis. Of course I'd have to make sure...just in case it would sound as if I'm exceeding my powers, I would have to make sure that the other members of the ECB, the governing council, don't object to making these loans".

So that would be a yes then. Which means that however much it has been obvious that Irish banks are finding it almost impossible to raise finance from commercial sources, the reality is probably worse

But I suppose what is more striking is that with all Mr Honohan's openness, there remain big uncertainties about the nature of the financial rescue being put together.

This is what we know.

What's being discussed with the European Union and the International Monetary Fund are loans and facilities with an aggregate value of tens of billions of euros, probably around 80bn euros or so, according to an official source.

The interest rate on that would be around 5%, according to Mr Honohan.

Which for Ireland is cheap money, since the government's 10 years bonds are currently trading on a yield of well over 8% - so if the Irish government were to borrow in the market (which it neither wants or needs to do till well into next year) it would have to pay interest greater than 8%.

But what we don't know is whether the bulk of that 80bn euros odd will be an actual loan or a promise of a loan, a borrowing facility.

It would be far cheaper for the Irish government if markets were to be reassured by the existence of a substantial borrowing facility - because Ireland would only pay the full 5% interest rate on drawn down loans.

However, the biggest uncertainties of all are even more basic. First, what is the fundamental problem that needs to be fixed? And second, how can that problem be fixed?

To state the obvious, and as I've been banging on about for days, it is the perceived weakness of Ireland's bloated, lossmaking banks that is the fundamental problem.

That said, is it the case that these hobbled banks would be able to borrow from commercial lenders again, and would become less dependent on the European Central Bank for funds, if all that happened was that a few more tens of billions of euros was injected into them as new capital, as additional protection against losses?

Or would investors and banks still be wary of lending to these banks, if they felt that the entity standing behind the banks - the Irish state - remained a credit of dubious worth?

If that were the case, the European Union and IMF would also have to make substantial funds available for use by the Irish government in funding its own direct deficit.

Finally, the other huge unknown is over the other strings and conditions that would be attached to the loans or borrowing facilities.

In particular, will Germany get its way and force the Irish government to raise its 12.5% corporate tax rate, which the German government has long seen as unfair tax competition, as a de facto bribe to big international companies to settle in Dublin?

Irish sources tell me they are confident they will not have to surrender this central plank of their industrial policy. Their main argument is that if they were to raise the rate, they could actually end up with less tax revenue, because a load of mobile multinationals - such as Google or WPP - would relocate elsewhere, perhaps Switzerland.

Curiously the Irish government's preferred tax-raising measure, I am told by officials, is to increase the number of citizens paying income tax, by lowering the income threshold at which income tax is payable.

I'm not sure whether the economics of keeping corporation tax low while raising more from low-income families quite works. But the politics is certainly very intriguing.

PS A further uncertainty is whether the banks need an injection of plain vanilla capital, or access to what Ireland's finance minister, Brian Lenihan, today called "a contingency capital fund that can stand behind the banks". Again this is a distinction between cash for the ailing banks now and the promise that cash will be delivered in certain (bad) circumstances.

Update, 17:11: If the problem to be solved is that Ireland's banks have borrowed too much from the European Central Bank, some £110bn, what possible benefit would there be of lending another £70bn to the Irish government and banks?

Isn't this just a mind-boggling example of a gigantic fiscal transfer between Peter and Paul? And what on Earth would be the point of that?

In other words, it's not just the size of the loan from the EU and IMF to Ireland that matters, but the use to which the money will be put.

Or to put it another way, there's absolutely no sense in propping up Ireland's big ailing banks by injecting new capital into them if they're still regarded by commercial lenders and investors as crocks.

What's required is to establish the losses that Anglo Irish, Allied Irish and Bank of Ireland are yet to incur from their reckless lending to property developers and homeowners.

And there’s also a need to reconstruct and shrink Ireland's banks so that they are substantial enough to meet the credit needs of legitimate borrowers and not so big that when they run into difficulties they risk bankrupting the Irish state (the Irish government has already set in train the dismantling of Anglo Irish).

Without such a reorganisation, the new finance provided by EU and IMF would arguably be throwing a ton of good money after an ocean of bad.

UPDATE 18:18  Actually I'm told by M Sorrell (the chief exec of WPP) that any rise in Ireland's corporation tax rate would not make him relocate WPP to another low-tax centre, for the simple reason that he only pays that low rate on WPP's Irish profits - which are a fraction of this international media group's total profits.

For WPP to want to quit Dublin, the Irish government would have to threaten to tax profits earned outside Ireland by the likes of WPP - which, M Sorrell says, was threatened by the UK's HMRC (and was why WPP went to Dublin in the first place). There's no suggestion right now of the Irish government wishing to do that.

If the same fiscal logic applies to other multinationals that have relocated to Dublin, a rise in Irish corporation tax would be most painful for what you might call proper Irish companies, or those businesses that earn a significant proportion of their profits in Ireland. 

Comments

Page 1 of 4

  • Comment number 1.

    Loans of 10's of billions of Euros aren't going to work. If this was "only" a liquidity problem the ECB could have just kept rolling its existing facilities drwan by the Irish banks. Similarly, public sector austerity packages that will devastate the economy (with critical consequences in the residential mortgage market) to save 5-10 billion are not going to work. There needs to be a recognition that the 110billion ++ borrowed by the Irish banks is simply not going to be repaid. If this basic solvency question can be addressed in a cute fashion that does not trigger waves of untold billions in CDS contracts, then great.....but it doesn't change the underlying fact that the money is not coming back.

  • Comment number 2.

    I'm not sure whether the economics of keeping corporation tax low while raising more from low-income families quite works. But the politics is certainly very intriguing.

    Stunning. Blood. Stone. Keep trying.

  • Comment number 3.

    I still want to know where the deposits, tens of billions, that have been taken out of Irish banks in the last couple of months are ending up

  • Comment number 4.

    "All I'll say is there has been such a need, but I don't really want you to press me on that, because I'm not allowed to talk about these things on a current basis."

    is that the 'free and democratic society' people are always raving about?

    Now we know who is pulling the strings - the central bankers are merely puppets in a fascist state which is being run by big business through unelected representatives.

    At least the Chinese are being dictated to by their own people!

  • Comment number 5.

    I wonder how much of this borrowing is a mirage? For every pound borrowed there is a pound lent - so if everyone put their lending and their borrowing in a big pot it would all cancel out. I realise this would be countries, banks and individuals.

    Sure there would be winners and losers but at least there would be a clean slate and we could all start again? China would lose big time and US would win big time but ultimately China will lose if the US collapses too so its all just paper transactions really.

    I know this is massively oversimplistic but it seems the problem needs a bit of fresh thinking?

    PS I write this as someone with savings who will be horrified if the people who have borrowed recklessly 'get away with it', but also I recognise that the other solution of complete breakdown of the monetary system can not be good news either and may end violently.

  • Comment number 6.

    "However, the biggest uncertainties of all are even more basic. First, what is the fundamental problem that needs to be fixed? And second, how can that problem be fixed?"

    Fixed Robert? FIXED????

    Nothing gets fixed Robert - it's just all pushed down the line until it becomes "the next guy's problem" - however the world is round and not a line and those blessed with spacial awareness will realise that eventually that "next man" becomes YOU!

    I can't believe you still buy this tripe Robert - can't you recognise a desperate man when you see one? - they will do and say anything to convince you they can "pay it all back" - but the sad thing is that point was passed a very long time ago.

  • Comment number 7.

    Lowering the income tax threshold in Ireland is a no brainer due to the way the system is set up at the moment. Absolutely has to be done. Full explanation is here : http://www.ronanlyons.com/2009/07/28/a-little-quiz-on-irelands-income-tax/

  • Comment number 8.

    I listened to Honohan on RTE today. He was quite clear that this would be a borrowing facility "to be drawn upon as the need might arise."

  • Comment number 9.

    Mon No we don't need any money
    Tues No we don't need any money
    Wed No we don't need any money
    Thurs oh...yes we do need it....
    :-(

  • Comment number 10.

    Sounds just like my wifes just got another credit card.
    When will we ever learn

  • Comment number 11.

    Robert,

    'To state the obvious, and as I've been banging on about for days, it is the perceived weakness of Ireland's bloated, lossmaking banks that is the fundamental problem.'


    This is just a symptom Robert and you know it.


    It's game over.


    Get yourself a front row seat and watch the fighting begin...

  • Comment number 12.

    5. At 16:28pm on 18 Nov 2010, GRIMUPNORTH77 wrote:

    "PS I write this as someone with savings who will be horrified if the people who have borrowed recklessly 'get away with it', but also I recognise that the other solution of complete breakdown of the monetary system can not be good news either and may end violently."


    ...and you think that result is avoidable? I'd say one way or another it's going to end violently - it doesn't matter what Ian says....

    It will either end in violence because the financial system will collapse and people will loose everything (and then lose it) - or the rescue plan will push inflation in commodities to such an extreme there will be resultant food riots.

    What is worse (in this country) is there are clearly a lot of people still living in la la land - thinking that they have been unscathed by the recession and wondering what all the fuss is about....these people will be the worst because they will not only be angry that the crisis comes, but that they foolishly claimed it wouldn't and the system will have let them down.

    You can see people like that on this blog - at least we're already getting prepared - they are waltzing into the disaster with the assumption that the Government, or 'someone' will save them when the time comes.

    This is not a film and there will be no cavalry - we're on our own folks. Anyone who's waiting for 'someone else to fix it' is going to be waiting a very long time...

  • Comment number 13.

    No 6
    'writingsonthewall
    Nothing gets fixed Robert - it's just all pushed down the line until it becomes "the next guy's problem"

    For a change I am in total agreement. Did you not allude yourself in previous posts and pieces on the TV that the problems most of us are facing need actually not of one countries problem? And which banks and speculators will make cash out of this little episode?

  • Comment number 14.

    Is there no limit to the 'punishment' the Irish Government will inflict on their people and those on low incomes in particular (lowering income tax threshold). Will we see a return of the IRA (Irish Revenue Party) to fight the injustices of the state. All the time the Dublin government cuts wages, jobs and earnings it make the position of their banks worse. Is this a fore taste of what's up at the end of the month and next March?

  • Comment number 15.

    The Iceland banks were allowed to fail and the iceland economy is now doing well. Are we doing the right thing by continuing to prop up these failing banks? Should we all be keeping our money under the mattress or in gold again?

  • Comment number 16.

    5. At 16:28pm on 18 Nov 2010, GRIMUPNORTH77 wrote:

    '…borrowed recklessly 'get away with it', '

    Now who do you picture when you say ‘borrowed recklessly’?

    The taxmugs who borrowed from banks?

    Or the banks who have now borrowed from taxmugs?

    Plus, only the rich get away with it...

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4286459/Russian-tycoon-had-RBS-loan-of-2.5bn-written-off.html

  • Comment number 17.

    Fascinated by a question just put to David Cameron by a select committee chairman.

    Was he aware that a committee had forecast the banking crisis and told Gordon Brown it posed one of the biggest threats to national security?

    Brown ignored them and the committee was disbanded.

    As time goes on we are learning that many people could see the crisis developing but no one in authority was willing to face up to it.

    Easier to treat them as strange doommongers than face up to the reality.

    And so it still goes on.........

  • Comment number 18.

    It is only a few days ago that Morgan Kelly wrote in the Irish Times this paragraph:

    “This means that if we are forced to repay the ECB at the 5 per cent interest rate imposed on Greece, our debt will rise faster than our means of servicing it, and we will inevitably face a State bankruptcy that will destroy what few shreds of our international reputation still remain.”

    Link http://www.irishtimes.com/newspaper/opinion/2010/1108/1224282865400.html for the full article.

    In the above article Robert Peston has written:
    "The interest rate on that would be around 5%, according to Mr Honohan. "

    Conclusion: It may not be over yet by a long way. Having forced this situation, will the markets move on to another country, maybe Portugal for example? Then what?

    I wonder when the markets will start to wonder if Mr Kelly is right?

    Did the Treasury and GO know about Mr Kelly's article and, if not, why not?

    If the UK is involved in loaning the money, could we loose it? Did we think to ask the ECB for a fall-back position so as to reduce our losses if Mr Kelly is right?

    Having a fiat currency as the UK does, makes life and the choices easier.

  • Comment number 19.

    #10

    'Sounds like my wifes just got another credit card'.



    Its actually another mortgage. On an over valued property. That hasn't been built yet. And might be worth even less when it is built.




    What are the odds we're having a conversation about Portugal next week, and Spain in the new year?

  • Comment number 20.

    In my opinion, every solution that tries to reestablish the world before, let's say 2006, cannot work, for the simple reason that to many ordinary people have lost to much money, pensions, homes in the last bubble.

    Who experienced this once in his life, peronally or in his family or neighbour, will never again be a customer of risky finance products, will never again make a bet on rising house prises, never again rob his credit card to the ultimo.

    That means, the volume of finance businesses with the ordinary man will never again reach a level as before the new market bubble, which destroyed the faith of the Yuppie generation, and the housing bubble, that destroyed the faith of the elder generations in the finance business.

    So: finance businesses have to shrink, as they lost to many potential customers and their investments.

    A solution that tries to save the worst finance buinesses from default makes therefore no sense.


    Couldn't it be, that all this bail outs for privat banks by states or suprastate organisations are in indicator, that already the supply of privat people who want, or are able to invest is dry like a desert and therefore states are the available source of last resort that could be tried to be untapped?

    Dublin, City of London, Frankfurt, Manhattan will never again, at least not for decades, reach the power and economical cloud they had 3 years ago. So, to invest in their full recovery is a fraud.

  • Comment number 21.

    ...then again who am I kidding?

    We all know we live in fascism - I mean you reveal the truth and suddenly there's an international arrest warrant being issued - you know, the thing that they are trying to alter so we can't use it on war criminals....

    http://www.bbc.co.uk/news/world-europe-11785281

    all the sheeple get into the van, don't worry about the windows being boarded up - that's just for your own safety....

  • Comment number 22.

    ...and of course these 'cuts' have no real consequence do they....

    http://www.bbc.co.uk/news/uk-england-cornwall-11788065

    Oh when will the sheeple learn? - lets hope they figure it out quickly or there will be more broken windows and the capitalists will have to condone "violence against windows" as 'abhorrent' and 'sickening'

  • Comment number 23.

    15. At 16:59pm on 18 Nov 2010, juliet50 wrote:

    "The Iceland banks were allowed to fail and the iceland economy is now doing well."

    I'm not too sure about that - and it's got many advantages - it has little reliance on fossil fuels and it's much, much smaller. Iceland is just 'out of the news' - but their path was not any sort of alternative.

  • Comment number 24.

    One thing we can be certain of, the Irish solution will be like no other which reflects their mentality; it's not better or worse, just different.
    The reality is that they're bust and owing a great deal of money; so the problem isn't theirs - it's the EC's.
    Can be fixed with EC backing, and our David of course. We then just increase QE, ie print more money.
    The £ is overvalued anyway. Increase inflation to bring it into line. Foreign workers go home and a poor Xmas for the kids without all those Chinese toys.
    Trouble is we then have to pay more for importing vital fuel since, thanks to the greens, we haven't invested in atomic generation unlike the French.
    Good old Angela Merkel, sowing discord so the brokers/bankers can make even more bucks betting against an Irish collapse while others run, and even if they get it wrong they'll have lots of commission to weep over.

  • Comment number 25.

    #15 Juliet - of course we are not. This is all an Old Boys Club conspiracy that is going to run and run until they can keep it going no longer. It is a disgrace. People used to come on these blogs and talk about what terrible things would have happened if we had let the banks go to the wall back in 2008 - now the picture of where we are heading is becoming clearer those people have melted away.

    Let them fail and lets see what happens and then work on the problems we face from there - in 6 months maximum we would have a working solution going forward I am sure - in the space I am sure the army could organise soup kitchens etc to look after us all.

  • Comment number 26.

    I'm German. Twice in my parents' lifetime they woke up to find that all the money they thought they had had disappeared. It hasn't happened anywhere else in a long time so people go to bed thinking it can never happen to them. I'm beginning to at least consider it a possibility, I'm afraid.
    Didn't Marx say (in many more words) that capitalism would end in chaos? Seems he could still be right...

  • Comment number 27.

    18. At 17:03pm on 18 Nov 2010, SleepyDormouse

    ...and don't forget - that is the interest rate NOW. When inflation starts to rise in Germany (and possibly France) they will be calling for a rise in rates to kerb inflationary pressures.
    The ECB cannot borrow from the markets at 6% and lend to Ireland at 5% for long, at the same time Germany is not going to allow rampant inflation to destroy their economy. (i think they had some trouble with that in the past)

    The tray of water - keep thinking about the tray of water....

  • Comment number 28.

    We are certainly paying the price for Thatcher's decision to allow Britain to become the guinea pig for Friedmanite 'free market madness' They knew how to deal with such vagabonds in France during the major upheaval.

  • Comment number 29.

    Can anyone see Vultures overhead yet?

    Will Ireland eventually by saved by the Jubilee Debt groups who are calling to have the debt of countries such as Liberia written off, given they are facing a bill with interest rates they simply can't meet?

  • Comment number 30.

    I remember 7or8 years ago being sat in my hotel room in Singapore listening to a very humble looking chinese financial expert describing how he figured the E.U economy was going.Without the specifics he said"its was like a train picking up speed as it goes along knowing fullwell the bridge ahead is out.It gets to a stage when its going too fast and is no longer safe to jump of without incurring serious injury or even death,so do you take the risk and jump or go over the valley side....seems so very prophetic now.

  • Comment number 31.

    >5. At 16:28pm on 18 Nov 2010, GRIMUPNORTH77 wrote:
    >I wonder how much of this borrowing is a mirage? For every pound borrowed there is >a pound lent - so if everyone put their lending and their borrowing in a big pot it >would all cancel out. I realise this would be countries, banks and individuals.


    For every pound borrowed there is indeed a pound lent- but more than a pound owed!
    That is the problem.

    I stand by my assertation that all borrowing should return to the old pre-usury days. Fixed costs to borrow, no interest allowed by law!

  • Comment number 32.

    I suggest Prince Charles is elected Emperor, crowned at Aachen then Charlamainge can take his rightful place as head of the Fourth Reich and the cycle of history will be complete.

  • Comment number 33.

    Mr Peston, I smiled when the Stock Market index here went up - based on the chances of the possibility of another financial "helping hand" increasing. For Ireland. Tens of billions of euros eh? That should keep us all calm for 10 minutes or so - allegedly.
    And I chuckled at the different emphasis put into just the two words "continental friends" by various spokespeople. "Friends" can be unchosen too I thought.
    I decided we can often talk ourselves into crisis and I am glad I do not have to be the one to call such situations. Various blogs here are very helpful to decide though - so thanks.
    I too was pleasantly surprised by the understandable comments by Mr Patrick Honohan on the Today programme - today. I recall there was a man called Greenspan in the USA and - no offence Alan but I used to love working out what he actually just said - back in the day. I was told what he said and how he said it were both important. Never did get clarity on his well chosen and sparse words. I was sure if he sneeze albit inadvertantly - it would have adversely affected world markets.
    Well done - Mr Honohan - lucidity at last - and my best wishes to all concerned in overcoming the reported doubts of "friends" - continental and otherwise.

  • Comment number 34.

    "If the problem to be solved is that Ireland's banks have borrowed too much from the European Central Bank, some £110bn, what possible benefit would there be of lending another £70bn to the Irish government and banks?"

    So ... since Ireland has a Solvency crisis, they've got to have a Liquidity crisis and a Societal crisis too? Ireland is hardly the only Insolvent country in the world today, but that doesn't mean the country's has to shut down too.

  • Comment number 35.

    12. At 16:50pm on 18 Nov 2010, writingsonthewall wrote
    "It will either end in violence because the financial system will collapse and people will loose everything (and then lose it) - or the rescue plan will push inflation in commodities to such an extreme there will be resultant food riots."

    WOTW you keep banging on about violence - are you trying to make it a self-fulfilling prophecy? Just to be able to say "I told you so".
    It's a dangerous game. Be careful what you wish for; anarchy does no one good. Remember, you personally may not be able to rely on the protection of the police since the rioters won't care which side you're on - they'll just want destruction and if you're in the way - too bad.

    What is needed for Ireland is a very substantial promise of money to dampen speculation and increase confidence. As I've said before, it's all smoke and mirrors, and at least Ireland is small enough to sort out.

    I wonder how many in the North want to throw in their lot with Eire at the moment? - that's a rhetorical question.

  • Comment number 36.

    When it is time for the 'wash-up', policymakers will probably decide that central bankers must play a much more dynamic role in the future.

    Specifically, be absolutely determined to work in concert and to resist the blanishments of national politicians.

    For example, if central bankers had been more pro-active in the recent past, then the ill-fated property bubbles in the USA and parts of Europe would probably not have occurred.

  • Comment number 37.

    Sorry, but I think this blog is a bit lazy. The problem here in Ireland is really a very simple one: and Prof Morgan Kelly explains it far better and with more wit than I can. Read this link and weep:

    http://www.irishtimes.com/newspaper/opinion/2010/1108/1224282865400.html

    What we have experienced in Ireland is the total cost of bailing out the banks has been placed on the household sector. Taxes have risen, and will rise again. But only taxes on households (income tax, VAT). Services have been cut, and will be cut again. Virtually every person of working age has either experienced either total loss of income (unemployment), or cuts in salaries ranging from 5-20%. Add to that non-payment of pension contributions by employers, and the loss of income is even greater. As a result, the loss of cash flow experienced by most people is greater than the reduction in mortgage payments as a result of interest rate reductions.

    People simply cannot afford to pay the mortgage. As Kelly points out in his IT piece, there is no stigma attached to this anymore and we really are not that far away from mass default. Banks etc know this, hence the recent run on Irish banks' institutional deposits, which is what caused the ECB to start pressing for a bail out. The Irish banks have no appetite to force the issue of mortgage delinquencies, as repossession merely crystallises horrendous losses. There is one anecdotal story doing the rounds here of a farmhouse repossessed recently which the bank then put up for auction. It received one bid only, and that was for EUR0.01, the smallest amount of money than can legally be bid. In general, residential property values are down around 50%. 20% of the entire property stock in unoccupied. Everyone on the list awaiting affordable housing could be given two properties and we'd still have empty houses left over.

    The government's current plan is to suck even more money out of the household sector via increased income tax, a new property tax, and water charges. All that will do is bring the day of mass mortgage default a little closer. Meanwhile corporation tax is regarded as sacrosanct. It cannot be raised. We're constantly told how every company will leave. We're never told how they will afford the relocation costs, or the ongoing costs that companies will continue to suffer even after having quit Ireland (eg anyone who signed an office lease in central Dublin pre-2007 is on a 25 year lease with upward only rent reviews and no break clauses on rents that are comparable to central London). The multinationals who make these threats are well organised and vocal. The 45,000 people per year who are now emigrating (that's 1% of the population per year) are neither organised or vocal. They do, though, have a huge Irish diaspora to tap across the entire English speaking world. Everyone in Ireland has a relative or the relative of a friend in the US/UK/Australia etc. Multinationals will desert Ireland anyway in future simply because the educated workforce has done what the Irish have often done in difficult times since the Famine: namely emigrate. In any case, it is not the 12.5% tax rate that keeps firms here, it is the generous R&D breaks, attractive tax on intellectual property, and absence of any rules on use of financing vehicles.

    The household sector simply cannot absorb any more costs associated with strengthening bank balance sheets. External help is required.

    The really fascinating aspect of Honohan's interview is not what he said, but who knew and approved of him saying it. My bet is he did this on behalf of the ECB which is the real driver behind the need for a bailout, and he had neither the permission nor support of Lenihan, the Finance Minister. If this is the case it has big political repurcussions for the State, signalling as it does that the Governor sees himself as answerable to the ECB above the Irish State in the case of any dispute between the two. This is not the relationship with Europe that the Irish were sold during the Lisbon Treaty referendum campaign and, if it is what happened, then it will ensure that it will be a very long time before the Irish electorate ratifies anymore EU-related constitutional changes.

  • Comment number 38.

    At last Bobby P. At last. Nail on head.

    Not a bail out. It is a hand-waving exercise, with a "contingency-fund" to calm the market down. There is nothing to be done about this situation except for what is already being done (NAMA, asset evaluation, and restructuring of the banks). The fork in the road happened when the backs were guaranteed by the government, since then there has been little for it except to plough ahead.
    The other option was to let the Irish banking system collapse, leaving a huge void in the Irish financial system, whose impact would not have been quantifiable.

  • Comment number 39.

    Robert Peston says "Isn't this just a mind-boggling example of a gigantic fiscal transfer between Peter and Paul? And what on Earth would be the point of that?"

    Well, he who robs Peter to pay Paul can always depend upon the support of Paul.

    Or translated, the EU's banker, namely, the ECB, robs Germany to pay Ireland and thus can always depend upon the support of Ireland.

    Precisley as it has turned out.

  • Comment number 40.

    Leech on The Wall all is worked up about the fascist state…interesting.

    Leech on The Wall, despite the horrible bankers, never got into debt because he understands very well how it works.
    According to Leech on The Wall the masses got into debt because they have been duped by the horrible bankers, it was not their fault because it was too tempting, they did not understand well enough and it was easy to deceive them.
    Next step? Mmmm get someone clever who understand everything, who cannot be deceived and who will speak on behalf of the less discerning masses…a leader, a fuhrer? Leech you have you work all cut out…fascism, feeling at home?

  • Comment number 41.

    Didn't the Irish banks pass stress tests earlier on this year?

    Does this mean that other banks' stress tests are in doubt?

    Is now the time to do country stress tests?

    But what good would they be anyway?

    Questions questions.

  • Comment number 42.

    5. At 16:28pm on 18 Nov 2010, GRIMUPNORTH77 wrote:
    I wonder how much of this borrowing is a mirage? For every pound borrowed there is a pound lent - so if everyone put their lending and their borrowing in a big pot it would all cancel out. I realise this would be countries, banks and individuals.
    ------------------------------------------------------------------

    There are news items about anti-matter today.

    I expect your big pot of lending and borrowing would blow up in all our faces just like matter and anti-matter.

  • Comment number 43.

    30 peevedoff

    It wasn't so much prophetic as taking the logical long term view.

    And just look where it has got them in only six years while the rest have been disappearing up their back*****.........

  • Comment number 44.

    18. SleepyDormouse wrote:

    "I wonder when the markets will start to wonder if Mr Kelly is right?"

    It's actually Prof. Kelly (Economics, but don't hold it against him!), and he's probably the best known domestic commentator on the Irish financial crisis. He was slagged off for being unduly alarmist when he estimated the cost of bailing out Anglo Irish to be EUR34 billion when the government was estimating it to be EUR6.5 billion. And what is the official estimated cost now? EUR29-34 billion. He reckons bailing out Allied Irish will cost as much, though the government says it will be EUR6 billion, no sorry EUR11 billion, no sorry EUR16 billion. You get the picture?

    This guy has written many detailed pieces on the problems in the Irish financial system. So far he hasn't been out by very far. I'd certainly have way more faith in his pronouncements than anything emanating from the Magic Kingdom, aka the Finance Ministry. I rather suspect that far more important participants than me in the financial markets feel the same way. You can be very sure they know who Kelly is and listen to what he's saying.

  • Comment number 45.

    Personally I think it would be daft for Ireland to borrow more money at the moment, and there's no need to. Having wages go down and not having increased the corporate tax is a better way of getting jobs and that's what's really necessary currently, just churning money internally won't solve much. If it makes people feel better if it gets a borrowing facility then I suppose that's something but using it would extend the problem and make the place uncompetitive - a horrible spiral. Let's just get the medicine over and recover. If a person who doesn't need to lie in bed does so they just become weak and ill.

  • Comment number 46.

    #31 Leviticus - perhaps you are not good with Numbers? (Biblical joke)

    If you add interest to an amount lent then it is both owed and owing so the net sum stays the same at zero.

  • Comment number 47.

    @12 WOTW ".....a lot of people still living in la la land - thinking that they have been unscathed by the recession and wondering what all the fuss is about..."

    Yes - people who have sold (perhaps inherited) property at a profit, not realising that the profit was provided by someone else borrowing bank manufactured money which previously didn't exist and which the economy as a whole couldn't back with real production.

    I'm really not blaming them, but when the house of cards collapses completely some of them will be very angry to find that their debt-fuelled money for nothing vanishes, or that their services are cut to pay the bill. This was the Thatcherite lie. "Get rich on rising house prices, you deserve it!"

  • Comment number 48.

    Loans, loans and more loans, to pay off all the existing bad loans created by a "doomsday" property market.
    A merry-go-round of loans.
    Does anyone believe that it will all be paid back?
    This can surely only be sorted out by various international authorities "creating" new money (printing).
    I've got a sneaky feeling that this is exactly what is going on (discreetly).
    "Quantative easing" may be the future for Europe and the USA.
    If you're a saver....hard luck.
    If you're a responsible and successful manufacturer....hard luck.
    If your country has behaved impeccably moneywise....hard luck.
    Ireland is not alone in this....
    Anyone got any suggestions as to how a plumber pays off the mortgage on a mansion?

  • Comment number 49.

    I have been rather quiet recently but feel the need to intercede.

    Firstly post 2 copperDolomite the Irish cannot simply put up their rate of corporation tax. Many of the recent big movers into Ireland for tax reasons have water tight guarantees on corporation tax rates for a minimum period, often ten years.

    These are the really big hitters and if the tax was raised expect them to not only walk out of the country but also sue for the costs involved. You have to remember that Corporation tax is only paid on profits and there aren't many irish companies making big profits at the moment.

    Post 15 Juliet WOTW and a few others have already responded to your comment re Iceland. Things are still very deep in the mire as the following shows.

    http://www.indexmundi.com/iceland/gdp_real_growth_rate.html

  • Comment number 50.

    I thought it was generally accepted, if not received wisdom, amongst economists that you cannot borrow yourself out of debt. Is this wrong? Can anybody do it now? So long as you keep on borrowing ever increasing amounts to pay off previous debts everybody's happy as you have cash flow. This is fundamentally absurd. Bankers dealing with the crisis have so far seemed to follow the logic of the witch hunt from Monty Python and the Holy Grail.
    If you add up the sum total of all the supposed wealth (mineral, material, monetary, homes, infrastructure) I should hope this would be more than the sum of the total global debt (public, private, corporate, government and whatever else). If it doesn't then the situation is completely irretrievable.

    "But what we don't know is whether the bulk of that 80bn euros odd will be an actual loan or a promise of a loan, a borrowing facility."
    Has anyone else declared bankruptcy and found the banks saying "that's okay, have an overdraft"?

  • Comment number 51.

    I understand the rationale behind these loans/ credit facilities. The international banking industry is just a very shaky pack-of-cards and Irish banks cannot be permitted to become the first in line to fall. But how on earth is all this money going to be eventually repaid?

    Ireland has around 4.5 million citizens with a GDP of approx 150 bn euro giving each individual a per capita income of approx 35,000 euro (2009 estimates). Given the recent reductions in salaries and increase in taxes it seems likely that that per capita income will have been reduced to lets say 30,000 euros.

    Now adding Roberts borrowings figures of £110 bn and £70bn gives us a net repayable debt of 210 bn euros. At 5%, just annual interest payments come to 10 bn euro. Of the 4.5 million population lets exclude non-taxpayers, say 50% of the population.

    2.25 million people are then faced with paying back a debt of 210bn euro against a compound interest of 5%. Even with my poor grasp of maths that just does not seem possible.

    Please, please will someone point out where I have gone wrong!

  • Comment number 52.

    "In other words, it's not just the size of the loan from the EU and IMF to Ireland that matters, but the use to which the money will be put."

    Not exactly rocket engineering then Robert?

    Worse than the 20th annual performance of a third rate pantomime complete with wobbly scenery, bland dialogue and tiresome comedians. It's time they were told to go. How about Jupiter:

    http://www.nasa.gov/mission_pages/juno/main/index.html

    There's room in the first stage between the liquid oxygen and the kerosene.

  • Comment number 53.

    Robert, I heard the interview on RTE and I dont recall him confirming that the interest on the loan would be 5%. The interviewer put that figure to him, he hesitated and said he would expect the interest rate to be akin to that charged by the IMF, whatever that was. He did say that because the tripleA rating had been lost, investors had failed to renew deposits and investments in banks and that the ECB stepped in to the fill the gaps with liquidity.The problem was put down to loss of the rating and a issue of confidence. The loan would be a form of contingent capital to reassure. At least, that is what I understood him to have said.

  • Comment number 54.

    44. At 17:53pm on 18 Nov 2010, JayPee wrote:
    ---------------------

    My apologies to Professor Kelly for addressing him incorrectly.

    From your blog, I would conclude that current efforts will have little or no effect on the market attack on Ireland. They'll roll on and take the EU for all they can then move on to Portugal in swift order.

    If that happens, the Euro will be blown apart pdq

  • Comment number 55.

    @4. At 16:28pm on 18 Nov 2010, writingsonthewall wrote:
    "Now we know who is pulling the strings - the central bankers are merely puppets in a fascist state which is being run by big business through unelected representatives."

    I don't quite follow that entirely. I thought that central bankers themselves were also big business, and also unelected. Did you just give some bankers some sympathy? I think you've been in the job too long.

  • Comment number 56.

    #19
    can I use my wifes credit card to bet on that?

  • Comment number 57.

    Where did the borrowed money go so many ask?

    It might appear to have gone into a house price bubble, but that's just moving money around and artificially inflating the GDP. Where did the money become lost to the Irish public and Irish state?

    Probably some was carefully stashed away by far sighted bankers, but most was well spent on new Mercedes and Lexus and the like, just the same as everywhere else.

    If only Ireland had had a Mercedes factory instead of a house price bubble.

  • Comment number 58.

    Ireland bank bailout ‘loan’ ‘deal’ or no deal?

    The current ‘Eurozone crisis’ is NOT over yet and Ireland’s bond and bank loan debt ‘default’ EU ECB bank bailout ‘loan’ is essentially a monetary and debt crisis postponed until the next ‘bond’ sell-off threat or default call for loan debt settlements by bank investors.

    The same applies to Portuguese and Spanish bank debt calls in the coming days, weeks and months.

    This Eurozone debt crisis is a continuation of the 2007/2008 financial ‘credit crunch’ global banking debt crisis that started in the US with banks loading up with junk status sub-prime mortgage debt securitised loans. In the UK banks were at it too, loading up with toxic debt, first exposed by the Northern Rock banking crisis in September 2007 and the first ‘bank run’ for almost 100 years in the UK together with a ‘secret’ Bank of England bank bailout rescue revealed by the BBC’s Robert Peston’s ‘Exclusive’ news scoop!

    Northern Rock was also heavily loaded up with loads of domestic and dodgy toxic ‘GMAC’ bad loans purchased from the US banks! The US banks could not off-load the toxic waste quick enough and UK banks provided the credit cash when they could get the funding in the wholesale bank credit market chain. When that dried up with ‘credit crunch’ the banks tapped the Bank of England and Government, who provided further cash taxpayer publicly funded gifts to the UK banks.
    At heart of this continuing global capitalist economic and banking crisis is the exposure of ‘fictitious values’ and ‘fictitious capital’ (Marx). The banks both in the US, in Europe and UK were insolvent and without liquid capital.

    Moreover the banks ‘assets’ on their secretive loan books i.e. millions upon millions of toxic property loans, derivatives, CDOs and mortgages backed securities were valueless and at the very least well over priced or over-valued and given fictitious triple ‘AAA’ status but in reality were triple ‘JJJ’ junk!
    Underpinning this ‘credit crunch’ ‘monetary crisis’ is what Marx correctly termed a ‘money famine’.

    The immediate response to the ‘money famine’ is for Central Banks like the US Fed and the Bank of England to ‘inject liquidity’ (money) into the banks. Cue the global ‘stimulus’ banking ‘packages’ e.g. the ‘TARP’ bank bailout scheme in the US and the ‘Special Liquidity Scheme’ in UK bank bailouts of £1.2 trillion followed by a further £200 billion of QE funny money printing.

    In the UK the Government ex post ‘moral hazard’ bad bank debt loans insurance guarantees via the HM Treasury Asset Protection Scheme (APS). In Ireland and in the UK the Government ‘deposit guarantees’ were also announced to try to prevent further panic bank runs and deposit withdrawals.

    Publicly funded bank ‘guarantees’ to ‘re-assure’ the mysterious ‘financial markets’ and unnamed ‘investors’ (i.e. other private banks, big bond dealers and dodgy hedge funds lucky enough to be still be awash with liquid cash) that all was well - for the time being!

    For a while, at least, everything appeared to be ‘fine’! In fact, the casino banks even started paying the greedy gambling bankers multi £ billion pound bonuses again! Everything was Hunky Dory!

    But all that had really happened was that the banks’ debts were piling up upon more debts! The banks could not work out the total bank debts or simply concealed and or hid the debts ‘off-balance sheet’ along with Government public debt too from QE bond and gilt sales and purchases!

    All of bank bailouts to paid for by the innocent public taxpayers now bailing out again with loans and gifts and bad loan guarantees further piling up the bank debts in Ireland, the UK and Europe and in the US and elsewhere.

    This public taxpayer bailout out of private banks must stop!




  • Comment number 59.

    At what point will the Irish and taxpayers in other EU countries say enough is enough and leave the country once again for a better life elsewhere?

    If I or anyone else was told that we and our children would face unrelenting austerity for the next fifty years to pay off the debts the government and banks had run up I think we would all upsticks and get out if we could.

    This would leave the vulnerable and the elderly who would still have to be funded without enough taxpayers to pay for them or the public services and pensions and benefits those left would need

    Where would everyone go to I wonder? Well unlike the past we are all Europeans now so I suppose everyone will head for those countries who are still solvent.

    I hope they are prepared

    Or perhaps this is a longer term view that no-one has yet considered.

  • Comment number 60.

    22. At 17:14pm on 18 Nov 2010, writingsonthewall wrote:

    "...and of course these 'cuts' have no real consequence do they....

    http://www.bbc.co.uk/news/uk-england-cornwall-11788065

    Oh when will the sheeple learn? - lets hope they figure it out quickly or there will be more broken windows and the capitalists will have to condone "violence against windows" as 'abhorrent' and 'sickening'"

    Considering the flood defences would have been built before the cuts were announced, to say this is as a result of cuts is pushing well beyond the limits of sensibility.

    Perhaps the easiest way to ease flooding is not to build on the natural flood plains

    To get back on topic though, what strings are being attached? That will be the killer for the Irish people. For even if they get a referendum, no doubt they will again be told to keep reholding it until the 'right' answer is given

  • Comment number 61.

    #51
    When has maths and logic had anything to do with economics?
    Remember when you had a Sinclair 48k??
    Now we have trillions of k.
    The presses are being oiled.

  • Comment number 62.

    Several things need to be said...

    The first is that the people who work in banks are just as institutionalised and dependent as anyone else. They got into this mess because they thought they were acting rationally whilst taking enormous risks at the same time. Individually, they each thought that they had made sensible choices, and that everyone else hadn't. Consequently, they imagined every other bank to be similar to themselves, but in a much worse condition. That's how the culture of trust disintegrates.

    It can't be rebuilt within the present systems and structures.

    The other point is that the crisis is automated. It will simply move on to Portugal or wherever, eating capital as it goes. Someone needs to turn off the algorithm.

    The bankers and politicians are powerless in these circumstances. Their status and rewards a fraud. It's time they were sent to the wilderness. It's a measure of their institutionalisation that they refuse to acknowledge the mistakes they've made and their responsibilities.

    It's war with the machines; but not as we imagined...

  • Comment number 63.

    >46. At 17:58pm on 18 Nov 2010, GRIMUPNORTH77 wrote:
    >#31 Leviticus - perhaps you are not good with Numbers? (Biblical joke)

    Nice one, I like it. I Judges that to be a worthy pun!

    >If you add interest to an amount lent then it is both owed and owing so the net sum >stays the same at zero.

    Not quite.
    Owed and owing are two words for the same thing, lent and owed however are not.
    Yes, what is owed is the amount with interest- but it is still not what was lent!

    Eg. I lend you a tenner til you can get to the cash point, you say you will give me an extra 50p back to cover my inconvenience. You owe £10.50, but I still only lent £10!

    Now, taking into account inflation...
    Over the course of 100 years a constant 3% inflation turns £1 into £19.21
    Over that same period a 5% interest rate turns that same pound into £131.50.
    So as you can see, with the national debt's roots back in the 1800s, lent and owed does not match in any way shape or form!

  • Comment number 64.

    When Iceland got into financial trouble, they applied for membership of the EU. What chance the Republic of Ireland will apply for membership of the United Kingdom?

  • Comment number 65.

    There's more to Ireland than dis!

  • Comment number 66.

    @30, peevedoff

    I had the same sort of conversation with a group of friends (from different EU countries) around the same time about the UK and other EU countries. We could understand that the UK economy had suffered with the industrial decline from the 60s through to the 90s. Less industry less income, but then everything seemed to get better. We suddenly had an apparently successful economy based just on moving money around. The others were aware of similar processes in other parts of the EU.

    I thought that it was just us not understanding economics. It couldn't possibly be that we were simultaneously digging ourselves into a debt hole while living off an inflating bubble - terrible metaphors, but horribly true.

    Time has shown that the simple minded 'Micawber' view was the correct one. A country, especially a Euro zone country, cannot live beyond its means without running of the cliff or needing charity.

  • Comment number 67.

    If the eurozone and ECB goes bust will the big bank loans to Ireland be written off?

    Who then will Ireland owe the money too?

    Who is funding the ECB? European Taxpayers?

    Will every EU eurozone taxpayer / citizen be able to lodge claim for the loan debt?






  • Comment number 68.

    Post 41. A number of very good and interesting questions.

    The only problem is that if you look too deeply you may not like what you find.

  • Comment number 69.

    59. At 19:03pm on 18 Nov 2010, virtualsilverlady wrote:
    At what point will the Irish and taxpayers in other EU countries say enough is enough

    ____

    The taxpayers have already said 'enough is enough' but the ECB, politicians and Governments ignore them.

    This is a world global banking crisis; capitalism has failed and the capitalist economic system whether in Ireland, the UK, the US or elsewhere is in a deep depression with massive mountains debts now loaded onto the people: the old, sick, disabled, unemployed and low paid and workers who will pay the price for the bankers greed and crisis unless they and we take action now TOGETHER to stop this crisis and replace the Governments that only serve the bankers' interests and big business interests with big business tax breaks and PUBLICLY funded PRIVATE bank bailouts with PUBLIC taxpayer money and will always continue to bail out the banks at any price to keep their zombie banks and zombie capitalist system on life support!

    No more publicly funded private bank bailouts!

    Remove the bankers and remove the bailout banker friendly Governments!

    Withhold tax! 'Won't pay, can't pay!' 'Can't pay, won't pay!

    Down with bankers!










  • Comment number 70.

    In my opinion, the Greek crisis had two purposes. Firstly to use Greece as 'the tethered calf' to bring the financial wolves out of the forest. Secondly to convince all the EU member countries of the need for at economic union as provided for under the Maastricht Treaty (see the joint statement by José Zapatero and Herman Van Rompuy).

    The Irish crisis also has two purposes:

    Firstly the implementation of the economic union as set out in the document 'Strengthening Economic Governance in the EU - Report of the Task Force to the European Council' Brussels, 21 October 2010.

    Secondly, and this is an opinion only, to knock the US dollar off is position as the world reserve currency. I believe this could be done by first securing the finances of the Irish State and the allowing a couple of Irish Banks fail, so triggering Credit Default Swaps. No, they wouldn't - would they? What is the saying, "revenge is sweet".

    We will just have to wait and see.

  • Comment number 71.

    Long time lurker, first time poster

    Just to say thank you for all the free advice/information/views/muses and insights you give out in your postings – without a chance read of one of your posts around 10 months ago I would still be one of the unenlightened ones thinking ‘ah... things will be picking up soon’ and ‘oh I must put more money into that stocks and shares ISA which is performing so poorly – I’m sure it will turn around soon and it will actually break even!’

    As for your detractors – I really don’t see their beef – and I don’t think I ever will.

    So Cheers! - Your writings are appreciated – at least by some of us. :~)

  • Comment number 72.

    #58. At 19:01pm on 18 Nov 2010, Maxone wrote:
    Ireland bank bailout ‘loan’ ‘deal’ or no deal?

    The current ‘Eurozone crisis’ is NOT over yet and Ireland’s bond and bank loan debt ‘default’ EU ECB bank bailout ‘loan’ is essentially a monetary and debt crisis postponed until the next ‘bond’ sell-off threat or default call for loan debt settlements by bank investors.

    --------------------------------------------------------------

    Absolutely spot on, this is the second round of a six round contest which will ultimately end in a knock out. No Euro subscribed country will be allowed to fail until the ECB has no money left (Sorry - until Germany has no money left or is unwilling to pay) because for one reason there are so many CDS's flying around the banks would get rolled over on the promises to pay or be forced to default anyway. Double edged sword folks, damned if you do, damned if you don't.

    Like I, and many others, have said before it's all hedging bets pending the catastrophe of sovereign bond sale failures and bank legacy refinancing next year when it'll go real bad real quick.

  • Comment number 73.

    @4 WOTW said "Now we know who is pulling the strings - the central bankers are merely puppets in a fascist state which is being run by big business through unelected representatives.

    At least the Chinese are being dictated to by their own people!"
    ...............

    Elected dictators versus unelected representatives. Not much of a choice is it!
    Stand in front of a tank or sell my shares and withdraw my money.
    Either way we are all doomed.
    It's not 'the system' or the sub-prime crisis, or the Nixon shock, or FRB, or anything else.

    People screw things up - just people. And only Madoff is in jail.

  • Comment number 74.

    Martin Sorrell is a very switched-on kind of person and I would think that his attitude towards the UK Government and its proxy HMRC, is typical of that echelon of multi-national company director.

    The sentiments he expressed to Robert Peston regarding the threats to the companies external income makes a mockery of the very tired expression 'Britain is open for business' and it really makes one despair of the politicians who utter this banal tripe.

    As far as central bankers are concerned, what a fascinating job - Mervyn King was honest enough to admit that the BoE took its eye off the ball but can you imagine the difficulties that he and his colleagues would have had with politician Gordon Brown if they had said for example, we are going to mandate that borrowing for property cannot exceed 3.5 times earnings. In reality, it is probably not very easy tp take away the proverbial punch-bowl.

    I'm not even sure that they could have done that anyhow because Browns horribly flawed tripartite arrangement might have taken that power away from the BoE and given it to the FSA.

    What is certain is that the central bankers in England lost oversight of the activities of the retail/commercial/investment/universal banks with catastrophic results but maybe it'll be different next time.

  • Comment number 75.

    I’m sure the British government (like the German government) would very much like the Irish to be forced to raise the bargain base corporate tax rate up from 12.5%. Many of the US companies in Ireland are merely looking for a European base where they can find an English speaking educated workforce. If it wasn’t Ireland, it could be the UK.

    Add to that the fact that, long-term, the EU wants harmonisation of tax; it’s a question of when it happens.

    But if Ireland does increase corporate tax rates its chances of recovery are that much less; in which case the British and German banks may get less back from their investments than they hoped. Tricky.

  • Comment number 76.

    Spontaneous protests are erupting in Ireland, individuals that have had enough are everywhere.

    Hardly surprising with the IMF here to take taxpayers money to give to their banker friends, while the very next headline is this.

    http://www.rte.ie/news/2010/1118/nama-business.html

    That is the final straw for me, I've been protesting, now I'm going to work harder.

    Rise Ireland! they are robbing us!

  • Comment number 77.

    Further to my recent post regarding Irelands very low corporate tax rate being a big issue.

    According to the FT this evening:

    QUOTE: “French and German officials are pressing Ireland to increase its low corporate tax rate in return for an aid package, setting the stage for a showdown over a policy long resented by Dublin’s European partners.

    Ireland views the corporate tax rate, set at 12.5 per cent, as the cornerstone of its industrial policy. On Thursday Irish officials reiterated their determination to protect it. “It’s non-negotiable,” Mary Coughlan, the deputy prime minister, told parliament.

    French, German and European officials told the Financial Times that the tax rate had emerged as a major point of contention as negotiators from the European Union and International Monetary Fund arrived in Dublin to discuss a potential bail-out." UNQUOTE

    If that low rate survives in the short-term, it surely can’t last into the medium and long-term; at least not whilst the Euro and EU survive and the country is on financial life support (therefore vulnerable). At some point Ireland will need to reconsider one of the cornerstones of its industrial policy.

  • Comment number 78.

    73. At 20:00pm on 18 Nov 2010, The-itinerant-ex-pat wrote:
    'People screw things up - just people. And only Madoff is in jail'

    Well put.


  • Comment number 79.

    For those of you who have some French, I found a link to this ("The Crisis is over") on Paul Jorion's very interesting blog.
    http://www.youtube.com/watch?v=7z2Xv1a4AOY

    What? 1934?

  • Comment number 80.

    Suggestion to any anti-capitalist sage's out there. You have option A, or option B.
    Option A
    1-Make like George Soros and beat the system. Clearly you have predicted everything that's happened to date, and you know exactly what's going to happen next, so you'll not have any problems will you?
    2-Make like Robin Hood and redistribute your billions. Job done.

    Alternatively....
    Option B
    Spend your time instead ranting on websites.

    I'll make a prediction. I predict you will choose option B.

  • Comment number 81.

    According to Channel 4 our national debt is £4.8 trillion-where do we get £6billion from to aid Ireland?

  • Comment number 82.

    Anyone know how to fix a housing bubble?

    Are we in for yet more "surprise" revelations regarding dodgy credit and silly financial tools that haven't worked in quite the same way as the computer simulations suggested.

    New regulations will come in. The economists will tell us we've learned a lesson. Then a new financial instrument will be dreamed up by the maths/IT geniuses/toehead PHDs which will defy basic common sense and lead eventually to another vast lemming suicide.

    Time for people to stop paying for this. I hope the Irish refuse to leave their houses when the bailiffs come.

  • Comment number 83.


    To quote your Prime Minister-
    But he added: "Obviously if you look at the relationship between Britain and Ireland, it's one of our biggest export markets.

    "We export more to Ireland than we do to Brazil, Russia, India, China combined.

    Pathetic

  • Comment number 84.

    Meanwhile, other MPs have expressed concern that if the UK was to offer support to Dublin, it might also be obliged to back other eurozone countries that run into difficulties.
    MY QUOTES
    "We export more to Portugal than we do to Brazil, Russia, India, China combined''.

    Even more pathetic

  • Comment number 85.

    If we are in such a bad way financially, as I read and hear so constantly in the media, how on earth are we in a position to assist the Irish?

  • Comment number 86.

    We should give some credit to city gamblers of london. They are trying their level best to bring the euro down by testing Germany's resolve again and again. Surely it has to go (euro)...otherwise there is portugal, spain, italy, etc for the taking. How long?

    Only Cam/GO are messing it up big time by having silly ambitions of commiting our money. How dare they.
    Is there no way to stop them. Can the queen intervene.

  • Comment number 87.

    So, yesterday the Irish stated that they did not need a loan. Today they do. There is an important lesson in this, not one that we didn't know already. It is this:

    Politicians and bankers will happily stand in front of you and tell you bare faced lies. You simply CANNOT trust anything you are told. It may be true, it may not, but it cannot be trusted to be true. You need to disregard all official pronouncments and look at the figures....

    I recall looking at the Kaupthing web site carrying a statement that Kuapthing was fully funded and not in any trouble. The next day it collapsed (of course).

    When a figure states there is not a problem, its probably time to cash your chips in

  • Comment number 88.

    Surely there is a high possibility in Ireland that once the personal tax rises materialise, on top of the pay cuts, the public will rebel, leading to political change and perhaps radical politics. Similar logic applies to Greece and the other weaker economies in the Euro. There is thus a significant likelihood that these countries will still default but only after all these additional European funds have been injected. If so it could be a long time till Europe sees any of its money back and it may be pressed into injecting more or witness a number of sovereign collapses which would surely then spell the end for these countries membership of the Euro.

  • Comment number 89.

    As I've noted before, the 12.5% CT rate is really a non-issue economically. Nobody will leave Ireland as a result. I doubt it will have that big a deal on future investment (assuming it stays relatively low, ie 20% or lower). Sorrell's point really sums it up. What makes Ireland tax-friendly is the fact that there are no "controlled foreign corporation" rules, which seek to tax non-Irish profits here. There are also no withholding taxes on interest or dividend payments, making it attractive to locate central Treasury functions here. Also, firms don't need much "substance" in order to get the tax breaks: a handful of employees is normally all that's required. There are lots of new economy firms here. Microsoft has 1,700 staff in Ireland and did a lot of the development work on W7 here. They got attractive R&D tax breaks, and then get favourable taxation on the licences etc they sell from here. All the major pharma companies are in Ireland for the same reason. They are not suddenly going to uproot.

    The real issue with the 12.5% is more to do with sovereignty. It actually played quite a big part in the Lisbon Treaty referendum campaign. The No campaign claimed the the Treaty would allow the EU to force Ireland to raise the rate. "Nonsense" claimed the Yes campaign. If Ireland is seen as now being forced to raise the rate the long term impact will be to ensure that the EU cannot make any Treaty changes for decades, as no Irish government will be able to get the necessary constitutional change through a referendum. And the Supreme Court here has ruled that all constitutional changes require ratification via referendum.

    Personally, I think the rate should go up, if only to show that all sectors of society need to contribute to getting Ireland out of its current mess. The loss of 45,000 people per year as a result of emigration ought to be far more of a worry to the government than threats from non-Irish companies. It should be a matter of extreme embarrassment to Fianna Fail, which grew out of the independence struggle, that emigration is now running at comparable levels to the Famine years of the 1840s. Cowen and Lenihan's legacy is going to be that British rule in Ireland at that time will be made to look enlightened.

  • Comment number 90.

    It's good to see that the ''serious'' BBC TV news channel BBC2 'Neswnight' is again ignoring the Irish bank bail out and Eurozone banking crisis.

    It's now like watching a cross between Blue Peter and John Craven's children's TV 'Newsround' every night!

    Thank goodness for the internet!





  • Comment number 91.

    Ireland may be on the front pages at the moment, but I am very much afraid that Portugal and Spain are next up. For me, Spain is the real issue. A failure there would be a Euro catastrophe!

    Will Germany abandon the Euro and protect it's own interests? It could ... wouldn't you?

    This is the mother of all messes - no mistake. A political edifice constructed upon unstable financial foundations, lacking the basic legal and financial controls considered essential to any modern economy. It was a preposterous dream. It might have conceivably worked, but to the surprise of few, it didn't.

    I hope - just this one time - that reason prevails. Punish the speculators - they gambled and lost. Recapitalize the banks because, though we may gag upon it, it is unavoidable. But just make sure that next time around we all understand what is being done in our name!

  • Comment number 92.

    This crisis is ring o' ring o' roses.

    RBS lends the Irish banks a shedful.

    Markets doubt they can pay it back.

    So the Irish governments lends its banks shedfuls

    Markets doubt the irish government can pay its debts.

    So the British government says it will back the Irish government.

    So Britain stumps up money to Ireland which stumped up for the Irish banks, which then stumps up to RBS which can then stump up what it owes to ..Britain.

    I tell you, Robert, these shenanigans, like the original, wholly irrational, credit crunch, are games designed solely to create in us all the mind set which says 'Make the rich richer, and impoverish the poor further'.

  • Comment number 93.

    #82. i wrote:

    "Anyone know how to fix a housing bubble?"

    Yes deflate it!

    This will happen very slowly and because of its slowness do immense damage. It is slow just like and fro the same reasons that the last property bubble of this type took 23 years in the UK from 1873 to 1896 (aka the Long Depression). Basically property prices decline as owners become forced sellers generally when they die.

    The other way is to recognise that it is not the decline that kills the economy it is the drawn out nature of the decline that really inflicts the damage. So the strategy them is to stick up interest rates substantially and burn out of the market over a short period those unaffordable and insane loans. By the way this is precisely the same way that inflation in any other area of the economy is handled. This 'fixes' the problem quickly and lets the economy have access to more appropriately priced assets to trade and run businesses.

    I favour the second choice as I believe any rational person should.

    Also note that debt-deflation is a necessary prerequisite for economic activity to return to growing again.

  • Comment number 94.

    EBAHGUM wrote:
    If we are in such a bad way financially, as I read and hear so constantly in the media, how on earth are we in a position to assist the Irish?
    .
    .
    .
    .
    Quite right, I thought we were being told we were bankrupt only a few months ago. I don't suppose we have much choice on this matter and look forward to the next instalment by Osbourne on the 29th November. If he has learned anything from Ireland or should I say Eire, which I very doubt, is that austerity measures sandwiched beteeen 2 bailouts is not the greatest filling. It seems now that the coalition is obviously comfortable with lending money the 7 billion to Eire which could arguably be put to better use in the UK.

  • Comment number 95.

    Ireland should follow the Icelandic and not the Japanese model. Iceland's banks went bust and the economy is now reviving nicely. Japan's weren't allowed to, with the resulting "lost decade" of deflation and virtually no growth.
    Maybe we should let RBS go-after all, in its present state it's going to be a millstone round our economic neck for a very long time!

  • Comment number 96.

    The affected banks need to write down their bad loans. Otherwise there is no bottom to the pit of losses. In times of profit, we see privatising of gains, and in times of lossess, we are seeing the attempted socialising of lossess by these banks.
    How good is that?
    Just ask the Irish taxpayer who will be funding the interest and in some cases the loss of capital with a decade of low/no growth, no government spending on the community as the taxes go to fund the cost of the loans.
    Perhaps speak to a few US citizens who have essentially been rolled into the similar position by the joint Federal Reserve/US Treasury.

  • Comment number 97.

    The recent budget has taken a large amount of government spending out of the economy. We know there are going to be many job losses in the public sector with a knock on effect into the private sector.

    At the moment, I suspect we are loosing sight of the fact that many other countries are following a similar economic path to ours, though in many cases nowhere near as severe. We tend to concentrate on the immediate problem, the Irish debt. Fair enough, but in looking at this and discussing it, it must be necessary to look at the longer term; where do we want to end up?

    So we must ask, are the actions now being proposed going to lead us into a stable longer term future within the next 2-3 years? If not in that time span, how long? It is perfectly correct for everyone in the country to ask this question and demand an answer from the politicians and economists who are now making decisions on our behalf.

    If they cannot answer, we have to draw the conclusion that they are unable to steer the UK economy; they do not have the knowledge or skill. If they can answer and say it will be longer, I would wonder why? Longer timescales are inevitably more uncertain. Stability in 20-30-40-50 years time is useless to me, I'll be dead, and I'll be a long time dead and need to live now, but not in uncertainty and poverty. We expect our leaders to know how to solve problems – is that unreasonable? For acts of god, yes, they will have problems. But our financial system is man-made, we should surely be able to control it. If we cannot, it is not fit for purpose!

    The solution is change. I suspect we only need to change the politicians and introduce controls that counteract the free-market ideas that are spoiling everything. We need to change the idea that the EU can have one currency now - maybe in 100 years when the economies are genuinely more convergent. We are trying to run before we can walk.

    [ I spent the last ten years being told that change is good. Now, there seems to be a marked reluctance for reform in the financial sector. I wonder why?] Evolution would be the best way forward. But if there is no workable solution forthcoming, I fear there will be revolution and then all bets are off.

  • Comment number 98.

    96. At 23:39pm on 18 Nov 2010, justanengineer wrote:
    ------------------
    I fully support the point you are making.

    I suggest it is time that our politicians worked for us, their constituents. I just get this sinking feeling we are the last thing on their mind. After all, we cannot go anywhere, can we? How about all retired people moving to Germany? mmmmmmmmmmm ... I wonder what would happen then ..... marmite in German supermarkets!!

  • Comment number 99.

    I just came in from work & logged on to catch up with the news. I could not believe my eyes. The Irish Finance Minister seems to be in complete denial & clearly has no idea what is happening.

  • Comment number 100.

    JayPee wrote #89 that

    “Personally, I think the [Corporation Tax] rate should go up, if only to show that all sectors of society need to contribute to getting Ireland out of its current mess. The loss of 45,000 people per year as a result of emigration ought to be far more of a worry to the government than threats from non-Irish companies. It should be a matter of extreme embarrassment to Fianna Fail, which grew out of the independence struggle, that emigration is now running at comparable levels to the Famine years of the 1840s. Cowen and Lenihan's legacy is going to be that British rule in Ireland at that time will be made to look enlightened”.

    We know over here in England that when those from the Republic start comparing the record of their Govt unfavourably with the record of the British, then things really are bad. The potato subsistence economy was unsustainable in the long run but it was the Blight that brought famine and that was an act of nature. Had Ireland ruled themselves at that time, would the outcome during and just after the Famine been any better? But bringing the debate up to the present time, the economic situation that has brought disaster and bankruptcy to the Irish economy today is clearly the responsibility of the Irish Government. The boom they created was a bubble and unsustainable.

 

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