Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

IMF and EU Hammer Ireland

Economics / Economic Austerity Nov 30, 2010 - 04:13 AM GMT

By: Mike_Whitney

Economics

Best Financial Markets Analysis ArticleThe terms of the EU/IMF's €85 billion ($113 billion) bailout for Ireland are much worse than analysts had anticipated. Ireland will be required to use its National Pension Reserve Fund (NPRF) to shore up its insolvent banks and to maintain government operations. At the same time, senior debt-holders will not share any of the losses brought on by the banks reckless lending. According to Bloomberg News, "Prime Minister Brian Cowen told reporters there had been no support in talks to ask senior bondholders to lose part of their stake on loans made to Ireland's debt-crippled banks." Thus, 100 percent of the EU/IMF's €85 billion "Financial Rescue Package" will be paid for by Irish taxpayers.


This is a very bad deal. Irish workers have already endured nearly 3 years of depression-type conditions with shrinking wages, soaring unemployment and dwindling home equity. Now Brussels is taking aim at pensioners to save bondholders in Berlin and Paris from any losses on their bad bets. And that's not all. Here's an excerpt from the government's statement:

"The facility will include up to €35 billion to support the banking system; €10 billion for the immediate recapitalisation and the remaining €25 billion will be provided on a contingency basis. Up to €50 billion to cover the financing of the State.....If drawn down in total today, the combined annual average interest rate would be of the order of 5.8% per annum."

This is nothing but extortion. If Ireland wants to put its banks on solid footing, there's a way to do it that doesn't involve years of debt-slavery for its people. The government can underwrite the banks with a €10 billion loan from the Pension Reserve Fund that will guarantee deposits while the banks are nationalized and restructured. It is an excruciating process, but it's been done many times before. Ireland does not have to accept indentured servitude if it chooses not to.

And why would the government even consider paying an interest rate of 5.8% per annum? Interest rates should be the same as they are for the banks; 1 percent. Should a sovereign nation get a worse interest rate than a crooked banker who ripped off millions of investors?

Besides, Ireland is in the drivers seat. It's Ireland that should be making the demands, not the IMF or the EU. After all, the government currently owes the European Central Bank more than €130 billion. If the ECB wants to get its money back, it should be flexible about the conditions. Otherwise, Ireland can simply cut off negotiations and let the ECB hire a collection agency. See what good it does them.

Here's more from the government's statement: "The Programme for Support lays out a detailed timetable for the implementation of the measures contained in the National Recovery Plan....The Programme has two parts – the first part deals with bank restructuring and reorganisation and the second part deals with fiscal policy and structural reform."

(Note--Bank restructuring is a moot point. Ireland can use its own national pension fund to guarantee deposits and underwrite loans.)

"The Programme endorses the structural reforms contained in the Plan which will underpin a return to sustainable economic growth over the coming years....The Programme endorses the Irish Government’s budgetary adjustment Plan of €15 billion over the next four years, and the commitment for a substantial €6 billion frontloading of this plan in 2011....The adjustment will be made up of €10 billion in expenditure savings and €5 billion in taxes...."

In other words, more penance for the victims. More belt-tightening, higher unemployment, more foreclosures, fewer social services, slower growth, and an ever-deepening slump. And for what? To be a member-in-good-standing in Brussel's Banktopia?

German chancellor Angela Merkel had been pressing other EU leaders to create a framework in which senior debt-holders would share losses with taxpayers in the future. On Sunday, Eurogroup Ministers announced the creation of a European Stability Mechanism (ESM) which was designed to address Merkel's concerns. It works like this: If a member state appears to be insolvent, then they must agree to a "restructuring plan" that may involve haircuts for bondholders. So far, so good, only that's not the way the ESM will work. Here's an excerpt from the Statement by the Eurogroup which explains why:

"This would enable the creditors to pass a qualified majority decision agreeing a legally binding change to the terms of payment (standstill, extension of the maturity, interest-rate cut and/or haircut) in the event that the debtor is unable to pay......We restate that any private sector involvement based on these terms and conditions would not be effective before mid-2013." Statement by the Eurogroup, Financial Times)

So, an insolvent country (like Ireland) would need to get "majority" approval before it could declare bankruptcy. How's that going to work if the other countries are only interested in protecting their own bondholders? Surely, they would block the process.

Jean-Claude Juncker, the head of the Eurogroup, more or less admitted that the ESM was a fraud when he said that "private creditors would be forced to take losses only if ministers agreed unanimously that the country had run out of money." (Bloomberg) There's no way that German government officials would allow a country like Ireland to declare bankruptcy if its own banks stood to lose billions of dollars. (which they would)

This should remove any doubt about whose interests are really served by the Eurogroup.

Prime Minsiter Brian Cowen has sold out Ireland bigtime. The so called "rescue package" should have been rejected outright. It merely provides shady bankers with more money for speculation while condemning the rest of the population to years of grinding poverty and high unemployment. It's a "lose-lose" situation. Here's a blurp from a post titled "Ireland is Bankrupt...letter from an Irish citizen" which seems to sum up the mood pretty well:

"It doesn't matter that we struggled for 800 years to achieve independence, that millions died in the process; it doesn't matter that the folk memory of harsher times is still very much alive; none of this mattered to the few generations that have dismantled our country institution by institution and thrown the Irish people to the wolves..... Our political system is in ruins. The people have lost all faith in their elected representatives.

They feel that welfare for the wealthy, bailouts for crooked corporations and rewards instead of punishments for embezzlement and thievery is the rule of the land. ... Our independent republic is less than a century old and already it's in smithereens -- we're in the gutter and being dictated to by the UK, Germany, France and the IMF. Mr. Ajai Chopra is our new vice-chancellor, our new Taoiseach, our new overlord and big boss and we've just been recolonized, first by our own brood of inbred gangsters and now by international bankers....

...But the blame game serves no useful purpose now: we're all fucked." (Ireland is Bankrupt...a letter from an Irish citizen", angrybearblog.com)

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2010 Copyright Mike Whitney - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Whitney Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Elizabeth
01 Dec 10, 18:48
The saddest post of the week

It is not very often that a post on here makes me cry, but the letter from an Irish citizen did just that.

How very , very true, and what a sad betrayal of the proud Irish people. My thoughts are with them.


Roger
02 Dec 10, 14:41
The saddest post

'Tis a blessing to the ruler that the common man can't (or in the case of many countries citizens - will not, or can't be bothered to)think. With apologies to Napoleon


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules