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Irish Government Collapses, Election March 11; How To Negotiate Debt Bond Market Haircuts

Politics / Global Debt Crisis Jan 21, 2011 - 02:40 AM GMT

By: Mike_Shedlock

Politics

Best Financial Markets Analysis ArticleIn a fitting tribute to a disgraceful performance by Irish Prime Minister Brian Cowen in which Cowen crammed losses of Irish banks down the throats of taxpayers, his government has at long last collapsed. Six cabinet members (40%) resigned representing justice, health, trade and enterprise, defense and transport. Earlier in the week his foreign minister resigned making the total six.



I have a wide selection of articles to choose from. Here is a representative sample.

Irish Central reports Irish leader Brian Cowen calls an election for March 11

Irish Prime Minster Brian Cowen has called an Irish election for March 11th.

Speaking to a packed parliament, Cowen stated that he was reassigning six cabinet portfolios after six of his ministers resigned.

The proceedings in Irish Parliament had been suspended as opposition leaders refused to move forward until Prime Minister Brian Cowen explained the six recent ministerial resignations.

Rumors of an impending collapse of the government and an immediate election were circulating as the Green Party met to decide whether they would withdraw support for the government.

Earlier today parliament was suspended after rowdy scenes. Opposition leader, Fine Gael’s Enda Kenny demanded that proceeding be suspended until Cowen could explain what was going on within the Government.

Kenny said “This is the worst government in history…This would not have happened even in the days of great dictators. It is unprecedented, what you have done.”

He continued “These are the last days of the worst government in the history of the state.”

Minister for Enterprise, Trade and Innovation Batt O’Keefe tendered his resignation this morning. Wednesday saw Mary Harney from Health, Dermot Ahern from Justice, Noel Dempsey from transport and Tony Killeen from defense all resigned. These followed the resignation of Micheal Martin from foreign affairs who resigned after a failed leadership challenge.

Kenny said that the actions of Cowen had been a “cowardly, disgraceful act” and said he was “refusing to come in here today to tell the people of his country what is happening with a Government that has imploded, with a Government that is dysfunctional, that has disintegrated, and that had let our people down”.

The Independent reports Irish government falls and calls 11 March poll

The Irish Government collapsed yesterday, with multiple ministerial resignations propelling Prime Minister Brian Cowen into setting 11 March as the date for a general election. His Fianna Fail party, which dominates the government, is widely expected to be largely wiped out in the contest, since under the Cowen leadership it has slumped to unprecedented depths in opinion polls.

In recent months he was damaged by "Garglegate", when he was judged to have performed badly in a morning radio interview after a late night of drinking with journalists and others. Next came "Golfgate" when we learnt that as finance minister he had played golf and had dinner with the banker Sean Fitzpatrick, regarded as possibly Ireland's most toxic figure, since he above all others is blamed for the economic disaster.

Many Fianna Fail members of the Dail, the Irish parliament, have announced they are not standing again, because they are unlikely to be re-elected or because they realise they will face years in opposition.

The election was precipitated during a day of turmoil after the small Green party, which has kept Fianna Fail in power, called for a contest in March. Four Fianna Fail ministers, plus a long-time supporter, then announced their resignations. In what is viewed in Dublin as an extraordinary move, Mr Cowen then redistributed their portfolios with some of his remaining ministers taking on extra responsibilities. Mary Hanafin, for example, has become Minister for Trade, Enterprise, Innovation, Tourism, Culture and Sport.

Fianna Fail has traditionally been the largest in the Irish Republic but recently hit a record low of 13 per cent in the opinion polls.

This has led to predictions that Fianna Fail could drop from more than 70 seats to fewer than 20, a result which would represent a seismic change in Ireland's political patterns. There are certainly obvious signs of a widespread loss of public confidence in Fianna Fail. A disaffected backbencher said recently: "The people just don't trust us. We got arrogant and got disconnected and wouldn't listen. The people are very angry and you can't blame them."

Yahoo! News reports Irish premier sets early election for March 11

Cowen's Fianna Fail party has fallen to record-low levels of support after leading the country from the Celtic Tiger boom to the edge of national bankruptcy. Adding to the sense of chaos, the prime minister managed to bring his own administration to the brink of collapse Thursday through an ill-calculated bid to inject his Cabinet with fresh blood.

Five ministers — a third of Cowen's Cabinet — resigned from the departments of defense, justice, health, transport and trade between Wednesday night and Thursday morning because they were not planning to seek re-election. Cowen hoped to promote five new lawmakers in their place to boost their pre-election profiles.

But the gambit provoked fury in parliament and a backlash from Cowen's coalition partners in government, the environmentalist Green Party. Cowen spent the morning pleading with the Greens to back the election of the new Cabinet ministers but they refused and demanded that he set an election date.
When Cowen finally appeared in parliament, he appointed five current Cabinet ministers to take on the additional departments for the next few weeks before parliament is dissolved in mid-February. The move avoided the need for a parliamentary vote that Cowen was sure to lose.

Fianna Fail lawmakers expressed dismay that their leader hadn't seen the Green opposition coming.

"I'm really infuriated by what's happened. ... Whatever his great plan was, it has totally backfired," said Fianna Fail lawmaker Tom Kitt. "I've never seen anything like it."

Ireland has nationalized four of the six Irish-owned banks and repaid tens of billions to foreign bondholders. It spent two years trying to fund the bank bailouts itself, but the cost drove Ireland's 2010 deficit to 32 percent of gross domestic product and forced the country to negotiate a euro67.5 billion ($91 billion) bailout loan with the European Union and the International Monetary Fund.

So far Ireland has received euro5 billion ($6.7 billion) of those funds. The two opposition parties expected to win the March 11 election and form the next coalition government, Fine Gael and Labour, have pledged to reopen negotiations with the EU and IMF.

The Mail Online reports Beleaguered Irish PM calls general election for March 11 after failing to push through Cabinet reshuffle

Irish Prime Minister Brian Cowen has set a date of March 11 for an general election that will provide a stern test for his deeply unpopular government.

The Taoiseach [Prime Minister] was forced into a humiliating climbdown in his plans to replace five Cabinet ministers with junior members of his Fianna Fail party.

Resignations: Justice minister Dermot Ahern (left) and health minister Mary Harney, seen here after being pelted with red paint) are among the five cabinet members to quit

How To Negotiate Haircuts

The two opposition parties expected to win the March 11 election and form the next coalition government, Fine Gael and Labour, have pledged to reopen negotiations with the EU and IMF.

I offer the following suggestions on how to negotiate.

The correct procedure is to announce intent to default with a statement something like "The Irish government refuses to bailout UK, German, French, and US banks too stupid to realize that Ireland was in the midst of a gigantic property bubble."

Now doubt EU, ECB, and IMF will offer to cut interest rates to 2% or some such number, perhaps even 0%.

The correct response to that sort of nonsense should be "This is not be a question of interest rates. This is a question regarding principal and principles. In regards to the latter, Irish taxpayers cannot and will not make whole foreign investors whole for their piss poor decisions. In regards to the former, and as a gesture of goodwill, we are prepared to offer 2 cents on the dollar for all debts owed."

That should set an appropriate tone for the "negotiations". It will also send bondholders a very badly needed message.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2011 Mike Shedlock, All Rights Reserved.


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