Sunday 28 November 2010

Another Sunday, Another Irish bailout

Storm clouds gather again
Here we go again, hot of the Pestowire (showing signs of life recently now that world financial confliction is back upon us?), news that the UK is to offer the biggest bilateral loan to Ireland. At 5.8% no less. Which all in all is a pretty good deal given that the UK is currently borrowing from the markets at 3.3%.

A cool £96 million profit there for the UK in arbitrage terms - beware what you read about the UK adding to its woes here, it is nothing of the sort. Worse news for Ireland though is that teh National Pension fund is being pressed in for the bailout. If this does not work, there is nothing left - the Eurocrats are forcing everything to be bet on the non-default scenario.

However, also coming out it the news that the Germans are up for doubling the Euro Bailout fund so that it can cope with a Spain rescue in the near future. This will be another drain on UK resources and the margins on the loans won;t be so attractive compared to our increasing debt burden.

All in all I quite like this as it means we reach the end game sooner - we will learn whether there is enough political and economic capital to save the Euro during this crisis. Sadly, as it is an economic millstone, I think it will be saved.


Bill Quango MP said...

The banks are also being cut down to size, by hiving off their more poisonous loans and forcing them to sell "non-core" assets.

I keep reading this. But what do they mean by "non-core " assets?

Old BE said...

Surely things like foreign subsidiaries which can be offloaded for a quick cash infusion?

Marchamont Needham said...
This comment has been removed by the author.
Anonymous said...

The Euro is down on the news, Portugal and Spain are back on the radar.
We only make a profit if they pay us back, right? Seeing as 57% of Irish people (poll of 500) want the government to default, before they have felt the effect of the spending cuts, I doubt they would repay us.
But mathematically they must be close to a debt spiral, where they can't pay their debts even if they wanted to.
I've bet the Euro fails.

Laban said...

That's a painful interest rate, which must make the maths dubious - I presume someone is doing the sums and thinks it'll work.

But using the pension fund really is betting the whole house on black. If it fails ...

Old BE said...

I read somewhere that a simple rule of thumb is that if your real interest rate is higher than the long-term growth rate of the economy you are stuffed.

Anonymous said...

But it doesn't stop here. Look at how European banks are interconnected..

hovis said...

CU I'm with you that it will be saved - for the moment - another three years before the crisis plays out fully IMHO. In other words about the time that Greece and others have to come back to the market to refinance.

Do you truly think they will get away with imposing fiscal union? Anthing less is simpply kicking things along a few years.

Anonymous said...

Seems to me that lending banks are being prepared for a haircut in time.

Basel 111 does not require any reserves to be held against sovereign have to wonder! Some stress tests!!

UK, US, and EU are printing, as are China and Japan, just to name the biggies.

Additionally, 5% is nowhere near true inflation, so it "should" be repayable, but you have to give inflation more time to works its magic. IMF is on record as wanting western gov'ts to target 4%-ish inflation, and unlike China who include food in their CPI, if 4% is targeted in the west (by money printing) the peons are really peed-on.

Hungary is now demanding (with threats) the surrender of private pensions accrued, into the public pot. That's the second nation to follow this route, with mutterings from the US....

I suppose a lot depends on the rate of contraction of the shadow banking system, and how it's handled.

BIS and Fed seem to not be too friendly right now. And the Fed has just screwed Taiwan/Chinese investors out of $700B,---Chinese gov't watching with interest.

Blowback? Guaranteed!

It seems that something is being planned for 3 years time!

Could come sooner.

Anonymous said...

Anonymous said...

First Argentina, second Hungary, third Ireland, fourth France..

When is it the turn of the UK private pensions to be stolen?

Anonymous said...

"We very much enjoy the view of Michael Cembalest (CIO, JPM Private Bank) when it comes to the sensitive topic of geopolitics, as it tends to provide that incremental perspective over and above what otherwise his and other banks would skirt around due to conflicts of interest (after all they are banks). Today, in his Eye on the Market report, Cembalest looks again at the Irish bailout. And while his summary of the 4 key dynamics (in his opinion) is certainly spot on, it is his footnote that caught our attention, as it carries in it the most pertinent information: namely, that since its bankruptcy and currency devaluation, Iceland's economy and stock market have surged, unbound by the shackles of a zombie monetary system and exponentially growing debt. Ireland, to the contrary, can only hope for at best a gradual decline in its economic output instead of an outright collapse now that European Commission council is the country's new politburo. It can also, at best, hope that its pension fund will have a few penny farthings left for the aging population once it is done rescuing Europe's banks. It is precisely this option that a formerly democratic country refused to offer its citizens, and is the reason why its entire government should be tried for treason: instead of using empirical evidence that default and devaluation is the best outcome, Ireland crumbled to the interests of a few parasite plutocrats, which have just their own interests in mind, and never those of the host nation (which ends up being abused and discarded like a used condom off the side of the road)"

Weekend Yachtsman said...

I think it will be saved too; not that my economic opinion is worth even a pre-war Dime, but the fact is that the Euro elites will go to any length, perhaps even including war (which would be a delicious irony) in order to keep "the project" on track.

We cannot rely on this thing blowing itself up, we have to grow a pair and leave.

Call-me-Dave is not the man to do that, of course; we may be doomed.

But despair is a sin.