Saturday 13 November 2010

Irish bailout , why now?

Some definite strange things going on at the moment. The news of the proposed Irish bailout is the lead story of the news today. Why now?

Ireland does not need to access the markets for months, much of the economic news coming out of Ireland in recent months is quite positive; not great, but not too bad. There are serious underlying issues, that can't be avoided, a huge amount of criminality at AIB and the other banks, clearly going into the Irish Government, has caused their extreme situation (together, of course with membership of the totally unsuitable Euro).

So why now? There is market pressure to do something. As a private investor I am happy, other people, mainly European taxpayers are going to throw some money at the situation and that will help to stabilise jumpy markets. That is a terrible reason to open up the cheque book for 80 Billion Euros.

There must be something else driving this. Perhaps the European Central bankers have decided the back stop needs to be Ireland so that Spain, Portugal and Italy do not become bigger concerns; but this could and should have been addressed months ago.

The timing is odd here, it will be interesting to find out the truth one day.


Budgie said...

It is the EU - and we poor subjects (sorry, 'citizens') of it are the last to know.

Quite simply, why are we still in the EU? We will leave sooner or later anyway; and the EU itself will crumble. So why don't we take the advantages now rather than wait for a crisis?

It will be another 'boom and bust' that the likes of Gordon Brown and his successors fail to spot. And the dozy lot at the FCO won't see it coming either.

Mark Wadsworth said...

It might help if you included a link!

This is just the Home-Owner-Ist scorched earth policy:

1. The Irish government introduces loads of tax break for 'property developers' and 'home ownership'.

2. The Irish government joins the Euro zone to reduce interest rates.

3. Inevitably, we get a land price bubble, the flip side of which is a credit bubble.

4. It pops.

5. The Irish government promise to bail out the banks, rather than forcing them to do a debt-for-equity swap.

6. Why? Because all the bondholders were French and German largely state-owned banks.

7. So the Irish government goes bankrupt, and then the next line of defence is the ECB.

8. So paying for all this is 'the taxpayer', quite which taxpayer is immaterial, and the beneficiaries of all this are 'politicians and senior bankers and large landowners'

9. It's a conspiracy, maaan!

mark said...

Talk about default by Ireland and southern Europe has the effect of temporarily weakening the Euro against the US Dollar.

If politicians or bankers or central bankers were concerned that the US Dollar was falling through the floor (and with it the Chinese currency) then a little talk of troubles in Ireland does wonders in the short term.

To win a currency war you have to say to the others: look at me I'm way worse than you, you don't want my currency at all.

Anonymous Gnome said...

Two reasons:
- political discomfort at seeing a Eurozone member caught in turmoil is a large factor. Call it the "something must be done" element if you like. The Euro is a political project and Ireland's woes are a humiliation.
- don't look at the state, look at the banking sector. The funding requirements of certain banks are allowing others to hold the Irish hostage.

Spanner Monkey said...

A more cynical perspective:

Ireland was attracting more businesses to relocate to take advantage of the low tax rates, thereby reducing the tax take of other Euro countries.

By performing the G.Brown vs Lloyds trick of leaking market unsettling rumours to precipitate a bailout (which might otherwise have been less severe at a later date) the consequence is the surrender of control of the Irish economic and financial policies to the EU.

=>No more tax haven.

james c said...

The timing isn't odd-it just follows Frau Merkel's announcement that she will let them go bust.

Anonymous said...

At the just concluded G-20 Heads of State summit in Seoul, the US did not get ANYTHING it wanted.

Before he travelled to South Korea for the G-20 meeting, President Hu of China spent almost a week in Europe. Shortly before Portugese banks were being downgraded by US ratings agencies, Mr Hu was concluding large trade deals with Portugal. He was concluding even bigger trade deals with France, and going much further. With the Seoul summit now over, France has taken over the presidency of the G-20 from South Korea. At a State dinner in his honour in Paris, President Hu publicly said that “China supports France in its efforts to ensure the success of the G-20 summit next year”. French President Sarkozy has made it clear that his top priority is a fundamental reform of the world’s monetary system, a priority he shares with Germany and, in President Hu’s own words, with China.

It is, or should be, crystal clear that the days of the global monetary system in its present form are numbered.

Continued :-

Anonymous said...

On November 12, a rumour that the Chinese government was about to further tighten the reserve requirements of their banks and increase their controlling rates sent almost ALL markets into chaos. Stock markets either stopped going up or slumped dramatically, in Asia in general and in China in particular. Commodity and precious metals prices - all denominated in US Dollars - fell sharply. The US Dollar itself abruptly ended a five-day rally on global currency markets.

One of the sources of the rumour was Goldman Sachs.

Interestingly Chinese CPI at 4%=/-includes food prices, whereas all western CPI excludes foodstuffs, and in the UK is allegedly 3.1% +/-.

Further more, Goldman in a private note to its clients advised exiting from a hold position in S E Asian equities because of anticipated inflation.

These facts coupled with Irish Headlines, which as CU states, are "curious", served to collapse the entire commodities sector, without exception, thus easing pressure on JPM and HSBC in their valiant efforts to do Gods work in the PM sector, via a change in the Hedgies algo trading activities in the entire commodities sector, thus relieving the pressure of the short squeeze.

Given that rates on bonds also increased, (very ominous), one has to wonder where the money went to!

And all this on a POMO day!

When rulers of the financial universe engage in these tactics, it shows the buggers are worried

Anonymous said...


France loves the gold.

John Connally, Treasury secretary under president Richard Nixon, had told foreign finance ministers that "the dollar was America's currency, but your problem". To solve the problem, France redeemed its dollar holdings in gold in early August 1971 by sending a French battleship to New York to take delivery of French gold from the vault of the New York Federal Reserve Bank and to bring it to the vault of the Banque de France in Paris. The French raised gold reserves and dumped dollars. Banque de France eventually increased its gold holding to 92% of its reserves.

Anonymous said...

You have to wonder at Cameroons deal with France over military ships, and his visit to China pre the G20.

And then this comes up.

Interesting times!

Anonymous said...

It is rather naive to reduce everything to the mismanagement of policy by the Federal Reserve. There is also the issue of US Gov't overspend.

Debasement of the USD has become a mechanism to normalize the labour gradient between the US and EM Asia for years.

The Chinese $ peg has had the effect of debasing their own currencies in tandem with the $, hence the grotesque and distortionary USD denominated FX reserves.

The practical aspiration to free markets is certainly not exemplified by Communist China and its mercantilist rush to growth, manipulating slave labor and destroying its own environment.

The US and China have emulated the negative aspects of their respective government/economic systems to the point that in function, there isn't much difference.

We pretend we are free, they pretend they are the "peoples" republic.

Elites still win.

Peons remain peons

Budgie said...

It is impossible to "join the Euro zone to reduce interest rates" as Mark Wadsworth claims.

The whole point about the Eurozone is that a nation cannot know in advance whether the Euro interest rates are going to be too low - or too high - or both, over time. Until the Eurozone is a true single market and single tax area with a single continental government like the USA, of course.

CityUnslicker said...

Thanks everyone, I think this might be the most interesting set of comments yet on this blog.

They leave me none the wiser, I don't think Ireland is caught up in China/US power games. Perhaps the tax increases line is what Germany and France want - this is the move I will watch for.

Anonymous said...

Maybe it's just that worse is to come; see Morgan Kelly, Professor of Economics at University College Dublin:

Mark Wadsworth said...


"The whole point about the Eurozone is that a nation cannot know in advance whether the Euro interest rates are going to be too low - or too high - or both, over time."

Quite true but irrelevant - joining the Euro had the effect of reducing interest rates in countries which had relatively high interest rates, Italy, Ireland, Greece etc.

It is I suppose conceivable to think of circumstances in which Euro interest rates could be higher than interest rates would have been in Ireland, Italy, Greece etc had they remained outside Euro-zone, but these are rather few and far between.

Budgie said...

MW said: "It is I suppose conceivable to think of circumstances in which Euro interest rates could be higher than interest rates would have been in Ireland, Italy, Greece etc ..."

Yes, it is - like now for instance.

CityUnslicker said...

touche Budgie