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The Troika Knows That Confidence Fairies Don’t Want To Know. It Makes Them Uncomfortable

It isn’t easy being the ECB. For starters, the Euro­pean Cen­tral (ECB) faces so many pesky ques­tions: Blah blah blah bailouts. Blah blah blah we want to see the notes on delib­er­a­tions. Blah blah blah Free­dom of Infor­ma­tion Requests. Blah blah blah we’re tak­ing you to court. Etc. How is any­one sup­posed to have any con­fi­dence in the insti­tu­tion’s author­i­ty with all of these ques­tions being bandied about?

Being the ECB does have it’s perks though. For starters, if you’re an elite insti­tu­tion in the ever-evolv­ing euro­zone, trans­paren­cy isn’t real­ly an issue [1]:

ECB With­hold­ing Secret Greek Swaps File Keeps Tax­pay­ers in Dark
By Gabi Thesing, Elisa Mar­t­in­uzzi & Alan Katz — Nov 29, 2012 6:01 PM CT

The Euro­pean Cen­tral Bank’s court vic­to­ry allow­ing it to with­hold files show­ing how Greece used deriv­a­tives to hide its debt leaves one of the region’s most pow­er­ful insti­tu­tions free from pub­lic scruti­ny as it assumes even more reg­u­la­to­ry pow­er.

The Euro­pean Union’s Gen­er­al Court in Lux­em­bourg ruled yes­ter­day that the cen­tral bank was right to keep secret doc­u­ments that would reveal how much the ECB knew about the true state of Greece’s accounts before the coun­try need­ed a 240 bil­lion-euro ($311 bil­lion) tax­pay­er-fund­ed res­cue.

The case brought by Bloomberg News, the first legal chal­lenge to a refusal by the ECB to make pub­lic details of its deci­sion-mak­ing process, comes a month before the cen­tral bank is due to take respon­si­bil­i­ty for super­vis­ing all of the euro- area’s banks. The cen­tral bank already sets nar­row­er lim­its on its dis­clo­sures than its U.S. equiv­a­lent, the Fed­er­al Reserve. The court’s deci­sion shows the ECB has too broad a dis­cre­tion to reject requests for dis­clo­sure, aca­d­e­mics and lawyers said.

“It’s a very dis­turb­ing rul­ing,” said Olivi­er Hoede­man of Cor­po­rate Europe Obser­va­to­ry, a Brus­sels-based research group that chal­lenges lob­by­ing pow­ers in the EU and cam­paigns for the account­abil­i­ty of EU bod­ies. “It is such a sweep­ing, blan­ket state­ment that it under­mines the right to know.”

Bloomberg sought access to two inter­nal papers draft­ed for the cen­tral bank’s six-mem­ber Exec­u­tive Board. The first doc­u­ment is enti­tled “The impact on gov­ern­ment deficit and debt from off-mar­ket swaps: the Greek case.” The sec­ond reviews Tit­los Plc, a struc­ture that allowed Nation­al Bank of Greece SA, the country’s biggest lender, to bor­row from the ECB by cre­at­ing col­lat­er­al from a secu­ri­ti­za­tion of swaps on Greek sov­er­eign debt. The bank loaned 5.4 bil­lion euros to the gov­ern­ment.
Mario Draghi

ECB Pres­i­dent Mario Draghi said on Oct. 4 that the ECB “is already a very trans­par­ent insti­tu­tion,” cit­ing the fact that he holds a month­ly press con­fer­ence after its rate deci­sion, tes­ti­fies to law­mak­ers, gives inter­views and makes speech­es.

In yesterday’s deci­sion, the court upheld the ECB’s opin­ion that the doc­u­ments sought by Bloomberg could dam­age the pub­lic inter­est and aggra­vate Europe’s finan­cial cri­sis.

“The ECB must be rec­og­nized as enjoy­ing a wide dis­cre­tion for the pur­pose of deter­min­ing whether the dis­clo­sure of the doc­u­ments relat­ing to the fields cov­ered by that excep­tion could under­mine the pub­lic inter­est,” the three judges said in their rul­ing. Excep­tions “must be inter­pret­ed and applied strict­ly,” they said. An ECB spokes­woman said the cen­tral bank wel­comed the court’s deci­sion.


The ECB’s dec­la­ra­tion last year that it must enjoy a “wide dis­cre­tion” over what Greek bailout delib­er­a­tion notes are made pub­lic due to con­cerns that the infor­ma­tion might “inflame [1]” the mar­kets presents quite a conun­drum giv­en that such dec­la­ra­tions tend to also inflame the pub­lic. It’s an exam­ple of why it isn’t easy being the ECB.

Anglo Irish Has Many “Interest”-ing Secrets
There are those ECB perks, how­ev­er. Like the lack of any com­mit­ment to demo­c­ra­t­ic account­abil­i­ty. It’s a perk that Greece is has been famil­iar with with quite a while now. Ire­land also knows of this perk quite inti­mate­ly. The coun­try end­ed up bail­ing out a hand­ful of its banks for a mas­sive price tag in late 2010, mak­ing Ire­land’s pub­lic liable for an 85 bil­lion euro bailout. It was a fate­ful day for Ire­land [2] because aus­ter­i­ty was price. It’s been a tough slog for Ire­land ever since. The rene­go­ti­a­tion of those mas­sive bailouts has been goal ever since too. For a coun­try the size of Ire­land, the 85 bil­lion euros bailout it had to accept after nation­al­iz­ing pri­vate bank debt was a “death spiral”-league bailout. And death spi­rals tend to prompt ques­tions. Pesky ques­tions. Blah blah blah bailouts. Blah blah blah we want to see the notes on delib­er­a­tions. Blah blah blah Free­dom of Infor­ma­tion Requests. Blah blah blah we’re tak­ing you to court. For­tu­nate­ly for the ECB, trans­paren­cy is most­ly option­al [3]:

Probe into ECB’s refusal to release secret bailout let­ter

GAVIN SHERIDAN and TOM LYONS – 13 Jan­u­ary 2013

THE Euro­pean Ombuds­man has begun a for­mal inves­ti­ga­tion into the Euro­pean Cen­tral Bank’s refusal to release the let­ter that bounced Ire­land into the bailout.

Two senior exec­u­tives from the Ombuds­man trav­elled to the ECB’s head­quar­ters in Frank­furt in Decem­ber to view the let­ter which the bank is refus­ing to allow the cit­i­zens of Ire­land to see.

The deci­sion to car­ry out an inves­ti­ga­tion fol­lows a com­plaint against the ECB of “mal­ad­min­is­tra­tion” by jour­nal­ist Gavin Sheri­dan. The ECB has refused to release the let­ter dat­ed Novem­ber 19, 2010, for over a year on the basis that it claims it is not in the “pub­lic inter­est” for Irish cit­i­zens to see “can­did com­mu­ni­ca­tions” between the ECB and nation­al author­i­ties.

This let­ter is marked “secret”, and its pub­li­ca­tion has been blocked at the high­est lev­els of the ECB. The Euro­pean Ombuds­man asked Sheri­dan on Fri­day to pro­vide it with any addi­tion­al “obser­va­tions” before mak­ing its crit­i­cal deci­sion.

The Sun­day Inde­pen­dent and Sheri­dan have appealed the Depart­ment of Finance’s deci­sion to refuse this same let­ter to the Infor­ma­tion Com­mis­sion­er.

In cor­re­spon­dence, Min­is­ter for Finance Michael Noo­nan urged the Sun­day Inde­pen­dent to appeal the Depart­ment of Finance’s pre­vi­ous deci­sion to refuse the release of the let­ter.

On doing so, oth­er let­ters sent between the late Bri­an Leni­han and Jean-Claude Trichet were released, but the key let­ter of Novem­ber 19, 2010, was again with­held.

That still-secret let­ter between Ire­land’s for­mer Min­is­ter of Finance, Bri­an Leni­han, and for­mer head of the ECB Jean-Claude Trichet must hold quite a few juicy secrets. Mas­sive, hasti­ly approved bailouts tend to involve such things. And if the let­ters between Leni­han and Trichet that have been revealed so far are an indi­ca­tion of what we can expect those still secret let­ters to con­tain we can expect those secrets to be espe­cial­ly juicy. Mas­sive, hasti­ly approved bailouts that send nations into debt death spi­rals tend to involve things like juicy secrets, espe­cial­ly when they’re bailouts agreed to under duress [4]:

Revealed: Full extent of Leni­han’s capit­u­la­tion to Trichet and Europe

Daniel McConnell – 02 Decem­ber 2012

The ECB’s hawk­ish boss laid down the law to a bro­ken and hap­less Finance Min­is­ter, writes Daniel McConnell

ON Decem­ber 9, 2010, two days after he had deliv­ered his final-ever Bud­get, Bri­an Leni­han was at a low ebb. As the snow fell heav­i­ly out­side his Mer­rion Street office win­dow and peo­ple out­side slipped on the icy pave­ments, Leni­han, iso­lat­ed, defeat­ed and in fail­ing health, sat in his office and for­mal­ly com­mit­ted Ire­land to the penal terms of the bank res­cue. It had been ordered by the ECB but the Irish tax­pay­er would pay for it.

While the over­rid­ing nar­ra­tive that the inno­cent cit­i­zens were screwed into bail­ing out our tox­ic banks has long been rehearsed since those dark days of Novem­ber 2010, for the first time today we reveal how pathet­ic Leni­han’s capit­u­la­tion real­ly was.


On that cold Decem­ber day, fol­low­ing rounds and rounds of bruis­ing meet­ings and nego­ti­a­tions, Leni­han wrote to the head of the Euro­pean Cen­tral Bank, Jean-Claude Trichet, com­mit­ting the Irish tax­pay­er to what­ev­er future bailout of Irish banks would have to take place.

Today, for the first time, we reveal the con­tents of that let­ter, which has final­ly been released to the Sun­day Inde­pen­dent and Gavin Sheri­dan, jour­nal­ist with thestory.ie, under the Free­dom of Infor­ma­tion Act – two years after the fact.

Beat­en and weary, Leni­han had had no suc­cess with his argu­ment that Ire­land, by issu­ing the blan­ket bank guar­an­tee in Sep­tem­ber 2008, had come to the res­cue of Europe and that – giv­en Ire­land’s woes – Europe should now meet some of the cost of that bailout.

Trichet was not for turn­ing. Only five weeks ear­li­er, he had bul­lied the Finance Min­is­ter into the €85bn Troi­ka bailout and he was not about to give an inch on shar­ing the bur­den of fix­ing the bro­ken Irish bank­ing sys­tem.

Leni­han’s com­mit­ment, con­tained in the let­ter, that “any addi­tion­al cap­i­tal require­ments for restruc­tur­ing Anglo Irish Bank and Irish Nation­wide must be cov­ered with cash injec­tions by the Gov­ern­ment”, along with a sim­i­lar promise for the oth­er “viable banks”, ulti­mate­ly cost the Irish tax­pay­er €24bn, as revealed by his suc­ces­sor, Michael Noo­nan, in late March 2011.

An ini­tial read­ing of the let­ter would sug­gest that this was the Irish min­is­ter act­ing off his own steam, affirm­ing com­mit­ments to the troi­ka, when, in truth, the penal com­mit­ments signed up to by Leni­han had been agreed fol­low­ing intense dia­logue over sev­er­al weeks.

They illus­trate how poor­ly the Irish team per­formed in those nego­ti­a­tions.

“The Irish author­i­ties agree the fol­low­ing addi­tion­al clar­i­fi­ca­tion regard­ing the imple­men­ta­tion of the mea­sures agreed [with the troi­ka],” Leni­han wrote.

Para­noid about the impact this let­ter would have on the finan­cial sta­bil­i­ty of the Irish State, Leni­han said it was not pos­si­ble to make the con­tents of the let­ter pub­lic for fear that it would under­mine gov­ern­ment author­i­ty.

“These clar­i­fi­ca­tions are being pro­vid­ed in respect of a lim­it­ed num­ber of spe­cif­ic issues, which it is not pos­si­ble to dis­close pub­licly on account of legal risks, com­mer­cial, mar­ket and finan­cial-sta­bil­i­ty con­sid­er­a­tions, which would under­mine the author­i­ties’ abil­i­ty to imple­ment those mea­sures or ren­der them more cost­ly,” he wrote.

That is cer­tain­ly some seri­ous but under­stand­able para­noia: Ire­land’s Min­is­ter of Finance Bri­an Leni­han was basi­cal­ly forced to agree to terms that would bla­tant­ly under­mine the long-term sol­ven­cy of the entire nation. Pret­ty much any info that you dis­close regard­ing such deals tend to be unhelp­ful for shoring up mar­ket “con­fi­dence”, and that would result in a rise in inter­est rate costs and the over­all long-term costs of any such bailout. It’s a prob­lem.

Pub­lic dis­clo­sure, it’s often argued, can dis­rupt the free exchange of ideas [5]. But the par­tic­u­lar sit­u­a­tion where dis­clo­sure of infor­ma­tion about the ratio­nal and nego­ti­a­tions that went into the devel­op­ment of a pol­i­cy would dam­age the pub­lic by reveal­ing just how dam­ag­ing the ini­tial pol­i­cy ratio­nal is can become a par­tic­u­lar­ly acute prob­lem. Espe­cial­ly when the poli­cies involve banker bailouts paid for by pub­lic aus­ter­i­ty.

It also does­n’t help when the “bailout” is real­ly an inter­na­tion­al loan to a small nation to finance the bailout of for­eign pri­vate bank bond­hold­ers. A rel­a­tive­ly high-inter­est loan [6].

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The most telling aspect of this let­ter is that it placed the future bur­den of bank bailouts on the Irish tax­pay­er – with­out any ref­er­ence to any Euro­pean insti­tu­tion or bank shar­ing any of the bur­den.

This is despite the lat­ter’s con­tin­ued gam­ble on Ire­land dur­ing the boom.

Leni­han, on the direct orders of Jean-Claude Trichet – and despite hav­ing saved Europe in 2008 by not allow­ing Anglo or Irish Nation­wide to go to the wall – was at this point in 2010 hav­ing to accept the full cost of any future bailout. We lat­er found out that this would be €24bn.

We know from Finance Min­is­ter Michael Noo­nan in ear­ly Sep­tem­ber that Leni­han was direct­ly threat­ened by Trichet by way of let­ter that unless Ire­land went into a bailout emer­gency fund­ing from the ECB would be cut off.

Noo­nan said he had seen the “very direct” let­ter, which left Mr Leni­han with “lit­tle or no option” but to admit defeat.

Since leav­ing his post, Trichet has also insist­ed that this let­ter should remain con­fi­den­tial and not be released, despite the clam­our in Ire­land for its pub­lic dis­clo­sure. But what­ev­er the con­tents of that let­ter, the con­tents of what we are pub­lish­ing today rep­re­sent the strongest sup­port­ing evi­dence as to why Ire­land deserves a deal on its debt.

Fol­low­ing on from Greece’s major debt-reduc­tion deal last week – which amounts to its third default in less than 18 months – time is run­ning out for Noo­nan and the Gov­ern­ment to deliv­er a major debt reduc­tion. Many are ask­ing what does Greece have that Ire­land does­n’t?


While Ire­land con­tin­ues to “bump along the bot­tom,” the great­est obsta­cle to growth is the size of our debt. If we can get a deal, then Ire­land’s chances of recov­ery are strong. But if we don’t, then we will be lost for over a decade.

The poor poor ECB. There’s just one par­tic­u­lar still-secret 2010 let­ter where for­mer ECB chief Jean-Claude Trichet direct­ly threat­ens Ire­land’s finance min­is­ter that the ECB’s emer­gency fund­ing to Ire­land will get cut off unless Leni­han agrees to bailout terms that places the entire bur­den of the pri­va­tized Irish bank debt on the Irish tax pay­er with­out any sort of assis­tance from Ire­land’s much larg­er euro­zone part­ner. And that pesky pub­lic still wants to see that let­ter even though the ECB and Irish gov­ern­ment has released all sort of oth­er doc­u­ments that clear­ly indi­cate that Ire­land was giv­en no choice and ordered to accept a deal that was bla­tant­ly against the Irish pub­lic’s inter­est and great­ly in the inter­ests of for­eign pri­vate bank cred­i­tors. Why can’t the pub­lic sim­ply under­stand that if the Anglo Irish bailout let­ters were to be made pub­lic, that will dis­cred­it the Irish gov­ern­ment and the ECB, com­pli­cat­ing the recent Anglo Irish bailout rene­go­ti­a­tions? Why can’t the pub­lic just have con­fi­dence, with­out any of the infor­ma­tion required to jus­ti­fy that con­fi­dence? A lil’ faith in the ECB nev­er hurt any­one.

Infor­ma­tion Can Be Dan­ger­ous, Past and Present
And please no ques­tions about about that recent renegotation...the details about an ongo­ing Anglo Irish debt bailout rene­go­ti­a­tion could appar­ent­ly under­mine the entire Euro­pean finan­cial sys­tem. And the inter­est pay­ments on that Ango Irish bailout debt are just start­ing to kick in this year so rene­go­ta­tions are urgent. So please, no ques­tions. Bad things will hap­pen [7]:

Irish Exam­in­er
ECB refus­es to dis­cuss talks on promis­so­ry notes

Fri­day, Jan­u­ary 18, 2013

As Irish offi­cials con­tin­ue to insist there is an immi­nent deal on the Anglo Irish promis­so­ry notes the ECB is claim­ing that releas­ing or even com­ment­ing on any details of a deal would under­mine the entire Euro­pean finan­cial sys­tem.

By Vin­cent Ryan
In response to a free­dom of infor­ma­tion request from the Irish Exam­in­er for doc­u­ments in rela­tion to the ongo­ing nego­ti­a­tions between the ECB and the Irish author­i­ties. the direc­tor gen­er­al of the ECB sec­re­tari­at, Pierre van der Hagen, said they could not go beyond acknowl­edg­ing that nego­ti­a­tions are in train.

“Doc­u­ments relat­ing to the on going devel­op­ments sur­round­ing the Anglo Irish promis­so­ry notes can­not be dis­closed, as even par­tial dis­clo­sure would under­mine the pro­tec­tion of the pub­lic inter­est as regards mon­e­tary pol­i­cy of the union and the finan­cial or eco­nom­ic pol­i­cy of Ire­land, and the sta­bil­i­ty of the finan­cial sys­tem in the union and in Ire­land.” he said.


The struc­tur­ing of the deal on the Anglo Irish promis­so­ry notes by the pre­vi­ous gov­ern­ment means that inter­est pay­ments would only come into effect from this year. The Taoiseach Enda Ken­ny has been push­ing to try and get a deal on the promis­so­ry notes before crip­pling inter­est pay­ments kick in, which threat­en to derail Ireland’s recov­ery.

How­ev­er, Sinn Féin’s finance spokesper­son, Pearse Doher­ty, said it was very much in the pub­lic inter­est that the sta­tus of the nego­ti­a­tions be revealed so that the fudge that was orches­trat­ed last year in rela­tion to the pay­ment of the €3.1bn is not repeat­ed.

“We’re less than three months to this note being paid. We went through the same rig­ma­role last year and it tran­spired no deal had been achieved. It’s very much in the pub­lic inter­est to know what, if any, nego­ti­a­tions are ongo­ing and we deserve to be kept informed and for the process to be more trans­par­ent,” he said.

The rene­go­ta­tion of that 2010 bailout of Ire­land — a bailout neces­si­tat­ed by the 2008 bailout of Anglo Irish and a hand­ful of oth­er major prop­er­ty lenders — has been a major pub­lic issue in Ire­land for the past cou­ple of years. Last Octo­ber, Angela Merkel freaked out Ire­land [8] by tak­ing a hard­line stance against a rene­go­ti­a­tion of that crip­pling bank debt [9]. But every­one also knew that it’s pret­ty much a giv­en that Ire­land’s mas­sive bank debt will some­how be rene­go­ti­at­ed to a less oner­ous lev­el at some point. It’s just absurd­ly high [10] for a coun­try the size of Ire­land. And sure enough, in ear­ly last month some debt was indeed rene­go­ti­at­ed: The 2008 bailout of Anglo Irish bank, the largest of the Irish prop­er­ty lenders, was sched­uled to cost Ire­land 47 bil­lion euros over the next 20 years [11], with 3.1 bil­lion to be paid each year until 2023 and inter­est pay­ments enough to increase the deficit by a full per­gen­t­age [12]. Anglo Irish’s debt repay­ments were guar­an­teed to be an alba­tross hang­ing around Ire­land’s neck for a long time. And the inter­est on the debt was due to start this year. Things were not look­ing good for those insti­tu­tions charged with heal­ing Ire­land’s econ­o­my or the entire “aus­ter­i­ty first” mod­el that the euro­zone appears to be devel­op­ing would be put into ques­tion. Ire­land is con­sid­ered one of the rel­a­tive “suc­cess” sto­ries in the euro­zone. Some­how that debt bur­den had to be reduced.

So there was even­tu­al­ly a rene­go­ti­a­tion of that Anglo Irish debt. The over­all debt was­n’t for­giv­en, of course. That’s not how the ECB rolls. Instead, the pay­back peri­od got pushed back 25 years so prin­ci­ple repay­ment can start in 2038 instead. There will still be inter­est pay­ments [13] in the inter­im, but 25 years of infla­tion (plus inter­est) should make the crush­ing nation­al­ized pri­vate bank debt some­what less crush­ing [14]:

Ire­land hails his­toric debt deal with ECB

By Padra­ic Halpin and Carmel Crim­mins

DUBLIN | Thu Feb 7, 2013 2:14pm EST

(Reuters) — Ire­land clinched a long-await­ed deal on Thurs­day to ease the bur­den of its bank debts, send­ing its bor­row­ing costs falling to pre-cri­sis lev­els and bol­ster­ing its chances of end­ing its reliance on EU-IMF loans this year.

After near­ly 18 months of nego­ti­a­tion, Prime Min­is­ter Enda Ken­ny won Euro­pean Cen­tral Bank (ECB) approval to stretch out the cost of bail­ing out Anglo Irish Bank, slic­ing bil­lions off the coun­try’s bor­row­ing needs and cut­ting its bud­get deficit.

“Today’s out­come is an his­toric step on the road to eco­nom­ic recov­ery,” Ken­ny told a packed par­lia­ment in Dublin. “It secures the future finan­cial posi­tion of the state.”

The assent of the ECB is a major coup for Ken­ny, who was forced to call an emer­gency ses­sion of par­lia­ment last night to liq­ui­date Anglo Irish, a lender whose casi­no-style atti­tude to risk helped pre­cip­i­tate the coun­try’s finan­cial implo­sion.

“It cer­tain­ly is unusu­al in the his­to­ry of the cri­sis that we are actu­al­ly being sur­prised in a pos­i­tive way by the scale of the response,” said Austin Hugh­es, chief econ­o­mist at KBC Bank. “Nor­mal­ly we have seen under­achieve­ment and over­promis­ing.

“The ear­ly indi­ca­tions are that this will make a mate­r­i­al dif­fer­ence for the out­look on the Irish econ­o­my.”

The agree­ment stretch­es the cost of bail­ing out Anglo Irish over 40 years rather than ten and cuts Ire­land’s bor­row­ing needs by 20 bil­lion euros over the next decade.

It also gives the gov­ern­ment anoth­er 1 bil­lion euros to work with in forth­com­ing bud­gets.

Tech­ni­cal talks between the ECB and Irish offi­cials had been bogged down by ECB con­cerns that any deal giv­en to Dublin to ease the 48 bil­lion euros cost of the Anglo promis­so­ry notes could set a prece­dent for oth­er coun­tries, such as Spain, which are also deal­ing with large bank debts.

But with Euro­pean lead­ers keen to offer a suc­cess sto­ry from the region’s debt cri­sis to encour­age both vot­ers and poten­tial investors, Dublin went back to the draw­ing board.

In addi­tion to Merkel’s fears that the Irish debt rene­go­ti­a­tions would set a prece­dent that could be applied to oth­er nations receiv­ing their own forms of “spe­cial” treat­ment, there was also a great deal of con­cern amongst Merkel’s far-right CSU allies [15] that the eas­ing of debt bur­dens would slow down the pace of “struc­tur­al reforms”(austerity). Trick­le down kind­ness is appar­ent­ly bad for busi­ness where­as pro­mot­ing nation­al­ly-strat­i­fied income inequal­i­ty is appar­ent­ly a strate­gic objec­tive for achiev­ing greater eco­nom­ic har­mo­niza­tion.




The new deal was designed so that the ECB did not have to vote on it, enabling ECB Pres­i­dent Mario Draghi to say sim­ply that the Gov­ern­ing Coun­cil had sim­ply “tak­en note” of Dublin’s plan.


“It is pos­i­tive for fund­ing, and there­fore increas­es Ire­land’s chances of leav­ing its (EU-IMF) loan pro­gram and rely­ing more heav­i­ly on the cap­i­tal mar­kets for fund­ing toward the end of this year,” said Fer­gus McCormick, head of sov­er­eign rat­ings at DBRS rat­ings agency.

“How­ev­er, the swap itself will not affect our A (low) rat­ing or neg­a­tive trend on Ire­land, because swap­ping the promis­so­ry notes for a bond does not reduce the stock of pub­lic debt.”


Under the terms of the deal, first report­ed by Reuters on Wednes­day, Anglo’s promis­so­ry notes, with an aver­age matu­ri­ty of between sev­en and eight years, will be exchanged for gov­ern­ment bonds with an aver­age matu­ri­ty of over 34 years. The first prin­ci­pal repay­ment will be made in 2038 and the last in 2053.

The finance spokesman for the oppo­si­tion Sinn Fein par­ty said the agree­ment would bur­den future gen­er­a­tions.

“This week my youngest son began to crawl. He was­n’t even born at the time the promis­so­ry note was issued, yet he’ll be 40 years of age and this state will be pay­ing back the tox­ic debts of Anglo Irish Bank,” Pearse Doher­ty told par­lia­ment.

Anglo Irish’s near-col­lapse in 2008 pres­sured the gov­ern­ment into guar­an­tee­ing the entire finan­cial sec­tor, suck­ing it into a down­ward spi­ral and in late 2010, a 67.5‑billion euro loan from the EU and IMF.


The poor ECB. First peo­ple are say­ing “hey, this nation­al­ized pri­vate debt was absurd, we need to rene­go­ti­ate”, and then when the ECB signs off on a rene­go­ti­at­ed deal peo­ple are like “OMG, my infant chil­dren will be pay­ing for this debt when they’re in their 40s”, and now peo­ple want to know the details about this new deal too! It isn’t easy being the ECB. So many ques­tions. So few answers that won’t inflame the pub­lic and dis­rupt the integri­ty of the finan­cial mar­kets [16]:

Irish Exam­in­er
ECB claims its ‘space to think’ super­sedes pub­lic inter­est

Tues­day, Feb­ru­ary 19, 2013

The ECB claims that main­tain­ing its own “space to think”, is of more impor­tance than cit­i­zens’ right to under­stand how it arrives at deci­sions that mate­ri­al­ly affect people’s qual­i­ty of life.

By Vin­cent Ryan
In response to an appeal over the ECB’s refusal to release doc­u­ments relat­ing to the deal the Gov­ern­ment struck on the Anglo Irish Bank promis­so­ry note, the bank explained that it believed its refusal to release the infor­ma­tion was in the public’s own inter­est.

The pres­i­dent of the ECB, Mario Draghi, respond­ed in writ­ing, claim­ing that any dis­clo­sure could under­mine the ECB’s abil­i­ty to oper­ate.

“The ECB con­sid­ers that releas­ing these doc­u­ments would under­mine the pos­si­bil­i­ty of the ECB’s staff freely sub­mit uncen­sored advice to the ECB’s deci­sion-mak­ing bod­ies, and that it would thus lim­it the ECB’s ‘space to think’.

“It is, there­fore, in the pub­lic inter­est to pro­tect the inter­nal con­sul­ta­tions and delib­er­a­tions,” said Mr Draghi.

Despite the fact that the rene­go­ti­a­tion of the promis­so­ry notes will have a long-term effect on Ireland’s bud­get and con­se­quent­ly on the finan­cial prospects of all Irish cit­i­zens, Mr Draghi believes that there is noth­ing in the dis­cus­sion doc­u­ments that led to the liq­ui­da­tion of IBRC, the ter­mi­na­tion of 800 jobs in the bank and knock-on effect that is expect­ed to impact anoth­er 30,000 jobs, that are of “pub­lic inter­est.”

“On the basis of the con­tent of these doc­u­ments, there is no over­rid­ing pub­lic inter­est which could jus­ti­fy their dis­clo­sure and it is not pos­si­ble to grant par­tial access to them with­out under­min­ing the inter­est pro­tect­ed,” he said.


The ECB isn’t the Only Insti­tu­tion it isn’t Easy to Be
Pity the poor ECB. They are forced to know those dark truths that would dri­ve the pub­lic mad with rage. Dark truths like what ordersadvice [17]” the ECB gave Ire­land’s Min­is­ter of Finance Bri­an Leni­han regard­ing the rene­go­ti­a­tion of Anglo Irish Bank’s debt. Shud­der the thought. After all, if the pub­lic was allowed to see the rea­son­ing used to jus­ti­fy their lead­ers’ deci­sions on key affairs of the state, the pub­lic might, you know, start ask­ing more ques­tions. Ques­tions like, “hey, what were you think­ing?” or “did­n’t you real­ize this would destroy the coun­try?” Unpleas­ant ques­tions.

That poor poor ECB. And the ECB isn’t the only insti­tu­tion it’s not easy to be [18]

The Tele­graph

EU not to blame for aus­ter­i­ty, says Jose Manuel Bar­roso
Euro­pean Com­mis­sion Pres­i­dent Jose Manuel Bar­roso has denied that the Euro­pean Union was behind the tough aus­ter­i­ty mea­sures that have swept the con­ti­nent in recent years.

5:03PM GMT 10 Jan 2013

“I know many parts of our soci­eties attribute the cur­rent dif­fi­cul­ties to Euro­pean Union lev­el and this is not fair because it was not the Euro­pean Union that cre­at­ed the prob­lems,” Mr Bar­roso told reporters at Dublin Cas­tle.

Mr Bar­roso was speak­ing at a joint press con­fer­ence with Irish Prime Min­is­ter Enda Ken­ny in Dublin to coin­cide with the begin­ning of Ire­land’s tenure of the six-month rotat­ing EU pres­i­den­cy, AFP report­ed.

“I want to make this clear because there is a myth that it is the Euro­pean Union that impos­es dif­fi­cult poli­cies. It’s not true,” Mr Bar­roso said.

The cause of the dif­fi­cul­ties some coun­tries are fac­ing is exces­sive pub­lic debt cre­at­ed by nation­al gov­ern­ments and irre­spon­si­ble finan­cial behav­iour, that also accu­mu­lat­ed exces­sive pri­vate debt includ­ing finan­cial bub­bles that hap­pened under the respon­si­bil­i­ty of nation­al super­vi­sors, he added.

“This is why now coun­tries have to make painful adjust­ments. Britain is hav­ing a very tough bud­get and Britain is not a mem­ber of the euro.”

Mr Bar­roso praised the efforts of Ire­land, which hopes to become the first euro­zone nation to exit a bailout pro­gramme this year after years of painful aus­ter­i­ty mea­sures.


“I do believe Ire­land can send a mes­sage of hope to oth­er coun­tries about what can actu­al­ly be achieved,” Mr Ken­ny said.

Yes, ear­li­er this year, Euro­pean Com­mis­sion pres­i­dent Manuel Bar­roso blamed Ire­land’s finan­cial implo­sion — which was caused by a giant finan­cial bub­ble [19] that was heav­i­ly financed by for­eign banks [20] — entire­ly on Ire­land’s gov­ern­ment for its lax finan­cial reg­u­la­tions. The abil­i­ty to make state­ments wor­thy of mock­ery with­out actu­al­ly get­ting mocked is anoth­er EU-elite perk. Ire­land, after­all, was rou­tine­ly hailed as the “Celtic Tiger” and “dar­ling [21]of the invest­ment com­mu­ni­ty [22] and a mod­el [23] for the rest Europe pre­cise­ly because of those poli­cies. In fact, not too long ago (2005-ish), Ire­land was part of a coali­tion of the new ‘dynamic’(deregulated) economies that were threat­en­ing to over­throw the old Franco/German order [24] that had dom­i­nat­ed Europe’s affairs for so long(it’s most­ly just a Ger­man order nowa­days).

Mr. Bar­roso most like­ly recalls these facts, just as he prob­a­bly recalls that, some­how, the nor­mal process of mak­ing the big for­eign lenders to pri­vate Irish banks take a big “hair cut” when the bub­ble burst some­how did­n’t apply to Ire­land. Ire­land was a “spe­cial case”, we recall. Recall of mem­o­ries when you are rep­re­sent­ing an inter­na­tion­al insti­tu­tion, how­ev­er, is often an option when its regard­ing a “spe­cial case”. “Spe­cial cas­es” are often what hap­pens when lots of “spe­cial inter­est” are at stake and inter­na­tion­al insti­tu­tions tend to involve quite a few spe­cial inter­ests. Being the EU or the ECB isn’t easy, but it has its spe­cial perks [25]:

Van­i­ty Fair
When Irish Eyes Are Cry­ing
First Ice­land. Then Greece. Now Ire­land, which head­ed for bank­rupt­cy with its own mys­te­ri­ous log­ic. In 2000, sud­den­ly among the rich­est peo­ple in Europe, the Irish decid­ed to buy their country—from one anoth­er. After which their banks and gov­ern­ment real­ly screwed them. So where’s the rage?

By Michael Lewis
March 2011

When I flew to Dublin in ear­ly Novem­ber, the Irish gov­ern­ment was busy help­ing the Irish peo­ple come to terms with their loss. It had been two years since a hand­ful of Irish politi­cians and bankers decid­ed to guar­an­tee all the debts of the country’s biggest banks, but the peo­ple were only now get­ting their minds around what that meant for them. The num­bers were breath­tak­ing. A sin­gle bank, Anglo Irish, which, two years before, the Irish gov­ern­ment had claimed was mere­ly suf­fer­ing from a “liq­uid­i­ty prob­lem,” faced loss­es of up to 34 bil­lion euros. To get some sense of how “34 bil­lion euros” sounds to Irish ears, an Amer­i­can think­ing in dol­lars needs to mul­ti­ply it by rough­ly one hun­dred: $3.4 tril­lion. And that was for a sin­gle bank. As the sum total of loans made by Anglo Irish, most of it to Irish prop­er­ty devel­op­ers, was only 72 bil­lion euros, the bank had lost near­ly half of every dol­lar it invest­ed.

Just take a moment and think about the size of this 34 bil­lion euro bailout for the Irish pub­lic (for a sin­gle bank): In terms of US dol­lars, that would be around $3.4 tril­lion. That ain’t chump change.



Yet when I arrived, in ear­ly Novem­ber 2010, Irish pol­i­tics had a frozen-in-time qual­i­ty to it. In Ice­land, the busi­ness-friend­ly con­ser­v­a­tive par­ty had been quick­ly tossed out of pow­er, and the women boot­ed the alpha males out of the banks and gov­ern­ment. (Iceland’s new prime min­is­ter is a les­bian.) In Greece the busi­ness-friend­ly con­ser­v­a­tive par­ty was also giv­en the heave-ho, and the new gov­ern­ment is attempt­ing to cre­ate a sense of col­lec­tive pur­pose, or at any rate per­suade the cit­i­zens to quit cheat­ing on their tax­es. (The new Greek prime min­is­ter is not mere­ly upstand­ing, but bare­ly Greek.) Ire­land was the first Euro­pean coun­try to watch its entire bank­ing sys­tem fail, and yet its busi­ness-friend­ly con­ser­v­a­tive par­ty, Fian­na Fáil (pro­nounced “Feena Foil”), would remain in office into 2011. There’s been no Tea Par­ty move­ment, no Glenn Beck, no seri­ous protests of any kind. The most obvi­ous change in the country’s pol­i­tics has been the role played by for­eign­ers. The Irish gov­ern­ment and Irish banks are crawl­ing with Amer­i­can invest­ment bankers and Aus­tralian man­age­ment con­sul­tants and face­less Euro-offi­cials, referred to inside the Depart­ment of Finance sim­ply as “the Ger­mans.” Walk the streets at night and, through restau­rant win­dows, you see impor­tant-look­ing men in suits, din­ing alone, study­ing impor­tant-look­ing papers. In some new and strange way Dublin is now an occu­pied city: Hanoi, cir­ca 1950. “The prob­lem with Ire­land is that you’re not allowed to work with Irish peo­ple any­more,” I was told by an Irish prop­er­ty devel­op­er, who was find­ing it dif­fi­cult to escape the hun­dreds of mil­lions of euros in debt he owed.


What has occurred in Ire­land since then is with­out prece­dent in eco­nom­ic his­to­ry. By the start of the new mil­len­ni­um, the Irish pover­ty rate was under 6 per­cent and by 2006 Ire­land was one of the rich­est coun­tries in the world. How did that hap­pen? A bright young Irish­man who got him­self hired by Bear Stearns in the late 1990s and went off to New York or Lon­don for five years returned feel­ing poor. For the bet­ter part of a decade there has been quick­er mon­ey to be made in Irish real estate than in invest­ment bank­ing. How did that hap­pen?


The Har­vard demog­ra­phers admit­ted their the­o­ry explained only part of what had hap­pened. At the bot­tom of the suc­cess of the Irish there remains, even now, some mys­tery. “It appeared like a mirac­u­lous beast mate­ri­al­iz­ing in a for­est clear­ing,” writes the pre-emi­nent Irish his­to­ri­an R. F. Fos­ter, “and econ­o­mists are still not entire­ly sure why.” Not know­ing why they were so sud­den­ly so suc­cess­ful, the Irish can per­haps be for­giv­en for not know­ing exact­ly how suc­cess­ful they were meant to be. They had gone from being abnor­mal­ly poor to being abnor­mal­ly rich, with­out paus­ing to expe­ri­ence nor­mal­i­ty. When, in the ear­ly 2000s, the finan­cial mar­kets began to offer vir­tu­al­ly unlim­it­ed cred­it to all comers—when nations were let into the dark room with the pile of mon­ey and asked what they would like to do with it—the Irish were already in a pecu­liar­ly vul­ner­a­ble state of mind. They’d spent the bet­ter part of a decade under some­thing very like a mag­ic spell.

Make a spe­cial note of this part of the arti­cle. It sum­ma­rizes a BIG part of why the entire euro­zone cri­sis took place:
“When, in the ear­ly 2000s, the finan­cial mar­kets began to offer vir­tu­al­ly unlim­it­ed cred­it to all comers—when nations were let into the dark room with the pile of mon­ey and asked what they would like to do with it...”


Skip­ping down in the arti­cle...

True Love’s First Kiss

Mor­gan Kel­ly is a pro­fes­sor of eco­nom­ics at Uni­ver­si­ty Col­lege Dublin, but he did not, until recent­ly, view it as his busi­ness to think much about the econ­o­my under his nose. He had writ­ten a hand­ful of high­ly regard­ed aca­d­e­m­ic papers on top­ics (such as “The Eco­nom­ic Impact of the Lit­tle Ice Age”) con­sid­ered abstruse even by aca­d­e­m­ic econ­o­mists. “I only stum­bled on this cat­a­stro­phe by acci­dent,” he says. “I had nev­er been inter­est­ed in the Irish econ­o­my. The Irish econ­o­my is tiny and bor­ing.” Kel­ly saw house prices ris­ing mad­ly and heard young men in Irish finance to whom he had recent­ly taught eco­nom­ics try to explain why the boom didn’t trou­ble them. And they trou­bled him. “Around the mid­dle of 2006 all these for­mer stu­dents of ours work­ing for the banks start­ed to appear on TV!” he says. “They were now all bank econ­o­mists, and they were nice guys and all that. And they were all say­ing the same thing: ‘We’re going to have a soft land­ing.’ ”

The state­ment struck him as absurd: real-estate bub­bles nev­er end with soft land­ings. A bub­ble is inflat­ed by noth­ing firmer than expec­ta­tions. The moment peo­ple cease to believe that house prices will rise for­ev­er, they will notice what a ter­ri­ble long-term invest­ment real estate has become and flee the mar­ket, and the mar­ket will crash. It was in the nature of real-estate booms to end with crashes—just as it was per­haps in Mor­gan Kelly’s nature to assume that, if his for­mer stu­dents were cast on Irish TV as finan­cial experts, some­thing was amiss. “I just start­ed Googling things,” he says.

Googling things, Kel­ly learned that more than a fifth of the Irish work­force was employed build­ing hous­es. The Irish con­struc­tion indus­try had swollen to become near­ly a quar­ter of the country’s G.D.P.—compared with less than 10 per­cent in a nor­mal economy—and Ire­land was build­ing half as many new hous­es a year as the Unit­ed King­dom, which had almost 15 times as many peo­ple to house. He learned that since 1994 the aver­age price for a Dublin home had risen more than 500 per­cent. In parts of the city, rents had fall­en to less than 1 per­cent of the pur­chase price—that is, you could rent a mil­lion-dol­lar home for less than $833 a month. The invest­ment returns on Irish land were ridicu­lous­ly low: it made no sense for cap­i­tal to flow into Ire­land to devel­op more of it. Irish home prices implied an eco­nom­ic growth rate that would leave Ire­land, in 25 years, three times as rich as the Unit­ed States. (“A price/earning ratio above Google’s,” as Kel­ly put it.) Where would this growth come from? Since 2000, Irish exports had stalled, and the econ­o­my had been con­sumed with build­ing hous­es and offices and hotels. “Com­pet­i­tive­ness didn’t mat­ter,” says Kel­ly. “From now on we were going to get rich build­ing hous­es for each oth­er.”

The end­less flow of cheap for­eign mon­ey had teased a new trait out of a nation. “We are sort of a hard, pes­simistic peo­ple,” says Kel­ly. “We don’t look on the bright side.” Yet, since the year 2000, a lot of peo­ple had behaved as if each day would be sun­nier than the last. The Irish had dis­cov­ered opti­mism.


Again, note the real­i­ty of the “end­less flow of cheap for­eign mon­ey” into Ire­land via the pur­chase of bonds issued by the big Irish prop­er­ty lenders. It’s a crit­i­cal point in under­stand­ing both how Ire­land’s housing/credit bub­ble grew as big as it did and why there are so many for­eign inter­ests that are inter­est­ed in see­ing that mon­ey paid back in full. Also note that bond­hold­ers nor­mal­ly absorb some loss­es when their lendees go bank­rupt, so it’s not as if it’s nor­mal for bond­hold­ers to get paid back in full when a bank goes bank­rupt.



What the crazy egghead came up with next was the obvi­ous link between Irish real-estate prices and Irish banks. After all, the vast major­i­ty of the con­struc­tion was being fund­ed by Irish banks. If the real-estate mar­ket col­lapsed, they would be on the hook for the loss­es. “I even­tu­al­ly fig­ured out what was going on,” says Kel­ly. “The aver­age val­ue and num­ber of new mort­gages peaked in sum­mer 2006. But lend­ing stan­dards were clear­ly falling after this.” The banks con­tin­ued to make worse loans, but peo­ple bor­row­ing the mon­ey to buy hous­es were grow­ing wary. “What was hap­pen­ing,” says Kel­ly, “is that a lot of peo­ple were get­ting cold feet.” The con­se­quences for Irish banks—and the economy—of the inevitable shift in mar­ket sen­ti­ment would be cat­a­stroph­ic. The banks’ loss­es would lead them to slash their lend­ing to actu­al­ly use­ful busi­ness­es. Irish cit­i­zens in hock to their banks would cease to spend. And, per­haps worst of all, new con­struc­tion, on which the entire econ­o­my was now premised, would cease.


As the scope of the Irish loss­es has grown clear­er, pri­vate investors have been less and less will­ing to leave even overnight deposits in Irish banks and are com­plete­ly unin­ter­est­ed in buy­ing longer-term bonds. The Euro­pean Cen­tral Bank has qui­et­ly filled the void: one of the most close­ly watched num­bers in Europe has been the amount the E.C.B. has loaned to the Irish banks. In late 2007, when the mar­kets were still sus­pend­ing dis­be­lief, the banks bor­rowed 6.5 bil­lion euros. By Decem­ber of 2008 the num­ber had jumped to 45 bil­lion. As Bur­ton spoke to me, the num­ber was still ris­ing from a new high of 86 bil­lion. That is, the Irish banks have bor­rowed 86 bil­lion euros from the Euro­pean Cen­tral Bank to repay pri­vate cred­i­tors. In Sep­tem­ber 2010 the last big chunk of mon­ey the Irish banks owed the bond­hold­ers, 26 bil­lion euros, came due. Once the bond­hold­ers were paid off in full, a win­dow of oppor­tu­ni­ty for the Irish gov­ern­ment closed. A default of the banks now would be a default not to pri­vate investors but a bill pre­sent­ed direct­ly to Euro­pean gov­ern­ments. This, by the way, is why there are so many impor­tant-look­ing for­eign­ers in Dublin, din­ing alone at night. They’re here to make sure some­one gets his mon­ey back.


Most of the remain­ing arti­cle excerpt describes how the ECB end­ed up lend­ing so much mon­ey to the nation­al­ized big prop­er­ty lenders in the first place. It’s a LONG but very infor­ma­tive arti­cle so it’s well worth read­ing.

**Spoil­er alert** [25]:

When the shit hit the fan in Sep­tem­ber 2008 fol­low­ing the col­lapse of Lehman Broth­ers, the grow­ing prob­lems of the big Irish prop­ery lenders like Anglo-Irish hit a cri­sis point and that threat­ened the entire Irish econ­o­my because so much of it had become depen­dent on the hous­ing con­struc­tion boom. So the gov­ern­ment nation­al­izes three of the biggest banks and guar­an­tees the lia­bil­i­ties for the rest of the banks in an attempt to shore up con­fi­dence and save the entire sys­tem. This would, in “the­o­ry”, also save the entire hous­ing-relat­ed sec­tor of the Irish econ­o­my because those big lenders were such an inte­gral part of the Irish hous­ing sec­tor and they were no longer going to be able to lend if they went bust. So if the Irish pub­lic assumed the full lia­bil­i­ties — for both the deposits held by the banks and bonds issued by the banks — the banks would no longer be in trou­ble and the hous­ing sec­tor could be saved. Once again, that was the “the­o­ry” behind the nation­al­iza­tion.

This the­o­ry was arrived at by the Mer­rill Lynch ana­lysts that the Irish gov­ern­ment hired to pro­vide rec­om­men­da­tions. Mer­rill Lynch was also a major under­writer of the bonds issued by these banks. Per­haps unsur­pris­ing­ly, Mer­rill Lynch’s advise turned out to be great for those bond hold­ers and dis­as­trous to near­ly every­one else. Forc­ing the Irish pub­lic to assume such a mas­sive lia­bil­i­ty made a nation­al default sud­den­ly a pos­si­bil­i­ty. Ire­land was fac­ing a burst­ing hous­ing bub­ble before, but after the nation­al­iza­tion it faced a burst­ing hous­ing bub­ble and the mas­sive lia­bil­i­ties of those lenders that financed that hous­ing bub­ble. And if Ire­land went bank­rupt the big bank’s cred­i­tors were still at risk.

So the mar­kets got spooked regard­less of the nationalization/guarantee scheme and the nation­al­ized banks soon had to start bor­row­ing bil­lions from the ECB to pay back the pri­vate senior bond­hold­ers 100%. It turns out most of those bond­hold­ers were French and Ger­man banks and finan­cial insti­tu­tions. And Gold­man Sachs. By Novem­ber, 2010 the ~85 bil­lion euros in bonds was paid back to the pri­vate cred­i­tors and Ire­land request­ed an 85 bil­lion euro bailout.
**End Spoil­er alert** [25]

Debt Nation­al­iza­tion + Aus­ter­i­ty: The Drug-Drug Inter­ac­tion-Induce­ment Pro­to­col for Eco­nom­ic Witch Doc­tors
And, of course, when Manuel Bar­roso tells his Irish audi­ences not to blame the EU for the aus­ter­i­ty stran­gling Ire­land’s econ­o­my, he also for­gets that the 85 bil­lion euro pub­lic bailout of the pri­vate debt of three banks — like Anglo Irish’s debt -came with EU-strings attached [26]:

NY Times
Ire­land Unveils Aus­ter­i­ty Plan to Help Secure Bailout

Pub­lished: Novem­ber 24, 2010

DUBLIN — Act­ing to secure a $114 bil­lion inter­na­tion­al bailout, the Irish gov­ern­ment announced plans on Wednes­day for steep tax increas­es and sharp cut­backs in its social wel­fare state.

The aus­ter­i­ty mea­sures, which would slash pub­lic spend­ing by $20 bil­lion over four years, would help pay for a severe bank­ing cri­sis that hasp deplet­ed the country’s finances and led to a dra­mat­ic weak­en­ing in the gov­ern­ment that is like­ly to see Prime Min­is­ter Bri­an Cowen oust­ed from office ear­ly next year. A cru­cial, sep­a­rate 2011 bud­get is to come to a vote on Dec. 7.

A throng of pro­test­ers shout­ed out­side the Finance Min­istry as Mr. Cowen and Finance Min­is­ter Bri­an Leni­han unveiled details of how the gov­ern­ment planned to slash the deficit to 3 per­cent of domes­tic gross prod­uct in 2014, from 32 per­cent. Details of the plan were released as the gov­ern­ment pre­pared to effec­tive­ly nation­al­ize two trou­bled banks that have bled the state of mon­ey, and as Stan­dard & Poor’s low­ered Ireland’s cred­it rat­ing, cit­ing con­cerns about how much the gov­ern­ment was bor­row­ing and about the vast amounts need­ed to shore up the country’s bank­ing sys­tem.

In a speech Wednes­day after­noon aimed at bol­ster­ing nation­al morale, Mr. Cowen urged Ire­land to “pull togeth­er as a peo­ple to con­front this chal­lenge, and do so in a unit­ed way.” He said the four-year plan would raise mon­ey main­ly by tax­ing those who earned more, while going eas­i­er on those who had less. But he also warned that the “size of the cri­sis means no one can be shel­tered.”


The Inter­na­tion­al Mon­e­tary Fund and Ireland’s part­ners in the Euro­pean Union insist­ed on an aus­ter­i­ty bud­get as a con­di­tion for the $114 bil­lion bailout, mon­ey that Ire­land bad­ly needs after it inter­vened to res­cue its banks.

Dur­ing the eco­nom­ic boom years before 2008, Irish banks bor­rowed cheap­ly and pumped out loans on hous­es and con­struc­tion projects, help­ing to fuel an Amer­i­can-style hous­ing bub­ble that went bust, rav­aging their bal­ance sheets.

The aus­ter­i­ty plan calls for cuts of near­ly 15 per­cent in Ireland’s social wel­fare bud­get, one of Europe’s most gen­er­ous, sav­ing $4 bil­lion a year. Some 24,750 pub­lic jobs — a huge num­ber in a coun­try of about 4 mil­lion peo­ple — would be elim­i­nat­ed, cut­ting state pay­rolls down to about what they were in 2005 and sav­ing about $1.6 bil­lion a year. Child ben­e­fits and oth­er social wel­fare pay­ments would be reduced, and the nation’s min­i­mum wage, now 8.65 euros, or $11.59, an hour, would be cut by 1 euro, or about $1.34, in the hope of pro­mot­ing job cre­ation.

Mr. Cowen said the sag­ging econ­o­my could recov­er only if Ire­land proved it was clean­ing up its act. “With­out putting pub­lic finances on a sus­tain­able basis, we can’t have con­fi­dence from investors to cre­ate jobs in Ire­land,” he said. He pre­dict­ed that the deficit reduc­tion plan would help low­er unem­ploy­ment to less than 10 per­cent, from 13.4 per­cent cur­rent­ly, with­in four years.

While vot­ers were angry about the cri­sis, there was also an acknowl­edg­ment that the boom years fueled too many excess­es, which must now be reined in. “In a bub­ble, things get dis­tort­ed, and after it col­laps­es you need to rebal­ance the econ­o­my,” said Philip R. Lane, a pro­fes­sor of inter­na­tion­al macro­eco­nom­ics at Trin­i­ty Col­lege. “So this plan is not real­ly rad­i­cal­ly shift­ing the nature of the wel­fare state, it’s just return­ing it to what it was before the cri­sis.”

Under the mea­sures, Ireland’s tax net would be widened to take in some low-income work­ers who cur­rent­ly pay no tax, and a series of new tax­es would be imposed on cer­tain res­i­den­tial prop­er­ties, as well as on 120,000 peo­ple who receive pub­lic sec­tor pen­sions.

The gov­ern­ment also plans to cut spend­ing on health care by over $1.9 bil­lion through mea­sures that are like­ly to push up the cost of pri­vate health insur­ance.

Cap­i­tal spend­ing on edu­ca­tion will rise, but edu­ca­tion pro­grams will nonethe­less take a hit start­ing next year, as more than $66.7 mil­lion is cut from the four-year bud­get. Class­room sizes may also grow if edu­ca­tors can­not find ways to reduce teacher pay­rolls.

Thou­sands of young Irish, along with peo­ple who have been shut out of the job mar­ket, are swelling the ranks of Ireland’s uni­ver­si­ty stu­dents as they ride out a dif­fi­cult econ­o­my.

Still, the aus­ter­i­ty plan does not touch Ireland’s low cor­po­rate tax rate of 12.5 per­cent, which has helped to lure com­pa­nies like Microsoft, Intel and Pfiz­er to set up oper­a­tions in the coun­try.

Though the country’s polit­i­cal par­ties are bit­ter­ly divid­ed over many aspects of eco­nom­ic pol­i­cy, they all agree that the low cor­po­rate tax rate is one of the few pil­lars that can allow Ire­land to return to eco­nom­ic health. Multi­na­tion­al com­pa­nies employ about one out of sev­en work­ing peo­ple in Ire­land, and their busi­ness­es are stok­ing export growth, even as the lat­est aus­ter­i­ty pro­gram is expect­ed to depress con­sumer demand and touch off a wave of retrench­ment and job loss­es.


The Irish gov­ern­ment clear­ly made a mas­sive blun­der in Sep­tem­ber 2008 when it decid­ed to guar­an­tee the banks’ bonds that were direct­ly tied to a sour­ing prop­er­ty mar­ket. A cred­i­ble maneu­ver like that would, at a min­i­mum, require a nation that had it’s own cen­tral bank and the abil­i­ty to issue its own cur­ren­cy giv­en the scale of the assumed lia­bil­i­ties. Plus, we had the ECB give Ire­land a “bailout” (in the form of a high-inter­est loan [6]) while simul­ta­ne­ous­ly demand­ing that new econ­o­my-stran­gling mass aus­ter­i­ty poli­cies (and while cor­po­rate tax­es remained at a low 12.5%). It isn’t easy being the ECB or the EU, but it could be worse...like being their socioe­co­nom­ic guinea pig. When crap­py the­o­ry is trans­lat­ed into real­i­ty, it tends to become a crap­py real­i­ty. A lot of guinea pigs expe­ri­ence a lot of crap­py real­i­ties.

The Con­fi­dence Fairies Want Clar­i­ty, Even If it’s Clear­ly Bad
The the­o­ry behind the EU/ECB’s pol­i­cy man­date is the the same the­o­ry behind most mod­ern aus­ter­i­ty-dri­ves. It’s the “Con­fi­dence Fairy” the­o­ry [27]: If a nation can prove to the world that it has sud­den­ly become more “pro­duc­tive” by cut­ting costs (usu­al­ly in the form of lay­offs and wage cuts), the world’s investors will sud­den­ly become so con­fi­dent about the future prospects of the trou­bled nation that they’ll flood the nation with new invest­ments and the eco­nom­ic trou­bles will solve them­selves. Yes, there will be a neg­a­tive impact on the econ­o­my from all the aus­ter­i­ty mea­sures, but that impact will only be felt in the short-term because investors will be so filled with aus­ter­i­ty-induced con­fi­dence that they’ll take the plunge any­ways and make the required vol­ume of invest­ments nec­es­sary to over­whelm the aus­ter­i­ty-induced eco­nom­ic down­ward spi­ral.

At least, that’s how it’s sup­posed to hap­pen in the­o­ry. It may not be [28] a par­tic­u­lar­ly com­pelling the­o­ry, esp­cial­ly when it involves bank­rupt­ing a nation and trig­ger­ing an aus­ter­i­ty-induced down­ward spi­ral to pay back for­eign bank bond spec­u­la­tors [29]. And there may not be any actu­al evi­dence [30] that it’s work­ing. But the “Con­fi­dence Fairy” the­o­ry that under­lines the push for aus­ter­i­ty is still a sur­pris­ing­ly pop­u­lar one amongst key deci­sion-mak­ers, although that has­n’t always been the case [31]:

We got it wrong on aus­ter­i­ty and made things worse — IMF

By Claire Mur­phy

Tues­day Octo­ber 09 2012

THE IMF has held up its hands and admit­ted it got it wrong when cal­cu­lat­ing the effects of aus­ter­i­ty in Ire­land.

The organ­i­sa­tion said that it com­plete­ly under­es­ti­mat­ed how the Irish econ­o­my would per­form under strict spend­ing rules.

The Inter­na­tion­al Mon­e­tary Fund (IMF) said in an aca­d­e­m­ic report that it believed for every €100 of aus­ter­i­ty through high­er tax­es and spend­ing cuts — this would impact €50 in terms of growth and unem­ploy­ment.

How­ev­er, the real effect meant that the aus­ter­i­ty cut €90 to €150 out of the sys­tem.

The admis­sion is like­ly to make Finance Min­is­ter Michael Noo­nan’s job far more dif­fi­cult ahead of yet anoth­er aus­ter­i­ty bud­get in Decem­ber.

The IMF said there was an over­all drop in incomes due main­ly to increas­es in tax­es and aus­ter­i­ty mea­sures in Ire­land.

This ulti­mate­ly served to push up pover­ty lev­els and squeeze the mid­dle class.

“As the cri­sis deep­ened and fis­cal con­sol­i­da­tion inten­si­fied, income inequal­i­ty start­ed to widen,” the IMF said.

“The mag­ni­tude of the eco­nom­ic slow­down in Ire­land dur­ing the cri­sis inevitably wors­ened the coun­try’s pover­ty and inequal­i­ty.

“In the ear­ly stage of the cri­sis, inequal­i­ty in Ire­land fell as upper income groups suf­fered major income loss­es.

“How­ev­er, the impact quick­ly spilled over to the mid­dle income group, with its large share of con­struc­tion work­ers who lost their jobs.

“Ire­land’s strong social sup­port sys­tem has cush­ioned the impact of the cri­sis on its at-risk-of-pover­ty indi­ca­tors com­pared to the rest of Europe,” it added.


Three­’s a Crowd Troi­ka
It isn’t easy being the ECB, the EU, or the IMF sep­a­rate­ly giv­en the scope of their domains. When they join togeth­er to form the ol’ Troi­ka o’ Doom [32] things become even hard­er. The Troi­ka o’ Doom only has one weapon and that’s aus­ter­i­ty, and aus­ter­i­ty tends to piss peo­ple off more than pret­ty much any­thing else. It’s the the drone war­fare of inter­na­tion­al eco­nom­ic pol­i­cy: Because it can be used any time unsus­tain­able debts are involved(or sus­tain­able but tem­porar­i­ly scary debts), aus­ter­i­ty has an extreme­ly large poten­tial the­ater of oper­a­tion. But it’s also kind of creepy and inhu­mane with lots of poten­tial for col­lat­er­al dam­age so it tends to real­ly piss off the locals wher­ev­er its used.

At least we can cred­it one third of the Troi­ka o’ Doom, the IMF, with final­ly rec­og­niz­ing that aus­ter­i­ty has­n’t real­ly worked the way they pre­dict­ed and sug­gest­ing a change in pol­i­cy. Although then they changed their mind after about 10 days. The abil­i­ty to change one’s mind about crit­i­cal pol­i­cy mat­ter when it becomes clear that it’s real­ly going to piss large swaths of the pub­lic may not be a very sus­tain­able perk, but it’s a very handy one [33]:

IMF says pace of Irish aus­ter­i­ty remains appro­pri­ate

DUBLIN | Sat Oct 20, 2012 10:48am EDT

(Reuters) — The Inter­na­tion­al Mon­e­tary Fund (IMF) said on Sat­ur­day that the pace of aus­ter­i­ty pre­scribed in Ire­land’s bailout pro­gram is appro­pri­ate and that a num­ber of oth­er fac­tors have also proven to be a drag on growth.

The IMF, one of a trio of lenders over­see­ing Ire­land’s 85 bil­lion euro bailout, said it was restat­ing its posi­tion in response to media queries regard­ing its research on the impact of fis­cal adjust­ment on eco­nom­ic growth.

The IMF issued a sim­i­lar state­ment in rela­tion to fel­low bailout recip­i­ent Por­tu­gal last week, urg­ing it to con­tin­ue a tough bud­get adjust­ment that was imper­a­tive for the coun­try to return to finance itself in debt mar­kets.

“The pace of con­sol­i­da­tion under the pro­gram has struck an appro­pri­ate bal­ance and con­tin­ues to do so for the peri­od ahead, enabling Ire­land to make steady progress,” Ajai Chopra, the IMF’s deputy direc­tor for Europe said in a state­ment.


The IMF, Euro­pean Com­mis­sion and Euro­pean Cen­tral Bank, Ire­land’s so-called troi­ka of lenders, will give their lat­est quar­ter­ly bailout assess­ment next week with few issues fore­seen in a peri­od when Ire­land resumed bor­row­ing on long-term bond mar­kets and con­tin­ued to meet its pro­gram tar­gets.

For­tu­nate­ly, the IMF revised its re-revi­sion on the ben­e­fits of aus­ter­i­ty back towards a more humane stance just a cou­ple of months lat­er. It just wants to see one more year of aus­ter­i­ty and if that does­n’t work the coun­try can drop the aus­ter­i­ty regime...for one year [34]:

The Tele­graph
IMF agrees more aid for Ire­land and urges eas­ing of aus­ter­i­ty
Ire­land should defer addi­tion­al aus­ter­i­ty bud­gets until 2015 if the bailed-out coun­try miss­es its eco­nom­ic tar­gets next year, the IMF said

By Denise Roland, and agen­cies

8:12AM GMT 18 Dec 2012

The Inter­na­tion­al Mon­e­tary Fund autho­rised the release of €890m (£746m) on Mon­day, the lat­est batch of an €85bn EU-IMF bailout pro­gramme entered in 2010 after the coun­try’s econ­o­my col­lapsed.

Its state­ment fol­lows a raft of new tax­es and spend­ing cuts intro­duced by finance min­is­ter Michael Noo­nan in the coun­try’s sixth straight aus­ter­i­ty bud­get, which tar­get­ed €3.5bn in spend­ing cuts and new tax­es.

The 2013 bud­get, announced on Decem­ber 6, hit child ben­e­fits, imposed high­er tax­es on pen­sion­er incomes, and intro­duced new levies on prop­er­ties, pro­vok­ing protests out­side the Irish par­lia­ment build­ings.

David Lip­ton, First Deputy Man­ag­ing Direc­tor of the IMF, said Dublin had strong­ly imple­ment­ed the pro­gramme and had hit all its tar­gets.


“This base­line out­look is sub­ject to sig­nif­i­cant risks from any fur­ther weak­en­ing of growth in Ire­land’s trad­ing part­ners, while the grad­ual revival of domes­tic demand could be imped­ed by high pri­vate debts, drag from fis­cal con­sol­i­da­tion, and banks’ still lim­it­ed abil­i­ty to lend,” he said in a state­ment.

“Nonethe­less, if next year’s growth were to dis­ap­point, any addi­tion­al fis­cal con­sol­i­da­tion should be deferred to 2015 to pro­tect the recov­ery,” he added.

Mr Lip­ton said Ire­land’s mar­ket access would also be great­ly enhanced by “force­ful deliv­ery of Euro­pean pledges” to improve the sus­tain­abil­i­ty of the pro­gramme, espe­cial­ly by “break­ing the vicious cir­cle between the Irish sov­er­eign and the banks”.

Ire­land aims to end its bailout pro­gramme next year hav­ing already revised down its post-bailout bor­row­ing needs by €10bn through a lim­it­ed bond mar­ket return this year, a move the coun­try’s debt agency plan to repeat this year to cov­er its 2014 fund­ing require­ments.


The Irish gov­ern­ment is seek­ing to trans­fer the pub­lic debt used to res­cue Irish banks to the new euro­zone bailout fund, the Euro­pean Sta­bil­i­ty Mech­a­nism (ESM), but so far EU lead­ers have failed to sanc­tion such a deal.

A Return to the New Nor­mal Of Aus­ter­i­ty Clar­i­ty
As not­ed in the above excerpt, there are plans to actu­al­ly end Ire­land’s spe­cial direct financ­ing and return it to the nor­mal finan­cial mar­kets in 2013. To some extent this return to “nor­mal­cy” in 2013 isn’t real­ly an option because the 85 bil­lion euro bailout that has been financ­ing Ire­land since the 2010 deal is sched­uled to run out next year. It’s very unclear whether or not Ire­land will be able to avoid requir­ing a sec­ond bailout just keep itself run­ning giv­en the linger dam­age from the bub­ble cou­pled with the mas­sive aus­ter­i­ty dam­age done to its econ­o­my [35]. The via­bil­i­ty of a post-aus­ter­i­ty Ire­land remains to be seen. But that uncer­tain future has­n’t pre­vent­ed the issuance of awards for bold lead­er­ship on this front, like the “Gold­en Vic­to­ria” Prize for Euro­pean of the Year that Angela Merkel award­ed Irish Prime Min­is­ter Enda Ken­ny last year on behalf of a Ger­many mag­a­zine pub­lish­ers. Yep [36]. Ire­land also got its “spe­cial terms” dur­ing this peri­od ear­ly last year. It’s part of what led to the expec­ta­tion that there would be a rene­go­ti­a­tion of the Anglo Irish debt in the first place. Hand­ing out tro­phies for suc­cess­ful­ly impos­ing aus­ter­i­ty on a nation that just expe­ri­enced a finan­cial bub­ble and then bailed out your nation’s banks that fueled that bub­ble is one of the many perks Ger­many’s chan­cel­lor gets in the new euro­zone [37]:

Merkel rewards Irish fru­gal­i­ty with spe­cial terms
Date 02.11.2012
Author Andreas Noll / cd
Edi­tor Sonya Diehn

Chan­cel­lor Merkel hailed the Irish prime min­is­ter and his coun­try as a paragon of fis­cal virtue in light of a pri­vate award. But Enda Ken­ny is appar­ent­ly hop­ing for more than a stat­ue from Ger­many and the EU.

Irish Prime Min­is­ter Enda Ken­ny’s Novem­ber itin­er­ary has the word “Berlin” pen­ciled in twice. He was first invit­ed to the Ger­man chan­cellery to talk pol­i­tics on Novem­ber 1, where he had a one-and-a-half hour lun­cheon with the chan­cel­lor. Next week, the Ger­man Mag­a­zine Pub­lish­ers Asso­ci­a­tion will award him the “Gold­en Vic­to­ria Prize for Euro­pean of the Year.”

It’s a prize that Chan­cel­lor Angela Merkel believes the Irish min­is­ter deserves. In terms of employ­ment rates, social wel­fare and the nation­al bud­get, the reforms he has helped push through “absolute­ly jus­ti­fy the award.”

Note that the IMF-EU-ECB troika’s views on social wel­fare pro­grams [38] has [39] expe­ri­enced [40] some revi­sions [41].


A mod­el Euro­pean

The Irish have two try­ing years behind them. Since Novem­ber 2010, when Ire­land request­ed and received finan­cial assis­tance from the Euro­pean Finan­cial Sta­bil­i­ty Facil­i­ty, it has enact­ed each of the reforms that the Euro­pean Union, Euro­pean Cen­tral Bank and Inter­na­tion­al Mon­e­tary Fund required as con­di­tions for the 85-bil­lion-euro bailout ($109 bil­lion).

The coun­try is being hailed as a “mod­el stu­dent” for hav­ing ful­filled every con­di­tion of the inter­na­tion­al lenders. As of this past sum­mer, Ire­land has once more been able to take on debt through pub­lic bond auc­tions, and by the end of next year the coun­try should be on track for full rein­te­gra­tion into cap­i­tal mar­kets.

“We should nev­er for­get the sac­ri­fices made by the cit­i­zens of coun­tries that push through such reforms,” Merkel said. “That’s why I’d sim­ply like to say thank you to Ire­land for tak­ing that path. It makes all of us stronger.”

Bil­lions in debts

Still, Ire­land has a slug­gish eco­nom­ic growth rate of just .5 per­cent, along with an unem­ploy­ment rate of 34 per­cent, and holds gigan­tic out­stand­ing debts. Most of the lat­ter are a result of the coun­try’s deci­sion to sup­port banks affect­ed by the finan­cial cri­sis, to the tune of 64 bil­lion euros. The coun­try’s gross nation­al debt now stands at 118 per­cent of the gross domes­tic prod­uct.

In order to low­er debt lev­els, Prime Min­is­ter Ken­ny would pre­fer to recap­i­tal­ize those same Irish banks through the Euro­pean Sta­bil­i­ty Mech­a­nism (ESM). But Angela Merkel is among the voic­es against that pro­pos­al. She believes the ESM should nev­er be lever­aged for banks with out­stand­ing debts.

Yet Ire­land’s call for help may still be heard. It all comes down to the words “spe­cial case.” Merkel has cat­e­go­rized Ire­land as such, call­ing Irish pub­lic debts a “one-of-a-kind cir­cum­stance.”

Prime Min­is­ter Ken­ny allowed that mes­sage to be reit­er­at­ed once more on his recent vis­it to Berlin. “I told her what we’re doing to fur­ther reduce bank­ing sec­tor debts and to rejoin cap­i­tal mar­kets as soon as pos­si­ble,” he said. “The chan­cel­lor con­firmed that Ire­land is a spe­cial case, which is also why Ire­land should be treat­ed dif­fer­ent­ly, as was clear­ly the case in June.”


“The more clar­i­ty we give on how Ire­land can return once more to the bond mar­ket, the more suc­cess­ful that return can be when it’s car­ried out,” Ken­ny said.

The Ger­man chan­cel­lor coun­tered by point­ing to ongo­ing nego­ti­a­tions between finance min­is­ters. “We’re inter­est­ed in a sus­tain­able com­ple­tion of the reforms pro­gram,” Merkel said. But work com­plet­ed by those min­is­ters, she added, “will take some time.”


The mes­sage from the ECB, the EU, the IMF(some­times [42]), and Angela Merkel is clear: when a coun­try like Greece or Ire­land sud­den­ly finds itself fac­ing a mas­sive debt cri­sis, what is required most is “clar­i­ty”. Clar­i­ty in eco­nom­ic pol­i­cy will rein­still mar­ket con­fi­dence and bring about renewed invest­ments and eco­nom­ic growth. Even if that “clar­i­ty” includes man­dat­ed aus­ter­i­ty that is guar­an­teed to choke off eco­nom­ic growth and invest­ment. At least, that’s the the­o­ry. Con­fi­dence Fairies aren’t the best the­o­reti­cians to begin with and now we have folks like the ECB, the EU, the IMF, and Angela Merkel leav­ing the Con­fi­dence Fairies even more deeply con­fused than nor­mal. It’s New Nor­mal Con­fu­sion: Aus­ter­i­ty good. Deficits bad. Aus­ter­i­ty rais­es deficits. Aus­ter­i­ty bad? Con­fused Con­fi­dence Fairies can cre­ate a lack of clar­i­ty [43]:

Wall Street Jour­nal
Updat­ed Jan­u­ary 8, 2013, 1:16 p.m. ET

Ire­land’s Dou­ble-Edged Bond Suc­cess


Ire­land could hard­ly have cho­sen a bet­ter way to mark its assump­tion of the six-month rotat­ing pres­i­den­cy of the Euro­pean Union. Dublin gar­nered orders of more than €7 bil­lion ($9.18 bil­lion) for a €2.5 bil­lion five-year bond sale, proof it is regain­ing access to mar­kets just over two years after its bailout. But while Dublin’s suc­cess is a wel­come vin­di­ca­tion of the euro zone’s cri­sis response, it also pos­es a poten­tial­ly tricky headache that could yet put Ire­land and its part­ners at log­ger­heads.

The snag is that Ire­land’s bond-mar­ket suc­cess part­ly reflects investors’ expec­ta­tions that the euro zone will assume some of the bur­den of the coun­try’s bank bailout, which cost 40% of GDP but which arguably avert­ed a big­ger Euro­pean bank­ing cri­sis; senior bond­hold­ers were made whole at the cost of Irish tax­pay­ers. Fail­ure to pro­vide such aid could spark a sell­off in bonds. But with Irish bond yields now back at pre­cri­sis lev­els, its euro-zone part­ners may try to dodge fur­ther trans­fers.

Ire­land’s first pri­or­i­ty is to rene­go­ti­ate €28.5 bil­lion of expen­sive debt used to recap­i­tal­ize banks now being wound down; pay­ments on that debt amount to near­ly 1.5% of GDP a year at present. Ire­land is hope­ful a deal can be struck by March, when the next pay­ment is due. Longer term, it believes the Euro­pean Sta­bil­i­ty Mech­a­nism could take over the gov­ern­men­t’s equi­ty stakes in the banks, break­ing the link between them and the sovereign—a deal first float­ed by euro-zone politi­cians in a sum­mit dec­la­ra­tion last June. The Inter­na­tion­al Mon­e­tary Fund, in par­tic­u­lar, is argu­ing strong­ly for this idea.

That leaves the euro zone with a dilem­ma: If it sup­ports Ire­land, it risks set­ting a prece­dent at a time when the jury is still out on whether Spain’s bank­ing bailout is work­ing. On the oth­er hand, fail to sup­port Ire­land and investors may ques­tion whether the euro zone is once again back­slid­ing on its com­mit­ment to bailout coun­tries. That could push up yields not only for Ire­land but for oth­ers, too. And while Irish debt cur­rent­ly looks sus­tain­able, peak­ing this year at 122.5% of GDP, it might not take much to reignite fears about sus­tain­abil­i­ty. Dublin still faces bank-sec­tor con­tin­gent lia­bil­i­ties of 47.5% of GDP, RBS notes.


The euro­zone’s debt rene­go­ti­a­tions are one of the aus­ter­i­ty-only-intra-cur­ren­cy-union catch-22s we’ve seen arise over the past few years: If you rene­go­ti­ate the debt, you actu­al­ly help the econ­o­my of the coun­try in need — thus pleas­ing the Con­fi­dence Fairies. But you do so at the expense of admit­ting that the orig­i­nal aus­ter­i­ty poli­cies weren’t actu­al­ly help­ful and some­thing new must be done — thus hurt­ing the Con­fi­dence Fairies faith in the aus­ter­i­ty myth. Con­fi­dence Fairies tend to be deeply reli­gious (a whole the­o­log­i­cal spec­trum [44]), but their faith can be some­what reac­tionary. Admit­ting poor past pol­i­cy choic­es weak­ens their faith in the troi­ka. Prac­tic­ing their faith in the troi­ka destroys real­i­ty. Embrac­ing the faith of the Con­fi­dence Fairies can be a par­tic­u­lar­ly con­found­ing catch-22.

Hope­ful­ly being caught in a con­found­ing sit­u­a­tion pro­vides some com­fort for the rest of the euro­zone’s aus­ter­i­ty guinea pigs, because there’s some pro­posed “com­fort fund­ing” that the troi­ka recent­ly raised as a pos­si­bil­i­ty for Ire­land but it isn’t about com­fort for peo­ple. It’s about ween­ing Ire­land off of the rest of that 85 bil­lion bailout fund that Bri­an Leni­han “accept­ed [45]” in 2010 (and will be pay­ing out until 2053). That bailout mon­ey runs out next year [46] and that’s why Ire­land has to return to the nor­mal debt mar­kets soon. It’s finan­cial “com­fort fund­ing” to help smooth over state financ­ing for an aus­ter­i­ty-strick­en state. Part of the troika’s man­date appears to be the cre­ation of deeply uncom­fort­able sit­u­a­tions [47]:

The Irish Times — Fri­day, Jan­u­ary 25, 2013
Troi­ka rais­es pos­si­bil­i­ty of ‘com­fort fund­ing’


The EU-IMF troi­ka has raised the prospect of a new line of “com­fort fund­ing” for the Gov­ern­ment to ensure there is no dis­rup­tion to the pub­lic finances at the end of the bailout.


Under scruti­ny in advance of the 10-day mis­sion, which begins next Tues­day, is whether addi­tion­al steps should be tak­en to ensure a smooth exit from the bailout in the autumn.

Cred­it line

This ques­tion cen­tres on the pos­si­bil­i­ty of the troi­ka pro­vid­ing a new line of cred­it to the Gov­ern­ment as it attempts a full return to pri­vate debt mar­kets.

Dublin would not nec­es­sar­i­ly draw down such cred­it but the fact that it was avail­able might encour­age pri­vate invest­ment as there would be no risk of a fund­ing short­fall if the Gov­ern­ment did not sell enough debt.

An alter­na­tive, also being exam­ined by the troi­ka, is for the Gov­ern­ment to pro­ceed with­out the ben­e­fit of an addi­tion­al safe­ty net in order to demon­strate con­fi­dence in its debt to poten­tial investors.

Note the two strate­gies the troi­ka is con­sid­er­ing for return­ing Ire­land to the inter­na­tion­al bond mar­kets: The troi­ka could grant Ire­land a cred­it-line to instill con­fi­dence in the bond mar­kets. Or it could try the approach of no cred­it-line at all since that might make the mar­ket even more con­fi­dent. Con­fi­dence Fairies make very impor­tant deci­sions in how our mar­ket-dri­ven soci­eties oper­ate, but they also tend to be rather inde­ci­sive. Now you know how the troi­ka has to deal with.



Sources close to talks between the troi­ka and the Gov­ern­ment said the inter­na­tion­al lenders are not at this point rec­om­mend­ing any par­tic­u­lar course of action. A new “tech­ni­cal paper” from the troi­ka on exit­ing the bailout sim­ply presents these alter­na­tives as options for explo­ration, the sources said.


The dis­cus­sions come as talks con­tin­ue on bank debt relief and an exten­sion of the matu­ri­ty of bailout loans.

There is con­cern with­in the troi­ka to avert any sit­u­a­tion in which any Irish or Euro­pean lead­ers are seen to be dic­tat­ing to the Euro­pean Cen­tral Bank to recast the Anglo Irish Bank promis­so­ry note scheme.

The troi­ka fears this would under­mine the ECB’s inde­pen­dence, threat­en­ing the prospect for a deal and rais­ing the risk of a legal chal­lenge.

Yes, the Con­fi­dence Fairies don’t sim­ply want to see end­less aus­ter­i­ty and end­less bailouts. They want to see end­less aus­ter­i­ty cou­pled to end­less finan­cial bailouts cou­pled to cen­tral bank inde­pen­dence includ­ing inde­pen­dence from nation­al gov­ern­ments that might want to do some­thing about the bailout-induced aus­ter­i­ty. And if you reveal any secrets to the pub­lic, secrets like the doc­u­ment con­tain­ing delib­er­a­tions and threats between pub­lic offi­cials nego­ti­at­ing major bailouts, the Con­fi­dence Fairies will freak out and implode the finan­cial sys­tem. And, accord­ing to the troika’s con­cerns, the Con­fi­dence Fairies are also real­ly real­ly uncom­fort­able with attempts to rene­go­ti­ate bailout deals after it becomes clear that the deals are destroy­ing economies. The Con­fi­dence Fairies are also deeply opposed to any­thing that hints at under­min­ing the ECB’s inde­pen­dence. But they’re open to “com­fort fund­ing” that will tem­porar­i­ly ease the pain of aus­ter­i­ty. “Com­fort fund­ing” to ward off com­plete sys­temic implo­sion is fine, but only as long as Ire­land is on the path towards no “com­fort fund­ing”. Just aus­tere bud­gets. And low­er debts and deficits. Even­tu­al­ly. But first bailouts and aus­ter­i­ty. And secre­cy. And faith in the sys­tem that is deliv­er­ing bailouts, aus­ter­i­ty, and secre­cy.

Ire­land’s Con­fi­dence Fairies, in case you had­n’t noticed, are kind of fas­cist. At least in the­o­ry.

Update 6/27/2013
Oh, this is rich [48]: So there’s a big new scan­dalous set of “rev­e­la­tions [49]” sur­round­ing the “bailout” of Ire­land fol­low­ing the col­lapse of its hous­ing mar­ket. The Irish Inde­pen­dent pub­lished a series of record­ed phone calls between exec­u­tives at Anglo-Irish Bank. They’re pret­ty bad. In one of the record­ings the Anglo Irish exec­u­tives laugh­ing­ly embrace the mon­ey flow­ing into their bank from for­eign sources, espe­cial­ly from Ger­many, as part of the Irish bank bailout of Sep­tem­ber 2008. And what real­ly seems to have Ger­man polit­i­cans’ hack­les up is the fact that John Bowe, Angro Irish’s direc­tor of trea­sury, jok­ing­ly sings “Deutsch­land, Deutsch­land, Uber Alles” while they embrace the mon­ey flow­ing into the bank in one of the record­ings on Octo­ber 2, 2008. This con­ver­sa­tion was just days after the Irish bank bailout deal and accord­ing to a Merkel ally the record­ings are “unbear­able” [50]:

The Irish Inde­pen­dent
Merkel ally describes Anglo’s Ger­man com­ments as ‘unbear­able’

26 June 2013

Ger­man peo­ple are dis­gust­ed and offend­ed at com­ments by Anglo exec­u­tives as revealed by the Irish Inde­pen­dent, accord­ing to a lead­ing politi­cian.

Micheal Fuchs, deputy par­lia­men­tary leader of the Chris­t­ian Demo­c­ra­t­ic Union – the par­ty of Chan­cel­lor Angela Merkel – said the record­ings were “unbear­able”.

In a set of phone calls detailed by the Irish Inde­pen­dent, exec­u­tives at the tox­ic Anglo Irish Bank laugh about abus­ing a blan­ket bank guar­an­tee to beef up the books at the expense of Ger­many and the UK.

One con­ver­sa­tion — taped two days after the fate­ful Sep­tem­ber 30, 2008 bank guar­an­tee — hears for­mer chief exec­u­tive David Drumm gig­gle while his col­league John Bowe recites lines from ‘Deutsch­land Uber Alles’.

“We are offend­ed,” Mr Fuchs told RTE ear­li­er today. “If you have a feed­ing hand you should­n’t bite into it.”

He added “it’s real­ly dan­ger­ous” lan­guage as Ger­man politi­cians are try­ing to con­vince local tax­pay­ers to sup­port Euro­pean coun­tries, such as Ire­land. “It’s absolute­ly unbear­able that some­body is talk­ing like this,” he said.

Bowe said in a state­ment that the lan­guage used in the taped record­ings of inter­nal bank con­ver­sa­tions “was impru­dent and inap­pro­pri­ate.”


This might be a good time to recall that Ire­land’s “bank guar­an­tee” that had been issued days before the now infa­mous “Deutsch­land, Deutsch­land, Uber Alles” phone call com­plete­ly absolved Ger­man banks of bil­lions of lia­bil­i­ties that they would have incurred under nor­mal bank­rupt­cy pro­ceed­ings and passed those lia­bil­i­ties onto the Irish pub­lic even though Ger­man banks played a lead role in fuel­ing the Irish hous­ing bub­ble [25]. So those finan­cial flows into Anglo Irish Bank that were tak­ing place dur­ing that phone call on Octo­ber 2, 2008, may have been flow­ing in from for­eign sources but it was Anglo Irish that was get­ting bailed out, not “Ire­land” [51]. Ger­many’s banks were under a sig­nif­i­cant threat of very seri­ous loss­es if Ire­land’s big bank went down until Anglo Irish and its cohorts were bailed out by the Irish pub­lic.

So real­ly, Ger­many’s politi­cians should have been thank­ing Ire­land’s gov­ern­ment on Octo­ber 2, 2008 — and Anglo Irish in par­tic­u­lar — because the Irish pub­lic is a lot hard­er to bank­rupt than Irish banks...even real­ly big Irish banks. That’s even the case when trans­fer­ring the full lia­bil­i­ties of Ire­land’s for­eign-finance-fueled prop­er­ty-bub­ble from the banks to the pub­lic obvi­ous­ly sends a tiny nation like Ire­land into some sort of debtors prison [25]. In oth­er words, Anglo Irish Banks’s exec­u­tive were pri­mar­i­ly abus­ing the Irish peo­ple by abus­ing the bank guar­an­tee [52], not for­eign-lenders. Maybe Merkel’s Allies [53] might need to recal­i­brate their sense of what is deemed to be per­son­al­ly “unbear­able”. After all:

“Sticks and stones may break my bones
but back-alley nation­al usury pledges will nev­er hurt me pre­dictably wreak hav­oc on my soci­ety [3] and I should also avoid inflict­ing that sit­u­a­tion onto anoth­er nation”.