Tag Archives: Brian Cowen

IMF Put Irish Bailout On Hold

The International Monetary Fund (IMF) has decided to postpone its approval of the Irish bailout until its been approved by the Irish parliament – Dàil – hopefully after the debate next Wednesday, an IMF spokesperson says in a short  statement issued today.
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“Assuming parliamentary support for the package, the Managing Director could recommend approval by the IMF Executive Board of the proposed €22.5 billion IMF loan as early as December 16.”
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The International Monetary Fund


The Government of Ireland decided yesterday to table a motion on the EU-IMF Financial Assistance Program for Ireland in the Irish Parliament (Dáil). The vote on this motion is scheduled for Wednesday, December 15, 2010. Today the IMF has issued the following statement:
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“The authorities have informed us that while parliamentary approval of the EU-IMF support package is not legally required, the Irish Government has put the motion before parliament to strengthen political support for the agreement.  In deference to Ireland’s parliamentary process, the IMF has decided to postpone consideration by its Board of the proposed loan under the Extended Fund Facility until after the debate. Assuming parliamentary support for the package, the Managing Director could recommend approval by the IMF Executive Board of the proposed €22.5 billion IMF loan as early as December 16.”

“We welcome the first implementation measures of the 2011 budget – stipulating the fiscal consolidation path and important reform measures involved in the program – have recently been passed by the Irish Parliament, confirming Ireland’s strong commitment to the program and the policies involved.”

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The Brilliance Of A Bailout

The European Central Bank tried to force Ireland into an EU/IMF bailout, according to Irish Justice Minister Dermot Ahern. Today the ECB is forced to buy Irish bonds in the market to prevent the recently bailed out country’s economy from total collapse. And at the same time the ECB is increasing the bailout pressure on Portugal. Excuse me, but I can’t see the logic.

“The government was cleaned out in the negotiations.”

Michael Noonan


While the 111 billion dollar rescue package to Ireland was supposed to calm the financial markets, the exact opposite has happened. The volatility and the cost of insuring national debt by Credit-default Swaps is just getting higher and higher. Yesterday we saw the biggest slide in Spanish government bonds since the euro’s debut in 1999. Today the ECB is intervening in the market to keep Irish bonds from going down the tubes.

According to two anonymous sources, the ECB have bought a “small amount” of short time Irish government bonds Tuesday morning, Bloomberg reports.

The yield on Irish 2-year bonds are up by 0,14%, as of 1 PM (CET) today.

The cost of insuring Portugal against default rose 11.5 basis points to a record 551 today, according to CMA prices, and the ECB is now putting pressure on the Portuguese government to apply for a bailout, according to the Irish minister Dermot Ahern.

“Clearly there were people from outside this country who were trying to bounce us in as a sovereign state, into making an application, throwing in the towel before we had even considered it as a government,” Ahern says in an interview with the Irish state broadcaster RTE today. Adding: “And if you notice, they are doing the same with Portugal now.”

Asked about who was pressuring Ireland, he says: “Quite obviously people from within the ECB.”

Ireland’s crisis has forced the ECB to buy government bonds and pump money into its banking system.

Irish domestic lenders increased their reliance on ECB funding by 3.3 percent in October and the central bank today purchased more Irish bonds, according to two people familiar with the transaction, Bloomberg reports.

The bailout has sparked a wave of domestic criticism accusing Prime Minister Brian Cowen of giving up the country’s sovereignty for punitive terms.

More than 50,000 people took to the streets of Dublin on November 27, the day before the government agreed an average interest rate of 5.8 percent for the loans from the EU and IMF.

“The government was cleaned out in the negotiations,” says Michael Noonan, finance spokesman for Fine Gael, the largest opposition party.

“The interest rate of 5.8 percent is far too high and verges on the unaffordable.”

The Irish Bailout - Illustrated

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The risk for Europe is that Spain’s economy is twice as big as that of Greece, Ireland and Portugal combined, meaning the euro region’s 750 billion-euro bailout fund may not be big enough if the country resorts to aid. Spain’s 10-year government bonds slid yesterday by the most since the euro’s debut.

The extra yield investors demand to hold the securities instead of benchmark German bunds widened to euro-era records.

(See also: Belgium Joins The PIIGS: And Then They Were Six)

“The big elephant in the room is not Portugal but, of course, it’s Spain,” Nouriel Roubini, the New York University professor, said at a conference in Prague yesterday. “There is not enough official money to bail out Spain if trouble occurs.”

The European Central Bank may have to step up purchases of Spanish government bonds and backstop its banking system if the country runs into financing difficulties, Citigroup’s chief economist, Willem Buiter, wrote  in a note to investors yesterday. “Once Spain needs assistance, the support of the ECB will be critical,” Buiter said.

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10-year sovereign spreads (against 10 year German bunds)

Previous Day Close Yesterday’s Close This morning
France 0.459 0.521 0.535
Italy 1.753 1.993 1.998
Spain 2.538 2.787 2.746
Portugal 4.484 4.564 4.477
Greece 9.299 9.329 9.79
Ireland 6.866 6.966 6.956
Belgium 1.013 1.214 1.192

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EU: No Bail In, Just Eternal Bailouts

It ought to be a happy day for the bondholders of the world. The informal Eurogroup decided Sunday that the Irish rescue plan will not bail in senior bank bondholders and force them take a “haircut” on their liabilities. A decision likely to make precedence for the many bailouts to come. However, Germany and France insist on a bail in facility to be implemented when the 750 billion euro bailout fund, created in May this year, becomes a permanent stabilizing mechanism when it expires in 2013.  But this will only apply for debt issued thereafter. The brilliance of this solution is;  since bond issuers and bond investors, pretty much, are one and the same big banks – it becomes an eternal bailout mechanism.

“The rescue plan stands as a forceful response to vulnerabilities in the banking system.”

Dominique Strauss-Kahn


As usual, the IMF-boss Dominique Strauss-Kahn provides us with valuable insight. It is indeed a forceful response to vulnerabilities in the banking system. First; they’re now protected for two more years. And second; if anyone should default on their loans issued after 2013, and forced to take a so-called “haircut,” there will be a permanent bailout mechanism available so that the bailed in banks can be bailed out again. Pure genius!

The EU countries and the International Monetary Fund (IMF) will provide up to €85 billion under the Irish package, which may be drawn down over a period of up to 7½ years, the informal Eurogroup said last night.

About €50 billion is aimed at bolstering Ireland’s public finances. Of the remaining 35 billion, 10 will be used to recapitalize Ireland’s demolised banking system, and 25 will be put in a contingency fund to provide the banks with additional support if necessary.

The IMF will contribute with a total of 22,5 billion. This include three bilateral loans from the UK, Sweden and Denmark.
Along with the rescue package comes a 15 billion austerity package to be distributed amongst the Irish citizens over the next four years.

The interest rates for the loans will also vary on the different parts of the package. ( But is in general close to 6%,  according to the statements).

Merry Christmas!

The EU leaders have almost scared the bond investors to death with their talk of bailing in bondholders to make them share the burden of the supersized debt bubble they’ve been creating over the years.

But at a press conference last night after the informal Eurogroup and EU’s finance ministers had endorsed the Irish rescue package at an emergency meeting, Olli Rehn said:

“I’m aware that the Irish authorities are considering certain discounts for the subordinated debt but there will be no haircut on senior debt, not to speak of sovereign debt”.

Adding: “The programme rests on three pillars. First, there will be an immediate strengthening and comprehensive overhaul of the banking sector. Second there will be an ambitious fiscal adjustment to restore fiscal sustainability of the sovereign. Third, there will be substantial structural reforms enhancing economic growth, especially in the labour market.”

The aim in the banking measures is to create a smaller and more robust financial system with a stable financing structure.

“It notably includes higher minimum regulatory requirements, plus a capital injection early on to bring capital ratios above the minimum. Moreover a new and rigorous stress test will be conducted based on a severe scenario and moreover, new legislation on insolvency and bank resolution will be introduced.”

Neiter this legislation will not include haircuts on senior debt, according to Mr. Rehn.

So, the major holders of Irish (and other sovereign) bonds can enjoy another big fat Christmas bonus.

(See: The Precious Irish Bondholders – Here’s The Full List)

Deutsche Bank has already decided to hand out the biggest bonuses ever this year to its executives.

Bailing In The People

Now – here’s some of the Christmas gifts for ordinary Irish people:

Labor market:

*Reduce national minimum wage by €1.00 per hour

* An independent review of the Registered Employment Agreements and Employment Regulation Orders.

* Reform of the unemployment benefit system

* Streamline administration of unemployment benefits, social assistance and active labour market policies.

* Reform of activation policies:
A: Improved job profiling and increased engagement;
B:  More effective monitoring of jobseekers’ activities with regular evidence-based reports;
C: The application of sanction mechanisms for beneficiaries not complying with job-search conditionality and recommendations for participation in labour market programmes.

Health Care:

* Medical Profession: Eliminate restrictions on the number of GPs qualifying, remove restrictions on GPs wishing to treat public patients and restrictions on advertising.
* Pharmacy Profession: Ensure the recent elimination of the 50% mark-up paid for medicines under the State’s Drugs Payments Scheme is enforced.

Pensions:

* Savings in Social Protection expenditure through enhanced control measures.

* Increase the state pension age to 66 years in 2014, 67 in 2021 and 68 in 2028.

Public Service:

* Reduction of public service costs through a reduction in numbers and reform of work practices.
* A reduction of existing public service pensions on a progressive basis averaging over 4% will be introduced.
* New public service entrants will also see a 10% pay reduction.
* Reform of Pension entitlements for new entrants to the public service
A: including a review of accelerated retirement for certain categories of public servants and an indexation of pensions to consumer prices.
B: Pensions will be based on career average earnings.
C: New entrants’ retirement age will also be linked to the state pension retirement age.

Taxes:
* A reduction in pension tax relief and pension related deductions
* A reduction in general tax expenditures
* Excise and other tax increases
* A reduction in private pension tax reliefs
* A reduction in general tax expenditures
* Site Valuation Tax to fund local services
* A reform of capital gains tax and acquisitions tax
* An increase in the carbon tax

The Enormous Growth Potential

In a joint statement IMF managing director, Dominique Strauss-Kahn, says the rescue plan stands as a “forceful response to vulnerabilities in the banking system”.

And for once, I totally agree with Mr. Strauss-Kahn.

“By shielding Ireland from the need to go to the markets for a considerable period of time, this support places financing at Ireland’s disposal on more favourable terms than it could obtain elsewhere for the foreseeable future,” the statement says.

(Just to be precise: It’s the Irish banks that are being shield)

“This programme articulates a clear strategy for tackling today’s problems and for harnessing the enormous growth potential of this open and dynamic economy.”

The enormous growth potential?

I better stop now, or I might write something rude and offensive.

You can read the full Iris government/IMF statement for your self here.

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