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Ireland bailout: UK taxpayers could face £7bn bill

Irish newspapers reported today that Ireland is considering asking for money for its banks via the EU's emergency fund

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* Julia Kollewe

* guardian.co.uk, Monday 15 November 2010 10.50 GMT

* Article history

Bank of Ireland headquarters, Dublin Bank of Ireland headquarters in Dublin. The country could be forced into a bailout today. Photograph: Peter Morrison/AP

An emergency bailout of Ireland, which is looking increasingly likely today, could cost Britain billions of pounds.

Although Ireland continues to deny that it has asked for help, many analysts believe the country will have to tap a €60bn rescue fund set up by the EU in May this year.

Under the terms of a deal agreed by Alistair Darling in May, the UK is liable for 13.6% of this fund. This means taxpayers could contribute as much as €8bn (£6.8bn), depending how the rescue package was structured.

The UK government declined to say how much an Irish rescue package could cost British taxpayers.

"There has been no application [from the Irish government for emergency funding] and we won't speculate on it," said a spokesman for the Treasury this morning.

Ireland's insistence that it can ride out the storm continued to trouble the financial markets this morning. The euro traded close to a seven-week low of 84.5p struck on Friday and the yield on Irish 10-year government bonds remained at crisis levels, trading around 8.1%.

Fears that the financial crisis is entering a new phase also hit UK government debt, with British gilt futures tumbling against German bunds. The December gilt future was 26 basis points down at 122.11, around 10 points ahead of the equivalent bund.

Irish newspapers reported today that Ireland is considering asking for money for its banks via the EU's emergency fund.

While Ireland continues to deny reports it is negotiating a potential rescue from the EU emergency fund, it is locked in talks with other European governments over the strategy for tackling its debt crisis. Finance minister Brian Lenihan travels to Brussels for face-to-face negotiations with other EU finance ministers tomorrow.

On Friday, the finance ministers from Europe's biggest economies, including Britain, pledged their support to the debt-laden country. David Cameron signed a joint statement giving assurance that the EU would step in to guarantee 100% of Irish debts if the country is unable to tap international money markets for extra funding.

Dublin is resisting pressure to ask for help because the bailout terms would be punitive. Ireland would have to partially surrender sovereignty over its budget and could also be forced to increase its low corporation tax rate of 12.5%.

European Union leaders have a total of €750bn at their disposal to shore up distressed members of the EU. As well as the €60bn "community facility" agreed in May, eurozone governments have guaranteed €440bn in a financial stability mechanism, while the International Monetary Fund has pledged €250bn. Any Irish bailout is likely to come from the €60bn community facility. As the UK is not a member of the euro, it is not part of the €440bn mechanism fund.

Britain's support for the community facility is controversial as Darling took the decision on 10 May, four days after the general election and the day before David Cameron was invited to form the new government.

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Why would the UK want to help Ireland? Why would anyone want to handcuff themsefls to a corps?

How does a population of 4 million get into mind stagering debt. I forget what it works out to be per man wonman and child.

Giving money to the Irish is like giving razorblades to monkeys. you know you shouldnt but do it any way just to see what happens :rolleyes:

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Why would the UK want to help Ireland? Why would anyone want to handcuff themsefls to a corps?

How does a population of 4 million get into mind stagering debt. I forget what it works out to be per man wonman and child.

Giving money to the Irish is like giving razorblades to monkeys. you know you shouldnt but do it any way just to see what happens :rolleyes:

Ireland is a major export market for the UK and just about any Irish person is perfectly entitled to come over to the UK and look for work, sign on etc. So having Ireland collapse on it's own doorstep isn't good for the UK.

As for how Ireland got into so much debt that it faces collapse, it's quite easy - The government took the debts of the banks onto the public books. The Irish state wasn't large enough to carry such losses (especially not as the banks and politicians lied about just how much merde the banks were in) and as a result state failure beckons.

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How does a population of 4 million get into mind stagering debt. I forget what it works out to be per man wonman and child.

Giving money to the Irish is like giving razorblades to monkeys. you know you shouldnt but do it any way just to see what happens :rolleyes:

RBS and HBOS to name but two.

Bailouts are about rescuing bankers and bondholders in the rest of Europe not helping the Irish.

How does a population of 4 million get into mind stagering debt. I forget what it works out to be per man wonman and child.

Giving money to the Irish is like giving razorblades to monkeys. you know you shouldnt but do it any way just to see what happens :rolleyes:

A similar question could be put to the population of the UK ?

How could anyone be so deluded as to think the path to riches was generating a housing bubble and then MEWING the paper profits to spend on imported goods.

Edited by realcrookswearsuits
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Fascinating piece in FT Alphaville showing how the blow out on Irish Sovereign debt has effectively underminded the Irish governments existing attempts to bail out its domestic banks via NAMA

The Irish bank-bond loop

To appreciate that irony, you have to understand that Irish banks were initially prescribed government bonds as a big push for systemic health.

For example, the Irish Mail on Sunday was shocked – shocked – at the weekend that the government let banks start buying its bonds by the bucketful last year:

Irish banks bought billions of euros of Government bonds after being recapitalised by the taxpayer last year, the Irish Mail on Sunday can reveal…

AIB’s holding of Irish bonds went from €165m in December 2007, the last figures before the bank bailouts began, to €4.1bn in July this year – a 25-fold increase…

The revelation that the State’s two biggest banks spent €5.8bn between them buying bonds now begs the question whether Mr Lenihan has put pressure on the banks to buy Irish bonds – a claim his officials denied last night.

http://ftalphaville.ft.com/blog/2010/11/15/404211/bailing-out-ireland-bailing-out-banks/

As one can see the pail that has been used for the bailing actually has a big hole in it.

Edited by realcrookswearsuits
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http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8133535/Irish-borrowing-costs-drop-on-rescue-hopes.html

Bond prices rose and the premium that investors demand to hold Irish 10-year bonds over the benchmark German bunds fell to 548 basis points compared with a record 652 on November 11.

Mr Constancio said: "The problems of the Irish banking sector as we have seen are not only problems of liquidity but also in some cases problems of capital to absorb losses, and for that purpose the European Financial Stabilisation Facility would be adequate.

However the facility cannot lend directly to banks. "The facility lends to governments and then the governments of course may use the money to that purpose in similar lines that exist for Greece. The same could be done for Ireland."

Thread over, it's all fixed now.

Bond prices coming back down to normal.

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Fascinating piece in FT Alphaville showing how the blow out on Irish Sovereign debt has effectively underminded the Irish governments existing attempts to bail out its domestic banks via NAMA

http://ftalphaville.ft.com/blog/2010/11/15/404211/bailing-out-ireland-bailing-out-banks/

As one can see the pail that has been used for the bailing actually has a big hole in it.

You really couldn't make this up. So the taxpayer bailed out the banks and then the banks bought govt debt to fund unsustainable govt spending, and then the bank could dump these gold plated assets on the ECB?

Genius.

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they're still over 8%, going by the spread over Bunds and today's German 10y price

(since none of the articles i can find actually seem to quote a yield figure)

incidentally, according to the BBC,

The price of Irish bonds - essentially IOUs sold by the government to fund state spending - were trading lower on Monday, suggesting a slight easing of concerns.

a bit sloppy perhaps?

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Fascinating piece in FT Alphaville showing how the blow out on Irish Sovereign debt has effectively underminded the Irish governments existing attempts to bail out its domestic banks via NAMA

http://ftalphaville.ft.com/blog/2010/11/15/404211/bailing-out-ireland-bailing-out-banks/

As one can see the pail that has been used for the bailing actually has a big hole in it.

An action that one and the same time, slush funds the govt, provides pretend pricing of government bonds and puts the gun at the head of the government too - if you don't bail us out say bye-bye to your bond ratings.

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Fascinating piece in FT Alphaville showing how the blow out on Irish Sovereign debt has effectively underminded the Irish governments existing attempts to bail out its domestic banks via NAMA

http://ftalphaville....ling-out-banks/

As one can see the pail that has been used for the bailing actually has a big hole in it.

thats what happens when you put money in a bankrupt organisation...its just sucked up...the waste remains and sooner or later, sooner with banks, you have the same black hole, demanding not just the money to pay the original debt, compounded, but the new stuff, compounding too.

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Why would the UK want to help Ireland? Why would anyone want to handcuff themsefls to a corps?

How does a population of 4 million get into mind stagering debt. I forget what it works out to be per man wonman and child.

Giving money to the Irish is like giving razorblades to monkeys. you know you shouldnt but do it any way just to see what happens :rolleyes:

Plus there's all kinds of political connections with the UK due to history. Government of Ireland Act 1949 (I think) says something about the Republic not being foreign nor its citizens foreigners. ROI's also dependent on the UK for defence, I believe.

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Before all this private-banks-buying-government-bonds-and-posting-as-collateral-at-the-ECB became widely known - I asked this very question on FTAlphavilles MarketsLIVE and I was told "Anyone who thinks that must have a button in the back of their head". lol

EDIT: found it here - dated 29th April 2010....

http://ftalphaville....1/markets-live/

what a strange reply?...what does it mean...we should be told.

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http://m.guardian.co.uk/ms/p/gnm/op/sHsIzewL_msaCN7UW24NA7A/view.m?id=15&gid=business/2010/nov/15/ireland-bailout-cost-to-britain&cat=top-stories

I know Europe is a team effort but this really takes the piss!

Ireland bailout: UK taxpayers could face £7bn bill

Scale of eurozone crisis underlined as emergency bailout of Ireland appears increasingly likely and EU statistics body says Greek budget deficit was even larger than thought

A Bank of Ireland branch in College Green, Dublin Photograph: Carl De Souza/AFP/Getty Images

Julia Kollewe

guardian.co.uk, Mon 15 Nov 2010 15.31 GMT

An emergency bailout of Ireland, which is looking increasingly likely today, could cost Britain billions of pounds.

Although Ireland continues to deny that it has asked for help, many analysts believe the country will have to tap a €60bn (£50bn) rescue fund set up by the European Union in May.

Under the terms of a deal agreed by Alistair Darling, the UK is liable for 13.6% of this fund. This means taxpayers could contribute as much as €8bn, depending on how the rescue package was structured.

The UK government declined to say how much an Irish rescue package could cost British taxpayers. "There has been no application [from the Irish government for emergency funding] and we won't speculate on it," said a spokesman for the Treasury this morning.

Miguel Ángel Fernández Ordóñez, the governor of the Bank of Spain, piled fresh pressure on Dublin today. "The situation in the markets in recent weeks has been very negative due in some way to the lack of a final decision by Ireland," said Ordóñez, who is also a member of the European Central Bank governing council.

"It's not me who should take a decision about Ireland, it's Ireland that should take the right decision at the right moment," he added.

A spokesman for Fine Gael, the opposition party, claimed today that the European Union had already intervened in the crisis. He predicted that a bailout will be hammered out during meetings between EU finance ministers this week.

Amid the uncertainty, the euro traded close to a seven-week low of 84.5p struck on Friday and the yield on Irish 10-year government bonds remained at crisis levels, trading at about 8.1%.

Fears that the financial crisis is entering a new phase also hit UK government debt, with British gilt futures tumbling against German bunds. The December gilt future was 26 basis points down at 122.11 – about 10 points ahead of the equivalent bund.

The scale of the eurozone debt crisis was underlined today when the EU statistics body Eurostat warned that Greece's budget deficit was even larger than thought. Eurostat reported that the Greek deficit in 2009 was 15.4% of its GDP, up from a previous estimate of 13.6%.

Having revised several years of data, Eurostat also said that Greece's deficit for the current year would be equal to 9.4% of GDP, missing the government's target of 7.8% of GDP.

Support for Ireland

Irish newspapers reported today that Ireland is considering asking for money for its banks via the EU's emergency fund.

While Ireland continues to deny reports it is negotiating a potential rescue from the EU emergency fund, it is locked in talks with other European governments over the strategy for tackling its debt crisis. The finance minister, Brian Lenihan, travels to Brussels for negotiations with other EU finance ministers tomorrow.

On Friday, the finance ministers from Europe's biggest economies, including Britain, pledged their support to the debt-laden country. David Cameron signed a joint statement giving an assurance that the EU would step in to guarantee 100% of Irish debts if the country is unable to tap international money markets for extra funding.

Dublin is resisting pressure to ask for help because the bailout terms would be punitive. Ireland would have to partially surrender sovereignty over its budget and could also be forced to increase its low corporation tax rate of 12.5%.

EU leaders have a total of €750bn at their disposal to shore up distressed member states. As well as the €60bn "community facility" agreed in May, eurozone governments have guaranteed €440bn in a financial stability mechanism, while the International Monetary Fund has pledged €250bn. Any Irish bailout is likely to come from the €60bn community facility. As the UK is not a member of the euro, it is not part of the €440bn mechanism fund.

Britain's support for the community facility is controversial as Darling took the decision on 10 May, four days after the general election and the day before David Cameron was invited to form the new government.

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This seems a rather inconsequential amount, when you look at how much American debt the UK owns. Who is going to be paying this back?

UK holdings of US Treasury debt have trebled since January 2009

What could possibly be going on here ?

I suspect that some of it is simply international cash piled into the 'safety' of US Treasury bonds via the City of London during the banking crisis.

Probably also a lot of 'you buy our debt and we will buy yours' between the UK and the US governments and Central Banks (ie more hidden QE propping up bond prices and the banks balance sheets).

Edited by realcrookswearsuits
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The regulatory and fiscal arbitrage issues is clearly stopping the Irish from going for a bailout if they can help it.

'Sovereignty' my a*se. The kleptokrats just want to keep doing things the way they always have and let other people pay for it.

http://ftalphaville....nds-tax-regime/

Some Irish posters on the Property Pin are talking about the neuclear option of leaving the Euro and default

The problem for the Irish is that if they crap on the European banks they may find that they are locked out of the European markets.

Their 12.5 Corporation Tax rate is only worth something if they have the full benefits of EU membership. irelands domestic economy is simply not big enough alone to attract businesses there. They need those EU perks as well

Edited by realcrookswearsuits
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The regulatory and fiscal arbitrage issues is clearly stopping the Irish from going for a bailout if they can help it.

'Sovereignty' my a*se. The kleptokrats just want to keep doing things the way they always have and let other people pay for it.

http://ftalphaville....nds-tax-regime/

The Republic of Google.

To be sure..........

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Some Irish businessman - Connor someone - was talking on Fivelive Drive earlier and he said that Irish public sector wages need to drop by 30% to get Eire out of the mess. He said private sector wages would then follow.

But fortuanatly wages in the financial sector in Ireland rose by 3% last year ..

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how can adams run in the republic. isnt he a uk citizen (did he not have to be an UK citizen to run for a MP's seat in Westminster ?) how can he just flip over from one country to the other (despite his idealogical beliefs)

Unless it has changed since the peace process anyone born on the island of Ireland can ask for an Irish passport.

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Get everyone on the same ship...then sink it!

What else did you think you the EU was for?

You must get into DEBT!!

Now i've seen it all, sky news...the GOVT to ask the ONS for an 'HAPPINESS INDEX'. :ph34r:

Here is my personal own un-happy index

Since The election, the government has gone back on so many electoral promises i will never vote for anyone but an independent next time

The government remains committed to keeping house prices unaffordable for me and my family and will not partake in any new social housing developments

The government has not publicly admitted a near term peak in global oil production and is not prepared for it

The government wants to continue to criminalize cannabis users and home growers whom produce for personal consumption whilst turning public health policy over to pepsico, KFC and McDonalds

http://www.guardian.co.uk/politics/2010/nov/12/mcdonalds-pepsico-help-health-policy

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