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What If Ireland Rejects Bail Out?

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Ireland won't be allowed to reject the bailout, just like Ireland didn't reject the Lisbon Treaty. The correct answer will be reached.

I'm sure that everything will be contained. Portugal and Spain have both emphatically denied they need a bailout so everything will be fine.

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It is in the best interests of the people of Ireland to reject the bailout.

Matthew Lynn of Bloomberg puts the case very well in my opinion.

http://noir.bloomberg.com/apps/news?pid=20601039&sid=aY3EOsugaJm8

It’s not too late. The request for aid may have been made. The negotiations may have started. But Irish Prime Minister Brian Cowen can still refuse a bailout from the European Union and the International Monetary Fund.

It might sound like madness for a drowning man to refuse a lifebelt. But the decision the Irish make in the next few days will shape the future of their nation for a generation.

Ireland would be better off going bust than taking a loan. The conditions attached to a rescue aren’t worth it: Once it takes EU money, it will never get off the hook. And the Irish banks aren’t worth saving anyway. Defaulting on your debts is a far less scary prospect than usually portrayed.

The real question is whether Ireland’s politicians have the courage to take that step.

Last weekend, the Irish surrendered to pressure to accept an EU- and IMF-led package, similar to the deal hammered out for Greece earlier this year. There was no surprise about that. The markets had grown so nervous about Ireland’s finances and the cost of its bank bailouts that yields on 10-year government debt reached almost 9 percent this month.

The final amount of the bailout is still to be determined. So are the terms. This means, of course, that it isn’t too late. The deal may still fall through, particularly with a general election looming as support for the government wanes.

Bond Chaos

True, that would cause chaos in the bond markets. Trading in Portuguese, Spanish and Italian debt wouldn’t be a pretty sight for the few days after rescue talks collapsed. But the Irish should still say no.

Here’s why.

First, the conditions are too onerous. The EU may demand an end to Ireland’s low corporate-tax rate. Its 12.5 percent rate has been a cornerstone of the country’s economy, attracting numerous businesses to relocate there. In 2008, two major U.K. companies, United Business Media Plc and drugmaker Shire Plc, switched their tax residence to Ireland to cut their tax bills.

Even if it isn’t explicitly part of the rescue deal, Ireland will come under pressure over the next few years to raise its corporate taxes, which take companies, government revenue and jobs from Ireland’s neighbors. It will be hard to explain to businesses in Dusseldorf why their high taxes are being used to help rescue competitors in Donegal.

Even so, it would be a huge mistake. Low taxes and an open business culture are what made Ireland successful. You don’t cure a sick patient by taking out a lung.

‘Hotel California’

Second, the EU-IMF rescue looks like financial methadone. It numbs the pain and gets you off drugs, but it’s addictive. The cure can be worse than the disease. Months have passed since the Greek bailout, and there isn’t much sign of Greece accessing the capital markets. The yield on Greek bonds remains more than 11 percent. It’s a “Hotel California” package: You can check out anytime you like, but you can never leave.

Third, this is mostly about rescuing EU financial institutions. It is the Irish banks that are in trouble, and if they go down, it will cause massive losses at other European lenders. But why should the Irish people worry about that? If French, German or British banks suffer big write-downs, let their governments deal with them. Ireland could just close its banks -- such a small country doesn’t need its own finance industry any more than it needs its own carmakers.

Emigration Wave

Fourth, Ireland risks tipping into an economic spiral. A key to the Irish economic revival of the last 20 years was reversing emigration. For a century, young Irish people went abroad to make their careers. When they started staying at home, it was a boon to the economy. If a generation is saddled with these debts, why not move to London or New York where the prospects are better? It’s already happening: Emigration is exceeding immigration for the first time since 1995. It will be the most highly skilled, energetic people who leave. How exactly is that going to help the nation recover?

Five, going bust isn’t so bad. Russia and Argentina defaulted on their debts. It wasn’t the end of the world. The financial markets portray it as a catastrophe, but that is mainly because bankers and bond investors stand to lose a lot of money. So long as it is done in an orderly, structured way, a default is often the best solution to a financial mess.

Underneath the property bubble -- which was caused by low euro-area interest rates -- Ireland has a competitive, export- oriented economy. September figures show exports rose 2 percent and the trade surplus increased. In a weak global economy, that’s a very decent performance.

If it defaults on its debts, Ireland can bounce back fairly quickly. If it accepts an EU bailout, it will be stuck in recession for a generation.

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Ireland won't be allowed to reject the bailout, just like Ireland didn't reject the Lisbon Treaty. The correct answer will be reached.

I'm sure that everything will be contained. Portugal and Spain have both emphatically denied they need a bailout so everything will be fine.

Unlike the Lisbon treaty there is no time for a rerun.

If the Irish government don't get the required package through in the next two weeks the rest of the Euro zone is stuffed.

tim

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Unlike the Lisbon treaty there is no time for a rerun.

If the Irish government don't get the required package through in the next two weeks the rest of the Euro zone is stuffed.

tim

Or .....

If the Irish government isn't forced to accept the draconian package in the next two weeks the rest of the lenders to Eurozone banks and governments are stuffed.

Default would shift the burden of debts from borrowers to lenders.

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If Ireland rejects the bailout what will happen?

Will those protesting about the cuts have no jobs or pensions?

As LuckyOne said.

One thing is pretty much a given: if they take the bailout and fail to cut off the banks their pensions are gone. And I suspect so will the jobs.

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Ireland won't be allowed to reject the bailout, just like Ireland didn't reject the Lisbon Treaty. The correct answer will be reached.

Eaaaaaaaaaaaaasy Tiger!

As Mr Farage has pointed out to the EU Parliament... Ireland is still a sovereign nation is it not?

Even if the current government accept this bailout, they have already said that there will be a general election in the new year.

It seems to me that the average man in the street will be hardest hit by the effects of the bailout.

What's to stop the Irish electing a new government with a rejection/default agenda?

What then?

I think we are about to find out what happens when there is monetary union without political union....when as Mr Buffet puts it "when the tide goes out".

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If Ireland rejects the bailout what will happen?

Will those protesting about the cuts have no jobs or pensions?

The Irish won't be able to borrow any more. That means they will have to set a budget that balances, no more credit.

And then there will need to be massive bailout of all the now insolvent euro banks. But that will mean the states that bail them out go bust. So I expect someone will have to print. That will cause massive inflation.

Not pretty is it?

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The Irish won't be able to borrow any more. That means they will have to set a budget that balances, no more credit.

And then there will need to be massive bailout of all the now insolvent euro banks. But that will mean the states that bail them out go bust. So I expect someone will have to print. That will cause massive inflation.

Not pretty is it?

It may well not cause inflation.

Inflation is "too much money chasing too few goods".

The newly printed money will just disappear in to some balance sheet black hole and the emergence of the BRICS et al means that we now have more goods than we can shake a stick at.

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If the Eurozone economy becomes 'stuffed' by a currency crisis, it will take us and other European economies with it - even those that aren't even in the EU (except perhaps Switzerland).

Edited by blankster

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Indeed they need to go bust, arguably the whole world banking system needs to go bust and write down loans and deposits.

I bet if it were to happen it wouldn’t even be that painful, I suspect a 10% haircut for depositors would make the banks solvent again. Each bank forcing a haircut on its depositors dependant on its loan book quality. That would mean the prudent banks that only lent out mortgages with > 25% deposits would not need to punish their savers while the unprodant northern rock type banks would see depositors take a big hit perhaps 20%

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The Irish won't be able to borrow any more. That means they will have to set a budget that balances, no more credit.

And then there will need to be massive bailout of all the now insolvent euro banks. But that will mean the states that bail them out go bust. So I expect someone will have to print. That will cause massive inflation.

Not pretty is it?

Going bust doesn’t cause inflation, in fact going bust would mean writing out of existence a lot of deposits. It would in many ways be deflationary in fact strongly so.

You are correct irland would need a balanced budget after default however defaulting on 120% of GDP in debt will free a huge burdon of paying the interest on that debt.

Quick match says about 6-8% of GDP is spent on the interest on the debt.

So if Ireland are spending 10% of GDP excess it would only need to cut 2-4% to have a balanced budget.

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http://irishtimes.newspaperdirect.com/epaper/viewer.aspx

The package is expected to include details of the portion of the bailout that will be allotted in fiscal support to the State and how much will be given to the banks. According to another Government source, more than half the sum will be given to the State, with the remainder going to recapitalise the banks.

Although the EU-IMF mission to Ireland has taken legal advice on the implications of compelling senior bank bondholders to pay some of the cost of rescuing Ireland’s banks, it remains unclear as to whether they would push to include such measures in the final deal.

The disclosure yesterday by The Irish Times that such moves were on the table led to sharp declines in the value of senior debt in Allied Irish Banks, Bank of Ireland and Anglo Irish Bank. Credit default swaps, a form of insurance against the risk of default, rose by almost 50 per cent at both Anglo and AIB.The EU-IMF negotiators believe burden-sharing mechanisms could vary between different institutions, but they are wary of potential legal challenges against any move to impose bailout costs on senior bondholders.

This is what it is all about.  Ask a bondholder whether a default is bad, and I think you know what the answer will be.

The bit that is starting to annoy me is the use of "sanctity of contract" to justify giving a load of taxpayers money to bailout out a bank so it can afford to pay its bond holders.  This is exactly the same scam as Fred Goodwin etc.

I really do think we need a new model here. The problem is it is either all or nothing, a bondholder haircut would actually do the bondholders a lot of good.

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Any sovereign leader not totally in the pocket of the international bankers would default on these loans. These aren't even loans to the government of Ireland, they are private loans made to private individuals that the traitorous leaders have decided to back up with the public treasury.

If Ireland had a government that represented the Irish people I think they have the upper hand in negotiations. I would just flat out tell the other European nations we will cut nothing, we want 100% of the losses covered by you with no conditions, or we simply will pull the trigger and default, crushing the whole Euro experiment.

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  • 244 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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