Saturday, May 7, 2011

Ireland’s Future Depends on Breaking Free from Bailout

Ireland's Future Depends on Breaking Free from Bailout

"Back when the euro was being planned in the mid-1990s, it never occurred to anyone that cautious, stodgy banks like AIB and Bank of Ireland, run by faintly dim former rugby players, could ever borrow tens of billions overseas, and lose it all on dodgy property loans. Had the collapse been limited to Irish banks, some sort of rescue deal might have been cobbled together; but a suspicion lingers that many Spanish banks – which inflated a property bubble almost as exuberant as Ireland’s, but in the world’s ninth largest economy – are hiding losses as large as those that sank their Irish counterparts."

Posted by nathan @ 06:53 PM (2951 views)
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15 thoughts on “Ireland’s Future Depends on Breaking Free from Bailout

  • mark wadsworth says:

    Yup, Ireland would be far better off ‘doing an Iceland’ and starting again with a clean sheet. Resurrecting the old Irish pound might be a bit tricky, but I’m sure the UK won’t mind if they use sterling for the interim period of six months or whatever.

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  • This is a really good analysis. Ireland have left things a bit late, – I liked: “Try to imagine the Bank of England’s insisting that Northern Rock be rescued by Newcastle City Council and you have some idea of how seriously the ECB expects the Irish bailout to work”.

    How practical would it be to opt out of the EC? I suspect it would be harder than it looks. How do you change over the curencies? When do you do it? How do you avoid the manic rush to avoid “losses” which have already been lost? If only Mark’s comment above was as easy as it sounds….if only!

    The longer this goes on, the longer the electorate in France, Germany etc will become uncomfortable using their money to support stupid decision making on “dodgy property loans”.

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  • mark wadsworth says:

    Alan, good points.

    The longer you let these things slide, the worse they get. When IceSave went pop, G Brown (to his credit) simply put a freeze on all UK assets owned by Icelandic Banks, and Iceland (to its credit) told its savers and bond holders to whistle for it (quite which happened first I can’t remember), sure, we lost a few billion and they lost a few billion, clean sheet, kiss and make up, move on.

    The longer you play extend and pretend, the bigger the eventual bill (whereby I mean ‘the bigger the transfer of wealth from taxpayers to risk takers’) at some stage in the future. The fall back position is ‘debt for equity swaps’, there’s nothing so bad that it can’t be sorted out by debt for equity swaps.

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  • Ireland is another state for sale to the highest bidder from the financial services sector. Dublin’s International Financial Services Centre has been described as ‘a showcase for high-risk, wild-west financial capitalism’. It hosted 8,000 funds with $ 1.5 trillion assets. Bear Stearns Ireland Ltd operated subsidiaries there with a leverage of 120:1 (gross assets/equity). While BS Ireland Ltd claimed it was regulated by the Irish regulator that gentleman was saying that his remit extended only to Irish banks.!!!!! The same story applied to other wild west banks in Dublin’s IFSC – several German banks operating there without regulation had to go cap-in-hand to their governments. There’s far more to Ireland’s problems than dodgy property loans by Irish banks.

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  • Like this bit buried in the article; ‘why was it necessary, or at least expedient, for the EU to force an economic collapse on Ireland to frighten Spain?’

    Nice pit of Irish finger pointing inferring that its was necessary to pick on a ‘little country’ to frighten the biggest naughty one on the continent. I have always been mystified how santander has managed to appear to do so well when its home country is up an economic creek with half a paddle.

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  • Northern Rock doing well until the day it went bust!

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  • 7. khards said…Northern Rock doing well until the day it went bust!

    ~ I knew a guy who jumped off a huge bridge, it must have been exhilarating, but it was only the last split second that killed him.

    Unlucky I guess.

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  • the number cruncher says:

    Thanks Nathan – that was a great post and a very interesting read and very enlightening. icarus – that was interesting addition info

    The comments are much better quality than a lot in UK broadsheet site,and show a lot of interesting viewpoints.

    My favorite was: “Mr. Geithner is the most avid advocate of bank-owned taxpayers in the world.”

    Last year a fellow Trustee of a charity, who was a very bigwig in Deutsche bank, told me to avoid the Spanish banks like the plague and withdraw all our funds from them. She helped devise a defensive strategy for our funds to avoid banking collapses as she thought is was very likely. Just like Ireland & Iceland I am sure their banks will be offering the best rates to savers just before the sh*t hits the fan. Be careful, you never know depositors could take a haircut as well…

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  • mark wadsworth says:

    Enui: “‘why was it necessary, or at least expedient, for the EU to force an economic collapse on Ireland..?”

    It strikes me that the Irish brought this on themselves, first with the land price bubble and then with the bank guarantees (at which stage they had a chosen debt-for-equity swaps) and they weren’t forced to go to the EU, they can still just remove the guarantees and have done with it.

    The EU and various banking cronies just made hay while the sun shone.

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  • All must break free from the bailouts if they want freedom in the future.

    Why do you think they are in this fix??????

    ‘Engineered boom and bust’ is looking increasingly plausible as this fiasco continues.

    I say, BREAK THE PLAN then see what happens. Who’s who.

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  • 1. mark wadsworth

    is correct, all it takes is courage and a ‘love’ of Ireland. There can be no place for treason.

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  • Inflationwatch says:

    Greece has a debt to gdp ratio of 160 percent. The secondary market interest rate for their debt is 20 percent. 160 times 0.2 gives 32 percent of GDP. That will be the debt servicing costs if Greece had to go to the market today and refloat all its debt.

    The ECB and the EU are in there giving them cheap loans, so that arithmetic is an extreme case. Nevertheless, it indicates to me that Greece can not pay off its debts without someone writing down a large part of the debt stock. It is not a matter of if, but when……

    What am I missing here.

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  • general congreve says:

    @1 – Not so sure the UK would be quite so happy to play ball. After all, the Irish Banks owe British Banks billions, without payment of which our banks would enter into another crisis. This was the reason the UK government was so happy to help bail the Irish out in the first place. It’s a beautifully tangled web.

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  • 15. general congreve

    Are England and Ireland not one of the same or is that only when it suits?

    The “United Kingdom” is a strange old beast, It seems to grow and shrink to the extreme.

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