This afternoon in the Dail, Minister for Finance Michael Noonan was on his feet responding to questions from the Opposition. It seems that on a conservative basis we are fully funded “to the second half of 2013” which Fianna Fail’s Michael McGrath pointed out was from 1st July 2013, and Sinn Fein’s Pearse Doherty pointed out that a bailout would not be left to the last moment, and would be needed to be put in place in advance of the “second half of 2013”.
The best Minister Noonan could say was that it was too early to tell at this stage when or if an additional bailout would be needed. Minister Noonan stressed that if more benign economic conditions pertained, we might not need a bailout at all. However it would seem that Taoiseach Kenny’s “we are absolutely funded under all circumstances” no longer holds.
Minister Noonan indicated that if the markets made funding available below the interest rate charged in the bailout from the IMF/EU (a blended average of 5.8%) then the State would return to the market. And by implication, if this rate was not available, we would seek a second bailout, though he didn’t say that.
With respect to the campaign to seek a reduction in the EU bailout (the IMF has a fixed rate which will not change), Minister Noonan seemed to be effectively signalling an abandonment of the campaign. Agreement to a reduction in the interest rate requires unanimity at EU level and the Minister indicated that France and to a lesser degree, Germany required a quid pro quo with a change to Ireland’s corporation tax arrangements. Minister Noonan said that this French requirement is rejected by Ireland “point-blank” and that given the growth in exports from Ireland, it would be silly for us to contemplate any such change.
Minister Noonan said that, in any event, any reduction in interest rate would only apply to future draw-downs from the EU (and remember up to the end of May 2011, we had received €14.987bn from the EU according to the May Exchequer Statement). Minister Noonan said that Portugal had received a 0.6% discount on Ireland’s rate and Greece had received approximately 1% but that might be taken away in the next month! Minister Noonan estimated the benefit of a 0.6% reduction would be €148m to Ireland and if we secured a 1% reduction it would be worth €200m. It was plainly not worth pursuing this reduction if it jeopardised our corporation tax.
With the decision not to burn senior bondholders at Anglo or INBS (or indeed Bank of Ireland or AIB or Irish Life or EBS), with the claim from Enda Kenny that we would not seek an extension of time to repay debt and with what appeared to be an effective abandonment of our campaign to secure an interest rate reduction, it seems to me at least, that the renegotiation of the bailout terms has come to an end. Marks out of 10 for trying? Difficult to say, I get the impression that the interest rate strand was vigorously pursued. As for the burning of seniors or the extension of time for repayment? Difficult to say. Marks out of 10 for results? Zero.
And lastly Minister Noonan said he expected new policy initiatives from the EU for dealing with Greece by 20th June. He didn’t specify what initiatives though the betting is that it will be something akin to the Vienna Initiative in 2009 whereby private bondholders accept a roll-over of debt in return for better terms (higher interest rate, collateral, preferential debtor status).
UPDATE: 9th June, 2011. The transcript of the Q&A involving Minister Noonan is now available here (pages 7 onwards are the relevant parts and page 9 is the most relevant). Minister Noonan said the following with respect to Greece “if we got what Greece is supposed to have got but may not retain next month” which seems to confirm that Greece’s 1% interest rate concession wrangled from the EU in March 2011 may be reversed.
NAMA Wine Lake 
Hi NWL,
I just posted this comment over on Irisheconomy.ie on a thread which is basically saying “Oh look, I really showed him!”.
“Morgan Kelly was right when he named Namawinelake as the best source of information on the Irish economy. All we get here is the same arguments rehashed over and over by the same people – just under a different thread name – with never any new information. I found this site back in September of 2010 and dip in from time to time but, as soon as I see the names appearing, I know what’s going to be said.
It’s frustrating because the Irish public was probably never more engaged in public affairs and economic issues in particular over the past few years. Almost every Irish person has an opinion on the IMF, austerity, negative equity, the bank guarantee, property taxes, trends in house prices, risk of sovereign default, burning the bondholders, etc. and this website should be the first port of call for information on these issues. Features such as the essential day-by-day Greek Watch on Namawinelake should have had their natural home on this website. That blog is far better written, is more relevant, provides new and interesting facts and treatment of issues almost every day, and contributes greatly to public knowledge by, for example, analysing the bondholding of the Participating Institutions.
I cannot remember every finding anything here that changed my opinion or corrected a view I held – unlike Namawinelake where, in addition, contributions tend to be from those with some information not in the public domain which contributes to the debate. Be honest contributors – this site is tired and needs a total revamp in order to make it relevant.”
So NWL, congratulations once more on performing a terrific public service
Hi Bunbury, that’s indeed very flattering but I would point out that irisheconomy.ie is a blog maintained by academics and economists who put their name to the blog. Don’t underestimate the amount of time taken to moderate comments, each of which could be a defamation landmine. In addition, there is a lot of excellent work which sees its inauguration on irisheconomy.ie. Long may it continue.
@Bunbury
I am neither economist or public figure but often had the temerity to disagree with Karl Whelan (using my own name) but his rebuttal of Prof Sinn was an excellent piece of work.
His explanation of the target system was also simple in contrast to that of prof Sinn, where I spent up to two hours trying to understand what he said.
It was also important to have a rebuttal of Prof Sinn in a European journal, that is if some Europeans still read anything about Ireland.
On this occasion I think karl Whelan did “really show him”.
@NWL
“As for the burning of seniors or the extension of time for repayment? Difficult to say. Marks out of 10 for results? Zero.”
Zero. Zero, Zero. Worse. They ran away from the fight.
Your mention of the inevitable Greek bond roll-over got me thinking. Why not just convert all this debt to zero coupon 30 year bonds? At today’s interest rates the cash outlay would be nominal and Ireland et al. would not have to pay ANYTHING else for 30 years. They could even get the IMF to loan them the money to pay the bond holders. And, of course, this would not be a default.
The Minister is living in a little “Walter Mitty” world populated only by European politicians, bankers and bondholders. This policy of “everything for banks and austerity for the people” will just not work. It is a losing concept. Take the banks;
At a notional volume of $580 trillion as of 2010, derivatives now exceed global GDP of roughly $50 trillion by a factor of 12. It strongly appears this world is overleveraged as derivatives volumes have remained at this level for the last 3 years.
Minimum reserve requirements of a paltry 2% in the Eurozone mean that European banks are geared 1:50 (and possibly higher through the use of off balance sheet vehicles). An adverse 2% move of markets can wipe out any bank overnight.
The idea of finding cheaper money for the European deficit spenders is more “pie in the sky” madness. The politically inspired and misnamed “European Stability Mechanism” is inherently flawed. Euro pols hope that the ESM will be able to borrow money at rates close to Germany’s financing costs. The achilles heel of the ESM are its members. So far Greece, Ireland and Portugal will be on the receving end of the ESM, leaving only 14 countries (among them minnows like Cyprus) to back the fresh debt.
At this point there are only 6 nations in the Eurozone are left with an AAA rating. So how can the rating agencies rate this new debt as AAA. Does any cynic have a sense of deja vu here? A European subprime scandal this time around?
Total issued government debt of the Eurozone stood at €5.9 Trillion in May 2011. Current Greek bailout reports yo-yo between €70 billion and €100 billion for the second attempt to fix Greece. Transpose this onto Ireland and Portugal and it looks likely that the €750 billion ESM will run dry even before it comes into reality in 2013.
Indeed, the Open Europe think tank writes:
“Hefty losses for the ECB are no longer a remote risk, with Greece likely to default within the next few years – even if it gets a fresh bail-out package from the EU and IMF – which would also bring down the country’s banks. We estimate that the ECB has taken on around €190bn in Greek assets by propping up the Greek state and banks. Should Greece restructure half of its debt – which is needed to bring down the country’s debt to sustainable levels – the ECB is set to face losses of between €44.5bn and €65.8bn on the government bonds it has purchased and the collateral it is holding from Greek banks. This is equal to between 2.35% and 3.47% of assets, meaning it comes close to wiping out the ECB’s capital base.
– A loss of this magnitude would effectively leave the ECB insolvent and in need of recapitalisation. It would then have to either start printing money to cover the losses or ask eurozone governments to send it more cash (via a capital call to national central banks). The first option would lead to inflation, which is unacceptable in Germany, while the second option amounts to another fully fledged bail-out, with taxpayers facing upfront costs (rather than loan guarantees as in the government eurozone bail-outs).”
Their full research report called:
“A HOUSE BUILT ON SAND? The ECB and the hidden cost of saving the euro”
is available here:
Click to access ecbandtheeuro.pdf
Sober reading for Mr. Noonan and the others who inhabit a parallel Universe.
What the Open Europe research proves is that Ireland will never achieve write downs from the ECB – ever. The ECB simply cannot take a hit of 35-50% on its €120-odd-billion of exposure to the mess in Ireland. It would collapse in the morning if it did.
Noonan and the cabinet are misguidedly “kissing ass” and being “good Europeans” believing themselves to be “cute hoors” cannily working around the problem; when in reality they are completely clueless and are totally outmaneuvered by our European “partners”, intent on protecting their banks and bondholders.
Debt instruments dominate our economies and it time ‘we the people” called an end to this banking scam. Does anyone really believe that our political elite and the wider banking cartel know what they are doing? The truth is that this farcical charade is all to save the hides of the Goldman Sachs of this world.
There is now a crisis brewing beyond finance that will threaten the foundations of democratic society. For eventually people will be pushed beyond their capacity to absorb any further pain and we will have anarchy.
Our best bet is to stop protecting banks and protect the integrity of our democracy. The alternative is to let Goldman Sachs and the international banking cartel own the country.
Let the chips fall where they may.
The “POL’s” will only react when they are standing on the edge of the cliff peering down and realize that they have no parachute. That time will come, when is anyone’s guess.
I am sticking to my gun’s and predict it will be September / October 2011.
For what its worth I get the impression we (Greece etc) are being squeezed in the middle of a power play at the moment. On the one hand, the ECB – unaccountable to the EC and its constituent countries. On the other the EC and the European economic powerhouses.
The ECB, as theoretical lender of last resort with almost no assets as such (if it had why was the EFSF necessary and why is the ESM necessary?), exists only in a world where austerity and prudence is the order of the day, old school you might say – nothing wrong with that I might add.
The EU economic powerhouses, and their vassals the EC, do not control this independent ECB. To control the ECB, it needs to be broken. When it turns to the EC for ‘assistance’ will control be a little talked about by-product but a reality?
Ironic, that potentially the very austerity that the ECB espouses, that no bank be allowed to fail could break it. Does the ECB surviving as an independent entity mean that they have to change tack and ‘allow’ for banks to go bust or is it already too late for them seeing as how much bad debt has been allowed onto its books?
Funny how bonds of the large EU economic powerhouse banks have been redeemed at par already, by ourselves and our lovely banks, but effectively by the ECB.
Does setting up the ESM represent a marginalising of the ECB. Will the ESM be the EU countries private slush fund (for bailouts only I believe, for example why have all that money in the NPRF doing nothing, times, priorities, attitudes and realities change) which makes governments less beholden to the ECB and its old school independent way of operating.
p.s. seeing as this is ‘only’ a nama website it would be wrong not to mention nama, here goes… nama.
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