The Default 11: Gombeen Enda to lead Zombie Economy !

February 8, 2011

Don’t look to any political changes to save us from default. Michael Noonan’s plan is to tune in to Europe’s cat and mouse begging bowl ‘negotiations’ looking for handouts: ‘http://www.euractiv.com/en/euro-finance/europe-may-hold-early-euro-summit-march-news-501728‘ a watery eyed approach similar to that of Fianna Fail who gave us the ‘fatal gift’ of 5.8% noose.

“Some analysts think Germany could compromise not only on strengthening the EFSF but also on having it charge lower rates to recipient countries or even buy their government bonds.”

Noonan does not accept the proposition of defaulting on the private debt of AIB, which has the potential of being twice the cost of Anglo, or Anglo. Nor, does it appear, Noonan has any intention of ending the deadly bank  guarantee, which guarantees bondholders from the coffers of poor Irish taxpayers. Noonan is bereft of financial reforms within the banking system along the lines of Denmark’s ending of the bank guarantee and flag that bank losses will in future come from within the banking system itself:

http://scandiknavia.blogspot.com/2010/03/denmarks-bankpakke-iii-transfers-risk.html

Denmark ended its guarantee last September and we have the first casualty:

http://www.bloomberg.com/news/2011-02-07/danish-banks-face-consolidation-as-amagerbanken-leaves-investors-in-lurch.html

Amagerbanken senior bondholders take 41% hit:

“Denmark is dealing with Amagerbanken under regulations introduced in October designed to ensure taxpayers don’t have to meet the bill when lenders fail. The bank estimates its assets amount to about 59 percent of liabilities, meaning that creditors, including holders of senior unsecured bonds on which a government guarantee expired Sept. 30 and depositors with more than the insured maximum in their accounts, will face write-offs of about 41 percent.”

http://www.bloomberg.com/news/2011-02-07/amagerbanken-senior-bondholders-to-suffer-losses-in-bailout.html

No fear of any burning of senior bondholders from our Irish political gombeens.  They know less about banking than they do about economics. http://www.rte.ie/news/2011/0208/politics.html As if you didn’t need reinforcement of  parish pump political gombeenism and cronyism, you got it here. Enda doesn’t like Vincent and Vincent gets the brunt of this dislike by this public dressing down. Its a boomerang bounce though as Irish citizens are being insulted by Enda choosing to speak to the town hall folk of Carrick On Shannon, Co Leitrim.

Pretty soon we’ll have a new government telling us of their junket to Frankfurt/Brussels to renegotiate our EU/IMF bailout. Chances are they’ll cut a deal forecast here for the first time of a rate cut from 5.8% to  4.55% and this will be announced in a blaze of glory. They wont know they’ve bought a pig in a poke if the ESRI are correct who forecast interest rate rises from the ECB from 1% to 2.25% between now and end 2012!

Its not that we wont be effected by such interest rate rises:

http://www.independent.ie/national-news/national-debt-set-to-double-to-8364150bn-latest-figures-reveal-2017465.html

Our national debt is due to rise to €150 bn by 2014.

“More alarming is that between now and 2014, over €32bn in taxes will be spent merely on serving the interest on the country’s borrowings.”

So, here’s the deal: OUR DEFAULT IS INEVITABLE.

The combined weight of the EU/IMF bailout €67.5 bn bailout plus the €150 bn by 2014 total of  approx €220 bn  will make our borrowing costs unsustainable by 2013.

All respectable economists and international commentators including those who recently downgraded S&P Ireland know this. The EU/IMF bailout dealers know this as well. That’s why they were so diligent to demand that our monetary reserves plus our NPRF be spent on the banks before their funding went in, they know this money could be an escape fund and they would rather it not used in a way that would see us do a Denmark on them.

Solution is simple: senior bondholders of Anglo and AIB need to be burned and share the losses being born for them by Irish taxpayers. A debt for equity stake for AIB should be considered. Anglo senior bondholders should lose everything, they lost their bets. They should have insurance to cover their losses.

Lets end the pathetic debates re renegotiating bailout with IMF/EU. This nonsense is destroying our economy with its blindness to the real dangers explained above.

I have not even mentioned the fact of GNP deflation now beginning in the Irish economy which will compound with the proposed ECB interest rate increases; NAMA artificially inflating commercial rent with upward only rent review; increasing taxes; decline in tax base through emigration and close of business, declining vat.

We live in a zombie economy with its lifeblood being sucked away by senior bondholders of failed Irish banks, EU/IMF penal interest rates, ECB liquidity funding. The only thing is, matters have been made worse by the EU/IMF ‘bailout’. The bailout is our Ein Danaergeschenk (fatal gift) missile that will wreak our economy. Its not a bailout, but a time bomb.

Noonan and Enda instead of meeting with Barossa who wants his money back, should instead take a trip to Denmark. At least their leaders know how to take care of ‘something rotten in the state of Denmark’ . Post election Ireland it would appear a rag bag remnant of deluded FF will combine with their ghostly double in Fine Gael.

Things couldn’t get any worse, or could they?

Yes it could: http://www.independent.ie/business/irish/maeve-dineen-nervous-wait-for-banks-ahead-of-january-withdrawal-figures-2528144.html

“While most of us were worrying about snow and what to get aunty Mary for Christmas, large companies and many individuals were busy pulling billions out of the country — money that is not likely to return.

We have become used to big figures, but €40bn really is a staggering sum to lose in one month. It is almost equivalent to the value of all the companies listed on the ISEQ, for example.

It is more than the projected cost of rescuing Bank of Ireland and Allied Irish Banks and more than half the money we are getting from the IMF and Europe to shore up the banks.”

So, at its simplest, Ireland Inc has a huge current account deficit it need to row back to manageable proportions by 2014, latest 2016.
Its frankly not possible to pay for the losses of senior bondholders of Irish banks at the same time. Savings of  €29 bn could be made by bailing in the senior and subordinate bondholders of Irish banks in a restructuring of our bank debt.  According to Louise McBride, Sunday Independent Business, Feb 6, 2011, if the bailout could be renegotiated down to 3% from 5.8%, savings of €1.9 bn interest per year, a massive  €14.25 bn over the seven and a half years of the bailout.

New government must be prepared to do both, to default on the private debt of the banks, and negotiate downward the EU/IMF bailout.

If our eurozone partners are unwilling to support us in the above, we need to leave the euro. Doing this will save our dignity and restore our credibility internationally amongst the nordic countries and the rating agencies. Rating agencies will see the sense of this and we could quickly return to the markets and the real task of making jobs as opposed to making emigrants and losing jobs.

End

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