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Last week-end there was a flurry of negotiations by the EU to craft a bailout deal for the Irish financial banking crisis. A proposed deal was agreed upon. The primary intent was to calm the jitters of the international bond markets and avoid a spread of the problem to other EU member nations. Come Monday morning it was apparent that the plan wasn’t working. During the week the cost of Irish debt continued to rise and more ominously the cost of Portuguese debt along with it. There was growing panic over the prospect of contagion not only to Portugal but also to Spain. The much larger size of the Spanish economy raised the stakes considerably.
Meanwhile the stability of the Irish government began to totter seriously. The coalition partners that were propping up the Fianna Fáil led government withdrew demanding new general elections. The government has been attempting to delay those until January in order to give them time to close the deal with the EU/IMF. Circumstances forced them to hold a bye election that they had been trying to put off. It was won by Sinn Féin which is generally considered to be the most radical of several parties. The cabinet has approved a harsh new austerity budget in response to the EU negotiations, but it has not yet been adopted by the parliament. On Saturday there were mass protest in Dublin. Demands are being made that parliament be dissolved and a general election held before adoption of the widely unpopular budget. The government is attempting to ignore those demands.
With this chaotic atmosphere Sunday in the EU has had the trappings of a farce from the silent movie era. About all that is lacking is the old fashion seltzer bottles. The Irish cabinet was in marathon session. The finance ministers of the EU member states convened an emergency meeting in Brussels and the various heads of state were engaged in frantic telephone consultations. This all resulted in a formal conclusion with the Irish government. The panic was to have a signed agreement before the financial markets open on Monday morning. The BBC has the most specifics about the agreement that I have been able to find so far.
Irish Republic 85bn euro bail-out agreed
Details of the 85bn euro plan include:
an average interest rate on rescue loans of 5.83%the 35bn euros allocated to Irish banks is divided into 10bn euros for “immediate recapitalisation measures” and 25bn euros as a contingency fund
theIrish Republic itself will contribute 17.5bn euros to the overall fund
the EU will contribute 45bn euros, including direct bilateral loans from the UK, Sweden and Denmarkthe IMF will contribute 22.5bn euros
allows the Irish Republic to delay by one year to 2015 its deadline for reducing its budget deficit to 3% of GDP.
The Irish government has also said that interest payments on all state debt will account for more than 20% of tax revenues in 2014.
The deal does not require the Irish Republic to change its low 12.5% corporation tax.
Reports are that Germany was pushing for a punitive interest rate of 7%. There are different rates for various pieces of the package so there will be different versions of what the actual cost will be. The Irish contribution will be obtained by a raid on the government pension funds. The low corporate tax rate has been a highly contentious issue. So far there is no mention of the Irish austerity budget as a specific requirement of the deal. That is one of several important unanswered questions.
While the finance ministers were meeting they attempted to address the issue of the terms of an ongoing EU bailout mechanism. One of the issues contributing to the general market panic was comments from Angela Merkel and others that bond holders might have to expect some debt restructuring that would require them to share the pain. Today’s new agreement as so far reported is a classic example of vague EU fudge. There is some reference to debt restructuring but the terms are anything but specific. I will be attempting to get more detailed information about it tomorrow.
Is this installment of the Keystone Kops going to be sufficiently entertaining that the bond markets will sit back, relax and let Portugal off the hook for the time being? Somehow I wouldn’t count on it. Stay tuned.
For anybody interested I have started a Facebook discussion group on the EU Financial Crisis. It is an open group and anyone is welcome to join. The name of the group is
European Union Financial Crisis
It can be located by a Facebook search.
16 Comments
Come next week the Irish people will have had enough of this Banking Cartel greed bailout bullshit. The only thing that might slow them down in their rebellion is if the gov. adds free beer forevah to wash down the 53tonnes of free cheese.
Force a fucking default, already!
The Irish have a history of ultimately caving to the EU. Most of the EU treaties get ratified by national parliaments with no direct input from the voters. Ireland is the only member state with a constitutional requirement that treaties much be ratified by popular referendum. They have voted down a couple of them the first time around. However, the government just keeps holding makeup elections until they get it right.
Aren’t the elections in Ireland just around the corner? I can assure you that the center will not hold, Miss Merkel and the ECB will not be accepted as Ireland’s sovereigns buy Irish citizenry. The euro is toast – they just don’t know it yet.
The government is falling. I’ve got a blurb on that above. I’ve been trying to get a grip on Irish politics. The parties are more differentiated according to how they trace their heritage back to the civil war than in terms of left and right as it is often understood elsewhere.
the only real money in this deal is the 20% the Irish pension funds are going to pony up. The ECB will just leverage that and voila! Pensioneers eating mud, and bankers feasting on their children. What a deal, eh?!
I found a couple of stories with comments from various financial sources after I posted this. So far it sounds like the market response is going to be something less than enthusiastic.
Yep, something’s gonna give. The status quo is nonviable and the EU doesn’t even have the institutions required to deal with the crisis.
Sadly, the US does have institutions to deal with the crisis but our treasonous elected officials refuse to make proper use of them.
Richard, thanks for posting. I guess this means the global stock markets will do tigger jumps and falls tomorrow. Maybe Bernanke and Geitner will get scared or something. Heck, I don’t think they understand anything about economy other than what’s right for Golden Sacs.
The US does still have a little insulation from a crisis like this, but the amount of it is not unlimited.
I’m thinking the insulation ended up in bonus checks. Of course, when Congress gets wind the next Stimulus will be thought of as the biggest bandaid evah. We will just HAVE TO do it cause the failure rate will be horrific or we will have martial law in the streets and such.
I wouldn’t worry about it so much – Ireland has no leverage because they can’t devalue. here the Fed can do what it pleases, our problem is the MOTU/teabaggers.
I worry about a lost decade – the NAIRU will be permanently at 8% and there will be people who are basically unemployable forever. Especially young people. Hopefully I can hide out the next few year in law school, but so many other people have the same idea.
The best thing about this is the it will really send a message to American markets and Wall street people that if their is a financial crisis the people of America will rise up and fill the streets if we are forced into a situation where the people suffer and the banks get let off the hook.
HahahahahahahahhhHAaaaaa! I slay myself.
The bankers own the place.
One piece of the insulation is that interest on US debt is still low.
“EU rescue costs start to threaten Germany itself
The great question is at what point Germany concludes that it cannot bear the mounting burden any longer. “I am worried that Germany’s authorities are slowly losing sight of the European common good,” said Jean-Claude Juncker, chair of Eurogroup finance ministers.
Europe’s fate may be decided soon by the German constitutional court as it rules on a clutch of cases challenging the legality of the Greek bail-out, the EFSF machinery, and ECB bond purchases.
“There has been a clear violation of the law and no judge can ignore that,” said Prof Hankel, a co-author of one of the complaints. “I am convinced the court will forbid future payments.”
If he is right – we may learn in February – the EU debt crisis will take a dramatic new turn.”
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8160999/EU-rescue-costs-start-to-threaten-Germany-itself.html
Nice post! — Keystone Cops in more ways than one. The EU debt fiasco which is threatening to bring down the entire global financial system even further from a “Great Recession” into a “Greater than the Great Depression” is a perfect example of the shortcomings of a managed “democratic republic”.
In their haste and greed, the banks, the rich, the CEOs, the creditors, and investors — many of whom control, comprise, or are connected to government, are refusing to write-down and recognize the losses from their own bad investments so they are bailing themselves out while passing their losses onto the poor, the middle class and working class people through higher taxes and austerity.
They do not understand that austerity for the real economy and workers will only drive the economy DEEPER INTO CRISIS. In a fiat monetary system, the only way out of a financial crisis is to force EVERYONE to WRITE-DOWN THEIR LOSSES (to purge bad debts from the economy) and to grow the economy, but the elites are doing the exact opposite in order protect their own wealth. The ruling political, economic, banking, financial, and business class have forced the rest of the population to recognize their own or society’s losses in the form of foreclosure, reduced wages, lost personal wealth, and joblessness while the elites bail themselves out and hide their own losses. In bailing out the banks, the elites are simply creating new debt in order to cover up old bad debt, but, in the end, the new debt is going to be insufficient to cover up the old debt so, in the future, two big debts will be bad instead of just one. That’s Milton Friedmanite Monetarist theory in action (and that guy won a Nobel Prize)!
These latest rounds of bailouts and austerity are only going to fuel more bailouts and greater austerity for those people who are effectively unrepresented by the ruling class until one of two things happen — 1) the entire global financial system collapses plunging the entire world in God knows what (it will be far worse than what we are experiencing now), or 2) the people rebel and take back control of the government before it’s too late. At the very least, a Lost Decade or even longer is guaranteed while these endless kleptocratic bailouts for the wealthy continue.
The crisis will NOT end until the wealthy elites are forced to write-down their losses!
“At the very least, a Lost Decade or even longer is guaranteed while these endless kleptocratic bailouts for the wealthy continue.”
Other than the above line, a very nice summation. Bears frequent repeating.