The "Bailout" That Is In Actual Fact A High-Interest Loan, Not Free Money.

[Macy]

I read that the reports also said "that 45% of Irish taxpayers paid no income tax this year". How is that possible?
The very low paid didn't enter the tax net, and the very highly paid avoided it (the very high earners tend to have a low effective tax rate compared to PAYE workers).

I haven't had a chance to read the document yet. I was expecting the change to pension tax reliefs to be in it - I think I flagged it on here a few weeks ago as effectively a pay cut on the public sector - but didn't realise it went further for the public sector. Despite the hype, some public servants would be better with the standard contributory pension, so that'd be a tough hit. Edit - Dodge, can you give the page for what you said earlier, as I can only find about the general reduction of pension reliefs to standard rate, and how much extra in pension levy because of that rather than a specific change for the public sector having no relief?

[BonnieShels]

Listen, I don't think we can be too concerned with this. It's all waffle and it won't be implemented by this crowd of knobends.
FG and Labour will revisit it and ensure we won't go to the great country heaven in the sky.

[Dodge]

I read that the reports also said "that 45% of Irish taxpayers paid no income tax this year". How is that possible?

They include a huge percentage of people who work part time, seasonally etc etc

MAcy, i think I may have taken it up wrong earlier...

[Macy]

MAcy, i think I may have taken it up wrong earlier...
I think the PRSI and Health Levy changes are off the gross now - for anyone paying a pension, but public sector have no choice but to join the pension and also have the pension levy. If you do a lot of overtime or are acting up (niether of which count for pension entitlement), you'll be paying way over the odds for your pension.

[BonnieShels]

Apparently we are going to be charged 6.7%.
http://www.rte.ie/news/2010/1126/economy_bailout.html

INSANITY!

[paudie]

Apparently we are going to be charged 6.7%.
http://www.rte.ie/news/2010/1126/economy_bailout.html

INSANITY!

Saw that on the 9 oclock news. Far more than predicted.

If it is true there is an even stronger case for a partial default on bank bonds to save us from complete ruin.

[TheBoss]

I think its media spin, so when they announce it as 5%, it will appear like a moral victory even though it is still unsustainable.

I have a feeling that banks will be allowed to default and that Ireland will leave (forced out) the Euro and set up a new punt that will be devalued by around 50%.

[BonnieShels]

If that comes to pass then there is absolutely no point in all of this. We have a default window now and we need to take it.

[dahamsta]

The interest rate doesn't matter. Spain can't be bailed out, so it'll have to default. We need to default now, otherwise we're going to look like even bigger simpletons in a few weeks..

[geysir]

Negotiations over the % rate are, at best, merely negotiations about how long Ireland spends on economic death row.

[geysir]

http://www.bgcpartners.com/news-centre/in-the-media/108955249.html

Irish taxpayers must pay the bill for the banking crisis, and not foreign investors, Dan McLaughlin (chief economist) from Bank of Ireland has said.
"The difference (between Ireland and the UK) is that we are tiny, and as a result 85% of the government deficit is funded from abroad.
"So taxpayers will have to pick up the bill for everything, it is hard to disagree with that," he said.

Quite so, outstanding logic indeed, Dan is the man our times.

[dahamsta]

I have a question. If "we don't have to go back to the bond markets until March", why the rush to sign loan agreements?

[culloty82]

According to the Irish Times, the deal could face a constitutional challenge, which would lead to a Dáil vote or even a referendum:
SINN FÉIN has taken legal advice on the constitutional status of the Government’s agreement with the European Union and the International Monetary Fund.
Party vice president Mary Lou McDonald said it had taken “initial legal advice on this matter” last Thursday.
She said the joint programme bailout “certainly offends the spirit” of Article 29 of Bunreacht na hÉireann which prevents the State from entering an international agreement involving a charge on public funds unless it is first approved by the Dáil. But she added: “We actually need to see the document, we need to see the Memorandum of Understanding . . . before you could take any kind of definitive legal view on it.” Pat Rabbitte is also considering going down the legal route.

[Real ale Madrid]

Nice synopsis of what the world thinks of us here:

http://www.nytimes.com/2010/11/26/opinion/26krugman.html?_r=4&src=twt&twt=NytimesKrugman

[pineapple stu]

NY Times (http://www.nytimes.com/2010/05/02/weekinreview/02schwartz.html?_r=1) also had this graph showing the debt of the IMF/IMF threatened countries.

http://blog.prospect.org/blog/weblog/Europe_Debt.jpg
How on earth do we owe almost as much as Spain and Italy?!

[Real ale Madrid]

" Italy owes the French an equivalent of 20% of GDP"

If ever there was a sentence which shows the bond holders need to share the pain in all of this, then there it is. I mean who would continue to lend to someone who owes them so much money ? Should they not have stopped at 50 billion or 100 billion etc etc.

[pineapple stu]

Actually, our debt there possibly includes the bank guarantee, which other countries therefore didn't go with?

And I suppose if that's the case, then following on from Real ale's point about the French exposure, are we at a situation where actually, we're not that unique at all, but where a good chunk of the Western world is struggling (adding in bank bail-outs in America (http://en.wikipedia.org/wiki/Bailout#Cases) and England (http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3787633.ece), for example, not to mention other issues like car sales plummeting)? Is free-market capitalism imploding in on itself under the weight of greed and self-interest (sadly two of mankind's more base instincts)? Or is that still a little bit too tabloidy?

[Real ale Madrid]

I think that unless we see some major mechanism of debt forgiveness soon, not just in Ireland but in Greece, Spain and Italy - then eventually everyone will just default anyway - one by one. I don't think anyone knows what the consequences of that are. Debt forgiveness iss one of the principles of free market capitalism ( so im told ! ). We certainly can't afford to pay what's being proposed, Greece are being told to pull thier socks up, I'm not sure of Italy's and Spain's potential to generate the nessesary income's to pay back any potential "bailouts" in the future, but a trend is developing and its starting to snowball. What next ?

[geysir]

That NYT graph is about bank external debt not sovereign debt, yet they put names on the debt as if the debt belongs to a country - Italy's debt or Spain's debt. In Europe they try to apply ownership of the external bank debt, to the country. Even Stu asked "how do we owe almost as much as Spain or Italy?
Bank external debt is not sovereign debt.
Ireland chose a total surrender of their strong negotiating position to an enemy force who only had to throw a few hissy fits. Ireland chose to transform the Bank external debt into sovereign debt. The military farce that was the surrender of Singapore in WW2, pales into comparison.

[osarusan]

That NYT graph is about bank external debt not sovereign debt, yet they put names on the debt as if the debt belongs to a country - Italy's debt or Spain's debt. .....
Bank external debt is not sovereign debt..... Ireland chose to transform the Bank external debt into sovereign debt.

I was thinking the same thing - if no other country has given the bank guarantee Ireland did, then the vast majority of the debt in that graph is actually debt owed by banks, is that right? It would be more accurate to say that Italy's banks owe French banks/institutions $511 billion. I'm assuming that Italy's sovereign debt isn't $1.4 trillion.

Though when you consider it is quite common (how many exceptions are there?) that governments take over the debt of one of their failing banks, maybe there isn't much of a practical difference.

[Real ale Madrid]

Certainly shows that regulators have not only failed here, but Europe wide. Although I admit I know next to nothing about the debts in Spain and Italy and thier ability to reduce it significantly, perhaps thier debt to GDP ratio's are not as severe or significant as our and Greece's ?

[geysir]

I was thinking the same thing - if no other country has given the bank guarantee Ireland did, then the vast majority of the debt in that graph is actually debt owed by banks, is that right? It would be more accurate to say that Italy's banks owe French banks/institutions $511 billion. I'm assuming that Italy's sovereign debt isn't $1.4 trillion.

Though when you consider it is quite common (how many exceptions are there?) that governments take over the debt of one of their failing banks, maybe there isn't much of a practical difference.
I do stand for some correction.
Most of the figure given in the NYT graph for Ireland's debt of $867bn is not yet sovereign debt, the Irish sovereign debt can't be more than half that figure. But looking more closely at the figures for the other countries, they come close enough to the national sovereign debt figure for that country.
The national debt of Italy is around $1.4TN and Greece $236bn. etc.

[mypost]

Going, Going, Gone:

http://waterfordwhispersnews.com/article.php?id=249

[John83]

I'm loving the new thread title.

[culloty82]

This could prove interesting - FF agreed to hold a Dáil vote on the deal during their parliamentary party meeting (http://www.irishtimes.com/newspaper/breaking/2010/1209/breaking38.html). Of course, like the budget, it'll probably be rubberstamped by all members in the current majority, but at least there will be no wriggle-room.

[Mr A]

It's an interesting one.

The terms of the deal obviously involve a disappointingly high average interest rate, but it's still cheaper than we can get in the markets at present. At the same time though the bond rates have been inching downward, so I guess the best case scenario is that we can go back to the markets at some point and get the money cheaper. (I wouldn't bet on it though)

Although I don't think the deal was a particularly good one (although I certainly like the bit about doctors, lawyers and pharmacists) I'm not sure that voting against it now would really help us.

[dahamsta]

As I think someone pointed out earlier in the thread, Iceland is still negotiating with the UK about deposits in their banks, and have driven the negotiated interest rate down by several points. And we don't actually need to borrow until the tail end of next year. Why is FF so keen to get this sewn up so quickly? Are they really so egomaniacal that they want to get it done before they pushed out? Are are they actually naive enough to think it can win them an election?

[BonnieShels]

Yes they ate. New angle today is Cowen being aggressive and forceful which they think will be believed.
I fear that there's enough goons out there that will.

There's a vote next Wednesday on the bailout. SF think that their threat of legal action made the govt bring a vote.

[mypost]

Although I don't think the deal was a particularly good one I'm not sure that voting against it now would really help us.

Voting against it speeds up the election. But it's passed through the Dail. The TD's votes in favour of it are on the public records of the Dail proceedings. If he or she comes to your door after Christmas, let him or her know in no uncertain terms what you think of them doing it.

[osarusan]

As I think someone pointed out earlier in the thread, Iceland is still negotiating with the UK about deposits in their banks, and have driven the negotiated interest rate down by several points. And we don't actually need to borrow until the tail end of next year. Why is FF so keen to get this sewn up so quickly? Are they really so egomaniacal that they want to get it done before they pushed out? Are are they actually naive enough to think it can win them an election?

Maybe they'd like to get it all done before an election so that the next four (or forty, or four hundred) years of austerity will be linked to a goverment of the current opposition, rather than being voted out and having the opposition get in and have success reducing the interest rate considerably.

There was a point made on that eye-opening VBrowne show a few days ago where some economics lecturer (from Trinity/UCD) mentioned that it's not the case that we can't afford a to refuse a bailout (as we're fully funded until well into next year), it's more the case that the EU can't afford for us to refuse a bailout, because of what instability creates. The lecturer effectively said that we had them over a barrel - either they give us favourable terms or we refuse a bailout and all hell breaks loose.

With that in mind (if it's correct, I'm going off memory), the fairly punitive interest rates they agreed to are....suspicious?

[geysir]

I see the foreign cash reserves are very low for Ireland.
Cash/Gold reserves (http://www.indexmundi.com/ireland/reserves_of_foreign_exchange_and_gold.html)

Including a few barrowloads of gold, the total foreign reserves are about $2bn, just in behind Albania on the list.

[BonnieShels]

the whole thing stinks. That the ECB got involved is what was our downfall really. the IMF were the 'good' guys in the deal really.
I still want to know why Britain, Denmark and Sweden wanted in. That one still stinks to high heaven. I think post-election it will all come out in the wash.


I see the foreign cash reserves are very low for Ireland.
Cash/Gold reserves (http://www.indexmundi.com/ireland/reserves_of_foreign_exchange_and_gold.html)

Including a few barrowloads of gold, the total foreign reserves are about $2bn, just in behind Albania on the list.

Just in behind Ethiopia in my list... Hmmmm... says there that we only had 831m. Either way how mad is it the amount of cash that China have built up. They could easily take our debt.

[geysir]

I think the list of countries is from 2008, when the State foreign currency/gold reserves were at that lower level.
The Gov decided to offload 75%/ $3bn from the foreign currency/gold reserves in 2006?
I would be quite confident that the alarm bells were ringing loud and clear in 2006 in the CB. I wonder what the CB explanation was for this questionable/desperate action?
Anyway $3bn seems such a miniscule figure. These days, our concepts have been stretched toward infinity, as to what constitutes a decent pile of cash - that would make a difference.

[BonnieShels]

I think the list of countries is from 2008, when the State foreign currency/gold reserves were at that lower level.
The Gov decided to offload 75%/ $3bn from the foreign currency/gold reserves in 2006?
I would be quite confident that the alarm bells were ringing loud and clear in 2006 in the CB. I wonder what the CB explanation was for this questionable/desperate action?
Anyway $3bn seems such a miniscule figure. These days, our concepts have been stretched toward infinity, as to what constitutes a decent pile of cash - that would make a difference.

Well we still haven't gotten any answers from anyone about what went on in 2005-2008.
All of the head honchos have retired and the powers that be aren't willing to drag anything up whilst they are in power. FG and Labour have pledged to hold inquiries into what went on. Though that was a while ago. Whether the appetite will be there next year who knows.

Also the reasoning behind next week's vote on the bailout has become clear.
SF have said that they threatened high court action. Nonsense.
Seems its a ploy from FF to divide FG and Labour on this issue. We'll see how we go.

[Macy]

Seems its a ploy from FF to divide FG and Labour on this issue. We'll see how we go.
That appears to be the logic. However, if FG and Labour vote against, then where does that leave FF? FG and Labour could say they don't agree with specifics and the bad deal that the Government got rather than the theory of a bail out and, imo, FF/ Greens look like the undemocratic goons without a mandate they are!

There must be some risk of the likes of Mattie McGrath actually putting his vote where his mouth is, and therefore theres a chance the Government could actually fall because of rebel back benchers.

I could well be missing something obvious, but I just don't see this as some great strategic move from Cowen? Best case scenario for them appears to be if FG vote for or abstain, and Labour vote against. If that happens I'd expect Labour to get a few percentage points gain, most likely from FF.

[BonnieShels]

That appears to be the logic. However, if FG and Labour vote against, then where does that leave FF? FG and Labour could say they don't agree with specifics and the bad deal that the Government got rather than the theory of a bail out and, imo, FF/ Greens look like the undemocratic goons without a mandate they are!

There must be some risk of the likes of Mattie McGrath actually putting his vote where his mouth is, and therefore theres a chance the Government could actually fall because of rebel back benchers.

I could well be missing something obvious, but I just don't see this as some great strategic move from Cowen? Best case scenario for them appears to be if FG vote for or abstain, and Labour vote against. If that happens I'd expect Labour to get a few percentage points gain, most likely from FF.

Your theory is sound. However the realities are different. It's not important whether the opposition win this or not, what's important is that they agree to the same thing no matter what as you said. However the way Gilmore has been acting he knows that if they and FG don't agree it will be FG that will get the media kicking. So there's more to lose from FG's point of view I would say. Now I think there's a poll to be released next Wednesday so that could take over the news if it means FF are in single figures, which I doubt they will be considering the fawning over them that rte have been getting up to.
The best thing for both opposition parties would be to agree to opposing the govt to show a united front and stop this FF obsession with their differences. Even Sean Ardagh was at it this morning. It grates me that no member of the media comments on it properly.

[Mr A]

It annoys the crap out of me the way they go on about the opposition having differences- of course they bloody do!, they're separate parties and broadly come from the centre right and centre left.

It's up to the electorate to decide which they want to have the heavier weighting in the next government. Then the parties work out a compromise based on their respective strengths.

And it's not like the Greens and FF agree on much.

[Macy]

And it's not like the Greens and FF agree on much.
Even now in Government! Gogarty was at it today - spoke for the motion that he was about to vote against ffs!

Pat Kenny is always banging on about an agreement before an election, but it's really gone up a notch since the last poll which showed a Labour led leftist Government was at least a possibility. RTE and our media controllers are absolutely bricking it about such a prospect. If the next poll goes the same way, I expect the whole media focus will shift to a FG/FF coalition in their interest. I mean National Interest.

[John83]

... the last poll which showed a Labour led leftist Government was at least a possibility. RTE and our media controllers are absolutely bricking it about such a prospect. If the next poll goes the same way, I expect the whole media focus will shift to a FG/FF coalition in their interest. I mean National Interest.
With any luck, that'd be the end of them as independent entities.

[geysir]

The so called "Icesave" settlement is now landed and to be voted on by the Iceland parliament. If there is some extra controversy, it will again go for a referendum.
Icesave are the unresolved issues around the collapse of Landsbanki and in particular the UK and NL branches. Both the UK and NL governments repaid/covered the deposits and demanded that the Iceland State pay them back (the EEA insured amount) to the tune of a maximum €20k for each deposit. The total bill for this is ca €4bn (equivalent to €60bn in Ireland)
The first agreement demanded 5.5% interest for the €4bn loan and the liquidated assets of UK/NL branches would be spread equally to the deposit claims and creditor claims - bondholders etc. The UK/NL used every trick to their advantage, including using their influence with the IMF to withhold the desperately needed IMF scheduled loan payments. Plain and simple gunboat diplomacy, sign or else! The IMF denied this, but all the same they refused to disburse further loans to Iceland until they reached agreement with UK/NL.
This agreement was passed in Iceland parliament after lengthy volcano debates (heat and temper) but the President, under mass pressure, used his constitutional right to forward it for referendum, where it was trashed 9-1. The NL (Netherlands) in particular were freaked out by the referendum and threw in a last minute offer to avoid it going to referendum. But the democratic process could not be throttled. The IMF relented after the referendum and released further loans. The publicity from the referendum had all of a sudden changed perceptions with some in the outside world towards the IMF and they were drawing flak, right left and centre against their (unofficial) position.
New second stage negotiations started and gone on for over 16 months.
The new agreement has dragged interest down to an average 2.75% over the loan period, interest only payments until 2016 - at no time can an annual repayment be more than 5% of GDP. The UK/ NL assets of the failed bank are now in control of Iceland and the assets will be distributed according to Iceland law, where the deposit claims are secured first before creditors. There will be nothing for creditors/bondholders. The liquid assets are likely to cover around the amount that Iceland owe to the UK/NL, not quite everything but at least 95% of the total bill.
I do add that the Iceland parliament had the foresight, in all this drama, to pass an emergency bill on the night before the Banks were declared bust in sept 2008, that gave the depositers first claim to the Bank assets, ahead of the senior bondholders.

Iceland has now only to deal with a mere economic depression rather than a turbo depression.

[BonnieShels]

That the ability for the President to send contentious issues for referenda is something we sorely lack.
All the bill signer can do here if s/he opposes a bill and only if it is unconstitutional is to a: sign it into law and hope someone brings a case to the supreme court about its apparent unconstitutionality. Or b: refuse to sign it and send it to the supreme court herself/himself and let them debate the constitutionality of it. If they find that it is constitutional that bill becomes locked in a sense and can't be touched again. Hence the bill signer tends to sign it almost always.

[geysir]

Headline today "IMF delays funding until Dáil vote on rescue deal" :bomb:

What we have seen in the day after the budget, was the true face of this Fianna Fail government, complete denial, obnoxiously rude, arrogant and sneering condescension to the people. What we saw in effect, was the face of a government who are immune, chronically corrupted by power and corrupted by the absoluteness of this power.
As long as they act within their constitutional mandate, they can decide what constitutes the national interest.

There is no one fix. In Ireland there are a multitude of lessons to be learned and acted upon from this tissue of fiascos. But one big lesson, is that a people united on their constitution can not be thwarted by parliament, they can not be defeated (in the courts anyway) and a teeny weeny republic can stand up to a foreign nation 300 times bigger. Nations are bound to respect another's sovereignity. The UK/NL had to respect the sovereignity of tiny Iceland's democracy, even if their own constitutions did not allow for such vagaries. The Iceland government had made a deal with UK/NL, but the deal was rejected by the people using the constitution. The will of the Iceland people had to be respected by the UK/NL. Even the IMF had to respect the sovereign right of a people to reject a treaty and back off from trying to exert pressure to accept. The UK/NL had to accept, that although the Iceland government had signed an international agreement/treaty, they had not the full mandate to sign, if the people exercised their right to take away that mandate. The UK/NL had to then renegotiate on the basis that they were negotiating with the Iceland people.

Now you can imagine how a small clause of accountability to the people in major sovereign issues, would have changed the situation in the negotiation between the Irish gov and EU. The Irish Gov would have had much more pressure to act in the interests of the people. We would have had much more disclosure on issues. The Government stated that the bondholders were protected by law, that in the event of a bank failure they had equal right with depositers to assets. But the banks had a solvency crisis, there was no fix for this solvency crisis. I have not heard an explanation why a law could not be passed protecting the depositers, making them first claimant and making it retrospective.
I don't believe the protection of the people from inept government should necessarily fall on the President.
Here, as head of state of a sovereign republic, the Iceland president is being interrogated by an obnoxious Paxman on Newsnight and he manages to patiently give him a lecture on democracy. YouTube Paxman (http://www.youtube.com/watch?v=hasDH4bYwMY&feature=related)

[culloty82]

So, predictably the vote was won, 81-75, but as can seen, not everyone voted.

Naming and shaming the six who abstained:

Government:
Willie O'Dea

Opposition:
Alan Shatter
Dinny McGinley
Olwyn Enright (retiring)
Liz McManus (retiring)

Noel Grealish (take your pick which side to put him on)

[BonnieShels]

Apparently McManus is in hospital. I reckon that pairing was invoked as well.