Irish Debt Crisis Forces Collapse of Government

[J]

NYT linky

Irish Debt Crisis Forces Collapse of Government
By LANDON THOMAS Jr.
Published: November 22, 2010


DUBLIN — The Irish government faced imminent collapse on Monday, only a day after it signed off on a $100 billion bailout, setting the stage for a new election early next year and injecting the threat of political instability into a European financial crisis that already has markets on edge.

Confronted with high-level defections from his governing coalition, Prime Minister Brian Cowen said he would dissolve the government after passage of the country’s crucial 2011 budget early in December.

His announcement capped a grim day for Ireland, as protesters tried to storm the Parliament building in Dublin, and Moody’s Investors Service, the ratings agency, lowered the rating on Irish debt by several notches.

In agreeing to new elections, Mr. Cowen seemed sure to become the first political casualty of the debt crisis in the 16-member euro zone.

The developments sent a chill through financial markets and political circles in the euro zone, where the severe austerity measures imposed to keep the currency union from fracturing have yet to be tested in general elections.

The impending collapse of the Irish government after an expensive bailout seemed only to reconfirm fears that the financial crisis was far from contained.

Analysts warned that deeply indebted countries like Portugal and Spain that are pushing through unpopular budget cuts may soon face an uncomfortable choice: punishment by financial markets that will hammer any laxity in deficit-cutting with exorbitant interest rates, or by an angry electorate annoyed by prolonged economic hardship.

“It will be the same story with all these countries — Ireland is just ahead of the game,” said Desmond Lachman, a former policy executive from the International Monetary Fund who is now with the American Enterprise Institute in Washington. “They all have a fixed exchange rate and have to make these massive adjustments, so people are asking whether they are on the right path.”

Mr. Cowen’s political skills helped keep him in office as he presided over three consecutive years of a shrinking economy, the biggest bank collapse outside of Iceland and a humiliating bailout. But his hand was forced by a coalition partner, the Green Party, which announced that it would pull out of the government once a series of fiscal packages and budgets were in place next month, and by backbenchers in his own party, Fianna Fail.

“There are occasions when the imperative of serving the national interest transcends other concerns, including party political and personal concerns,” Mr. Cowen said in a statement. “This is one such occasion.”

In his statement, Mr. Cowen said his government would present a four-year plan to reduce the deficit to 3 percent of gross domestic product by 2014, from 32 percent, and preside over the 2011 budget to be voted on Dec. 7.

Passage of the budget, which will call for $8.2 billion in savings, will be the first major hurdle the government faces to ensure receipt of the $100 billion it desperately needs to remain solvent. The Green Party defection came as a shock even to Mr. Cowen, who huddled with its leaders for five hours on Sunday and had no idea they were on the verge of calling for a new election.

Whatever the case, it is now almost certain that a general election will be held early next year.

“The mood in the country is for an election, and the people want a new mandate — that much is clear,” said Joan Burton, deputy leader for the opposition Labour Party.

Ms. Burton, who is also the financial spokeswoman for Labour, said that party leaders would need to see more details on the budget proposed by Mr. Cowen, and that until they did, they were not inclined to recommend it.

But the leader of the Green Party, John Gormley, made clear in a statement that he would not jeopardize the country’s financial bailout by challenging the budget, even though it is likely to call for such harsh measures as a sharp decrease in the minimum wage (currently one of the highest in Europe) and reductions to universal child benefits — payments the country makes to parents with children regardless of their income level.

In capitulating to a chorus of calls for new elections and his resignation, Mr. Cowen said, “The interests of the electorate, of all our people, will not be served by delaying, or worse still casting into doubt, the steps which are necessary to secure our economy and financial stability.”

For Mr. Cowen and his Fianna Fail party, which has been in power since 1987, this represents a stunningly rapid fall from grace — but one that arguably might have occurred sooner. Mr. Cowen, before he became party leader in 2008, was finance minister as the seeds of the Irish real estate boom were being sowed in the early part of this decade.

That he has lasted this long is a testament to his undisputed skills as a cagey political infighter.

But the time for backroom dealing is done in Ireland — as it may well be in other European countries, facing the growing strains of high unemployment and stagnating growth (Portugal and Spain are expected to have no growth this year, while Ireland is hoping for just over 1 percent).

The intervention of the European Union and the International Monetary Fund, while expected, has come as a shock to Irish citizens who are deeply disturbed by the prospect that the fund will force even deeper cuts on a populace battered by recession.

Over the past four days the International Monetary Fund team has been holed up in a luxury hotel in Dublin, trailed by photographers whenever they take the short taxi ride to the Central Bank or the Finance Ministry.

The chief of the team, Ajai Chopra, is referred to in the tabloids as “Ajai the Chopper,” and the hottest-selling clothing item in Dublin is a T-shirt that says, “The I.M.F. took me coat.”

Well, that's the second of the PIGS to be roasted. Ireland is running a deficit of around 1/3 of its GDP so this bailout is good for oh...five months. $100 billion doesn't buy very much these days...Greece will likely be looking at round two soon enough and Spain & Portugal are in rough shape as well. This could be interesting, Austria is threatening to halt its payments to Greece and Finland wants no part of the Irish bailouts, I expect more nations to begin saying NO to bailouts and if this continues it will threaten the unity of the Euro.

[OneEyedTeddyMcGrew]

Just for the record, the Irish government hasn't collapsed...yet. The Green Party (the minority coalition partners in the current government) want an election to be called in January after the passing of the EU/IMF bailout and the 2011 Budget. The main opposition are calling for an election before Christmas and the Budget to be passed afterwards. Basically the two sides are playing political football while the country burns...welcome to Irish politics in a nutshell. Incestuous and provincial to the end.

However, as a Irishman living in Britain at the moment, I should add that we're NOT Greece. Our government never cooked the books to make us look in better shape than we were, and we've already had cuts that would make your eyes bleed without the IMF breathing down our necks. The 2011 Budget is proposing a further 6 billion Euro in cuts, which for a small country like Ireland is a huge amount. Also, despite recent unrest the Irish population have taken the cuts very well. I imagine the Greeks or the French would have burned the country down twice if they were in a similar situation.

No, our politicans suffer from utter incompetence in a very different form. Here's a quick recap as to how it came to this:

The Irish economic boom in the 90s and early 2000s was based on financial services and property development. The two sectors of industry that got utterly fucked in the crash were financial services and property development. During the boom land, especially development land, was hilariously overpriced and property developers took out huge loans from banks that now have zero chance of being repaid.

So the government, in their infinite wisdom, decide to guarantee all deposits AND liabilities of banks, inject huge amounts of cash into the banks and when that dosen't work sets up a government agency (NAMA, which is now the single biggest property owner IN THE WORLD) to buy the bad land off the banks at overinflated values with absolutely no chance of it ever making a profit in an attempt to keep the banks solvent at the taxpayer's expense. (as an example. You have a holiday home somewhere on the coast valued at £500k in 2006. Today it's valued at £100-150k. Yet NAMA will base their valuation on the loan the bank gave to buy the property. Therefore, even at 70% of the value NAMA are still paying out £350k on a £100-150k property. See the problem here?) At a time when even the IMF, those great protectors of public property were screaming for the banks to be nationalised.

Effectively, Ireland is trying to finance a bailout of the banks and property developers worth 15 times more than the UK bank bailout with 1/15 of the tax base of the UK and no nationalisation measures. Can anybody say "budget deficit", to the tune of about 30 billion Euro?

However, because we're in the Eurozone, the EU HAS to bail us out sooner or later otherwise it's the end of any confidence anyone has in the Euro. The big fear now is that any IMF/EU bailout will involve having to raise corporation taxes (which are idiotically low) which would drive R&D and biochem multinationals out. By the way, they're just about the only things that are producing anything in the fucking country because the Yanks have a hardon for Ireland with it's low corporation tax and being the only English speaking nation in the Eurozone.

http://en.wikipedia.org/wiki/Families_in_the_oireachtas

I know it's a Wikipedia article, but it sums up the problem in Irish politics pretty well. Look at the amount of people who are related to each other, and the amount of seats that have become practically dynastic. Since the 1920s Irish politics has very much been "it's not what you know, but who you know" situation. Outside of political circles, Irish high society is so tiny that everybody, from the politicians to the bankers to the property developers are on first name terms with each other. Not a conflict of interest at all...there were rumours that Bertie Ahern (the previous Prime Minister), the President of AIB (one of the biggest victims of the bank crash) and several property magnates all drank in the same Dublin pubs at the height of the Celtic tiger. Now we're in a situation that is too big for the politicians to comprehend, and for once they can't snake-oil their way out of it.

Jesus Christ, I need a fucking drink.

[J]

The cuts & tax adjustments don't matter anyway, it's far too late for that. Ireland has a debt to GDP ratio of around 13 to 1, just to keep that debt from running away requires an indefinite period of near zero interest rates. Let's say they somehow manage to extract 40% of the GDP as tax revenues and half of that goes towards debt repayments. It would require interest rates of under 2% to keep their debt stable, no country enjoys rates that low, not even the US nor Germany.

In reality Ireland manages to tax around 20% of its GDP and its average interest cost is over 5%. The debt compounds and runs away even if they balance their budgets and place every last cent of their revenues towards debt payments. It's mathematically impossible for Ireland to get out of debt without defaulting.

---

But you're right in how they arrived at where they are, one cannot base an economy upon financial & property speculation.

[OneEyedTeddyMcGrew]

Taoiseach Brian Cowen has rejected Fine Gael's accusations that he is engaged in an ongoing attempt to cling on to power.

Mr Cowen also ruled out bringing forward the date of the Budget.

Mr Cowen said that clinging on to power was not his motivation and said it is a priority that the Budget is passed. He was responding to Fine Gael leader Enda Kenny.

Mr Kenny also said the authority and trust of the Government had evaporated over the last week.

Mr Kenny said the budgetary process and a slimmed down Finance Bill could be completed by Christmas.

Mr Cowen said the timeline for the budgetary process had been agreed with EU Commissioner Olli Rehn and it was important to proceed with that to bring certainty.

The Fine Gael leader also said he will accept the invitation to meet with IMF, ECB, and EU Commission officials.

The Taoiseach said he thinks the Budgetary process will be completed by February.

Mr Cowen said he believes there will be support for the Budget and said it is a matter of personal responsibility whether or not people vote for it.

Labour leader Eamon Gilmore said he was also in favour of bringing the date of the Budget forward.

He said last year the Finance Bill - which gives affect to Budget changes - took three months to pass.

Mr Cowen said the Government had to wait to get the November tax returns.

Both the main Opposition leaders remarked on the absence of the Green Party from the Dáil chamber.

Mr Kenny said: 'Yesterday we saw the spectacle of your absent friends withdraw their support on the basis that they had been betrayed and there was not proper communication within the Cabinet'.

While Mr Gilmore said: 'One of the parties in Government have semi-detached themselves now from Government'.

Later Mr Gilmore asked asked the Taoiseach if the Green Party ministers had sumbitted their resignations yet, or would the Taoiseach be exercising his prerogative to request their resignations.

Fianna Fáil leadership

Earlier, Tánaiste Mary Coughlan said Mr Cowen has her full support as Taoiseach and as leader of the Fianna Fáil party.

Ms Coughlan said if there were those who felt that a change was needed then there was a process.

Referring to comments made by Commissioner Rehn and the IMF, she said it was an absolute pre-requisite for the stability of the country that the Budget and the four-year plan were passed.

She said that was the clear reason why we were not having an election now.

Ms Coughlan said an election would pose a distraction.

It comes as a dissident Fianna Fáil backbencher has predicted tonight's meeting of the parliamentary party will be a 'bareknuckle affair', and repeated claims that Mr Cowen should be replaced as leader.

Cork North Central TD Noel O'Flynn said yesterday that Mr Cowen had done tremendous damage to the country and should go.

He said he was sick of having to face people and felt humiliated, betrayed and frustrated by not having known International Monetary Fund intervention was on the way.

He said he would sign any motion of no confidence.

The parliamentary party meeting is expected to begin at 5.30pm.

However, fellow Fianna Fáil TD Tom Kitt said he will support Mr Cowen in any confidence motion in the Dáil and he will support the Budget.

Mr Kitt added, however, that he will not vote for Mr Cowen when the leadership issue comes up for discussion after Budget day on 7 December.

Another Fianna Fáil TD, Michael O'Kennedy, said his party needs a change of leadership but first of all the Budget, the four-year plan and EU/IMF negotiations must be completed.

Sinn Féin, meanwhile, has called on Fianna Fáil backbenchers, who are unhappy with Mr Cowen's leadership, to support a Sinn Féin motion of no confidence, which they will table in the Dáil.

Deputy Caoimhghín Ó Caoláin also called on disillusioned members of the Green Party and members of the Opposition to support the motion.

Speaking on RTÉ's News at One, Fianna Fáil TD Niall Collins said he did not believe any challenge against the Taoiseach would be able to muster the required 18 signatures to put the party leadership on the agenda.

Earlier today, Mary Hanafin gave a clear indication she would be interested in contesting the leadership of Fianna Fáil if a vacancy arises in the future.

Speaking in Dublin this morning, the Minister for Tourism, Culture and Sport said there was no heave against Brian Cowen and she said she would not be part of any such move.

She said, however, that if the leadership was to become available in the future she would throw her name in the ring if members of the parliamentary party felt she had something to offer.

The minister insisted there was no indication of any such move at present, as the Government was clearly focused on the country's economic recovery

She also said that she is not convinced that the Green Party has the best interests of the stability of the country at heart.

Ms Hanafin said she was annoyed by the manner in which the party had called for an election yesterday, something she said was not expected.

But the minister said she and Fianna Fáil would 'work with them' in order to pass the Budget and the four-year economic plan.

She said she was not reluctant to work with the Greens and would work with anyone, including the Opposition.

Minister Hanafin said she was not uncomfortable during yesterday's news conference with the Taoiseach, when he announced he would dissolve the Dáil following the budgetary process.

Asked if she thought it may be the time for an election now, the minister said if there was an immediate election it would not be possible to pass a Budget on time and she said she and her Fianna Fáil Cabinet colleagues had discussed all the options open to them.

Green Party Senator Dan Boyle has described what the Greens did to the Government 'as a kind of renegotiation of the Programme for Government'.

He said they had now put a time limit on what had been agreed to.

And he said the Irish banking crisis was as much an international problem, as an Irish one.

Separately, Fine Gael TD for Galway East Paul Connaughton has confirmed that he will not contest the next election.

The 66-year-old former junior minister for agriculture has been a TD since 1981.

He is currently the party's deputy spokesman on foreign affairs with special responsibility for the Irish diaspora.

http://www.rte.ie/news/2010/1123/politics.html

Meanwhile, out on the streets...

The constituency office of Minister of Transport Noel Dempsey in Trim, Co Meath, was attacked overnight.

A number of windows in Minister Dempsey's office were smashed and the word 'tratiors' [sic] was written across the front of the office.

A spokesperson for the minister has described the attack as 'an act of mindless vandalism'.

Garda technical experts conducted an examination of the scene.

http://www.rte.ie/news/2010/1123/politicsprotest.html

This is getting ugly. Historically, very very bad things have happened to Irish politicans labelled as "traitors", and there's an undercurrent of historical nationalism in the mainstream Irish political process. The two main parties, Fianna Fail and Fine Gael, were formed on the basis of divisions over the treaty with Britain that established the Irish Free State in the 1920s. Fianna Fail were anti-Treaty on the basis that it did not establish a true republic, and Fine Gael are formed from the various pro-Treaty elements that banded together over time. Even today some of the older generation will vote for either party based on that alone. So this kind of petty vandalism is a lot more politically loaded than it would be in many other countries, especially now Sinn Féin (rabid socialist nationalist crazies) are sticking their oar in. May you live in interesting times.

[Zixinus]

Question is, what will happen and how ugly will this get. Will we get riots? Will we get riots up to the point that members of parliament are threatened?

[Dartz]

Probably not. Truth be told, very few people could really be bothered rioting, they're more interesting in clinging on in moaning desperation for as long as possible. There's a lot of anger, but at the same time, what can you do about it? Protesting costs a day's wages, and a day's wages are the electricity bill, or food on the table. It's not going to get ugly in a violent manner, not like Greece.

The thing with the bank guarantee was that, at the time it appeared to make sense. Nobody had any idea how truly deep the hole was (Either that, or the government was outright lied to). There was also no real other alternative, was there?

If the banks weren't guaranteed or bailed out, at least one of them would've failed. If one went down and collapsed... a lot of people would have just lost access to cash and their savings, while the rest would've been left wondering which bank is the next going to fail and whether they could get their life savings out and under the mattress before it did. We'dve probably ended up with a run on the rest of the banks, causing the whole lot to drop out in short order.

If we lose the banks, then we lose funding for ongoing business. You have a knock-on effect whereby a load more business start going to wall... business that might otherwise be viable. You lose all that economic activity and tax revenue. You have thousands of people who've just had their savings and pensions wiped out. You lose their economic activity and taxes. The crash would've be much deeper and much harder.

With hindsight, it seems like a bad decision, but in truth what was the alternative?

The seeds of this mess were sowed well before 2008. Even before the 2007 election, there were ominous rumblings of a massive property bubble. And who was the person who was Finance Minister at the time? Who, had in the entire 4 years of his tenure in that position, a grand total of 2 meetings with the financial regulator?

I don't blame Lenihan for the mess... he had the misfortune of coming into his office for the first time right before the bubble finally burst. He's been doing the best job he could do under the circumstances. The really infuriating thing for me; what makes me want to scream and shout and throw rocks at things. Those who were actually responsible for the mess will get off scot-free.

And all the while parties like Sinn Féin are making hay while the rain falls. God help us if they get anywhere near a government office

[Thanas]

A little less screeching about the fall of the Euro and a little less glee at the problems of other nations, J.

It is not as if we are talking about a high sum here which cannot be paid by Europe. 100 Billion is not much. Heck, it is not even 10% of the German annual budget. And besides, let us not forget that this will dramatically lower interest rates for Ireland - analysts predict that Ireland's interest rate for getting new loans will plummet from 8% (currently) to 4-5%. So refinancing etc. is an option now.

And heck, even if Ireland suddenly defaulted, Europe is still large enough to handle it.

[Murazor]

And heck, even if Ireland suddenly defaulted, Europe is still large enough to handle it.

Greece, Ireland and Portugal are small enough that it is possible to 'handle it', though the will to do so doesn't seem to exist. Spain, though, would be the real backbreaker and the short/mid term realistic scenarios are a cause for great concern.

[Thanas]

Greece, Ireland and Portugal are small enough that it is possible to 'handle it', though the will to do so doesn't seem to exist.

What makes you say that?

[Murazor]

What makes you say that?

Mostly Austria and Finland making noise about not wanting their part of the Greek and Irish rescue packages, Miss Merkel facing internal requests in Germany to leave the Mediterranean economies to their fate and some other minor stuff in several more countries.

If additional help is required (which seems likely), this opposition will mount with every new negative development in the close future and could sway national leaders to ignore EU requests for cooperation, in order to avoid political suicide in front of their respective national electorates.

[Thanas]

The opposition is making loud noise, nothing more. The Bailouts will continue, simply because everybody know the Euro must be saved. And Austria and Finland will cave rather quickly on this issue, if only because they want to continue being part of the Eurozone.

(BTW, even if the entire opposition in Germany would decide to vote against it, there is still nothing they can do due to not having a majority).

[Big Orange]

And Britain will have to pay up to prevent (or slow down) the dominos heading its way and besides which, UK exports to Eire are allegedly worth more than its exports to Russia and China combined.

[K. A. Pital]

I've come to appreciate the European riots after a while. Because Europe has, indeed, under the burden of bailout-accumulated debt, engaged in a process that I would call the demolition of the traditional welfare state, and who'd guess that would not go down well with the population.

And I sort of have a respect for people in Greece, France, Italy and Ireland, and the larger European nations too (like Britain and Germany), especially the unions, who lead strikes and protests. The same cutting down of social guarantees happens in Russia without a shred of popular outrage (well, that is probably because Russia is a corrupt dictatorship, but still).

This is fundamentally wrong.

[Thanas]

Let us not forget the courts here - in Germany (and Europe) there is a strong tradition of social change from the courts. A lot of the social elements introduced in germany (higher unemployment benefits, continued pay during maternity leave) actually came because the courts ruled that the politicians have to change the system to make it more fair.

[Big Phil]

A little less screeching about the fall of the Euro and a little less glee at the problems of other nations, J.

Stop acting like you're a fucking moderator or something. Don't you know? ITEOTWAWKI requires lots of smugness.

[J]

It is not as if we are talking about a high sum here which cannot be paid by Europe. 100 Billion is not much. Heck, it is not even 10% of the German annual budget. And besides, let us not forget that this will dramatically lower interest rates for Ireland - analysts predict that Ireland's interest rate for getting new loans will plummet from 8% (currently) to 4-5%. So refinancing etc. is an option now.

Again, it doesn't matter. A 4% interest rate on Ireland's debt would consume over half of its GDP, all it does is buy a little more time before the inevitable default occurs. $100 billion won't cover their debt service costs for a year even at the lower projected rates. Unless Europe is willing to pay off or forgive 80-90% of Ireland's debt, the country will be doomed in the long run. Historical precedence has shown that it's quite difficult for a country to remain solvent for an extended period of time once its debt:GDP ratio reaches 1:1, Ireland is at 13:1. Anyone have $3 trillion to spare?

And heck, even if Ireland suddenly defaulted, Europe is still large enough to handle it.

If the problem can be contained to Ireland alone. Given that European banks have over $650 billion in exposure to Irish debt the chances of successful containment are rather slim. A sizable bank(s) in Europe will be almost certainly be rendered insolvent by an Irish default. Which one? We don't know. But thanks to CDSs and other such products it's very likely to have a Lehmans' like effect and domino the system.

[bobalot]

Looks like the biggest winners out of this whole debacle (politically) are the Irish Labour Party and Sinn Féin.

At the 2007 General Election:

Irish Labour Party - 4.7% of the vote.
Sinn Féin - 6.9 of the vote%

November 21 Poll - The Sunday Business Post
Irish Labour Party - 27%% of the vote.
Sinn Féin - 11%

[Ritterin Sophia]

And I sort of have a respect for people in Greece, France, Italy and Ireland, and the larger European nations too (like Britain and Germany)

As much as I might like to take good-natured jabs at the cheese-eating surrender-monkeysfrogs in jest, I'm pretty sure they are one of the larger European nations.

[Thanas]

It is not as if we are talking about a high sum here which cannot be paid by Europe. 100 Billion is not much. Heck, it is not even 10% of the German annual budget. And besides, let us not forget that this will dramatically lower interest rates for Ireland - analysts predict that Ireland's interest rate for getting new loans will plummet from 8% (currently) to 4-5%. So refinancing etc. is an option now.

Again, it doesn't matter. A 4% interest rate on Ireland's debt would consume over half of its GDP, all it does is buy a little more time before the inevitable default occurs. $100 billion won't cover their debt service costs for a year even at the lower projected rates. Unless Europe is willing to pay off or forgive 80-90% of Ireland's debt, the country will be doomed in the long run. Historical precedence has shown that it's quite difficult for a country to remain solvent for an extended period of time once its debt:GDP ratio reaches 1:1, Ireland is at 13:1. Anyone have $3 trillion to spare?

You pretty much sounded the same gloom and doom alarm when Greece was in trouble. I am sorry, but I do not really have that much faith in your analysis.

Oh, btw, yes, the EU can handle 3 trillion.

[Edi]

If the Irish politicians had a spine, there would be absolutely nothing to stop them from revoking the guarantees and letting the financial and property market self-destruct while guaranteeing bank deposits. Once the crash goes through, nationalize the failed banks and then sell the assets off to new, solvent operators.

One of the reasons Finland opposes any more bailouts is that we don't simply have any more reserves of anything to use toward that purpose, unless we want to go more into debt just to bail out Ireland. Greece was bad enough, but anyone wanting any more bailouts can basically go fuck themselves as far as we are concerned.

Anyone who supports more bailouts is going to have a lot of explaining to do come election time, which is in just a few months.

[Korto]

I would think it was a mistake (although perhaps only visible with the magic power of hindsight) to guarantee the banks and deposits. They could have guaranteed just the depositers (the voters), hopefully stopped any runs on the banks by blanket advertising that deposits were totally secure no matter what, and stared down the banks as sophisticated investors who can take their lumps and even fail.
Would this have worked out better than the current mess?

[Fingolfin_Noldor]

I suspect that if Ireland ceases to guarantee the banks, confidence will drop. I think they have dug themselves a hole, and they can't figure how to get out of it.

[J]

You pretty much sounded the same gloom and doom alarm when Greece was in trouble. I am sorry, but I do not really have that much faith in your analysis.

If you believe the problems with Greece are solved, you're mistaken. The yield on their bonds, that is, the interest rate on their debt is back up to pre-bailout levels. They'll be back at the bailout trough before the end of next year as there's no way they can fund their deficits & serve their debts at those rates while remaining solvent.

Oh, btw, yes, the EU can handle 3 trillion.

Sure, then what happens when the rest of the PIGS come looking for bailouts?

[Dartz]

If the Irish politicians had a spine, there would be absolutely nothing to stop them from revoking the guarantees and letting the financial and property market self-destruct while guaranteeing bank deposits. Once the crash goes through, nationalize the failed banks and then sell the assets off to new, solvent operators.

One of the reasons Finland opposes any more bailouts is that we don't simply have any more reserves of anything to use toward that purpose, unless we want to go more into debt just to bail out Ireland. Greece was bad enough, but anyone wanting any more bailouts can basically go fuck themselves as far as we are concerned.

Anyone who supports more bailouts is going to have a lot of explaining to do come election time, which is in just a few months.

The problem with losing the banks, is that you lose all the economic activities that rely on those banks. Just 'letting it fail' isn't an option. How many small/medium businesses have money deposited in those banks, and require this money to remain solvent? If the banks collapse, then just about everything reliant on them also collapses. Those businesses die, their employees are laid off with no redundancy payments. They go from being tax producers to tax consumers as they draw down on social welfare. It's not just the financial and property market that'll self destruct if a bank collapses, everyone who happens to have money saved in those banks will also lose out spectacularly. People's savings will be gone.

And it's not a matter of moving to another more-solvent bank.... those 6 guaranteed banks are pretty much it as far as Irish banking goes, and if one goes, chances are the whole lot'll go. When the shells get sold off, what you'll have is a now solvent operator calling in loans from a lot of people who've just lost the ability to pay when their savings dissolved.

You also have to remember... this fund isn't a baillout as such. The problem is that the banks themselves are unable to access international lending anymore because markets have no confidence in them. This isn't an injection of money straight into the banks, what it is, is setting aside a fund of cash to be made available in case it's needed, and to assure the markets that if it's needed, there is money available to keep these bloody zombies going if needed. It hasn't actually been drawn down yet.

[Edi]

Sounds like bank failure to me and what I was referring to was the guarantees on the stupid loans the banks made. Take them over, guarantee the money deposited in the accounts, keep the basic functions required to avoid total economic collapse going until things can get transitioned to a healthy basis and let those speculative land deals and other such bullshit fail.

It's not as if this is impossible to do, just politically fucking inconvenient and it's going to still cause a shitload of pain and cost money, but the current version of the government guarantees is unsustainable and looks like a "guarantee of profits, no matter what" setup than anything else. Fuck that. We had a financial sector collapse in the early 90s and so did Sweden and both countries actually stepped up and fixed things, Sweden more smartly than we did even if some of the methods were similar. I'm not seeing that happening here, nor anything other than the tax payer propping up failed banks without any changes required. If that's the way Ireland wants to go and have others pay for it, fuck the entire country.