Credit Writedowns » Ireland

[Premium] Ireland’s Private Debt Problem

Edward Harrison — Tue, 07 Feb 2012 03:00:59 +0000

You saw the chart about two weeks ago on Developed economies’ debt levels by sector. Different economies have different debt problems. A few like Greece have public sector debt woes. And this is the sort of problem that forces a default only when the country is a currency user (and not a monopoly issuer of currency) as Japan has demonstrated. Mostly, however, the problem is in the private sector, where all of the indebted parties are currency users

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News Links: Iceland fared better by letting its banks fail

Edward Harrison — Tue, 03 Jan 2012 15:51:12 +0000

Financial news links for 3 January 2012. I posted this first link on twitter yesterday afternoon and it got a ton of retweets. I have seen a lot of people link out to it. Bottom line: the concept that bankruptcy is part and parcel of capitalism resonates with people. And that's why we are viscerally opposed to bailouts, no matter how much the Tim Geithners of the world want to defend them

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News Links: Economists see France losing AAA in 3 months

Edward Harrison — Wed, 07 Dec 2011 16:30:43 +0000

News links for 7 December 2011 featuring thoughts on a French downgrade, the austerity budget in Ireland, patents and China and other stories

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Euro bank funding, collateral, and outlook

Marc Chandler — Tue, 22 Nov 2011 16:00:51 +0000

Bank borrowing from the ECB reach a new high for the year at today's 7-day repo operation. Banks borrowed 247.17 bln euros for a week at 1.25% fixed rate. The key question is what are banks doing with those euros. The answer is that banks appear to be recycling those funds by putting them on deposit with the

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Running through Italian unilateral euro zone exit scenarios

Edward Harrison — Tue, 22 Nov 2011 15:15:26 +0000

A unilateral exit would be a devastating event for Italy and the euro zone. Inflation would be high but bank and national solvency issues would recede. If the exit were done under these nationalistic pre-conditions of redomination, most of the adjustment burden would fall on foreign creditors. Italy would become export competitive again and could focus on economic growth strategies instead of ones of fiscal adjustment

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Full Text: Moody’s: Outlook for Ireland’s banking system remains negative

Edward Harrison — Mon, 21 Nov 2011 14:52:35 +0000

The following is the text of today’s Moody’s press release on the Irish banking system. London, 21 November 2011 — The outlook on Ireland’s banking system remains negative, says Moody’s Investors Service in a Banking System Outlook published today. The negative outlook has been in place since 2008 and continues to reflect (i) the banks’

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Dollar Bid as European Woes Dominate

Marc Chandler — Mon, 21 Nov 2011 12:30:18 +0000

News that the US super committee failed to reach an agreement has done little to eclipse the negative impulses coming from Europe. Rajoy won no honeymoon in Spain despite achieving an outright majority in parliament. Spain's 10-year bond yield is up around 15 bp today, the worst performer in the euro zone. Moody's warned that rising debt costs and weaker GDP is negative for France and maintained its negative outlook for Irish banking system, despite its improved capital position

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News Links: Need to Create? Get a Constraint

Edward Harrison — Sun, 20 Nov 2011 14:30:59 +0000

Need to Create? Get a Constraint | Wired Science | Wired.com One of the many paradoxes of human creativity is that it seems to benefit from constraints. Although we imagine the imagination as requiring total freedom, the reality of the creative process is that it’s often entangled with strict conventions and formal requirements. Daring Fireball:

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David McWilliams on Irish (and Italian) euro exit

Edward Harrison — Wed, 16 Nov 2011 03:00:41 +0000

When I was running through Italian default scenarios earlier in the day, I asked “Could Italy unilaterally exit the euro zone and redominate euro debts at par into a new Lira currency to forestall the default? Perhaps. That is something to consider at a later date.” Well that later date is now. I caught David McWilliams writing how he thought the end of the euro is nigh. In his discussion he outlines how a ‘two-speed’ Europe would function after an Irish exit from the euro zone. I imagine the same could work for Italy too. The part highlighted caught my eye

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Deleveraging, Banks and Economic Recovery in Ireland

Guest Author — Fri, 28 Oct 2011 15:15:48 +0000

The challenge that the Irish economy faces can best be described in the context of flows and stocks of assets and liabilities. Under the Memorandum of Understanding (MoU) with the IMF/EU/ECB Troika, Ireland must implement a severe fiscal austerity programme and reduce the size of its banking system. These goals must be achieved in the context of a deleveraging process in the household sector brought about by the need to repair balance sheets following a collapse in the value of housing assets. The current policy mix, which aims to reduce these stocks simultaneously, is unlikely to be successful, a feature we term the domestic trilemma. An external trilemma arising from the constraints of EMU membership also limits the policy choices for high-debt economies attempting to engineer an export-led recovery. This paper argues that a sequencing of policies is required for Ireland to achieve its goals

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Roger Bootle on the European Crisis Deal: Get Austere or Die Trying

Edward Harrison — Thu, 27 Oct 2011 18:00:54 +0000

Here's Roger Bootle talking to Bloomberg's Maryam Nemazee about the deal hammered out yesterday to 'save Greece.' He is quite sceptical. First, the 120% debt to GDP figure that the deal is predicated on reaching is still high and assumes a benign economic environment. Bootle believes these assumptions are rosy given the negative impact fiscal consolidation will have on growth. Separately, I have seen a number of other threads on the crisis. Most of the commentary has been negative. One would never know this given the incredibly bullish reaction in the markets. Here are the most interesting threads

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How the latest emergency euro summit addresses the sovereign debt crisis

Edward Harrison — Thu, 27 Oct 2011 13:00:42 +0000

Markets’ initial reaction to the latest EU emergency summit has been positive. Risk assets are trading up, risk-sensitive currencies are up, European bank stocks are up, and the broader stock market is as well. This relief rally is unexpectedly large. The bigger picture is quite a bit more downbeat. This summit does not address the core issues of the European sovereign debt crisis and is just the latest in stopgap measures on the way to a real fix to what ails Euroland. Let’s step back a moment and look at how we got here

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Chart of the day: Greatest Credit Deterioration Focus – Belgium, Spanish banking

Edward Harrison — Fri, 14 Oct 2011 13:35:35 +0000

Here are a few charts from the credit default swaps market based on 5-year CDS. Here’s what I see

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Holders of Sovereign Debt

Global Macro Monitor — Wed, 21 Sep 2011 03:00:28 +0000

Here’s a great chart just released by the International Monetary Fund for Greece, Portugal, and Ireland as well as Japan, the US and the UK. Note that almost half of the US federal government debt is held by the Federal Reserve and the government itself, such as the Social Security trust fund. Add to that the 22 percent foreign official holdings (mainly central banks) and almost 70 percent of the debt of the U.S. government is held by non-market/non-profit oriented investors

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Short Note on Euro Zone Success: Ireland?

Marc Chandler — Tue, 20 Sep 2011 15:11:06 +0000

At the beginning of the year, the 60-day correlation between Irish and Greek 10-year yields was above 0.90. Today, the correlation stands at -0.42. At the same time, Irish 10-year bonds yields have become significantly more correlated with German bund yields. That 60-day rolling correlation is near 0.85 today. As recently as late July, Irish 10-year bonds were inversely correlated to bunds (-0.90). This is not to say that Ireland is a safe haven, but

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Chart of the Day: Eurozone wage growth, pre-crisis

Edward Harrison — Tue, 20 Sep 2011 15:00:23 +0000

10% ‘internal devaluation’ in Germany took eight years. We are talking now about 20-30% wage and price cuts in Greece and Ireland. How realistic is that

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Ireland: Is austerity enough or will we see haircuts?

Edward Hugh — Mon, 12 Sep 2011 12:54:02 +0000

It is high time politicians in Berlin to started to recognise that fiscal austerity is not the be all and end all of the policy issues they now face. Ireland is applying fiscal austerity, but this alone may well not be enough. A better distribution of the pain needs to be found. As the IMF itself notes in its latest staff report: ”there is a strong sense that burden-sharing between taxpayers and creditors for the cost of supporting the banks has been unfair”

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Euroscepticism

Edward Harrison — Thu, 04 Aug 2011 13:30:46 +0000

It would easy to say something like, “The euro is an abomination and the peripherals should simply leave or be tossed out of the euro zone.” But, we are here now. The political imperatives for closer European ties that created the single currency are still with us. And the negatives of abandoning it are many, both politically and economically - in the periphery and the core

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The widening European sovereign debt crisis

Edward Harrison — Wed, 03 Aug 2011 12:42:25 +0000

Euroland is coming apart at the seams. Belgian/Bund spreads are now also over 200bps along with Italy and Spain. Belgium has just entered the periphery and France is not far behind

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Felix Zulauf on the inevitability of further crisis in Europe

Edward Harrison — Sat, 23 Jul 2011 20:30:14 +0000

Felix Zulauf spoke to Barron’s Alan Abelson about his thoughts on the European sovereign debt crisis now that Greece has received its second 100 billion euro bailout. Here I discuss what Abelson says about the conversation and why I think it means a state of permanent and rolling crisis in the euro zone

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What the European Greek debt deal means

Edward Harrison — Fri, 22 Jul 2011 14:00:00 +0000

This step will calm markets – for how long is anybody’s guess. Nevertheless, the budget cuts that this deal requires must be rapid in order to try to calm markets by maintaining the fiction that Greece is not insolvent and that the budgetary crises in Portugal and Ireland are less sever than they are. This approach is another version of extend and pretend and will have the nasty side effect of slowing growth in the euro zone considerably. Muddling through means deepening crisis for the euro zone. My hope is that Europe will be ready to address the medium- and long-term issues when the crisis flares again

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Europe: Contagion and Containment

Marc Chandler — Mon, 11 Jul 2011 17:30:35 +0000

Tolstoy tells us in the first line of Anna Karenina that "Happy families are all alike; every unhappy family is unhappy in its own way." This is directly applicable to Europe. It is easy to tar all (growing) peripheral countries with the same brush, but that risks over simplification and the faulty analysis may generate poor investment decisions

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What Happens Next?

Niels Jensen — Fri, 08 Jul 2011 14:00:00 +0000

The question is not whether Greece will default but what will happen once it has. If Greece defaults but stays in the euro, not only will it not solve the underlying lack of competitiveness, but markets will immediately turn their attention to Portugal and Ireland and force those countries to default, and once they fold, Spain and possibly Italy will be next, so a Greek default on its own could quite possibly make matters worse for everyone. If Greece defaults and exits the euro at the same time, the market reaction won’t be much if any different to begin with, but things may actually take an interesting turn in one particular respect. Once the people of Portugal, Italy, Spain and Ireland see how the Greek economy actually benefits from the exit, they may in fact demand an exit in their countries too. It is therefore fair to say that a Greek default, with or without an exit from the eurozone, achieves nothing if the aim is to keep the eurozone intact. However, there is another way forward

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Understanding Greek CDS in a restructuring

Edward Harrison — Wed, 22 Jun 2011 15:45:20 +0000

I expect a soft restructuring sometime in 2011 followed by a certain degree of dithering and a hard restructuring down the line. But, of course, the tail risk is there

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Stuffing bondholders in Greece and Ireland

Edward Harrison — Tue, 21 Jun 2011 16:00:14 +0000

If E.U. leaders are smart, they will understand that the turmoil they fear from a Greek restructuring will be much worse if that default is a unilateral one forced by a population that has taken to the streets

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Destroying the Periphery in Order to Save the Core’s Banks

William Black — Mon, 20 Jun 2011 18:00:55 +0000

William Black writes that the non-payment of debt – including bank debt – by the nations on the periphery would lead to severe banking crises and a return to recession in the core of eurozone. This is what is behind the stance of the ECB, EU, and the IMF. He argues that this is destructive and that it is essential that the nations of the EU periphery reclaim their sovereignty as sovereign nations have a range of policy options to recover from recessions. Unemployment is a pure deadweight loss. In a serious recession in a nation such as the U.S., the losses are measured in the trillions of dollars. Speeding the recovery from recession, ending unemployment, and avoiding hyper-inflation should be a sovereign nation’s transcendent economic goals at this time

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The Euro system contains a serious design flaw

Guest Author — Thu, 16 Jun 2011 14:48:34 +0000

The primary difference for Euroland to sovereign issuers is that the Euro can only be created by the ECB – it is the issuer of the currency. The governments of Ireland, Greece, Spain, Germany, etc. are the USERS of the currency. The implications of this distinction cannot be overstated. Members of the Eurozone are like individual states in the US. Like California, Ireland must go out and ‘get’ the currency – either by taxing or borrowing – before it can spend. It must pay whatever financial markets demand, and it can be priced out of the market. It can become insolvent, and it can be forced to default on its debt

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To repeat, the ECB is not conducting a stealth bailout

Edward Harrison — Fri, 10 Jun 2011 16:30:57 +0000

Karl Whelan finds that a recent analysis by Hans-Werner Sinn on an alleged ECB bailout is incorrect. Willem Buiter is now out with a commentary on the same issue corroborating Whelan’s view. Below are the bullet points he highlights in his analysis for Citigroup followed by the full article. This is seriously technical stuff, but still very important. I have underlined the key bits because his argument ties in with something I have been banging on about for some time, namely that banks are not reserve constrained in a convertible floating exchange rate credit system

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What has led Ireland to the brink of collapse?

Edward Harrison — Fri, 10 Jun 2011 01:30:10 +0000

A comprehensive outline of the Irish situation and with a retrospective on the steps leading us to the brink

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The ECB is not conducting a stealth bailout

Guest Author — Thu, 09 Jun 2011 20:00:58 +0000

In a recent column at VoxEU , Hans Werner Sinn of the prestigious Institute for Economic Research claims that the German Bundesbank is effectively propping up banks across the Eurozone’s periphery. He adds that doing this risks a major crisis. Here, Karl Whelan of University College Dublin argues that Professor Sinn’s analysis is incorrect and that his policy prescriptions are extremely unhelpful and even dangerous

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Europe Needs Shock and Awe, but…

Marc Chandler — Thu, 09 Jun 2011 15:58:18 +0000

Various news wires are reporting leaks of the IMF/EU/ECB review of Greece. Apparently they are concluding that the implementation of the conditions for last year's aid package have ground to a halt. They are also concluding that the Greece economy is weaker than they had previously thought

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Will Greece Allow Central Bankers To Destroy Sovereignty?

Michael Hudson — Tue, 07 Jun 2011 19:00:14 +0000

ECB intransigence leaves little alternative to breakup. Europe’s payments-surplus nations are waging financial war against the deficit countries. Without a common union based on mutual support within a mixed economy – one capable of checking financial aggression – the European Central Bank replaced the military high command. Its bold gamble is whether the Greeks will be as stupid as the Irish, not as smart as the Icelanders

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Will Greece Allow Central Bankers To Destroy Sovereignty? originally appeared on Credit Writedowns

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Breakup of the euro?

Michael Hudson — Fri, 27 May 2011 00:00:32 +0000

The creditors know that the game is up. All they can do is take as much as they can, as long as they can, pay themselves bonuses that are “free” from recapture by public prosecutors, and run to their offshore banking centers

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Breakup of the euro? originally appeared on Credit Writedowns

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Kicking the Can to the End of the Road

Guest Author — Sat, 14 May 2011 22:40:48 +0000

Each new version of the European debt crisis will spook the bond markets yet again. When you look at the economies of the euro-peripheral countries, it is hard to see how they can dig themselves out without a great deal of pain and serious spending cuts, which of course means slower economies and even more pain. But that is the only way through, short of the Eurozone basically guaranteeing all debt for a long time, which means you are asking Finnish and German and Dutch and French voters to agree to take on more taxes to pay that debt. Or it means a real loss of sovereignty and control for debtor nations

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