Just like bailing out AIG was really about bailing out Goldman Sachs, so bailing out Anglo-Irish Bank is about saving some very large German banks.
Monday, 11/29/2010 - 11:25 am by Marshall Auerback
Despite a blame-a-thon on Ireleand, Germans banks are really at the core of the eurozone catastrophe.
Much ink has been spilled in the press over the Irish problem and the laxity of the country’s southern Mediterranean counterparts in contrast to the highly “disciplined” Germans. But perhaps we have to revisit that caricature. Not only has the Irish crisis blown apart the myth of the virtues of fiscal austerity during rapidly declining economic activity, but it has also illustrated that Germany’s bankers were every bit as culpable as their Irish counterparts in helping to stoke the credit bubble.
One of the traditional rationales for the creation of the euro was that a single currency and strict Maastricht criteria would keep the profligate Mediterraneans and their Celtic equivalents in line. Instead, critics, particularly in Germany, increasingly see the European Monetary Union as a means for freeloading nations to offload their liabilities onto fitter neighbors.
Not surprisingly, this has engendered much discussion that perhaps it would serve Germany’s interests to leave the euro, rather than booting one of the Mediterranean “scroungers” out. But as Simon Johnson has pointed out, this comforting narrative of German prudence matched up against Irish profligacy doesn’t really stack up:
German banks in particular lost their composure with regard to lending to Ireland — although British, American, French and Belgian banks were not so far behind. Hypo Real Estate — now taken over by the German government — has what is likely to be the highest exposure to Irish debt.
But look at loans outstanding relative to the size of their domestic economies (using the BIS data on what they call an “ultimate risk basis”).
German banks are owed $139 billion, which is 4.2 percent of German G.D.P. moreAnd WHY are the banksters taking such a hard line with the poor Irish? Well this might offer a clue.
Just A 20% Haircut In PIGS Bank Debt Would Wipe Out The Equity Of French Banks
Joe Weisenthal | Nov. 30, 2010, 10:36 AM
This basically explains why there's no serious discussion of a haircut on sovereign debt in Ireland, and elsewhere.
Greece, Ireland, Spain and Portugal (GISP) are small in GDP terms relative to Germany and France. But their banking systems grew to be very large (e.g., a 20% haircut on French bank exposure to GISP countries would wipe out French bank equity). Irish Finance Minister Lehinan intimated that Ireland asked to be able to apply haircuts to senior bank debt, and was told by the EU that it would make no money available if there were any haircuts, due to fears of contagion. What does that tell you about the risk of small countries, or the European banking system?
IMF and EU Hammer Ireland: "We're all Fu**ed"
By Mike Whitney at informationclearinghouse.info
November 29, 2010 "Information Clearing House" -- The terms of the EU/IMF's €85 billion ($113 billion) bailout for Ireland are much worse than analysts had anticipated. Ireland will be required to use its National Pension Reserve Fund (NPRF) to shore up its insolvent banks and to maintain government operations. At the same time, senior debt-holders will not share any of the losses brought on by the banks reckless lending. According to Bloomberg News, "Prime Minister Brian Cowen told reporters there had been no support in talks to ask senior bondholders to lose part of their stake on loans made to Ireland's debt-crippled banks." Thus, 100 percent of the EU/IMF's €85 billion "Financial Rescue Package" will be paid for by Irish taxpayers.
This is a very bad deal. Irish workers have already endured nearly 3 years of depression-type conditions with shrinking wages, soaring unemployment and dwindling home equity. Now Brussels is taking aim at pensioners to save bondholders in Berlin and Paris from any losses on their bad bets. And that's not all. Here's an excerpt from the government's statement:
"The facility will include up to €35 billion to support the banking system; €10 billion for the immediate recapitalisation and the remaining €25 billion will be provided on a contingency basis. Up to €50 billion to cover the financing of the State.....If drawn down in total today, the combined annual average interest rate would be of the order of 5.8% per annum."
This is nothing but extortion. If Ireland wants to put its banks on solid footing, there's a way to do it that doesn't involve years of debt-slavery for its people. The government can underwrite the banks with a €10 billion loan from the Pension Reserve Fund that will guarantee deposits while the banks are nationalized and restructured. It is an excruciating process, but it's been done many times before. Ireland does not have to accept indentured servitude if it chooses not to. more