Prepare to welcome your new IMF overlords

Not a bad summary of the bonds situation etc in the Guardian today:

Ireland’s borrowing costs are being pushed to unsustainable levels. The interest the government needs to pay to borrow from the international markets to fund public spending rose yesterday for a 13th consecutive day, to 9.07%. No government can afford to finance itself at this rate – meaning the country may be forced into a Greek-style bailout from the EU or IMF.

Why is Ireland in trouble?

The Irish real estate bubble, the product of a decade of ample and cheap credit, burst last year. Irish banks had lent freely, almost without considering the risk that people and companies might not be able to pay back their loans. As a result they have needed multibillion-euro taxpayer-funded cash injections to survive, pushing up the government’s deficit.

Why do bond investors penalise the deficit?

International lenders want reassurance that a borrower will pay them back, and that the borrower will have a top rating. A big deficit increases the risk that a country may not be able to meet its interest payments, so investors sell the bonds, pushing up the yield, which moves in the opposite direction to the price.

What is a bond yield?

It is the cost of borrowing – the interest companies and governments pay to borrow from international markets.

What are “the markets”?

Global markets are formed by thousands of traders, banks, pension funds and other investors, which buy stocks and bonds, amongst other assets. The world’s biggest bond investors include US asset management firms such as Blackrock and Pimco.

Why aren’t investors more patient with struggling countries?

They are in the market to make money. Bill Gross, head of the world’s biggest bond fund, told the Guardian in an interview earlier this year that his clients did not pay him to feel sorry for companies or countries. But he said he would vote for leftwing governments – including Britain’s Labour – as they would tone down the severity of budget cuts.

Who are the Bond vigilantes?

They are activist bond investors who pressure governments, such as Greece, Ireland, Portugal, Spain or Britain, into draconian budget cuts to make sure they will get their money back.

Why are the Bond vigilantes more powerful than governments?

Because together, they have more money than any single government. Governments have mostly lost every battle against the market – including Britain’s exit from the EMU in 1992, which earned millions for investors such as George Soros.

Why has this turbulence happened this week?

Investors have watched Ireland very closely for months, but concerns were heightened this week after French and German officials said bondholders should share any losses linked to a potential sovereign debt restructuring. Until now investors and governments operated on the basis that the EU would guarantee the interest payments of any EU country.

Politicians are now saying investors must also suffer if there are losses – and this has scared investors. The London-based clearing house LCH.Clearnet also contributed to this week’s sell-off by announcing clients had to pay more to trade Irish bonds, given the increased risk of a restructuring.

Why would Ireland need a bailout if it has said it is fully funded until next year?

Such high interest rates severely jeopardise private Irish companies’ access to the financial markets, and also put big pressure on the country’s credit rating. The whole country suffers from this lack of investor confidence.

What would a bailout look like?

Greece, which unlike Ireland needed immediate cash to pay investors, is able to borrow from the EU’s emergency fund at 5%, much lower than the more than 10% that markets charge the country. The bailout has offered lower financing costs, but has also put the country through a stringent deficit-cutting regime.

Can Ireland do anything to regain the markets’ confidence?

Investors say the country is now at the mercy of bondholders because if they announce further budget cuts the economy will sink into a new recession. That would hit tax revenues, lifting the deficit again.

Are the Bond vigilantes the new masters of the universe?

At this point, yes. They have forced extremely painful austerity measures on Greece, Spain, Britain, Portugal and Ireland.

I hope this doesn’t affect our rate when we go back to the markets :stuck_out_tongue: Oh wait, we’re not going back stooopid :lol:

Welcome European Financial Stupidity Facility Overlords :unsure:

Ireland in aid talks with EU, rescue likely: sources

By Jan Strupczewski

BRUSSELS | Fri Nov 12, 2010 12:41pm EST

BRUSSELS (Reuters) - Ireland is in talks to receive emergency funding from the EU and it is likely the former “Celtic Tiger” will become the second euro zone country after Greece to require a rescue, sources said on Friday.

Irish borrowing costs have shot to record highs this week on concerns about the country’s ability to get a deficit swollen by bank bailouts under control, as well as worries private bond holders could be forced to shoulder part of the costs of any bailout by taking “haircuts” on their holdings.

Government officials in Dublin have denied repeatedly in recent days that they plan to tap EU funds and a finance ministry spokesman said after the Reuters story was published that Ireland had made no application for aid.

Euro zone sources told Reuters that aid discussions were under way, however, with one official saying it was “very likely” Ireland would get financial assistance from the EU facility set up after Greece was forced to seek aid in May.

“Talks are ongoing and European Financial Stability Facility (EFSF) money will be used, there will be no haircuts or restructuring or anything of the kind,” one euro zone source said. A second source confirmed the talks.

The spreads between Irish 10-year bond yields and German benchmarks have rocketed to highs of nearly 700 basis points over the past two weeks on fears of “haircuts” but they narrowed to around 580 basis points after the Reuters story.

The euro, which has also suffered from currency bloc jitters, came off its highs of the day to trade around $1.37.

Pressure on Irish and other peripheral euro zone debt had eased slightly earlier in the day after France, Germany, Italy, Spain and Britain issued a statement at a Group of 20 summit in Seoul that confirmed holders of existing euro debt would not take a hit.

But borrowing costs remain sky high and the pressure on Ireland’s fragile banks may have forced the government to enter aid talks even though it is fully funded until mid-2011 and does not face the same liquidity crisis that confronted Greece earlier in the year.

HUMILIATING SETBACK

Going to the EU for aid would represent a humiliating setback for a country that posted some of the best growth rates in the 16-nation euro zone in the bloc’s first decade of existence.

The global financial crisis, weak regulation of the banking sector and a property bubble fueled by rock-bottom interest rates eventually caught up to Ireland. This year its deficit is projected to total 32 percent of gross domestic product (GDP), easily the highest in Europe.

Jean-Claude Juncker, the chairman of the Eurogroup forum of euro zone finance minister, said the EU was following the situation in Ireland very closely but that it was up to Ireland to decide whether to seek support.

He said there was no immediate reason to think Ireland would ask for aid.

Earlier on Friday, Irish Prime Minister Brian Cowen blamed Germany for aggravating Ireland’s woes by pushing the idea of asset value reductions for private bondholders in a future rescue mechanism that Berlin wants in place by 2013, when the EFSF facility expires.

Although Germany has made clear the new mechanism would only apply to debt issued after that date, the plan spooked investors.

“It hasn’t been helpful,” Cowen told the Irish Independent newspaper, referring to Germany’s plan. “The consequence that the market has taken from it is to question the commitment to the repayment of debt.”

Germany is expected to finalize its proposals for the new rescue mechanism next week, possibly discussing them with its euro zone partners at a meeting in Brussels on Tuesday, November 16.

Irish Finance Minister Brian Lenihan said earlier on Friday the country did not need to ask for EU help because of its substantial cash reserves.

“The state is well funded into June of next year, we have substantial reserves, so this country is not in a situation or position where it is required in any way to apply for the facility,” he said in an interview with RTE television.

“Why apply in those circumstances? It doesn’t seem to me to make any sense. It would send a signal to the markets that we are not in a position to manage our affairs ourselves,” he said.

Lenihan grateful for the solidarity shown by Britain, France and Germany today.

My hairy hole

These fuckers are going to stick it to us for going on a solo run and nearly bringing down the whole house of cards with the blanket guarantee 2 years ago when we were clapping ourselves on the back for being the cutest hoors in Europe.

They can dress this debacle up in whatever clothes they wish but the end game is not pretty. A young immature nation who fcuked it alll away on our insecurities about the ground beneath our feet.

But we are insignificant in the greater European plan, we will comply whatever the outcome.

Christ RTE are a disgrace, are they really that pro FF anyone who can should stick on bbc news and look at the headlines running under the live reports, we are the last to know, BIFFO needs to address the people fast

the bbc

Bailout? What bailout?!

I must say I’m greatly looking forward to Comical Lenny spinning this over the next week.

“This is a great deal for Ireland, we’ve come to a deal that ensures the country’s financial stability, that ensures the absolute integrity of the Irish banking system, and that fully protects the interests of the citizens of this state. Our European partners have stood with us in a spirit of solidarity going forward, and we’ve got the best possible deal for this country. Its undoubtedly a good day for Ireland.”

Here you go Sid

while i guess to a certain extent runt is proficent at photoshop his basic lack of wit means its a worthless talent

foad

Sterling work Runty - or should I say euro work- this is going viral.

Ireland - we’re not in the RA, we’re in the European Financial Stupidity Facility - wahey!

Its real funny alright having to depend on foreign broadcasters for our news what’s next lads like you d being rounded up and ‘‘relocated’’ ???

Even RTE are now reporting on the talks that took place over the weekend. It looks like we’ll be forced to take a bailout whether we want to or not. It’ll be interesting to see which way the bond markets go this morning.

Yet more “smoke and daggers” from FF with their use of language. From RTE it would apprear that no application has been made but it’s been forced upon us - therefore Batt, Lenny(“it makes no sense to me” - welcome to our world Brian)and the boys weren’t telling any lies over the weekend but merely not telling the whole truth.

I suppose this is good news in the short term at least - the evil markets will be satisfied that they won’t have to suffer a haircut, thus lowering the interest rate and Ireland will most likely be given a better interest rate if she goes into the EFSF before default occurs.

As some sage wisely pointed out over the weekend, this won’t change a whole lot in terms of policy. The ECB/EU/IMF are already dictating our budgetary policy for the next 4 years. Rehn told the oppostion to vote for it. I’d be inclined to say that it’d almost be better that this happens now, give a bit of certainty to everyone and we can start to move on. Irish people and commentators seem to be willing this to happen. Gloom Porn I think it’s been dubbed.

Obviously I’ll bow to experienced economist Sid Waddell and international man of mystery KIB man on this when my opinions are taken apart.

I don’t think it’s a bad thing either.

Cheaper access to funding and the EU are effectively calling the shots in the Dept of Finance now anyway as you say - as far as economic policy is concerned certainly. We probably still get to choose ourselves which hospital to close and we also get to decide to lower the tax on drink again because the vintners have made a special plea.

better to be slaves to the EU than to the bond holders

My read on this is that we need a bailout. We can’t be seen to go cap n hand looking for one as that would damage our credibility. So instead it’s being choreograhed as the EU forcing us to take one to protect the Euro. A transparent sham.

We’ve been slaves to bank bondholders since September 2008.

My strategy would be to take every penny that the Efsf will lend us at 5% and immediately reinvest it in Portuguese bonds at 6.9%. We could solve the economic crisis in a day that way.

We’re in a good position because if they dont stop the rot with us it’ll spread all over the EU.
Fortunately we can afford to stall a while and not jump at the first deal we’re offered.
Ultimately the ECB is in for about 150 billion in Irish Banks & Irish Gov Bonds so they’ll have to play ball.
Ironically we’re in a stronger position than we were two weeks ago going into these negotiations.
Just need the boys out there to man up and take no shit from the eurokrauts.

Fat chance, they are patsies. Won’t stop them spinning the end result to within an inch of their lives.

However yes, it’s better to be going into this fund now than in the Spring. Portugal will probably already be in by then anyway.

I genuinely believe that we are looking at the meltdown or certainly the effective paralysis of the European Financial system if not the whole Western financial system within the next few years. It’s based on creative accounting, false profits, bonuses for doing your job hence greedy fuckers don’t care about the wider consequences of their actions and debt, debt, debt.