Friday, 26 February 2010

Ireland's private debt - is it time to default?

An Saoi: The Central Bank estimates that Irish private debt is €372,000M. The funding of this massive amount is rapidly going to become the key issue in the very near future. Irish resident deposits are just €64,489M from households and €31,024M from Irish business, a total of €95,513M. Even after NAMA, the banks will still be left with loans of more than €300,000M.

Where do they get the money from? Well, I came across the table below on the website of the German magazine Der Spiegel, which explains all. We are drowning in German money.

As can be seen from the graphic, the Germans have lent just over €3,000 per Greek and €2,000 per Italian, compared to about €42,000 for each resident of this State. Now, if I were German I would be dropping one of the “I” in PIIGS, because the Irish position is more akin to that of Iceland than Portugal, Italy Greece or Spain.

Effectively, all future activity in the Irish economy is completely dependent on the view taken by the Treasurers of a handful of German financial institutions. There are huge questions for the Central Bank and their German counterparts as to how these two countries became tied together in this embrace of debt/death.

To put the Irish position into perspective, each Icelander owes approx. €9,000 to the UK arising from the default of their banks, and a further €4,000 to the Netherlands arising out of their State guarantee. The Icelandic people are voting on whether to renege on that deal, and have won the vociferous support of John Kay in his Financial Times column this week to do so. Our debt to the Germans is more than three times greater than that of Iceland to the UK and the Netherlands.

I would suggest that it is time for us to take similar action. Forget about this referendum about children’s rights, we need a referendum to give our children a future. Let us renege on our German debts!

However, this will not happen. The ECB appears to have a friend in the top job in the Central Bank, and the initial investigation into what went wrong will of course be managed by Mr. Regling, who may be predisposed to protect the interests of Germany. You can read his CV here, or you can read a summary in the Oireachtas press release, which states that:

“Mr Regling is a member of the Issing Commission, appointed by Chancellor Merkel in 2008 to advise the German Government on the reform of financial regulation. The Committee completed its work in March 2009.

From 2001 to 2008 he was Director General for Economic and Financial Affairs of the European Commission. Before that, he was a Director General in the German Ministry of Finance where he worked for more than a decade on Economic and Monetary Union in Europe. He also worked in the International Monetary Fund for more than a decade.”


Mick said...

It might leave German burghers a bit out of pocket though... In the present environment it seems governments are loading the cost of bank's failures on their citizens. Won't the German government do the same?

An Saoi said...

Mick, I think I will leave it to Noel Coward to sum it all up.

More seriously, why should four million pay off these debts? They are a matter for the banks and their borrowers alone. The Germans were careless with their money, lending it to reckless Irish banks, they should have been more careful!

Mick said...

Sounds good to me!

Anonymous said...

@An Saoi
We have gotten no political, administrative, corporate or legal accountability. No dramatic reforms. The relevant interests have all endangered and exploited the general public to protect themselves from the bust even though they parasited on the public to inflate the bubble. The German government are therefore in effect assisting the establishment who did this to us.

I believe the Germans should instead demand total accountability from the Irish establishment in return for accepting that the banks were private institutions. Bank senior debt, let alone subordinate debt, has never been counted in the national debt.

One lesson from all this:
It should be included from now on.

Anonymous said...

Hey An Saoi, could you post a link to the article that the der spiegel graphic comes from? I had a wee scrounge for it to no avail.

Thanks in advance

An Saoi said...

The links to the story "Piigs to the slaughter" is here,1518,679502,00.html
and to the graphic is

An Saoi said...

Anon - I don't fully agree with you. The people were given a clear choice in 2002 by Pat Rabbite & The Labour Party, but decisively rejected it. My own view is that the 2000-2002 period was the crucial period when literally McCreevey gave away everything, and the people loved it. I remember at the time bumping into a solicitor from one of the larger firms one morning on Grafton St, who just could not believe what was a) going on, b) the people loving it & c) the silence from the Right. Fine Gael limited their comments to complaining about the size of the Public Sector.

In relation to the Germans, they deserve exactly what they are going to get - default. They didn't have to hand over their money for bonds in Irish financial institutions or lend on the interbank market to Irish banks. Their own regulators were asleep on the job.

We are going to default in the medium term, my only comment is do it now and get it over with.