Monday, 10 January 2011

Willem Buiter's analysis

Tom McDonnell: Willem Buiter says the key remaining question is whether it will be the banks who default, the Sovereign or both – and there is nothing the EU/IMF can do about it.

Citigroup Global Markets, in an analysis of the ongoing debt crisis, is arguing that the senior, unsecured debt of the banks and/or the sovereign will ultimately need to be restructured. They also argue there is little the EU/ECB/IMF can do to credibly threaten the Irish sovereign should the latter wish to restructure its senior unsecured bank debt unilaterally. However, severe contagion would likely result for the banks in other countries. Lowering the interest rate to something more manageable, say in the region of 3%, is suggested as the only plausible mechanism available to the EU/IMF to dissuade a unilateral restructuring.

1 comment:

paul sweeney said...

Tom, you may be right that contagion spreads, sooner. The EU Commission and the ECB both seem to have their heads in the sand. More accurately they are buried under the dust of Economic Orthodoxy when it comes to distinguishing between sovereign and private bank debt, which has been guaranteed by a Government without either good advice or a mandate.

Decent conservatives at least would have let the banks fail.

We suspected that Anglo was the Fianna Fail Bank and so it had to be rescued, now we know it was the Fianna Fail Bank. It will be interesting for the new Government to examine the advice given to Lenihan by the Finance officials. I see Pat Rabbitte wants an enquiry into the shameful guarantee to the bondholders. We live in hope - of some accountability.

Ireland must not pay off the senior bondholders. The sooner the prisoners of Economic Orthodoxy in the EU Commission and the ECB wake up and agree that state exposure to private losses must be shared with the banks/bondholder the better. Why does it become acceptable in 2013, when its too late?