Tag Archives: Brian Cowen

Ireland gets its bailout. Now who will bail out the rest of the world?

So Ireland got its bailout. Marketwatch reports:

After weeks of insisting that it didn’t need a bailout, the Irish government said late Sunday that it will start formal negotiations with the European Union and the International Monetary Fund over a financial rescue package.

The United Kingdom and Sweden have also indicated that they are ready to consider loans.

Earlier in the day, Irish Finance Minister Brian Lenihan had declined to specify a total figure for the bailout except to say that it would be less than 100 billion euros ($136.7 billion).

The Irish government will put forward a strategy to provide details of €6 billion of fiscal consolidation in 2011 in order to cut the country’s deficit to 3% of gross domestic product by 2014. An overall consolidation of €15 billion is expected to be achieved over the four years to 2014. Irish Prime Minister Brian Cowen detailed in a press conference that spending cuts of €10 billion and tax increases of €5 billion are expected to make up the total amount.

Additionally:

Ireland’s banks will be pruned down, merged or sold as part of a massive EU-IMF bailout taking shape, the government said Monday as a shellshocked nation came to grips with its failure to protect and revive its banks under its own powers.

But the story is far from over.

First:

A “multi-notch downgrade” of Ireland’s Aa2 rating is now the “most likely” outcome of a review of the nation’s sovereign-credit rating, Moody’s Investors Service said Monday in its weekly credit outlook. Such a downgrade would leave Ireland’s rating within the investment-grade category, the agency said. Ireland on Sunday applied for a European Union-International Monetary Fund aid package that is expected to be used to make direct capital injections into the nation’s banks. While the move is positive for the standalone credit quality of the banks, it will shift the burden of support to the Irish government, underline bank-contingent liabilities on the government balance sheet and increase the sovereign’s debt burden, the agency said, “a credit negative for Ireland and, consequently, the credit quality of bank deposits and debt that the sovereign explicitly and implicitly supports.”

And:

Ireland’s Green Party, the junior partner in the coalition government, on Monday said the nation needs to hold a general election in the second half of January, according to Irish state broadcaster RTE. Party Leader John Gormley said he had discussed the issue with Prime Minister Brian Cowen. Gormley said the government needs to produce a credible four-year plan, deliver a 2011 budget and secure funding support from the European Union and the International Monetary Fund. Gormley said people felt misled and betrayed and that the Irish people need political certainty to take them beyond the coming two months, RTE reported.

But Ireland is just the tip of the iceberg. Or maybe Greece was the tip and Ireland is the rest of the above-water portion of the iceberg. But remember, 90 precent of the iceberg lies underwater. Any way:

Any deal between the Irish government and the European Union and International Monetary Fund to resolve Ireland’s financial crisis is ultimately aimed at cutting short the turmoil in sovereign bond markets that policy makers fear could one day price Portugal or even Spain out of global credit markets.

Portugal, which like Ireland is a small economy with a relatively illiquid debt market, is seen as the next country likely to find itself in the sights of bond traders.

Traders and analysts had hoped that a bailout of Ireland would settle credit default fears, but it has done no such thing. Just look at the stock market today which is down about 100 points. Now that Ireland has been bailed out, instead of jumping for joy, traders are turning their attention to Portugal and Spain, wondering not if but how long until they too need bailing out.

And the sovereign debt crisis continues… Just as I predicted months ago.

“Ireland on the brink” with no way out

Marketwatch reports:

Ireland on the brink as budget crunch looms

Austerity threatens growth, but markets leave Dublin little choice

After promising a 15 billion euro ($20.7 billion) austerity package of spending cuts and tax hikes, Ireland’s government may be facing its last chance to avoid a bailout by persuading markets that the country can repay its debts.

Yields on government bonds have soared in recent days as investors increasingly fear that the only long-term option for Ireland will be a bailout from Europe. But sympathy for Brian Cowen’s Fianna Fail–led coalition is almost nonexistent among Dubliners, who see the government as the biggest villain in the collapse of the Irish economy…

Please read the whole article, but I’ll summarize it in just a few words: Ireland is damned if they do and damned if they don’t. If Ireland does nothing, it will be unable to repay its debts. In other words, it will default if it is not given a bailout. But the EU will not bail out Ireland if it does not reduce its deficit.

If Ireland chooses to reduce its deficit, which it is trying to do, it will require massive tax increases and/or huge cuts in spending. Either will result in massive protests and economic harm.

Western governments have been spending more than it could afford for nearly a century now. In the US, it started in 1913 with the emergence of the Federal Reserve and ratification of the income tax amendment. It got worse with the two world wars, Great Depression, and breaking from the gold standard. Now, countries like Ireland, Greece, Portugal, and Spain have only years, if not months, to get their houses in order. After 100 years of failure, we are now paying the price.