Showing posts with label debt restructuring. Show all posts
Showing posts with label debt restructuring. Show all posts
Wednesday, 27 February 2013
London Debt Agreement
Tom McDonnell: Today marks the 60th anniversary of the start of negotiations concerning post war debt relief for Germany. The "London Agreement on German External Debts", also known as the London Debt Agreement, was a crucial component of Germany's post war economic miracle. You can find the text of the agreement here. The guardian has coverage here and Deutsche Welle has coverage here.
Thursday, 13 December 2012
Open debate on paying the promissory notes - the long countdown
Tom McDonnell: Various official sources (including Ministers) have been making the claim in recent days that the 2012 promissory note to the IBRC went unpaid. Sadly this is untrue.
The ECB insisted all along that it receive its ELA repayment from the IBRC on time on 31 March and this is exactly what happened. The repaid money was then destroyed/deleted/burned/expunged on time and as scheduled.
It is true that the money promised to the IBRC was initially paid to the zombie bank by the state-owned NAMA (in exchange for a 13 year government bond given to IBRC by the Irish State) rather than by the exchequer. Nevertheless it was paid using 'our' money - we own NAMA after all. Following a series of subsequent exchanges the bond is currently held by Bank of Ireland.
A slightly irritated ECB watching the shenanigans merely acknowledged that it got paid on time as expected and that it had observed certain transactions betwen various Irish state institutions.
That the promissory note was paid (by issuing a sovereign bond) is stated clearly in the Department of Finance's Medium Term Fiscal Statement. Much of the confusion may stem from the media's general failure to accurately report and explain what happened on 31 March - understandable given the byzantine nature of what occurred. Fortunately not everyone in civil society has been taken in by the official line. For example the Debt Justice Action group has a letter in today's Irish Times which draws attention to this issue.
The government's next payment to the IBRC will not be made for 108 days. There needs to be an open and honest public debate about the subsequent promissory note payments to the IBRC. All options have to be on the table.
The ECB insisted all along that it receive its ELA repayment from the IBRC on time on 31 March and this is exactly what happened. The repaid money was then destroyed/deleted/burned/expunged on time and as scheduled.
It is true that the money promised to the IBRC was initially paid to the zombie bank by the state-owned NAMA (in exchange for a 13 year government bond given to IBRC by the Irish State) rather than by the exchequer. Nevertheless it was paid using 'our' money - we own NAMA after all. Following a series of subsequent exchanges the bond is currently held by Bank of Ireland.
A slightly irritated ECB watching the shenanigans merely acknowledged that it got paid on time as expected and that it had observed certain transactions betwen various Irish state institutions.
That the promissory note was paid (by issuing a sovereign bond) is stated clearly in the Department of Finance's Medium Term Fiscal Statement. Much of the confusion may stem from the media's general failure to accurately report and explain what happened on 31 March - understandable given the byzantine nature of what occurred. Fortunately not everyone in civil society has been taken in by the official line. For example the Debt Justice Action group has a letter in today's Irish Times which draws attention to this issue.
The government's next payment to the IBRC will not be made for 108 days. There needs to be an open and honest public debate about the subsequent promissory note payments to the IBRC. All options have to be on the table.
Wednesday, 14 November 2012
The Default Option - Cancelling the Odious Debt
Tom McDonnell: We have seen again in the last few days that the troika are a not a monolith.
They disagree quite fundamentally on many issues.
It is widely understood that the debt crisis professionals (the IMF) were overruled at an early stage by the debt crisis amateurs (ECB/European Commission). Greece was originally prevented from defaulting and then not allowed to default to a sufficient degree to restore its debt dynamics to a sustainable path. A second default is now certain within the next eighteen months.
According to Der Spiegel the inevitability of the second Greek default is well understood in Brussels and Berlin as indeed it must be to any competent analyst.
Ex-IMFer Ashoka Mody has an excellent piece in today's Irish Times making the case for defaults in the European periphery. Defaults are an entirely normal (even expected) thing when it is clear that debt levels have spun out of control.
Over at the Irish Independent Stephen Kinsella makes the case - articulated repeatedly on this blog and indeed on many other blogs - that the promissory note payment to the IBRC should not be paid on 31 March. I would echo Stephen's reference to this debt as 'odious'. The government failed to get a deal last year. Months of pleading have gotten them nowhere and the working group is missing in action. TASC's position is that the promissory notes should now be immediately suspended pending a full renegotiation. It is time to start rethinking the debt default option. Reducing the debt burden is an essential component of a Greek recovery and failure to strike an acceptable deal on the legacy bank debt will delay Ireland's recovery for years to come.
It is widely understood that the debt crisis professionals (the IMF) were overruled at an early stage by the debt crisis amateurs (ECB/European Commission). Greece was originally prevented from defaulting and then not allowed to default to a sufficient degree to restore its debt dynamics to a sustainable path. A second default is now certain within the next eighteen months.
According to Der Spiegel the inevitability of the second Greek default is well understood in Brussels and Berlin as indeed it must be to any competent analyst.
Ex-IMFer Ashoka Mody has an excellent piece in today's Irish Times making the case for defaults in the European periphery. Defaults are an entirely normal (even expected) thing when it is clear that debt levels have spun out of control.
Over at the Irish Independent Stephen Kinsella makes the case - articulated repeatedly on this blog and indeed on many other blogs - that the promissory note payment to the IBRC should not be paid on 31 March. I would echo Stephen's reference to this debt as 'odious'. The government failed to get a deal last year. Months of pleading have gotten them nowhere and the working group is missing in action. TASC's position is that the promissory notes should now be immediately suspended pending a full renegotiation. It is time to start rethinking the debt default option. Reducing the debt burden is an essential component of a Greek recovery and failure to strike an acceptable deal on the legacy bank debt will delay Ireland's recovery for years to come.
Wednesday, 2 May 2012
The Promissory Notes: Deal or No Deal? No Deal
Tom McDonnell: The ECB has informed the Irish Examiner that the Irish Government has submitted no documentation to the bank pertaining to renegotiation of the terms of the promissory notes. The report is here. The quote from the ECB is here:
"Having duly looked into this matter, we would like to inform you that the ECB did not receive any documents from the Irish Government on the renegotiation of the terms of the promissory notes."
It's important to remember no deal was actually done with the ECB leading up to March 31. As the ECB stated in response to the multi institution shenanigans and gymnastics leading up to March 31:
"The ECB is not part of it, as it is the redemption of the promissory notes and a subsequent reduction in emergency liquidity assistance provided by the Central Bank of Ireland.
The ECB also clearly stated how it expected to be paid in full and on time. Unsurprising if it never even received documents from the Irish Government.
Well done to the Examiner on ferreting out this very useful bit of information.
"Having duly looked into this matter, we would like to inform you that the ECB did not receive any documents from the Irish Government on the renegotiation of the terms of the promissory notes."
It's important to remember no deal was actually done with the ECB leading up to March 31. As the ECB stated in response to the multi institution shenanigans and gymnastics leading up to March 31:
"The ECB is not part of it, as it is the redemption of the promissory notes and a subsequent reduction in emergency liquidity assistance provided by the Central Bank of Ireland.
The ECB also clearly stated how it expected to be paid in full and on time. Unsurprising if it never even received documents from the Irish Government.
Well done to the Examiner on ferreting out this very useful bit of information.
Wednesday, 25 January 2012
The Debt Trap
Sinéad Pentony: The dust has hardly settled from the Troika’s departure when we are facing the repayment of €1.25 billion in unsecured bonds that are not covered by the bank guarantee to Anglo bondholders today.
Last week the Troika asserted that the “front loaded fiscal consolidation is on track, with the 2011 deficit significantly below the programme target”. Recent growth has been on the back of a strong performing export sector, but as forecasts for global growth are reduced, this channel for growth will diminish and it is going to become increasingly difficult to achieve the deficit reduction targets set out in the EU/IMF Programme of Financial Support for Ireland.
The deficit stood at 10.1 per cent (€16 billion) in 2011 and Budget 2012 is intended to reduce this to 8.6 per cent (€13.5 billion). In an attempt to reduce the deficit by €2.5 billion, cuts of €3.8 billion are being imposed. In the absence of strong growth domestically and globally, the government will have to face the prospect of having to cut more to achieve a smaller reduction in the deficit.
This is before we factor in the servicing/repayments of (sovereign and banking) debts, which includes today’s repayment of €1.25 billion in unsecured bonds and a further €3.1 billion in Anglo promissory notes at the end of March. Given the current state of our finances, these repayments will have to be financed through borrowing, which adds a further cost – interest.
The Anglo–Not Our Debt campaign which TASC is supporting has been raising awareness and generating much-needed debate on the issue. These debts are strangling our economy and we cannot begin the process of recovery until they are re-negotiated and re-structured.
We are borrowing to pay/service debts and we are borrowing to run the country, but repayments all come from the same source – government revenue (mostly taxes and charges). If we continue down this road we will see an ever-increasing proportion of taxation revenue being diverted to service/repay debt. This will result in further reductions in the revenue used to maintain and upgrade our infrastructure, finance health services and provide schools and housing – unless of course taxes and charges are increased.
Increasing tax revenue can only be achieved if the economy is growing and more people are working, but we are missing one essential ingredient - investment. The Troika identified “subdued” domestic demand and lower GDP growth projections of 0.5 per cent as the major challenges facing Ireland in 2012, both of which can be solved through significant investment in physical infrastructure and human capital. The question that is always asked is ‘where will the money come from?’.
There have been lots of creative proposals and suggestions put forward on where finance could be found. A quick look at the 2010 European Investment Bank (EIB) Activity and Financial Reports show that EIB lending reached €72 billion in 2010 and it made a net profit of over €2 billion in 2010. The EIB is a triple A-rated bank and can therefore borrow at very low rates of interest.
Member states are required to provide matching funding averaging 50 per cent. But given the scale of the crisis, it would make sense to reduce the level of matching funds required. This would facilitate increased lending and much great leveraging of EU resources, particularly by the countries utilising the EFSF (Ireland, Greece and Portugal): while our scope for investment is much more limited, such investment is essential for recovery. However, this will require the agreement of member states.
The latest report from the International Labour Organisation (ILO) on Global Employment Trends 2012 should provide all political leaders with much needed motivation to start coming up with policy responses that will put struggling economies on a sustainable path to recovery.
The ILO report is called “Preventing a Deeper Jobs Crisis” and it states that the world faces the “urgent challenge of creating 600 million productive jobs over the next decade in order to generate sustainable growth and maintain social cohesion.”
The report also calls for fiscal consolidation efforts to be carried out in a socially responsible manner, with growth and employment prospects as guiding principles. Budget 2012 and the decision to repay unsecured bondholders today, provide ample evidence that these guiding principles are not being applied in Ireland.
Last week the Troika asserted that the “front loaded fiscal consolidation is on track, with the 2011 deficit significantly below the programme target”. Recent growth has been on the back of a strong performing export sector, but as forecasts for global growth are reduced, this channel for growth will diminish and it is going to become increasingly difficult to achieve the deficit reduction targets set out in the EU/IMF Programme of Financial Support for Ireland.
The deficit stood at 10.1 per cent (€16 billion) in 2011 and Budget 2012 is intended to reduce this to 8.6 per cent (€13.5 billion). In an attempt to reduce the deficit by €2.5 billion, cuts of €3.8 billion are being imposed. In the absence of strong growth domestically and globally, the government will have to face the prospect of having to cut more to achieve a smaller reduction in the deficit.
This is before we factor in the servicing/repayments of (sovereign and banking) debts, which includes today’s repayment of €1.25 billion in unsecured bonds and a further €3.1 billion in Anglo promissory notes at the end of March. Given the current state of our finances, these repayments will have to be financed through borrowing, which adds a further cost – interest.
The Anglo–Not Our Debt campaign which TASC is supporting has been raising awareness and generating much-needed debate on the issue. These debts are strangling our economy and we cannot begin the process of recovery until they are re-negotiated and re-structured.
We are borrowing to pay/service debts and we are borrowing to run the country, but repayments all come from the same source – government revenue (mostly taxes and charges). If we continue down this road we will see an ever-increasing proportion of taxation revenue being diverted to service/repay debt. This will result in further reductions in the revenue used to maintain and upgrade our infrastructure, finance health services and provide schools and housing – unless of course taxes and charges are increased.
Increasing tax revenue can only be achieved if the economy is growing and more people are working, but we are missing one essential ingredient - investment. The Troika identified “subdued” domestic demand and lower GDP growth projections of 0.5 per cent as the major challenges facing Ireland in 2012, both of which can be solved through significant investment in physical infrastructure and human capital. The question that is always asked is ‘where will the money come from?’.
There have been lots of creative proposals and suggestions put forward on where finance could be found. A quick look at the 2010 European Investment Bank (EIB) Activity and Financial Reports show that EIB lending reached €72 billion in 2010 and it made a net profit of over €2 billion in 2010. The EIB is a triple A-rated bank and can therefore borrow at very low rates of interest.
Member states are required to provide matching funding averaging 50 per cent. But given the scale of the crisis, it would make sense to reduce the level of matching funds required. This would facilitate increased lending and much great leveraging of EU resources, particularly by the countries utilising the EFSF (Ireland, Greece and Portugal): while our scope for investment is much more limited, such investment is essential for recovery. However, this will require the agreement of member states.
The latest report from the International Labour Organisation (ILO) on Global Employment Trends 2012 should provide all political leaders with much needed motivation to start coming up with policy responses that will put struggling economies on a sustainable path to recovery.
The ILO report is called “Preventing a Deeper Jobs Crisis” and it states that the world faces the “urgent challenge of creating 600 million productive jobs over the next decade in order to generate sustainable growth and maintain social cohesion.”
The report also calls for fiscal consolidation efforts to be carried out in a socially responsible manner, with growth and employment prospects as guiding principles. Budget 2012 and the decision to repay unsecured bondholders today, provide ample evidence that these guiding principles are not being applied in Ireland.
Monday, 24 October 2011
Visualising the Contagion Machine
Tom McDonnell: The New York Times has put up a useful visualisation charting potential channels of contagion within the Euro zone.
For a nice visual time series of European debt and deficit levels see here. The blooming of debt post 2007 is very stark.
The Guardian has an interesting visualisation showing how a Greek restructuring compares to historical restructurings here. The button in the top right of the chart shows how countries have fared post restructuring.
For a nice visual time series of European debt and deficit levels see here. The blooming of debt post 2007 is very stark.
The Guardian has an interesting visualisation showing how a Greek restructuring compares to historical restructurings here. The button in the top right of the chart shows how countries have fared post restructuring.
Monday, 20 June 2011
Progressive growth, rather than regressive austerity
Tom McDonnell: Michael O'Sullivan has a very thoughtful piece over at the Sunday Business Post. He argues that a full restructuring of the Greek debt will occur later rather than sooner - and that it will happen when the ECB, rather than Athens, is ready for it.
He makes the point that a restructuring of Irish debt could be the beginning or catalyst to a process of renewal provided the restructuring encompasses deeper institutional change than has been contemplated so far, a radical strengthening of accountability and corporate governance in public and business life, and a meaningful recovery plan.
He also argues that "Ireland should insist that progressive growth, rather than regressive austerity, is the way for the eurozone to solve its economic problems" and that "we must show leadership by proposing serious structural changes to the eurozone financial system that take account of the lessons of Ireland’s economic collapse."
The article goes on to make a series of excellent reform suggestions including the idea of a ‘super’ social affairs ministry, that deals holistically with the symptoms and causes of our social problems.
He makes the point that a restructuring of Irish debt could be the beginning or catalyst to a process of renewal provided the restructuring encompasses deeper institutional change than has been contemplated so far, a radical strengthening of accountability and corporate governance in public and business life, and a meaningful recovery plan.
He also argues that "Ireland should insist that progressive growth, rather than regressive austerity, is the way for the eurozone to solve its economic problems" and that "we must show leadership by proposing serious structural changes to the eurozone financial system that take account of the lessons of Ireland’s economic collapse."
The article goes on to make a series of excellent reform suggestions including the idea of a ‘super’ social affairs ministry, that deals holistically with the symptoms and causes of our social problems.
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