Irlande et Islande, une vraie solution

Les Irlandais votaient vendredi 25 février dans l'indifférence médiatique, quelques Irlandais ruinés par leur Etat-Providence se dirigeant vers un bureau de vote.

Les Irlandais ont voté pour un gouvernement qui va renégocier la dette et les conditions de l'aide de l'Union européenne. Pas un euro de plus dans les banques sans restructuration de la dette. "Restructuration", c'est le terme élégant pour dire "nous ne vous paierons pas tout ce que nous devons".

5,8% c'est un taux d'intérêt "punitif" a dit Enda Kenny, le nouveau Premier ministre. Ce sont les conditions qu'a accordées la grande et généreuse Europe à l'Irlande. Ne croyez pas qu'Enda Kenny soit une cigale celtique. Il avait soutenu les quatre plans de rigueur imposés en trois ans.

Enda Kenny veut faire payer les détenteurs de dette senior des banques. "Bien fait", pensez-vous, "que les banques payent donc pour leurs méfaits ; ces Irlandais ont bien raison".

Voici, un texte qui est un peu long (j’ai gardé les extraits qui traitaient de l’Irlande), par contre il est croustillant et informatif.

Il fait une analyse de la situation de l’Irlande et compare avec celle de l’Islande, qui après une chute sévère, les revenus des gens repartent à la hausse.

En Irlande, ils continuent de s'enfoncer …

Notez que dans le cas de l'Islande, en plus, un effondrement du taux de change de leur monnaie a engendré une forte inflation importée (même si je suis prêt à parier que leur MV, lui, est resté plat voire a baissé). Mais ils ont détruit leur mauvaise dette et ils repartent de l'avant, au lieu d'essayer de graver dans le marbre la mauvaise dette (et les créances associées) par tous les moyens.

Extrait de: When Irish Eyes Are Voting, John Mauldin, February 27th, 2011

When Irish Eyes Are Voting

I have written about Ireland before, but we need to once again focus on what are not smiling Irish eyes. Ireland was once the envy of Europe, with one of the highest growth rates in the world. It was not long ago that Ireland could borrow money at lower rates than Germany. Now rates are 6% and likely to rise with the new government. Let’s look at a few data points from a brilliantly written article by Michael Lewis, who ranks as one of my favorite writers. When he writes, I read it just for the education on what great writing should look like, as well as for the always fascinating information. The article is at Vanity Fair.

·         Housing prices in Dublin had risen by 500% since 1994. Rents for homes were often 1% of the price of the home. A $1-million-dollar home went for $833 a month. That is a very clear bubble.

·         Irish home prices implied an economic growth rate that would leave Ireland, in 25 years, three times as rich as the United States.

·         In 1997 the Irish banks were funded entirely by Irish deposits. By 2005 they were getting most of their money from abroad. The small German savers who ultimately supplied the Irish banks with deposits to re-lend in Ireland could take their money back with the click of a computer mouse. Since 2000, lending to construction and real estate had risen from 8 percent of Irish bank lending (the European norm) to 28 percent. One hundred billion euros—or basically the sum total of all Irish public bank deposits—had been handed over to Irish property developers and speculators. By 2007, Irish banks were lending 40 percent more to property developers than they had to the entire Irish population seven years earlier.

·         As the scope of the Irish losses has grown clearer, private investors have been less and less willing to leave even overnight deposits in Irish banks and are completely uninterested in buying longer-term bonds. The European Central Bank has quietly filled the void: one of the most closely watched numbers in Europe has been the amount the ECB has loaned to the Irish banks. In late 2007, when the markets were still suspending disbelief, the banks borrowed 6.5 billion euros. By December of 2008 the number had jumped to 45 billion. As Burton spoke to [Lewis], the number was still rising from a new high of 86 billion. That is, the Irish banks have borrowed 86 billion euros from the European Central Bank to repay private creditors. In September 2010 the last big chunk of money the Irish banks owed the bondholders, 26 billion euros, came due. Once the bondholders were paid off in full, a window of opportunity for the Irish government closed.

Ø  A default of the banks now would be a default not to private investors but a bill presented directly to European governments.

A political investigative blog called Guido Fawkes somehow obtained a list of the Anglo Irish foreign bondholders: German banks, French banks, German investment funds, Goldman Sachs. (Yes! Even the Irish did their bit for Goldman.)

Alors, on sauve l’Irlande pas pour les Irlandais,
mais pour sauver les banques étrangères.

·         [And this is the kicker!] “Googling things, Kelly learned that more than a fifth of the Irish workforce was employed building houses. The Irish construction industry had swollen to become nearly a quarter of the country’s G.D.P.—compared with less than 10 percent in a normal economy—and Ireland was building half as many new houses a year as the United Kingdom, which had almost 15 times as many people to house.” [That makes the US housing bubble look small by comparison.]

Now, let’s turn to that repository of all things leftist, the UK Guardian, as they write about today’s elections.

An Extra “15 Million” Homes

“Though the campaign has shed disappointingly little light on realistic options ahead, the financial numbers are scary. After 2000 the early Celtic Tiger years became a property-led speculative bubble, made worse by weak planning laws and 300,000 too many new homes. The crash saw GDP collapse by 11%, unemployment triple to 13.3% and government debt quadruple to 95%, which will rise to 125% by 2014 on IMF estimates.”

Let’s think about that for a moment and compare it to the US.

·         We built somewhere between 2 and 3 million too many homes in our bubble, depending on whom you ask.

·         Total Irish population (including Northern Ireland) is 6 million people. If the US had built the same number of excess homes, there would have been 15 million of them!

And the banks just kept lending!

Irish taxpayers are being asked to pay French, German, and British bond banks and the ECB, which bought that debt. It is 30% of their GDP, along with the rest of the debt. At 6% interest, that means it will take 10% of their national income just to pay the interest. It guarantees that Ireland will be in a poverty cycle for decades.

The ECB and the IMF seem to think the solution
for too much debt is more debt.

And in order to pay the ECB, the Irish must take on an austerity program that guarantees even worse recessions and higher unemployment.

The government that agreed to take on the bank debts is going to be voted out in spectacular fashion today. Whether one party can win or has to form a coalition government is not yet clear, but the mandate is to renegotiate the Irish debt. Both the ECB and the Germans have said that is not possible, that deals have been made.

But asking Irish voters, you don’t get the sense they feel the same obligation.

Even the venerable Martin Wolf of the Financial Times agrees. Writing last week:

“So what might a new government seek to do? Its degrees of freedom are, alas, limited. Even excluding recapitalisation of the banks, the primary fiscal deficit (before interest payments) was close to 10 per cent of GDP last year. Under the IMF programme, this is to be turned into a surplus of 1.5 per cent of GDP by 2015. Given the lack of access to private markets, the deficit would have to be eliminated even more quickly without the official assistance. Again, the debt overhang would be huge, under any plausible assumptions. Ireland is doomed to fiscal stringency for decades, given its poor growth prospects, at least in comparison with its Tiger years.

“Apart from the Armageddon of a sovereign default, two partial escapes exist.

1)      The more trivial would be a reduction in the rate of interest on Ireland’s borrowing: a 1 per cent reduction in the rate of interest would save the state 0.4 per cent of GDP a year. That would be a small help, at least.

2)      A more valuable possibility would be a writedown of existing subordinated and senior bank debt, which currently amounts to €21.4bn (14 per cent of GDP).

“The ECB and the other members of the European Union have vetoed this idea, fearful of contagion. Indeed, the assistance package was partly to prevent just such an outcome. Yet the idea that taxpayers should bail out senior creditors of massively insolvent banks at such risk to the solvency of their state is both unfair and unreasonable. If the rest of the EU is determined to protect senior creditors, it should surely share in the cost of doing so.

Et la question qui tue !

Why should the taxpayers of the borrowing country pay all?

The new Irish government should make this point firmly.”

There are a significant number of Irish voters who wonder why they should pay any of it. Not the majority (yet), but enough. This is the Maginot Line for the ECB. If they renegotiate with Ireland, then Greece will be at the door in a heartbeat. Ditto for Portugal.

As one story I read about Ireland said, “Parties we go to now are going away parties as people, especially young people, leave for other countries with better opportunities.” The mood of the country will grow more dour.


Iceland - Ireland

Look at this chart.

Notice how well Iceland did after it simply repudiated its debt.

It wasn’t easy, and inflation is brutal, but they are better off than if they had taken on a debt burden that would have made them indentured servants to British taxpayers for decades.

The ECB, the IMF, and the rest of the EU is asking Ireland to willingly fall into a lengthy depression.

Would walking away from the debt, or restructuring it, be any worse?

What if the opening negotiating line started was, “We will repay the principle, but no interest, and the timeline has to be stretched out over 25 years?” And no payments for five years. Oh, and we have about 300,000 houses you can have as our first payment.

Yes, the Irish would be frozen out of the bond market. It would result in an even more serious recession. But they could actually grow their way out of it over time. A lot faster than if they were trying to pay off the debt at 6-7% interest.

And remember that Argentina, for God’s sake, got money just a few years after defaulting – twice, if I remember right! If Ireland got back on a sound footing, they could once again find acceptance in the bond market.

I know, that sounds radical. But give it a few years of austerity and see what the next elections bring. Irish debt will default, not because the Irish don’t have hearts of gold or don’t want to not pay their debts, but because they are under such a burden they can’t. And eventually enough voters will realize that. It may not be next month, or even next year, but it will come. You can only ask so much of a people.

C’est exactement ce qui se passe en Grèce, le peuple refuse d’embarquer dans le jeu, avoir des décennies d’austérité pour satisfaire les banques.

Defaulting on sovereign debt is only unthinkable in elite European Union circles.

Bien sûr, notre élite oligarchique ne pense qu’aux groupes d’intérêts,
pour les jeunes générations vous êtres le sacrifice sur l’autel.

And asking German voters to pay for those defaults? Care to run on THAT platform?

This has the potential to really roil the debt markets, not to mention the interbank markets. The US is doing ok, except that job creation has been slow. A European debt crisis could throw a wrench into the world gears.

And that is the heart of the problem. The Irish really do want to do the right thing. The Greeks, not so much. Portugal? Spain?

The leadership of the EU is living in denial if they think that more debt is the answer to too much debt.

It is all well and good for the Germans to tell everyone to cut back (and they should) but to do so means that the countries go into recession and have even less money to pay their debt burdens. They get into a debt spiral and the only way out is restructuring, which is default by a nice name.

Somewhere, sometime, this is all going to end in tears.

The EU will be better off restructuring the debt, letting insolvent banks go the way of all flesh, or financing them and letting the euro drop like a stone, which will only make their exporting companies more competitive (not good for the US and China, but we don’t get to vote in the EU). Or they can break up. I think the former is better than the latter, but that’s just me.

Tout à fait d’accord avec lui !

The world went crazy with debt. The US, Japan (where I fly to in less than 12 hours), much of Europe, and Great Britain. And now we have to deal with it. Acting like adults would be best, and recognizing that some countries just can’t assume their banking debts is just being realistic. A lot of people made bad choices and now those choices are coming home.

It is all so very sad. People are hurting. I read the blogs in Ireland and it brings tears to me Irish eyes (or the large part of me that is of Irish heritage).

There are no easy answers. No easy button.

The only button we have is the reset button,

for the Blue Screen of Death.

That means pulling the plug and starting over.

This time with realistic debt levels and bond markets.