The European Central Bank is expected soon to produce a new loan package specially designed for Ireland involving medium-term loans in excess of €60 billion fashioned to replace most short-term funding for Ireland.
Finance Minister Michael Noonan said he hopes to progress the plan at an EU finance ministers meeting in Hungary next week.
The decision of the government not to burn the senior bondholders has been greeted with hysteria in many quarters. FG and Labour in opposition certainly implied that in government they would take a hard line on this issue. Burning the senior bond holders MIGHT save €8 billion at best after intense negotiation and legal challenges. This would result in a maximum annual saving of approx €500 million in interest payments. This would not solve our economic crisis. In addition burning of senior bondholders in AIB and Bank of Ireland would stymie funding of the new pillar banks announced by the government yesterday. Certainly the country will be put to the pin of its collar to meet debt repayments(socialised bank debt and sovereign debt).
It is time to jettison the negativity. Some people are making a living spewing out negativity. The country has booming exports. It will come out of this.
I have listened to consumers quoting the prophets of doom and decide to cut spending based on this and for no other reason. I have listened to people complain who have taken their money out of Irish banks often based on stupid scare stories. This further exacerbates the banking problem. Wake up Ireland.
The constant negativity in some elements of the media is definitely causing consumer sentiment to nosedive thereby reducing economic activity and tax revenue.
There is no easy way out of this. The government bank guarantee of 2008 has socialised bank debt and placed it on the backs of Irish taxpayers. This now has the status of sovereign debt. Decoupling government debt from bank debt is no easy task. The Irish banks are almost totally reliant on the ECB for funding thanks to an outflow of bank deposits. I would love to see the senior bondholders burned but AT THIS JUNCTURE it would be unwise. I think the government has judged correctly on this for the present. The ECB has provided €150 billion in funding at 1% interest rate for Irish banks and is resolutely opposed to a burning of bond holders. It has promised maintain this funding.
The idea of two new strong pillar banks is fundamentally sound. Business is starved of finance. If lending to small businesses can be increased the country has a great future. The government is introducing a jobs budget. Hopefully it can come up with worthwhile ideas to help business.
Ireland must attempt to grow itself out of the crisis and with the right pro business policies it can. Now if the growth is insufficient a STRUCTURED DEFAULT is then an option not to be ruled out.
It is time to get on with it and drop the negativity. Perhaps if we lived in Japan we would have something to complain about. It is time to stop wallowing in self pity. Ratings Agency Standard and Poor's believes that the sharp contraction in Ireland's nominal GDP and gross national product since 2008 is at an end, and that the Irish economy will now gradually recover.
We believe that the Irish economy has stronger growth prospects than the Portuguese and Greek economies considering its openness (Ireland's exports are forecast at 107% of GDP for 2011 compared with Portugal's 30% of GDP), its flexibility, and its competitiveness. We anticipate that Ireland's current account will post a full-year surplus of more than 2% of GDP during 2011, for the first time since 2003, while net exports will continue to be the major contributor to headline GDP performance.Finally the editorial in today's Irish Independent strikes the right note. It may be accessed here