ECB and Ireland deal finally REACHED

keno-daytrader

2/7/2013 7:11:00 AM (IE) ECB and Ireland reach deal on cutting Irish cost of servicing debt for winding up Anglo Irish bank- financial press - Source TradeTheNews.com

Scofflaw

Reuters also saying this:

The European Central Bank and Ireland have reached a compromise on a long-standing dispute over the cost of servicing money borrowed for a failed bank, a source involved in the discussions told Reuters on Thursday.

"A deal is done," the source said, declining to give details. ECB President Mario Draghi was due to comment on the deal during a news conference at 1330 GMT.

Other sources saying that the ECB board have taken the deal back to their own Central Banks for discussion. We'll see at 13.30: http://www.ecb.int/press/tvservices/webcast/html/webcast_130207.en.html

cordially,
Scofflaw

keno-daytrader

Draghi now saying no deal yet, wow.

2/7/2013 8:52:23 AM (EU) ECB's Draghi: There was no decision to be made by the ECB Council, we simply took note of the Ireland decision - Q&A - Source TradeTheNews.com

Title edited to reflect current headline

keno-daytrader

2/7/2013 9:53:28 AM (IE) Ireland PM Kenny: Plans on Anglo Irish promissory notes follows discussions with ECB and reached a conclusion fir more sustainable note agreement- Annual promissory payments are gone and swapped for bond with maturities of up to 40 years - Avg maturity over 30 years - First principle to be made in 2038 - Source TradeTheNews.com

Sand

Interest rate of 3+%

Kenny claiming an annual saving of 1 billion (not noting that it just gets paid later).

Essentially the same deal as last year - purely internal Irish arrangement.

I'm underwhelmed.

Bits_n_Bobs

someone last week mentioned Ireland would get the bare minimum on this deal - perfect prediction

whitebriar

Sand wrote: »

Interest rate of 3+%

Kenny claiming an annual saving of 1 billion (not noting that it just gets paid later).

Essentially the same deal as last year - purely internal Irish arrangement.

I'm underwhelmed.

Yeah but he also didn't note that the principal to be paid back will be a lot less in 2038 in 2038 terms than now.
You also declined us that fact,you might have been medium whelmed if you did.

Still we shouldn't be paying that private debt at all,which leads me to ask why aren't we getting the same type of deal on the other 140 billions or so that we owe?
I'd suggest pushing that lot back to 3040...

Sand

The ECB cant allow monetary financing and theyre not idiots. They will have set the conditions so that the Principle in 2038 plus interest over the next 25 years easily outstrips the low inflation target rate of 2%.

Kenny is very much overselling this. The problem with any deal was we needed monetary financing. We haven't got it. That's why the ECB only "took note" of what we did. So long as they get paid they don't care.

whitebriar

None of us Sand have seen the fine detail yet,but gosh you're more than a bit optimistic if you think average inflation for the next 25 years is reliably guessable or that the Ecb policy will remain the same or stay in existence even..
But hey if it suits your preferred spin,no probs with that.

shedweller

whitebriar wrote: »

Still we shouldn't be paying that private debt at all,which leads me to ask why aren't we getting the same type of deal on the other 140 billions or so that we owe?
..

Sshhhhh! Dont mention the big elephant in the room!!!

Sand

whitebriar wrote: »

None of us Sand have seen the fine detail yet,but gosh you're more than a bit optimistic if you think average inflation for the next 25 years is reliably guessable or that the Ec policy will remain the same or stay in existence.
But hey if it suits your preferred spin,no probs wit that.

Average inflation for the next 25 years is reliably guessable - the ECB carry out monetary operations to fix it at close to but just under 2%. Its their mandate.

That's not to suit my preferred spin - that's reality.

Perhaps you're the one with the preferred spin if you want to presume the deal is good one when judged on a set of conditions which don't exist and which we have no reason to expect to exist.

whitebriar

Sand wrote: »

Average inflation for the next 25 years is reliably guessable - the ECB carry out monetary operations to fix it at close to but just under 2%. Its their mandate.

That's not to suit my preferred spin - that's reality.
.

Don't be disingenuous now,you know well,mandate notwithstanding, that history and future are two different things.
We don't know.
I'd be safer to expect GNP to have grown enough by 2038 to have this nationalised bank debt a lesser % of it by far by then.
Mind you we don't know that either.

What we do know as fact is we're being promised an extra billion or so in extra state cashfow p.a from this so less cutting needed.
That's medium whelm territory.
Somehow the medium ness of it deflates quite a bit though for me when I shudder to think how ineffeciently that billion will be put to work/squandered.

spyderski

whitebriar wrote: »

What we do know as fact is we're being promised an extra billion or so in extra state cashfow p.a from this so less cutting needed.
That's medium whelm territory.
Somehow the medium ness of it deflates quite a bit though for me when I shudder to think how ineffeciently that billion will be put to work/squandered.

We're not being promised an extra billion in state cashflow. We have made an arrangement which will require c.€1 bn p.a. less to be paid to the ECB.

IMHO the IMF will probably mandate that at least a portion of that billion is used to pay off national debt. Watch this space......

[Jackass]

Seems to be moving the furniture around a bit, but on the positive side, at least it lessons the strain on immediate finances whilst we're at our crippled worst. Hopefully it will be more manageable in the future if / when we return to some sort of sustained growth and will ease the cuts to services in the immediate sense, as I'm not sure how much more can be cut.

I don't know what people are expecting from this Government though. It really is like people expect them to be able to operate outside of the realms that existed when they took on the task. Like a new board of directors at Anglo could suddenly make it solvent again and make all the legacy issues disappear.

I don't think the endeavour can be faulted, but getting this deal done has been more difficult than expected, I don't think anyone expected Europe to be as stern as they have been. In fact, the pressure and expectations from the public make it a whole lot more likely that a worse deal will be done, when they call for "action" and "results" and force the Governments hand at taking a crappy deal on the table to appease the public than to allow Ireland to be equally as stuborn as Europe at the negotiating table.

Remember, when your balls are in a vice, you're not really in much of a position to be making demands....

raymon

I think todays announcement is one big step on the road to the undoing of the mess that those Fianna Fail incompetents got us into.

Well done Noonan . I don't like you but well done

whitebriar

spyderski wrote: »

We're not being promised an extra billion in state cashflow. We have made an arrangement which will require c.€1 bn p.a. less to be paid to the ECB.

IMHO the IMF will probably mandate that at least a portion of that billion is used to pay off national debt. Watch this space......

I'm watching it...
Noonan just said effective rate about 1% as the 2% profit the Irish central bank make is passed back to government.

whitebriar

Noonan just said at the news conference that it means 1 billion less in cuts/taxes in next budget..that sounds like extra cash flow to me.

Twoandahalfmen

Does this mean we will be in recession for 40 years

Kristopherus

Twoandahalfmen wrote: »

Does this mean we will be in recession for 40 years

Ah, Jayses no.:(

Sand

whitebriar wrote: »

Noonan just said at the news conference that it means 1 billion less in cuts/taxes in next budget..that sounds like extra cash flow to me.

Yeah, he also said the economy would take off like a rocket in 2012.

Twoandahalfmen

Kristopherus wrote: »

Ah, Jayses no.:(

What does the deal mean

DoesNotCompute

Twoandahalfmen wrote: »

Does this mean we will be in recession for 40 years

No. By my understanding, by the time the €30 billion is due, inflation will have eroded it's value significantly, so it won't be €30 billion worth of tomorrow's money; it will be €30 billion worth of today's money.

whitebriar

Sand wrote: »

Yeah, he also said the economy would take off like a rocket in 2012.

Poor and irrelevant retort Sand,it must be a difficult day to find bad news on this.

Not to worry, I'm sure you'll have your bad and dour news mojo back at some point on some other topic

Sponge Bob

Press conference here ...still ongoing.

http://www.merrionstreet.ie/index.php/2013/02/live-stream-revised-promissory-notes-arrangement-press-conference-with-ministers-noonan-howlin/

Sand

whitebriar wrote: »

Poor and irrelevant retort Sand,it must be a difficult day to find bad news on this.

Not to worry, I'm sure you'll have your bad and dour news mojo back at some point on some other topic

There was a lad back in June 2012 who told me that if I wasn't celebrating the great Irish diplomatic victory of June 2012 that I just didn't understand what had been agreed that day. It was ironic then. It's ironic now.

rumour

whitebriar wrote: »

Poor and irrelevant retort Sand,it must be a difficult day to find bad news on this.

Not to worry, I'm sure you'll have your bad and dour news mojo back at some point on some other topic

So emergency legislation passed in the middle of the night was a 'eureka' moment by our teacher from Mayo which outsmarted the ECB and all, saving ireland 'billions'.

On top of the good news above there is an additional 'upside' swallowed by morans up and down the country that well 'inflation' will make it magically disappear in time.

Do you seriously think this is how financial institutions operate??

ardmacha

Yeah, he also said the economy would take off like a rocket in 2012

He didn't. He said that the economy would take off when the European economy recovered, I don't think he mentioned 2012.

whitebriar

Sand wrote: »

There was a lad back in June 2012 who told me that if I wasn't celebrating the great Irish diplomatic victory of June 2012 that I just didn't understand what had been agreed that day. It was ironic then. It's ironic now.

Wasn't me son,but with no debt write down available or agreed,we've managed to get it by stealth via inflation over 38 years.
Happy days given we are where we are.

Cookie_Monster

rumour wrote: »

So emergency legislation passed in the middle of the night was a 'eureka' moment by our teacher from Mayo which outsmarted the ECB and all, saving ireland 'billions'.

Sounds a lot like the last emergency legislation eureka moment, I wonder how long it'll take before we see all the downsides of this one become apparent?

Elfinknight

I'm no number cruncher, so can somebody tell me in plain english

A: How much including interest would the country have paid under the old deal by the time the debt was paid off?

And

B: How much including interest will the country pay under the new deal by the time the debt is paid off?

The only thing I know for sure is I'll be dead and buried by the time it's paid off. I hope the next time there is a bank in danger of collapsing that the only thing thats garanteed are peoples savings and the banks are left go to the wall like any other private company that has gone under. Might teach them that they are not indestructable.

washman3

Remember the date : 07 February 2013 its official, the lunatics have taken over the asylum.
This is a scam, a stitch up.
Bet there is another 'NAMA party' in Malaga tonight with the developers and speculators singing and sipping Champagne.
Sickening to see the clowns in RTE cheerleading this as a good deal and behaving like kids at a circus. Then again many of them were up to their necks in the orgy of splurge that was Anglo Irish Bank.:mad:

creedp

rumour wrote: »

So emergency legislation passed in the middle of the night was a 'eureka' moment by our teacher from Mayo which outsmarted the ECB and all, saving ireland 'billions'.

On top of the good news above there is an additional 'upside' swallowed by morans up and down the country that well 'inflation' will make it magically disappear in time.

Do you seriously think this is how financial institutions operate??

While I accept this issue is being overplayed I do think that paying back €31bn today would be a lot harder that paying back €31bn in 25 years time. Unless you think that the €31bn will be inflated in line with CPI over the 25 years. That not how I understand financial institutions work.

AlmightyCushion

creedp wrote: »

While I accept this issue is being overplayed I do think that paying back €31bn today would be a lot harder that paying back €31bn in 25 years time. Unless you think that the €31bn will be inflated in line with CPI over the 25 years. That not how I understand financial institutions work.

Not all of it gets paid back in 25 years though. It all gets paid back at various intervals and amounts between 25 and 38 years which is ever better. I read somewhere it averages out about 34 years so it seems to be back loaded as well.

NAP123

We are still worse off this year than we were last year, when we were not repaying Private Bank debt to an institution that will burn the money when it receives it.

This is a cost not a saving.

This lame duck Govt can spin this whatever way it wants, but the sovereign state refusing to honour debt incurred by Private Banks, was the only way to improve our position and hasten a return to the sovereign bondmarkets and freedom from the Troika reparations deal.

This is nothing more than a mass Healy Rae type electioneering stunt.

Hopefully the Irish people will begin to grow a brain and realise they are being ridden silly.

thebman

Interesting take on it on Bloomberg.
http://www.bloomberg.com/news/2013-02-08/ireland-was-right-to-force-ecb-s-hand-on-debt-relief-plan.html

Scofflaw

thebman wrote: »

Interesting take on it on Bloomberg.
http://www.bloomberg.com/news/2013-02-08/ireland-was-right-to-force-ecb-s-hand-on-debt-relief-plan.html

Yes, saw that and thought of Sand's view that the ECB leaked the plan to prevent Ireland negotiating further - Bloomberg's take is the direct opposite:

What could be wrong with this? Nothing -- except for the small detail that Ireland had been pressing for a solution exactly like this for almost two years, only to be met with intransigence. The matter had become a flash point in Irish politics and a source of bitter resentment at the EU. In recent weeks, the ECB had reportedly rejected a debt-relief plan identical to the one Ireland is now executing, arguing that converting the notes to bonds would amount to illegal “monetary financing” -- that is, printing money to finance the Irish government’s budget deficit.

Ultimately, Ireland forced the issue by moving ahead with the liquidation of the toxic remains of Anglo Irish, a decision that also triggered immediate action on the promissory notes. Presented with a fait accompli, ECB President Mario Draghi said the debt restructuring had been “noted,” a wording that has been widely interpreted as grudging acceptance from the ECB.

But since Irish negotiators necessarily don't ever achieve anything because they're Irish negotiators, presumably this isn't even a remotely conceivable view of what happened.

amused,
Scofflaw

shedweller

DoesNotCompute wrote: »

No. By my understanding, by the time the €30 billion is due, inflation will have eroded it's value significantly, so it won't be €30 billion worth of tomorrow's money; it will be €30 billion worth of today's money.

Which is what it did the last time around. It stayed at a certain figure for years while our economy overheated and died. Then we got more debt piled on top of the debt that was already there, that wasn't paid off "when the sun shone"

Elfinknight wrote: »

I'm no number cruncher, so can somebody tell me in plain english

A: How much including interest would the country have paid under the old deal by the time the debt was paid off?

And

B: How much including interest will the country pay under the new deal by the time the debt is paid off?

The only thing I know for sure is I'll be dead and buried by the time it's paid off. I hope the next time there is a bank in danger of colpapsing that the only thing thats garanteed are peoples savings and the banks are left go to the wall like any other private company that has gone under. Might teach them that they are not indestructable.

But will it be paid off? As i've shown above, we don't seem to have the ability to pay national debt off.

AlmightyCushion wrote: »

Not all of it gets paid back in 25 years though. It all gets paid back at various intervals and amounts between 25 and 38 years which is ever better. I read somewhere it averages out about 34 years so it seems to be back loaded as well.

Again, will it be paid off or will we just leave it on the long finger? It's like a credit card, isn't it? Buy too much on it and you'll find yourself just about managing to pay the interest. Result is you never pay off the debt.
Eternal debt awaits.

All we can do now is educate our kids on this so they'll hopefully not make the same mistakes next time around.

Scofflaw

shedweller wrote: »

Which is what it did the last time around. It stayed at a certain figure for years while our economy overheated and died. Then we got more debt piled on top of the debt that was already there, that wasn't paid off "when the sun shone"


But will it be paid off? As i've shown above, we don't seem to have the ability to pay national debt off.


Again, will it be paid off or will we just leave it on the long finger? It's like a credit card, isn't it? Buy too much on it and you'll find yourself just about managing to pay the interest. Result is you never pay off the debt.
Eternal debt awaits.

All we can do now is educate our kids on this so they'll hopefully not make the same mistakes next time around.

But if we still had only the €35bn or so national debt we went into the crisis with, we would be laughing, even though that debt was, in 1990, close to 100% of our GDP. And even had we gone into the crisis with no debt, the debt we've incurred since the start of the crisis would still be massive.

People and countries are different - we generally have an earning curve, countries have an earning exponential. That's why long-fingering debt actually works - it's cheaper to keep paying the interest and rolling the debt over than to pay off the capital, because, after fifty years of rolling the debt over, the interest payments are peanuts compared to what the state is taking in as taxes.

cordially,
Scofflaw

AlmightyCushion

shedweller wrote: »

Which is what it did the last time around. It stayed at a certain figure for years while our economy overheated and died. Then we got more debt piled on top of the debt that was already there, that wasn't paid off "when the sun shone"


But will it be paid off? As i've shown above, we don't seem to have the ability to pay national debt off.


Again, will it be paid off or will we just leave it on the long finger? It's like a credit card, isn't it? Buy too much on it and you'll find yourself just about managing to pay the interest. Result is you never pay off the debt.
Eternal debt awaits.

All we can do now is educate our kids on this so they'll hopefully not make the same mistakes next time around.

Governments generally don't pay off debt, they just keep rolling it over and servicing the interest on it. Inflation and economic growth reduce it's relative value (with regards buying power and in terms of the debt:GDP ratio respectively) but the actual value stays at a similar level. Basically the debt stays the same but our ability to manage and service it becomes better and it becomes less of a burder. It's not comparable to credit card debt because the interest on credit cards is over 20%.

The key is to balance or budget (or at least get very close to balancing it) so that we're not continuing to add to our deficit. Then we need to work on growing our economy. That'll be hard to do right now given most of our trade partners are suffering similar crisis to ourselves. When the world economy improves and if we start increasing our exports to countries and regions we currently don't export as much too then we will be in a much better shape. This isn't something that will happen overnight but we have 25-40 years to improve our economy and increase our GDP.

A separate but related issue. What do people reckon our chance are of getting a similar deal on our EU/IMF bailout loans are?

shedweller

AlmightyCushion wrote: »

Governments generally don't pay off debt, they just keep rolling it over and servicing the interest on it.

Why is that? It seems odd as hell that a country would not pay off a national debt, especially during the good times when it cost relatively little to do so. Then manage things better so there isn't a crash. Tighter regulation on house prices maybe? What happened cannot be allowed to happen again. There has to be a better way surely?

AlmightyCushion

shedweller wrote: »

Why is that? It seems odd as hell that a country would not pay off a national debt, especially during the good times when it cost relatively little to do so. Then manage things better so there isn't a crash. Tighter regulation on house prices maybe? What happened cannot be allowed to happen again. There has to be a better way surely?

I thought the same thing for a long time. Someone asked the question here a while ago and Scofflaw put up a table of figures comparing paying off the debt vs keeping the same debt and keeping that money in the economy and how it worked out better for the economy to just service the debt. The figures checked out (which surpised me) so I kept looking into it and sure enough it does actually makes sense when you take into account inflation and economic growth.

I still don't like the idea of a high debt:GDP ratio but it does seem the best way to reduce that ratio is to service the debt instead of pay it off. The ratio (and interest rates) are more important than the actual amount because it's the ratio and interest rate that determines our ability to repay it.

DoesNotCompute

DoesNotCompute wrote: »

No. By my understanding, by the time the €30 billion is due, inflation will have eroded it's value significantly, so it won't be €30 billion worth of tomorrow's money; it will be €30 billion worth of today's money.

Inflation over 30 - 40 years may not be as high as we think especially if alternative energy sources replace oil and gas in a large way during that time frame and do not become cheaper/as efficient as oil/gas.

Secondly the Irish property bubble and subsequent banking crisis bear similarities to the Japanese experience. Japan had huge troubles with deflation for over 10 years and still do. There are many factors for this some of which we don`t share with Japan but at the same time we do not have the worldwide giant companies that Japan - all its car makers, electronics etc.

Demographics are in our favour and yet they are not. Our birth rate is good but our emigration rate is high. Without generating jobs and opportunities emigration will increase as other countries, especially the UK, decrease their unemployment rate. We are setup for a negative feedback loop here.

Bottom line is the only deal that would be worth talking about is a writedown of debt.

Geuze

Elfinknight wrote: »

I'm no number cruncher, so can somebody tell me in plain english

A: How much including interest would the country have paid under the old deal by the time the debt was paid off?

And

B: How much including interest will the country pay under the new deal by the time the debt is paid off?

The only thing I know for sure is I'll be dead and buried by the time it's paid off. I hope the next time there is a bank in danger of collapsing that the only thing thats garanteed are peoples savings and the banks are left go to the wall like any other private company that has gone under. Might teach them that they are not indestructable.

Answers here:

http://economic-incentives.blogspot.ie/2013/02/interest-costs-under-debt-deal.html

Morrisseeee

^^ from that article above:

The ECB interest rate is expected to rise from 0.75% to 3.00% over the next six years and stay at 3.00% thereafter.

Does this mean tracker mortgage interest rates will rise at the same rate ??!!
If so.................arggggghhhhh :eek::(

creedp

Morrisseeee wrote: »

^^ from that article above:



Does this mean tracker mortgage interest rates will rise at the same rate ??!!
If so.................arggggghhhhh :eek::(

Unfortunately some of us are already paying over 4% arggggggggggggghhhhhhhhhhh

Scofflaw

Geuze wrote: »

Answers here:

http://economic-incentives.blogspot.ie/2013/02/interest-costs-under-debt-deal.html

Official government overview is here: http://finance.gov.ie/documents/publications/presentation/2013/newjmpres.pdf

• The provision of a longer term non-amortising (up to 40 years) portfolio of Government bonds to replace the amortising Promissory Notes will have significant benefits from a market perspective as it ensures the liability to repay is beyond most credit investors’ time horizon
• Spreading the cost of the Promissory Notes from a weighted average life of c.7-8 years to c.34-35 years at a lower funding cost for the State, resulting in significant annual interest savings
• Substantial annual cash flow benefit to the State from replacing Promissory Notes with non-amortising Government bonds (c.€2.3bn in the first year and c.€20bn over the next 10 years if costs of the transaction are excluded)
• A reduction in the underlying deficit of c.€1bn per annum in the coming years (before transaction costs), reducing the forecast deficit by c.0.6% of GDP annually. 2013 benefits are much reduced on account of transaction costs
• A reduction in General Government debt over time
• Removal of IBRC from the financial landscape
• Removal of Exceptional Liquidity Assistance and the inherent risk associated with short term borrowings which have to be rolled over on a fortnightly basis
• Efficiency gains from housing ‘legacy assets’ in a single vehicle, NAMA
• Establishing a permanent solution for a significant part of the structural shortfall of bank liquidity This solution does not address other challenges in the Irish banking system. But it is an important step in restoring the health of the Irish banking sector and we will continue to progress other initiatives, e.g., ESM, Banking Union, etc.

cordially,
Scofflaw

djpbarry

Twoandahalfmen wrote: »

Does this mean we will be in recession for 40 years

Seems unlikely considering Ireland is not in recession now.

Icepick

There was always going to be a deal so this is the worst one possible. Ireland was and still is financially screwed because the economic predictions that are supposed to lead to recovery are bogus.
In 30 years the exchequer won't be able to pay pensions not to mention some bonds from the past.

djpbarry

Icepick wrote: »

There was always going to be a deal so this is the worst one possible. Ireland was and still is financially screwed because the economic predictions that are supposed to lead to recovery are bogus.

Even based on the most pessimistic of growth projections, this still represents a better deal for Ireland. I'm at a loss as to how it could be considered the "worst one possible".

Duggys Housemate

None of the pessimists on this thread understand the basics of simple economics. Or compound maths.

But let's get one thing clear. If inflation is assumed (low balling) to be 2% over the next 35 years the debt burden on this note is reduced by 50%.

It's a burning of the bond holders.

Icepick

djpbarry wrote: »

Even based on the most pessimistic of growth projections, this still represents a better deal for Ireland. I'm at a loss as to how it could be considered the "worst one possible".

Better than the original, of course. But that was always going to be replaced by something better.