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Friday, November 26, 2010 8:52 PM

In Rare Agreement with Krugman; Onerous "Bailout" Rates of 6.7% Denied; Don't do Stupid Things; "Tell the EU and IMF to Shove It!"

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News on Ireland is pouring in so fast from all corners it is a struggle keeping up with it.

In a Memo to Ireland, Mike Whitney says, "Tell the EU and IMF to Shove It!" and on that score I agree 100% having said the same thing quite some time ago.

Some articles suggest the bailout rate will be 6.7%, other stories deny that. Finally, I find myself in rare agreement with Paul Krugman. Let's start there.

Agreement With Krugman

In one of his longest pieces that I remember, Paul Krugman makes the case Ireland is getting screwed. Please consider Eating the Irish

Before the bank bust, Ireland had little public debt. But with taxpayers suddenly on the hook for gigantic bank losses, even as revenues plunged, the nation’s creditworthiness was put in doubt. So Ireland tried to reassure the markets with a harsh program of spending cuts.

Step back for a minute and think about that. These debts were incurred, not to pay for public programs, but by private wheeler-dealers seeking nothing but their own profit. Yet ordinary Irish citizens are now bearing the burden of those debts.

Or to be more accurate, they’re bearing a burden much larger than the debt — because those spending cuts have caused a severe recession so that in addition to taking on the banks’ debts, the Irish are suffering from plunging incomes and high unemployment.

But there is no alternative, say the serious people: all of this is necessary to restore confidence.

Strange to say, however, confidence is not improving. On the contrary: investors have noticed that all those austerity measures are depressing the Irish economy — and are fleeing Irish debt because of that economic weakness.

Now what? Last weekend Ireland and its neighbors put together what has been widely described as a “bailout.” But what really happened was that the Irish government promised to impose even more pain, in return for a credit line — a credit line that would presumably give Ireland more time to, um, restore confidence. Markets, understandably, were not impressed: interest rates on Irish bonds have risen even further.

Ireland is now in its third year of austerity, and confidence just keeps draining away. And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.
"Tell the EU and IMF to Shove It!"

Krugman asks "Does it really have to be this way?"

Of course it doesn't. In a Memo to Ireland, Mike Whitney says, "Tell the EU and IMF to Shove It!"
Irish Prime Minister Brian Cowen is Mahmoud Abbas. He's caved in to the demands of foreign capital and transferred control over the nation's budget to the EU and the IMF.

This is a black day for Ireland. The Irish people will now face a decade or more of grinding poverty and depression thanks to their venal leaders. As soon as the ink dries on the IMF loans, the second occupation of Ireland will begin, only this time there won't be armored cars and Paramilitaries in fatigues, but nerdy-looking bureaucrats trained in the art of spreading misery. In fact, the loans haven't even been signed yet, and already IMF officials are urging the government to cut jobless benefits and the minimum wage. They're literally champing at the bit. They just can't wait to get their hands on the budget and start slashing away.

And don't believe the hype about European unity or saving Ireland. My ass. This is about bailing out the banks. The bondholders get a free ride while workers get kicked to the curb. Here's a clip from the Financial Times that spells it out in black and white:

"According to data compiled by the Bank of International Settlements, the three largest creditors to the Irish economy at the end of June...were Germany to the tune of €109bn, the UK at €100bn and France at €40bn. These sums amount to 2 per cent of France’s gross domestic product, 4.5 per cent of Germany’s GDP, and 7 per cent of British GDP."

Ireland is being asked to cut to social services, slash wages, renegotiate contracts, and dismantle the welfare state so that undercapitalized banks in France and Germany can get their pound of flesh. But, why? They're the ones who bought the bonds. No one put a gun to their head. They knew they could lose money if Irish banks went south. That's the risk they took. "You pays your money, and you takes your chances." Right? That's how capitalism works.

Not any more, it doesn't. Not while Cowen's in charge, at least. The Irish PM has decided to bail them out; make all the bondholders "whole again." But who made Cowen God? Who gave Cowen the right to hand over his country to the IMF?

No one. Cowen is a rogue agent kowtowing to international capital. After he finishes his work in Ireland, he'll probably join globalist Tony Blair on the French Riviera for a little hobnobbing with the tuxedo crowd.

The Irish people didn't struggle through centuries of famine and foreign occupation so they could be debt-peons in the EU's corporate Uberstate. Like Sinn Fein president Gerry Adams said, "We don't need anyone coming in to run the place for us. We can run it ourselves." Right. Tell the EU plutocrats to take their Utopian Bankstate and shove it.
Irish Citizens Sold Down the River in "Firepower of Stupidity"

On November 21, in Irish Citizens Sold Down the River in "Firepower of Stupidity" I wrote...
Today the Irish Government sold its citizens into debt slavery by agreeing to guarantee stupid loans made by German, British, and US banks. Those loans fueled one of the biggest property bubbles in the world. Ireland has since crashed.

Why the average Irish citizen should have to bail out foreign bondholders is beyond me, but I do note that the same happened in the US with taxpayers footing an enormous bill for Fannie Mae, Freddie Mac, and AIG.

No matter what stupid thing banks do, prime ministers and presidents are all too willing to make the average taxpayer foot the bill for the mess. That by the way, is one reason why we get into these messes in the first place.

Firepower of Stupidity

Finance Minister Brian Lenihan bragged about the “firepower that stands behind the banking system.” Yes there is firepower alright, a firepower of stupidity.

Wikipedia notes the population of Ireland is approximately 4.35 million. Going into debt to the tune of $137 billion would saddle the average Irish citizen with $31,494.

How long will it take to pay that back? For whose benefit? Perhaps a better question is will it be paid back?

By agreeing to take on that debt, and sticking it to the Irish taxpayers who will be forced to accept various austerity measures to pay back that debt, Irish Prime Minister Brian Cowen and Finance Minister Brian Lenihan just sold Ireland down the river.

For additional insight on how the crash affects Ireland, please see Ghost Estates and Broken Lives: the Human Cost of the Irish Crash
6.7% Rate?

RTE News reports EU/IMF interest rate likely to be 6.7%
The interest rate to be charged on the European Unions/International Monetary Fund package is likely to be 6.7% for nine year money.

This compares to an average borrowing rate of 4.7% on funds raised by the NTMA over the past two years. In May, Greece arranged an EU/IMF loan for three years at 5.2%.

The Government's four year plan assumes that by 2014, interest payments will have increased from €2.5 billion to €8.4 billion a year - around one fifth of all tax revenue.

Fine Gael Finance Spokesman Michael Noonan said the suggestion of a 6.7% rate was very disturbing.

He said the Government must not abandon the national interest and settle on unaffordable terms in its negotiations.
6.7% rate rejected

The Irish Times reports 6.7% rate rejected
The interest rate for a nine-year EU/IMF loan would be lower than the 6.7 per cent being quoted in some reports today, a source involved in the talks has indicated.

The source said the interest rate was still under negotiation but would not be that high.

The loan of €85 billion would come from a number of different funds, some controlled by European Union institutions, others by the IMF. It is understood that the interest rate for the IMF portion of the loan will be in the region of 4.5 per cent, while the interest charged by EU bodies will be considerably higher.

The source accepted that the average interest rate was likely to be higher than the 5.2 per cent charged to Greece when it was bailed out earlier this year. But it was pointed out that the Greek loan was for a period of only three years.

Higher rates of interest are attached to longer loans and the nine-year loan being negotiated on behalf of the State will involve a higher interest rate, as the risk of default is considered to be higher.

Officials in the EU-IMF mission to Dublin are examining how senior bondholders could be compelled to pay some of the cost of rescuing Ireland’s banks.
Debt Slaves Forever

Fintan O'Toole writing for the Irish Times says The people must act or we will remain irrelevant
HAVING AN election after agreeing a four-year deal that will shape all key decisions is like debating which brand of condom to buy after you’ve become pregnant. It is a parody of democratic choice. Popular sovereignty has almost no meaning in Ireland right now. Its restoration is the precondition for a meaningful election.

The primary goal of the IMF-EU package to which any new government will be committed is not to stop Ireland spiralling downwards into economic depression. It is to ensure that Irish citizens cough up yet more money for the banks.

Instead of the banks borrowing money from the European Central Bank at one per cent interest to fund their operations, the State (you and me) will borrow it for them at perhaps five per cent.

Sovereignty belongs, not to the State, or the government, but to the people. We have outsourced it for too long to an incompetent, amoral and self-serving elite. Now we face the starkest of choices: use it or lose it.
Don't Do Stupid Things

I will tell Ireland the same thing I told Iceland on March 6, 2010: Iceland Rejects IceSave; Does No Mean No?
Icelanders overwhelmingly rejected a bill that would saddle each citizen with $16,400 of debt in protest at U.K. and Dutch demands that they cover losses triggered by the failure of a private bank, first results show.

Ninety-three percent voted against the so-called Icesave bill, according to preliminary results on national broadcaster RUV. Final results may be published tomorrow morning.

Iceland does not need help from the IMF when it will saddle every citizen with $16,400 of debt. Fools in the UK and Netherlands rushed in to Icelandic banks and the fools in the UK and Netherlands are the ones who should suffer the consequences.

It was perfectly obvious Iceland was in an unsustainable situation so the prudent thing to do would be to get the hell out of the way.

By defaulting on debt, Iceland will send a much needed message "Don't do stupid things".
In response to the above post I even received a nice Email From Birgitta Jonsdottir, Member of Iceland's Parliament thanking me for my help.

ANY Rate is Onerous

All these questions "Is the rate 4.7%, 5.2%, or 6.7% and if so for who long and on what portion?" are complete silliness.

ANY Rate is Onerous.

Except for those who participated in the property bubble (and they will be adequately punished), the people of Ireland are not at fault, at least in general.

Should Irish Prime Minister Brian Cowen manage to hang on long enough to get the votes for an onerous bailout, I would encourage Irish voter to elect someone who campaigns on a promise to renege on the deal and default.

Irish citizens cannot afford to rescue German, UK, and French banks stupid enough to bet on bubbles in Ireland. It should be the creditors' problem not the problem of Irish citizens.

Mike "Mish" Shedlock
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