Irish Bailout is Punishing the Populace for the Bankers’ Sins

Irish Bailout: Punishing the Populace for the Bankers’ Sins

November 26, 2010

Washington's Blog - Paul Krugman wrote yesterday:

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.

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Punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.

Mike Whitney noted yesterday:

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.

And Mish pointed out last week:

Today the Irish Government sold its citizens into debt slavery by agreeing to guarantee stupid loans made by German, British, and US banks.

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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.

Ireland Vows to Cut Spending and Raise Taxes Plan Draws Skepticism

November 24, 2010

Reuters – Ireland promised on Wednesday to cut spending and raise taxes to combat its banking crisis and secure an international bailout, but drew accusations of overconfidence in assuming the crippled economy can grow.

As tempers flared across Europe over the financial and social cost of rescuing Ireland, German Chancellor Angela Merkel said politicians must show financial markets who is in charge and make investors share in the risk of future debt crises.

Irish Prime Minister Brian Cowen, whose government is close to collapse, unveiled a 15 billion euro ($20 billion) four-year austerity plan that he said would affect all Irish people.

"The size of the crisis means that no one will be sheltered from the contribution that has to be made toward national recovery," Cowen told a news conference.

The plan includes thousands of public sector job cuts, phased-in increases in Ireland's value-added tax (VAT) rate from 2013, and social welfare savings of 2.8 billion euros by 2014, but does not touch the country's ultra-low corporate tax rate.

The EU's monetary affairs chief Olli Rehn said the austerity plan would help to stabilize Ireland's public finances.

"The plan strikes a good balance of durable expenditure and revenue measures, with due regard to protecting the least well off," he said in a statement.

But almost immediately the credibility of the plan, which is vital for meeting the terms of the IMF/EU rescue package, came into question for sticking to economic growth assumptions unveiled earlier this month to widespread skepticism.

Credit rating agency Standard and Poors said Cowen's government was too optimistic in assuming growth and the Irish economy would struggle to expand at all in the next two years.

Dublin forecasts real GDP will grow an average 2.75 percent from 2011 to 2014. But S&P said nominal GDP -- not taking inflation into account -- would be close to flat in the next two years.

"There is a meaningful difference," said Frank Gill, director of S&P's sovereigns rating group EMEA.

S&P cut Ireland's credit rating on Tuesday and put it on negative watch, saying it was likely to need to inject more funds into the banks, hit a property market collapse in 2008 which forced the government into guaranteeing their liabilities.

Others were also wary.

"It doesn't seem all that realistic to me," said Stephen Lewis, chief economist at Monument Securities. "It seems they're planning very stringent fiscal measures and yet they expect the economy to grow against that background. That seems highly unlikely."

POLITICIANS LACK COURAGE?

Investors have sold off Irish debt, particularly since German Chancellor Merkel raised the possibility earlier this month that state bond holders might not get all their money back in future were another debt crisis to strike.

Merkel renewed her calls on Wednesday, defying criticism that she risks upsetting investors at a time when many fear a crisis which began in Greece earlier this year and moved to Ireland, might spread to other euro zone countries.

"Have politicians got the courage to make those who earn money share in the risk as well? Or is dealing in government debt the only business in the world economy that involves no risk?" she asked the German parliament.

"This is about the primacy of politics, this is about the limits of the markets," said the chancellor, acknowledging that her insistence on this issue was making markets nervous.

Merkel is talking about future government bond issues but holders of current Irish debt fear the risk of default.

Dublin's 10-year bonds are trading far below their face value, at less than 75 cents in the euro. On Wednesday they yielded 9.23 percent -- a level at which Dublin could not realistically issue news bonds, and far above the 2.63 percent on the equivalent German bond.

By contrast, Ireland is expected to be pay about five percent on loans from the International Monetary Fund.

The euro, which has fallen sharply in recent days on fears that Ireland's debt and budget crisis would spread to other euro zone countries such as Portugal and Spain, barely moved after the austerity plan.

The plan is a condition for EU/IMF aid under negotiation for a country long feted as a model of economic development and now the latest casualty in the 16-nation common currency bloc.

Cowen told parliament no final figure had been agreed for EU/IMF assistance, "but an amount of the order of 85 billion (euros) has been discussed.".

A CURSE FOR GENERATIONS

The sudden implosion of Ireland's economy has bewildered its people. Unemployment -- a curse for generations of Irish which had almost lifted in the boom years -- has leapt to about 14 percent from about 4 percent in just a few years.

Anne Fullham, a 44-year-old property lawyer who lost her job in March, never dreamed she would find herself taking benefits.

"When I was growing up ... it was the safest job you could possibly have -- if you're a doctor, a lawyer, an architect. And now the architects and the lawyers are in trouble," she said.

"We still all laugh about it in such a way that if you didn't, you'd cry," she said.

A Reuters poll on Wednesday showed that 34 out of 50 analysts surveyed believe Portugal, where unions held a general strike on Wednesday, will be forced to follow Ireland and seek a bailout.

If that occurred, fears about Spain would grow and investors could begin to worry about the future of the currency zone that was set up over 11 years ago and regarded as a major success in its first decade of existence.

Slovak Finance Minister Ivan Miklos added to the gloom, saying that "the risk of a euro zone break-up, or at least its very problematic functioning, is very real."

The Irish Independent newspaper said the situation was so critical that Dublin could pump extra cash into the ailing banks as early as this weekend. [Editor's Note: As always, money from the public treasury is given to the banks while austerity measures are directed at the people by cutting spending and raising taxes.]

An erosion of support from the government coalition partners this week means Cowen is unlikely to survive in office much beyond the New Year to implement the plans.

But his successor's hands will be tied by the terms of an agreement to be signed with the EU and the IMF, and Ireland's financial crisis will leave little scope to revise them.

Greek-style Austerity Measures (New Taxes, Spending Cuts, Public Sector Pay Cuts and Pension Reforms) Coming Soon to a Nation Near You, Including Each of the 50 States

The U.S. Congress plans to slash social security 'entitlements' at a time when Wall Street has destroyed the home equity and private retirement accounts of potential retirees. Worse, they plan to increase the social security tax, disguised as a “mandatory savings tax.” This added tax would be automatically withdrawn from your paycheck and deposited to a “Guaranteed Retirement Account” managed by the Social Security Administration. Since the savings would be “mandatory,” you could not withdraw your money without stiff penalties; and rather than enjoying an earlier retirement paid out of your increased savings, a later retirement date is being called for. In the meantime, your “mandatory savings” would just be fattening the investment pool of the Wall Street bankers managing the funds. And that may be what really underlies the big push to educate the public to the dangers of the federal debt. - Ellen Brown, IMF-Style Austerity Comes to America, Web of Debt, March 2, 2010