Sovereign debt bubble thread

[MadImmortalMan]

Lately I've been shopping for an Omega watch on ebay. I'm noticing that there are a lot of them being sold from Greece and Spain. I wonder if it's a case of heirlooms for cash.

[Iormlund]

Might have been bought during the bubble by people that lost his job or whose businesses crashed. A friend of mine was able to get a very nice price on a BMW M3 last year that way.

[Sheilbh]

After the summit apparently it's been agreed to allow direct recapitalisation of banks in 2013. Common banking supervisor will be introduced in 2014

[Tamas]

After the summit apparently it's been agreed to allow direct recapitalisation of banks in 2013. Common banking supervisor will be introduced in 2014

Are we happy, Vincent?

[Sheilbh]

Are we happy, Vincent?

It seems mad to have Eurozone direct recapitalisation before having Eurozone single supervisor

I mean I'm not sure how it'd work.  Presumably the ECB will temporarily act as supervisor....

The British journalists said there were a couple of decisions but those will probably be the last decisions now until the German election.  Apparently Eurozone leaders and Eurocrats think 2012 was the year they turned a corner. 

Edit:  I do find the EU's attitude complacency genuinely startling.  Blair for President 2014

[Tamas]

good point.


And, turned a corner?  there are no corners in a circle

[Zanza]

Blair for President 2014

Will Britain even be an EU member by 2014?

[Sheilbh]

Blair for President 2014

Will Britain even be an EU member by 2014?

  I doubt we'll get an in-out referendum that soon.  Most likely it'll be in the next Parliament.  Ironically the Lib Dems were the only mainstream party promising one in 2010.

A more pertinent question is 'will Britain even be in 2014?'  The Scottish independence referendum's then, so...

[Zanza]

I predict that the Euro will still be around on 31st December 2013 and all current members will still be in.

[Sheilbh]

Any thoughts Viking or Legbiter?

Dan White: The economic return of Iceland has proved that the joke was on use
By Dan White
Sunday December 16 2012
WAY back in the autumn of 2008, the joke in financial circles was that the only difference between Ireland and Iceland was a letter and six months. Now, with the Icelandic banks preparing to issue foreign currency bonds once again, it turns out that the joke was on us.

Remember when the Icelandics did the unthinkable and, unlike Ireland, told bank creditors to take a hike? They also imposed capital controls and allowed the value of their currency to fall – the Icelandic krona has lost almost half of its value against the euro over the past five years.

The "experts" queued up to assure us that these latter-day Vikings would be severely punished for their impertinence. While no one forecast that a hole would open up in the North Atlantic and swallow Iceland whole, some of the predictions came pretty darned close.

Meanwhile, we in Ireland did what we were told and repaid over €70bn of bank bonds at par. By doing so, even at the cost of bankrupting the State, the "experts" assured us that we would retain the confidence of the markets. Now, four years later, it is clear that, not for the first time, the "experts" have got it wrong. Catastrophically and utterly wrong.

Since putting the taxpayer on the hook for the banks' debts, the domestic economy has shrunk by almost a quarter in nominal or cash terms. And any real recovery is still a long way off. The documents along with this month's Budget reveal that the Department of Finance is expecting Irish GNP, basically the domestic economy, to grow by 1.4 per cent in 2012 and 0.9 per cent next year. Other forecasters are taking a far more pessimistic view.

Way out in the North Atlantic, things have turned out rather differently. Economic growth is expected to be 3.1 per cent this year and 2.2 per cent in 2013. But surely after stitching up its bank creditors – the Icelandic banking default cost $85bn, a massive amount for a country with a population of 320,000 people – the country remains persona non grata with the international financial markets. Having been so badly bitten once, the markets must be twice or even thrice shy of Iceland.

Not so. The Icelandic treasury successfully flogged $1bn of 10-year bonds to investors in May. These bonds were initially priced to yield a spread of 407 basis points (4.07 per cent) over comparable US treasuries, a margin which has since narrowed to 296 basis points.

In the financial markets, as elsewhere in life, eaten bread is soon forgotten. Would-be investors in Icelandic bonds focus most of their attention, not on what happened in the past, but on what is likely to happen in the future.

What these investors see is that, by burning the bank bondholders rather than taking these debts on to the national balance sheet, the Icelandic sovereign is in a far stronger position to repay any future debts.

Compare this to the Irish situation. By being good boys did we retain the confidence of the markets? No we didn't. We too were locked out of the markets and were bounced into accepting an EU/IMF bailout in November 2010. Far from doing better than the Icelandics, we have ended up with the worst of all possible worlds. We are still stuck with the banks' legacy debts and, a few carefully choreographed fund raisings by the NTMA notwithstanding, the State remains largely reliant on official lenders to fund its activities. This is because investors can see that, with the debts of the Irish State likely to exceed €200bn – the equivalent of more than 150 per cent of GNP – by the end of 2013, there is no way the Irish sovereign can repay existing borrowings let alone any new loans it may seek to raise.

Now, as if to add insult to injury, the Icelandic banks are preparing a return to the markets. Unlike Ireland, Iceland immediately nationalised its bust banks in the autumn of 2008 but refused to assume responsibility for their liabilities. The cleaned-up Icelandic banks are now getting ready to issue foreign currency bonds, the proceeds of which will be used to help finance the thriving, export-driven Icelandic economy.

When we look at what has happened in Iceland, the proposed deal on legacy Irish bank debt tastes like very thin gruel indeed. Once again the Irish Government is talking up the chances of such a deal following last week's apparent agreement by EU finance ministers on a new eurozone banking supervision regime. The latest "deadline" for such a deal is supposedly the end of March 2013. Given that several previous "deadlines" have come and gone, don't hold your breath.

Maybe, instead of being the good boys it's time we followed the Icelandic example and indulged in some Viking-style plunder and pillage.

- Dan White

Also in Ireland the IMF has advised the Irish not to impose any further austerity (than that already announced) next year even if they miss targets, due to weaker growth. They're advising the Irish to protect growth and defer any further austerity until 2015. They've also said that Ireland would really be helped by the 'forceful delivery of European pledges' to break the vicious cycle between sovereigns and banks.

[Razgovory]

Is this the guy that Marty goes on about for killing Harvey Milk?

[MadImmortalMan]

I never understood the decision to nationalize all that bank debt. The only thing I can imagine is that the politicians who decided it were big shareholders set to lose big personally if it didn't happen.

[Sheilbh]

I never understood the decision to nationalize all that bank debt. The only thing I can imagine is that the politicians who decided it were big shareholders set to lose big personally if it didn't happen.

There was a lot of international pressure not least from the UK, most Eurozone governments and the ECB. Even now UK  and Eurozone banks are very exposed to Ireland. Remember the court cases by many UK councils suing Iceland when they let the banks fail.

But it was madness for the Irish government to guarantee all banks' depositors and bondholders

Edit:  I believe EU banks' exposure to Ireland was around €600 billion, with Germany and the UK each having over €200 billion.

[Ed Anger]

Is this the guy that Marty goes on about for killing Harvey Milk?

[mongers]

I never understood the decision to nationalize all that bank debt. The only thing I can imagine is that the politicians who decided it were big shareholders set to lose big personally if it didn't happen.

There was a lot of international pressure not least from the UK, most Eurozone governments and the ECB. Even now UK  and Eurozone banks are very exposed to Ireland. Remember the court cases by many UK councils suing Iceland when they let the banks fail.

But it was madness for the Irish government to guarantee all banks' depositors and bondholders

Edit:  I believe EU banks' exposure to Ireland was around €600 billion, with Germany and the UK each having over €200 billion.

Yes, it's worth remembering that splendid isolation from the Euro crisis isn't an option for the UK; we're involved in a possibly deadly embrace with the Irish republic and some of the debt is really junk, like an astonishing amount of retail property.
Not many people will be fuelling a consumer led recover on Ireland's for quite sometime to come.