Monday, 15 November 2010 04:15

As We Have Clearly Anticipated Since Early 2010, Ireland is About to Go

From CNBC: Ireland Does Not Rule Out EU Rescue Possibility

Ireland did not rule out the possibility of turning to the European Union for help, while an Irish newspaper reported that the Prime Minister may approach Brussels as early as Tuesday.

The Irish Independent said Finance Minister Brian Lenihan may ask his European counterparts in Brussels on Tuesday if it would be possible to funnel funds into Irish banks which he has already promised to pump up to 50 billion euros ($68.38 billion) into.

"There is no question about Irish sovereign debt - the question remains about the funding of the banks. The banks are having trouble getting money," the newspaper quoted the source as saying.

"We have to find out - could you go to the fund and get money for the banking sector? Lenihan at ECOFIN presents an opportunity to discuss it. It would be the banks that would have to pay it back - not the state."

The total amount of outstanding European Central Bank loans owed by Irish banks rose to 130 billion euros as of Oct 29 from 119 billion on September 24, data published on the Irish central bank's website showed on Friday.

As if BoomBustBlog subscribers didn't see this coming a mile and a year away - Many Institutions Believe Ireland To Be A Model of Austerity Implementation But the Facts Beg to Differ! I will be reviewing and adding to my extensive work on the Pan European Sovereign Debt Crisis this week since that situation is about to explode. I will also reveal the likely haircuts to be taken on Irish debt as well with the publication of our Irish haircut model. Remember how nasty those Portuguese haircuts looked - Introducing the Not So Stylish Portuguese Haircut Analysis???

 

You think those are ugly? You ain’t seen nothing yet!

In the meantime I suggest that paying Subscribers review our Irish analysis and related contagion material: 

There is plenty (and I do mean plenty) of material for those who don't subscribe to see how the current Irish situation was essentially manifest destiny (Euro-toxic asset edition), as excerpted from Many Institutions Believe Ireland To Be A Model of Austerity Implementation But the Facts Beg to Differ! Wednesday, April 14th, 2010

We have performed a cursory overview of the risks inherent in Ireland though previous “preview” posts: Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe and Reggie Middleton on the Irish Macro Outlook. For the most part, Ireland has considerable embedded risk through both foreign claims on troubled countries (ex. PIIGS) and significant bank NPAs as a percent of its GDP.

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Below is an excerpt from our recent forensic Ireland analysis. Subscribers, please download the most recent report here:File Icon Ireland public finances projections_040710:

A deteriorating external environment and a correction in the domestic housing market made 2009 a difficult year for the Irish economy. Ireland’s GDP growth registered a fall of 7.5% (the highest rate of decline since the country’s records have been compiled) with a fiscal deficit of 11.7% of the GDP for 2009. Moreover, amidst an ailing banking system Ireland’s economy is further expected to report a 1.3% decline in its GDP and a fiscal deficit of 11.6% of the GDP for 2010, as per the government estimates. Consequent to rising fiscal deficit, government’s debt levels have also increased enormously from 24.8% of GDP in 2007 to 44.1% in 2008 and 64.5% in 2009. This rising debt is further fuelling an increase in fiscal deficit through an increase in interest expenditure. Thus, in its 2010 Budget, Ireland’s government plans to secure structural improvements to the expenditure base, which is expected to result in a savings of €4 billion. However, considering the current economic slowdown and rising unemployment, deterioration in Ireland’s tax revenues is expected to continue in 2010, which will negate the impact of expenditure savings, and result in further widening of the fiscal deficit to 12.6%, as per our estimates.

Moreover, as per the government’s “Stability Programme Update – December 2009″, the government plans to bring down its fiscal deficit from 11.7% in 2009 to 2.9% in 2014 (below the European Union target of 3%), primarily backed by a strong economic recovery starting 2011. However, we believe that this targeted reduction is based on overly optimistic growth targets, which are difficult to achieve.

The current government estimates fail to take into account additional funding that the government might have to infuse to stabilize Ireland’s banking system, which will further increase the government’s budget deficit.

  • According to Bloomberg (March 31), “Ireland’s banks need $43 billion in new capital after “appalling” lending decisions left the country’s financial system on the brink of collapse. The fund-raising requirement was announced after the National Asset Management Agency said it will apply an average discount of 47 percent on the first block of loans it is buying from lenders as part of a plan to revive the financial system.”
  • Ireland’s banking system is critically dependent on the government for financing. At the end of January 2010, Central Bank of Ireland’s lending to banks was €98 billion, which is equivalent of 60% of the country’s 2009 annual GDP. Moreover, it represents 13% of total Eurosystem lending to banks compared with Ireland’s 2% share of Eurozone GDP. Ireland’s lending to banks is much higher compared to other troubled European countries - the Bank of Greece’s lending to banks amounts to 20% of Greek GDP while numbers for Spain and Portugal are much lower.

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In addition, Ireland (like practically every other country in the EU, see Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!) unrealistically optimistic in their GDP growth projections.

Additional and ample publicly disseminated opinion and research that illustrated the true conditions and prospects of Ireland:

  1. Many Are Still Underestimating the Damage That Can Be Done By Ireland’s Bank Troubles Wednesday, September 8th, 2010
  2. I Suggest Those That Dislike Hearing “I Told You So” Divest from Western and Southern European Debt, It’ll Get Worse Before It Get’s Better! Friday, August 27th, 2010
  3. Here’s More Proof of the Sheer Lunacy of the European Bank Stress Tests: Passed Banks are Already Trying to Collect on Defaulted Claims of European Nations Tuesday, July 27th, 2010
  4. Death by a Thousand Irish Cuts: The Poster Child of Austerity Measure Success Gets Downgraded After Several Devastating Expenditure Reductions That Really, Really Hurt the Irish People! Monday, July 19th, 2010
  5. BoomBustBlog Irish Research Becomes Reality Wednesday, May 12th, 2010
  6. Introducing The BoomBustBlog Sovereign Contagion Model: Thus far, it has been right on the money for 5 months straight! Tuesday, May 4th, 2010
  7. Beware of the Potential Irish Ponzi Scheme! Thursday, April 29th, 2010
  8. Many Institutions Believe Ireland To Be A Model of Austerity Implementation But the Facts Beg to Differ! Wednesday, April 14th, 2010
  9. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe Tuesday, March 30th, 2010
  10. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! Tuesday, March 23rd, 2010
  11. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter? Monday, March 8th, 2010
  12. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries Tuesday, February 16th, 2010
  13. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? Tuesday, February 9th, 2010
  14. The Coming Pan-European Soverign Debt Crisis Sunday, February 7th, 2010
Last modified on Thursday, 28 July 2011 03:24

5 comments

  • Comment Link JohnR Tuesday, 16 November 2010 15:37 posted by JohnR

    Just tell me when BLS unemployment for those with a Bachelors degree or higher will get to 20%. It's 4.7% now. Give me month and year. I want to plan my vacation around the revolution which will occur at 20%. Help me book that flight!!! I think I will be going to a spa in Varenne.

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  • Comment Link Pie_Row Tuesday, 16 November 2010 12:27 posted by Pie_Row

    Free money, 0% interest rates for how long? What you are seeing in the markets is asset inflation. Look at the price of the Dow in gold vs. the price in dollars. We are just having another bubble.

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  • Comment Link liquid1973 Monday, 15 November 2010 13:01 posted by liquid1973

    How is that all of these problems have no seeming negative effects on U.S. markets? There are so many references to Japan (u.S.), yet our markets show little signs of collapse? are they that rigged?

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  • Comment Link Reggie Middleton Monday, 15 November 2010 12:39 posted by Reggie Middleton

    I think the bigger nations will be the straw that breaks the camel's back.I also don't believe the horizon is as far off as many think. There are just to many problems floating around in order for none of them to gain traction before the end of the 2nd quarter.

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  • Comment Link shaun noll, CFA Monday, 15 November 2010 12:33 posted by shaun noll, CFA

    Reggie is way out in front like usual! this is going to get messy, could take years to finally hit the markets but at some point these issues will absolutely hammer the euro banks. Would be interesting to see what you think of Hungary too as that looks like perhaps the worst country in the region financially and it is heavily connected to Italian and German banks.

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