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“A SEISMIC SHIFT in European policy”.
That’s how Taoiseach Enda Kenny has described the results of an impromptu summit of 27 heads of government in Brussels last night.
At 4am Irish time a statement was issued which said:
The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment sector.
The Taoiseach said that the deal, which means that Spain’s banks can be bailed out directly from the European Stability Mechanism, also means that the debt burden on the Irish tax-payer can be ‘re-engineered’.
European leaders have agreed that that eurozone banks can be recapitalised without adding to government debt.
The statement from Brussels last night said that it is “imperative to break the vicious circle between banks and sovereigns”.
European Council President Herman Van Rompuy said the bailout agreement was important.
We are opening the possibilities for countries that are well-behaving to make use of financial stability instruments, the EFSF and ESM, in order to reassure markets and get again some stability around some of the sovereign bonds of our member states,” he said, referring to two bailout funds set up by the EU.
That meant, he said, that there would not be any more countries struggling under the stern conditions that have been imposed on previous EU countries that received bailouts — an apparently sharp change in EU policy.
Van Rompuy said leaders of the 17-nation eurozone also agreed to a joint banking supervisory body. And he said the leaders of the full 27-member European Union agreed to a general long-term plan for a tighter budgetary and political union.
The importance of recapitalizing banks directly became evident when Spain asked for money for its shaky banks. Under current rules the bailout loan had to be made to the government, which would then lend it on to the banks. But having that debt on the government’s books spooked investors, who began demanding higher interest rates for lending money to the government.
The result was rates that would have been unsustainable in the long term. Lending the money directly to the banks would avoid putting that debt on the government’s books.
The leaders agreed on “the four building blocks” of a tighter European Union — but said they wouldn’t start pinning down details until a report in October. The building blocks were laid out in a sweeping document presented by Van Rompuy and colleagues earlier this week that included sharing debt in the form of jointly issued eurobonds.
Van Rompuy said the report expected in October would be “a specific and time-bound roadmap for the achievement of a genuine economic and monetary union.”
“The aim is to make the euro an irreversible project,” he said.
He did not say, however, whether the general agreement on the tighter union included a firm commitment on Eurobonds from Germany — which has firmly opposed sharing debt with more profligate countries such as Greece.
- Additional reporting by AP
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Does this mean the income levy and house charge are going to go? They were really introduced to bail out Anglo and AIB !
No they were not, they were brought in to redress the imbalance between what we were taking in in taxation and what is going out in day to day expenditure. Nothing to do with Anglo or AIB.
Is the nightmare over so?
Am I about to wake up?
No.. The income levy was introduced to shore up the ballooning cost of increased healthcare requirements of the generation of baby boomers and the household charge to levy the appropriate costs of providing government services to those who are wealthy enough to own property
Nope. Firstly if you are spending more than you take in then taxes have to increased or you look at reducing what you are spending (ie address the waste and overspending on the public sector and services).nnSecondly given most of our problem is as a direct result of a property bubble and all the associated borrowing that came with it there needs to be a mechanism in place to control the property market. A property tax is part of that solution.
Conor, that is a great question….
Right now we are borrowing 17 billion per year to fund all of our services and banking debt. The banking debt accounts for 17% of all the tax take the Government gets every year from us the citizens.
Because of the way the current and previous Governments pursued their austerity plans, our overall economy has not really grown over the last few years, so the debt burden has remained constant.
The answer to your question would be Yes, if the Government had any ambition towards growing our GNP.
But unfortunately they have no understanding of how to run the economy or the country, and so, they will persist with their austerity plans and continue to force people to emigrate, turn to black market etc, just to survive, which in turn will shrink our GNP further.
Furthermore, Kenny is putting a brave face on this new break-through. If I was Spanish, i would be over the moon, as their Government played chicken with Merkel and the Spanish Government won. They have not moved the Banking debt onto the shoulders of the Spanish people.
We are caught in the unenviable position that the 60 billion euro of banking debt that was put on the shoulders of the Irish people, will stay on the shoulders of the Irish people. This break-through changes nothing for us.
In fact, its a slap in the teeth for the Irish people.
Cal, are you certain about the slap? You’re sure we won’t see any change to the Irish bank debt staying on the sovereign as a result of this?
Its not a ‘smart-ar5e’ question (unusually!) – I just thought I heard a different outcome on the news reports this morning.
Cal1, you’re right, they have no idea what they’re doing.
We’re so lucky to have one of the world’s foremost authorities on economics posting right here on TheJournal, all day, every day.
Thank you for taking time out of your clearly hectic day to provide us with such economic wisdom, oh wise one.
Cal speaks a lot more sense than you Winston. He’s spot on here.
It’s amazing how the rules changed once one of the big boys went down…n
The italian football team did a right job on the germans last night. Knocked the stuffing out of them in more ways then one.
So now he will claim a job well done, he sat on the fence and let the rest ie Spain,Italy do the work, let’s not get excited until we read the fine print.
That’s not exactly correct. Because we’re such a minnow by European standards we are easily ignored in favour of the countries deemed too big to fail. However behind the scenes our gov ministers and reps were working tirelessly to get the message across that we needed to be treated much more fairly than we have been. It may be fortuitous but the work was going on all the time. It’s now time for a bit of fairness and a sense of togetherness in this awful mess which we didn’t create but we are stuck with. I hope Spain win on Sunday!
Thank God Spain went under!nnThis is good news, and it is absolutely of no consequence of our governments negotiating skills (in fairness, ditto for all our political parties).
Spain and Italy were withholding support for the growth pact until a satisfactory solution was reached. Amazing what a bit of hardball politics from larger economies can achieve…
It’s a lot easier to play hard ball when your economy has a major direct impact on the rest. Ours doesn’t. Expecting Enda to play hardball, is like egging on a 7 year old in a fight against Mike Tyson.
Absolutely Conor, totally agree with you!
We are a small insignificant player on the European stage. Spain and Italy are lead characters. So of course they won a better deal. If we had been the only country to not control our finances, Germany and co would have continued to hammer us. Wake up pple we are a periphery economy with no clout. ‘Everybody loves the Irish’ myth has no bearing when it comes to cold hard finances.
Love the way the Eurocrats make it sound like they’ve come up with an ingenious plan nobody thought of. So taxpayers shouldn’t pay for gambling debts of banks. Well done EU we’d never have come up with that one.
Angela blinked?
Wonder who will complain about this. How are are they going to bring in the referendum being a bad thing too?n
This, I presume, is good news. Why could it not have been done before now?
Because it was only deemed necessary when the big players ie Spain and Italy were affected. Ireland’s plight was not a worry to Europe but market pressures on Spain spooked Brussels. Also sales of luxury German into Italy and Spain have dropped in recent months. Two and two make four!!
Good point Alison n
Actually, the most important factor was Sarkozy being kicked out.
This changed the dynamic and isolated Germany. This is why this solution didn’t happen before.
This is good news, on the face of it.
A few questions remain though:
What will happen to the ownership of our banks if the ESM is retroactively recapitalizing them?
How much money do the Spanish banks really need?
A class full of 10 yr olds could of come up with this ‘solution’ 3/4 yrs ago.
most of them would probably also know when to use the words ‘have’ and ‘of’ too ;)
Apologies mattoid. Capital letter at the start of your sentence please……;-)
Touchee :) (sorry, can’t find the accent for the first e!)
Alt Gr + e…. ámátéúr
Not so easy on the iPhone :-(
Júst léárnéd höw tõ dô ït ønlìnē ând ît sêëms tò wórk júst fįné :-)
Doesn’t matter – RIP the debt! Let’s spend, spend, spend!
haha. Lets got nuts
I wonder if any one member of the government actually believes the “yes for stability” slogan?
Give it a rest already Mick
It was obvious a system like this should have happened from the start. Insolvent banks should have went to the ECB to seek a bailout who in turn could involve the IMF if necessary.
Had this happened from day 1 the damage across the Eurozone would be a fraction of what it is today.
Any chance of getting the 0.6% of my pension back now.
Wouldn’t be getting too excited Folks! He only said ‘can’ be re-engineered not ‘will’ be re-engineered!
Hey look a bunch of people commenting on things they’ve no understanding of.
And so begins another fruitful day for the unemployed on TheJournal.ie
Winston, the one coherent voice in the crowd
Not everyone works mon-fri 9-5. There is jobs and professions that require you to work weekends and after 5 o’clock weekdays. Anyway, it is a good whine. I like it.
Winston, ending sentences with prepositions is something up with which we will not put.
And please don’t be so condescending – its very unattractive and I’m sure deep down youre a very attractive man..
I await this re-engineering with bated breath. I hope that by “re-engineering” he means “lop off bank debt from sovereign” because no matter how it’s packaged, it is what it is, the biggest financial swindle going.
They’ve agreed to a ‘general plan of tighter budgetary and political union.’ So in other words Germany with even more say in our matters? Ridiculous.
Not sure more is possible, they basically have all the say already.
We can’t have it every way – monetary union and debt mutualisation (is that a word?) without closer fiscal integration is a recipe for further crises.
For me the bullet has not yet been bitten – if we want to stay in the euro and for it to be stable we just have to cede more fiscal sovereignty.
In my opinion, failure to grasp this concept across the euro zone (by de people and de politicos) has led to and prolonged the crisis.
The other alternative is to leave and fly solo.
This is a general EU deal, not specific to Ireland. And it makes NO mention of it being retrospective….!!!
So Edna & Gimmemore had feck all to do with this….This will only
be for banks going under in the future. Our current Bailout fo the banks
will not be affected by it….Taxpayers wil still be paying for the current bailout for generations to come…!!!
Deal my A$$…More Spin by the Clowns on an ego trip…!!!
Sounds like sense has prevailed but I’ll hold out on getting too excited just yet. I have to admit though a big thank you is due to those involved in getting this through for us, so without further adieu, thank you Spain and Italy.
What change for Ireland? Our banks have already been bailed, and debt transferred to sovereign debt… What this agreement means is that Spain and Italy don’t have to do this, it will be loaned directly from the EU stability funds, which WE will pay for alongside the sovereign debt loans.nEurope still gets all its funding from all Europe’s taxpayers, doesn’t it – including us?
The government expects that ths deal will be applied retrospectively.
Does is mean we won’t own the banks anymore? Because if we still own the banks, and they take on the debt, then surely it’s essentially still ours afterwards?
CORRECTION:
A promise was made to “examine the situation of the Irish financial sector”.
“The aim is to make the euro an irreversible project”, Yeah, I’ll bet.
Excuse me Winston C, I both have a job and having worked in Financial Services for seven years, DO understand what I’m talking about. Back under the bridge, troll.nnBesides, it’s not even none I clock yet, pcs and laptops are only powering up across the country now. Relax and have a coffee. :-)nn
Ahh, Trolls, the cloud to every silver lining.
Can’t we just take it for what it is and look positively for a change?
Stop calling everyone Trolls
Thank God we voted yes!!
Any re engineering will still ironically leave the Irish people with less than nothing. This government have sunk their teeth into the people, they won stop until they are full. If the debt is balanced out I won’t mean less out of the pockets of the people.
Still not convinced. Seems like another knee jerk reaction to see how the markets will react. They’re still not even sure how they’re really going to do it.
This is complete bullshit who do you think funds the ESM only the soverign’s.
So in a round about way we are still bailing out these banks instead of doing what Denmark and Iceland did and letting them fail
There is a big difference. Currently the burden is underwritten by the Irish government. If this is transferred to the ESM the Irish bank debt will be covered by Europe as a collective. So the risk to lending to Ireland is greatly reduced.nnThis is a good thing for the countrynnAlso governments should regulate but not own banks
Sounds like good news though we will have to wait to see what the details contain before saying yipee.
If our lot negotiated harder as soon as they were elected it would have relieved worry from months back.after all we were the ones with our fingers in the dyke.europe has shown that’s it’s been totally inept in dealing with the monetary project.just proven how expensive this carry on is .
The bank debt isn’t ours and should not be in any way our burden. Having said that there is obviously no way the big boys and girls will let us away with not paying what isn’t ours. Realising that the people are beginning to see the reality of their unjust imposition on us its time to dress it up with a sweetner to keep the stupid people stupid. Its clear as day. I will look forward to seeing what ‘re-engineered’ plan they have for us.
Yes it is. Maybe from a moral standpoint it shouldn’t have been but that’s an argument that was long lost. The financial markets don’t care about morals, they care about financial facts and the facts are that the bank debt IS ours. And at least some deal has been done which should help Ireland in the longer term.
Fair enough. I should re-phrase that ‘shouldn’t be our debt’. I don’t believe for a second that this ‘deal’ (nobody representing Irish interests negotiated it- it is being foisted on us so calling it a ‘deal’ is a more than a stretch) will be beneficial. It will be a re-packaging with the same mess in the details.
Great to see the naysayers screaming and twisting in the wind. I always said that the day some deal was done the same people constantly calling for a deal would be on decrying it and giving out about it. Good to see that there are some consistent things in the world.
Oh no!!!!! I’ve been red thumbed by somebody. MY LIFE IS OVER!!!! (Yawn).
I wonder will this lead to the Government disposing of their shares in the Irish banking system. As ESM funding would replace Govt funding. It’s a good thing that the Govt. do not own the banks. However they would no longer be able to block the banks from raising interest rates.
Riddle me this: ESM is funded by taxpayers. How does the ESM directly bailing out banks “alleviate the burden on the taxpayer”?
Risk
Certain people will complain no matter what solutions are proposed. Complaining is the only way they can contribute. Actually proposing constructive solutions is sadly beyond them. Or perhaps it is because, if the economic situation improves, they will lose the small fragment of parochial fame they have aquired..
Am I wrong to think that the extra taxes we’re now paying is a result of having to shore up extra money for all the unfortunate people who have lost their jobs and thus aren’t able to contribute? If we weren’t paying back the huge bank debts surely we wouldn’t need all the extra taxes to make ends meet. Am I missing something here?
Yep, you are missing the fact that we have been spending way more than we earn for a long time. Even if this worked out perfectly and we end up entirely without bank debt it’s not going to be easy to balance the books.
And dont forget all the revenue they used to get from stamp duty etc in the property boom – once that went kabloom so did the tax take
“We are opening the possibilities for countries that are well-behaving to make use of financial stability instruments, the EFSF and ESM”
I know it’s easy to be skeptical and say it won’t be applied retroactively, but I think it’s important to highlight the well-behaving part there. We’ve passed every test and inspection the Troika have performed, and much to our dismay new taxes and reforms (which unfortunately includes job losses in some areas) have been implemented. Things have changed a lot here in order for our “books to be balanced” so I think if anyone’s in with a good shot it’s Ireland.
Gilly and Kenny will be back in the dail making outrageous claims that they negotiated a great deal for Ireland but I think this is a busted flush we will still be paying regardless and the re engineering will be at the behest of the European overlords and they haven’t exactly been our friends to date where is all this money coming from Germany I wonder
Update listening to Michael Noonan it’s not going to make any difference in this years budget, maybe next year if we’re lucky.
Hold on a minute…. Our banks have already been bailed out. Does this apply retrospectively?
@Mark Power. Lovely turn of phrase “government have sunk their teeth into the people.” Horrible image given the calibre of the lot of ‘em. True of course that the Spanish played chicken where the Irish convinced themselves were a minnow. We did have a gun (for a brief spell) but our sense of national worthlessness said “ah no, sure they’re great lads.” Don’t want to get into a diatribe on national identity but I’m convinced we sold ourselves short. . .and then turned on each other when the big boys slapped us down. We were not like the poor Greeks. . .we actually believed someone was running the show.
@Mark Power. Lovely turn of phrase “government have sunk their teeth into the people.” Horrible image given the calibre of the lot of ‘em. True of course that the Spanish played chicken where the Irish convinced themselves they were a minnow. We did have a gun (for a brief spell) but our sense of national worthlessness said “ah no, sure they’re the big lads.” Don’t want to get into a diatribe on national identity but I’m convinced we sold ourselves short. . .and then turned on each other when the big boys slapped us down. We were not like the poor Greeks. . .we actually believed someone was running the show.
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