Ireland Gets $113 Billion Loan at 5.6%, Germany’s Proposal To Force Bondholders To Take Losses Is Watered Down
Just so we understand what’s really important: Governments “need to show they’re getting their economies in shape” and bondholders need to be protected from taking their losses. Oh, and it’s all the fault of the greedy unemployed working class, who actually expect their governments to help them out during hard times: European governments sought to quell the market turmoil menacing the euro, handing debt-strapped Ireland an 85 billion-euro ($113 billion) aid package and diluting proposals to force bondholders to cover a share of future bailouts. European finance chiefs ended crisis talks in Brussels yesterday by endorsing a Franco-German compromise on post-2013 rescues that means investors won’t automatically take losses to share the cost with taxpayers as German Chancellor Angela Merkel initially proposed to the consternation of bond traders. The first test of the twin decisions come today with markets resuming trading after speculation intensified last week that Portugal and perhaps even Spain will require external support. In a third move, Greece was told it could have an extra four-and-a-half years to repay emergency loans totaling 110 billion euros to match the seven-year term under Ireland’s deal. “People are now going to focus on Portugal and it’s probably also going to need some help,” said Axel Merk, president and chief investment officer of Merk Investments LLC in Palo Alto, California. “We’ll maybe see some relief in markets, but governments need to show they’re getting their economies in shape. ” Right. Not banks, because as we know, governments are always going to bail them out. And by the way, how fiscally sound is it to use a national pension fund to bail out banks? THE €85 billion EU-IMF bailout package for Ireland announced last night was roundly condemned by the Opposition parties who are now all likely to vote against the Budget on December 7th. Fine Gael, Labour and Sinn Féin attacked the intention to use the National Pension Reserve Fund to help provide a further €10 billion in further capital for the banks. In total, the banks could end up getting another €35 billion if their losses are bigger than expected. The remaining €50 billion is to cover the State’s borrowing needs for the next three years. Opposition parties were highly critical of the 5.8 per cent average interest rate that will be charged by the EU and the International Monetary Fund. A memorandum of understanding to give legal status to the agreement is near completion and will be published before the budget. It will give quarter-by-quarter targets which will have to be met by the Government in order for funds to be released. Under the agreement the State will contribute €17.5 billion of the package from the National Pension Reserve Fund and cash held by the National Treasury Management Agency while the total external assistance in the fund will come to €67.5 billion. It is comprised of €45 billion from the EU, bilateral loans from Britain, Sweden and Denmark, and €22.5 billion from the IMF. Britain will lend nearly €8 billion, including €4 billion in a direct bilateral loan. The British have won a major concession from EU partners, particularly the Germans, by ensuring the UK will not be automatically part of any euro-rescue packages after 2013. Taoiseach Brian Cowen welcomed the fact that there would be no change to the corporation tax rate of 12.5 per cent which was vital to Ireland’s economic recovery .
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on November 30, 2010. Filed under