Bertie Ahern’s Gang Wipe Us Out – What a bunch of bankers.

Ireland’s debt crisis – today as it happened

The governor of Ireland’s central bank has predicted that it will accept a ‘large loan’, as IMF officials begin talks in Dublin Dublin is gearing up for crucial talks between the Irish government and officials from the IMF and the EU today. Photograph: Chris Bacon/PA
9.47am: Good morning, and welcome to another day of live coverage of the financial crisis that is gripping Europe. We’ll be bringing you the latest developments today, as IMF officials head for Dublin to start talks on a rescue package that could be worth tens of billions of euros.
10.15am: The major news already this morning is that the governor of the Central Bank of Ireland has predicted that the country will receive a rescue package worth “tens of billions of euros”.
Patrick Honohan told the Morning Ireland radio programme that he expected that both the IMF and the EU would contribute to a “very substantial loan”.

It will be a large loan because the purpose of the amount to be advance or to be made available to be borrowed is to show Ireland has sufficient fire power to deal with any concerns of the market.
“The ECB would not send large teams if they didn’t believe first of all that they could agree to a package, that there is a programme that is fully acceptable to them that could be designed, and that it is likely to be accept to the Irish government and the Irish people.
This is the first time that any Irish official, or government minister, has given such a clear indication that Ireland will indeed sign up for financial assistance.
10.25am: Honohan’s prediction that a large IMF/EU loan is imminent has brought some calm to the financial markets. Investors are showing more confidence in Ireland’s ability to repay its debts, along with other weaker members of the eurozone.
The cost of insuring Irish, Greek and Portugese debt all fell significantly in the last couple of hours.

“The markets are now viewing some form of bailout as more than likely,” said Gavan Nolan, analyst at Markit.
Here are the latest prices for credit default swaps (insurance against a bond defaulting).
Irish five-year CDS are trading at 495 basis points*, down 30bp this morning
Greek five-year CDS are trading at 925 basis points, down 19bp this morning
Portugese five-year CDS are trading at 395 basis points, down 14bp this morning
* – so it would cost €495,000 to insure €10m of Irish bonds
10.44am: Stock markets are also rallying today, partly due to growing belief that Ireland will sign up for a deal.
The FTSE 100 is up 73 points, at 5765, while Japan’s Nikkei has closed at its highest point since June (up 2.06% at 10,014).
The Irish crisis isn’t the only factor, though — traders are also relieved that China announced new inflation-calming measures overnight that were not as draconian as feared.
10.58am: We now have a full transcript of Patrick Honohan’s interview this morning, in which he indicated that Ireland will agree to a large rescue package from the IMF and EU.
Transcript: Ireland’s central bank governor confirms IMF loan on its way
During the interview, Honohan said that he expects that Ireland’s banks will be recapitalised to ressure the international markets. He also confirmed that the European Central Bank has been pumping money into Irish banks to make up for a drop in deposits.
11.10am: Despite the prospect of a rescue deal, City analysts remain very concerned about the Irish banking sector.
Jeremy Batstone-Carr of Charles Stanley warned this morning that “the position of creditors to the Irish banks looks increasingly uncertain”, although he does not believe that Ireland itself will default:

It is our view that Ireland faces significant difficulties returning to a sustainable fiscal path even without an incipient banking sector crisis. If the state were to bear the full cost of supporting the banks it will likely be even harder, if not impossible, to return to economic stability unaided. By contrast, failure to support the banks would add significantly to existing strain and crush the country’s future growth prospects.
For Ireland, its banks may now have reached the point of “too big to save”, although for the EU as a whole the Irish banks are clearly regarded as “too big to fail.”

Readers should note that outside Ireland, EU and ECB officials appear to advocate an early rescue in order to limit the threat of contagion elsewhere. By contrast, the Irish government seems reluctant to accept conditions imposed from outside that would accompany any rescue package including the possibility of a much higher corporation tax rate and possibly the private sector sharing part of the burden (i.e. “haircuts” and / or debt restructuring) on some bank liabilities previously guaranteed by the government.
The problem is that stresses in the financial markets have become so acute that these differences will have to be overcome and we strongly suspect which side is likely to lose!
11.13am: Could the crisis in the eurozone even spread as far as Paris? Peter Geikie-Cobb, who manages the Thames River Global Bond Fund, believes it might:
Worryingly, the longer the situation with Ireland continues, there is greater potential for contagion across Portugal, Spain, Italy and even France where their deficit credentials are deteriorating by the day.
French finance minister Christine Lagarde, though, has firmly rejected this kind of talk.
“There is no risk of (the EU) breaking up,” Lagarde told France Inter radio, in an interview where she also speculated that the British Treasury will help Ireland – possible through a bilateral loan:
For example, Great Britain, which isn’t in the euro zone, may want to participate because of the commercial links between the two countries.
11.23am: We’re getting the first pictures of the IMF officials who have flown to Dublin for bailout negotiations.
11.51am: Out in Dublin, Lisa O’Carroll reports there is an air of deep sadness today as the EU/IMF talks begin.
Several commentators suggest that the debacle is a betrayal of those who fought for Irish independence. The Irish Times, for example:
[Is this] what the men of 1916 died for: a bailout from the German chancellor with a few shillings of sympathy from the British chancellor on the side. There is the shame of it all. Having obtained our political independence from Britain to be masters of our own affairs, we have now surrendered our sovereignty to the European commission, the European Central Bank, and the International Monetary Fund.
Political blogger Guido Fawkes, an Irish citizen, took a similar line – calling the talks the End of an Éire. He also points out that the British chancellor – who must decide whether to take part in the rescue – is a member of the Anglo-Irish aristocracy:
O’Connell, de Valera and Collins must be turning in their graves as the heir to the Baronetcy of Ballentaylor, in County Tipperary, and Ballylemon, in County Waterford, contemplates rescuing the Irish Republic with English pounds. The heir normally prefers to go by the name of George…
12.15pm: Ireland has just extended its guarantee on all bank deposits until the end of 2011, in another move designed to reassure savers and prevent a run at branches across the country.
Previously the Irish Deposit Guarantee Scheme (DGS), which protects up to €100,000, was due to expire in June 2011. It covers deposits in Post Office savings accounts in the UK (which are managed by Bank of Ireland), as well as some fixed-term saving products.
There’s more detail about the DGS in this Q&A, published last night.
Finance minister Brian Lenihan also said that Ireland has not reached the point of asking for a substantial loan from the IMF, and that talks are ongoing
12.28pm: Finance minister Brian Lenihan has also just been explaining that today’s negotiations are centred on how to fix Ireland’s banking sector.
From Reuters:
The problems do not relate to our budgetary position. Our budgetary strategy this year is front-loading a €6bn adjustment in the budget, has been fully endorsed by all of the ministers in Europe. That’s clear.
The problems we’re addressing here are problems of a structural character in the banking system, there are of a necessity, technical questions that require intensive discussions
which are now under way. The government and its EU partners are still examining options on what shape A package of financial assistance might take.
There is no question of loading onto the Irish sovereign and the Irish state some kind of unspecified burden. That’s why the government has taken great care not to take a formal
application at this stage but engaging in intensive discussion to see exactly what the options are.
12.39pm: Just in case any British readers are reading about Ireland’s woes and feeling complacent, the Organisation for Economic Co-operation and Development has just cut its forecast for UK economic growth in 2011 – from 2.5% to just 1.7%.
The reason? The austerity cutbacks announced by British chancellor George Osborne. The OECD explained that:
GDP growth in the first three quarters of 2010 was robust, reflecting broad-based growth in domestic demand, including from a needed rebuilding of inventories.
The pace is set to slow, however, as contributions from stockbuilding fade and fiscal consolidation creates increasing headwinds.
There’s more here.
There’s been a lot of talk in recent days about important Ireland is to the British economy (fifth-largest trading partner). A strong UK recovery could help Ireland – but a sluggish one is only going to make its challenge harder.
12.43pm: Just hearing that Brian Cowen, Ireland’s Taoiseach, is going to be giving a press conference at 1.30pm.
There are suggestions that there may be a split between the Irish government and Central Bank governor Patrick Honohan (see 10.15am) about how open Ireland is to a rescue deal.
12.59pm: Irish premier Brian Cowen has just arrived at the National Conference Centre on the banks of the river Liffey in Dublin. Our Ireland correspondent Henry McDonald was there to witness it, and reports that the public are remaining calm:
The most striking thing about his arrival at the new gleaming glass-fronted building close to the capital’s financial centre was the complete absence of any protestors outside.
Cowen refused to take questions about remarks from the governor of Ireland’s Central Bank this morning that the country may have to take some kind of loan from the EU in the current financial crisis. He is now addressing delegates an IBM conference and will speak to the media within the next hour….
1.07pm: The CBI has just released a statement, aiming to reassure anyone worried that the UK is about to be sucked into the debt crisis.
John Cridland, its new director-general designate, said:
Ireland is not Greece. This is a banking not a fiscal problem.
It is in everybody’s interest that this situation is resolved in an orderly fashion.
The message from the bond market is that the UK government is in a strong position to withstand any reverberations that might result.
Let’s take a look at the bond market. The yield (interest rate) on Irish 10-year debt is hovering around 8.2%. In contrast, the yield on Greek debt (which is not usually recommended for widows and orphans) is 11.7%, while British 10-year bonds have a yield of 3.36%.
German debt, though, remains the safest bet in town – with a yield of just 2.68%.
1.17pm: If the Irish government does agree to a rescue package, MPs may not get the chance to vote on it.
Reuters just put out a news flash, quoting finance minister Brian Lenihan saying that the government “does not normally have to seek approval of parliament to borrow funds.”
He added that he is seeking advice from state lawyers about whether he needs to ask for this approval.
Brian Cowen’s majority in the Dáil will fall from three to just two next week if, as expected, his Fianna Fail party loses a byelection in Donegal South West. Would he have the votes to get a bailout approved, if he had to?…
1.37pm: Surrounded by a phalanx of camera crews and reporters from countries as far flung as Finland and Spain, Brian Cowen has just delivered a robust defence of his government’s performance over the last few days.
Henry McDonald reports from the scene:
Cowen was speaking in front of a telling backdrop – an advertisement for the convention centre which stated that “We’re about Flexibility”.
By contrast the Taoiseach remained rigid in his insistence that Ireland was not seeking a bailout but was instead involved in “technical discussions” with the officials from the European Central Bank and the International Monetary Fund.
In a tetchy exchange with reporters, Cowen predicted that the Irish government would pass its cost-cutting austerity budget on 7 December which he said would be a “demonstration of the sovereign will of the Irish people.”
Just before he exited the centre, fending off charges that Irish people had been left humiliated and shamed that the IMF now had its foot in the door, the Taoiseach stressed that the country “already shared its sovereignty” in terms of being in a common currency zone.
As he left the sunlight started to peer from the glass front of the building illuminating the side of his profile.
1.45pm: That’s all we’ll be hearing from Cowen for a while, I think. Henry mentions that the embattled Taoiseach also talked about “media circles” who have been unfairly attacking himself and his government.
Other ministers have also been talking in the last few minutes. Mary Hanafin, the tourism minister, has predicted that the negotiations will last for several days:
Our aim as a government is to protect the taxpayer… That’s why these negotiations will be focused, they will be intense, and will undoubtedly run into next week.
2.03pm: Here’s another, slightly better, picture of the IMF officials arriving in Dublin today (see also 11.23am).
2.20pm: Prime minister David Cameron has just spoken about the Irish crisis, during an appearance in front of the House of Commons liaison committee.
Let me just say obviously if you look at the relationship between Britain and Ireland, it’s one of our biggest export markets.
We export more to Ireland than we do to Brazil, Russia, India, China combined
Our banks are very connected to the Irish banks. We have an interest in not just the eurozone being a success, we have an interest in Ireland being a success, so I certainly don’t want to rule things out, but as I say, I don’t think we should be speculating.
Sir Alan Beith asked Cameron if both options are open: a bilateral bail-out, and an EU one.
Cameron replied: “I think you would be right in saying that.”
2.50pm: If Britain does decide to provide Ireland with a bilateral loan, that will push up the UK’s deficit, David Cameron just told MPs.
Under questioning from Andrew Tyrie, head of the Treasury Select Committee, the PM explained that there is a key difference between the €60bn European Financial Stability Mechanism (EFSM) fund (which all 27 members of the EU support), and a hypothetical loan from the UK to Dublin. The €60bn in the EFSM comes from money that EU members have committed to the EU but which hasn’t actually been spent – dubbed “headroom” by Cameron – so it doesn’t count as extra spending on the UK bottom line.
A loan to Ireland, though, would be a new commitment.
Here’s how Cameron explained it:
A bilateral loan is money that you have to go out and raise in order to lend it.
Does that make it politically more explosive, at a time when the Coalition government is pushing through deep austerity cuts to lower Britain’s deficit?
The advantage to Cameron of a bilateral loan is that his more eurosceptic colleagues are less likely to balk at the idea of rescuing the eurozone.
The Prime Minister also indicated that MPs would get the chance to debate any rescue deal.
If these things were to happen, you’d want to have an early discussion in the House of Commons.
Of course, Britain could help Ireland through the EFSM, and Cameron also pointed out that it was Alistair Darling who signed Britain up to this programme, the day before he became Prime Minister.
The EFSM was supported by the last government – it’s not something that we advised.
We are part of it, whether we like it or not.
My colleague Andrew Sparrow is live-blogging Cameron’s appearance in full. The PM is discussing a range of other issues – Ireland wasn’t actually supposed to be on the agenda.
3.55pm: The International Monetary Fund has just released details of the Irish talks. Formal negotiations start tomorrow morning, and the IMF are sending over around a dozen people, including several “banking experts”.
Speaking in Washington, IMF spokeswoman Caroline Atkinson also said that the mission will be led by Ajai Chopra, deputy director of the IMF’s European department.
Chopra has already arrived (see 2.03pm and 11.23am for visual proof), while most of the rest of the team are still on their way.
Finally, Atkinson was adamant that Ireland has not requested any financial support from the IMF, and that Chopra’s team will focus on measures to “support financial stability” and “protect against market risks”.
5.14pm: Brian Lenihan, Ireland’s finance minister, has made a frank admission that there are “very big isues” in the country’s banking sector.
Speaking in the Irish parliament this afternoon, Lenihan said it would be a “very desirable outcome” if a substantial contingency fund was created – following the imminent talks with the IMF and the EU.
Such a fund would be available to the Irish government to draw upon, when it needed to strengthen its banking sector.
Lenihan also indicated that Ireland will take the wider interest of the EU into account.
Here are the key quotes from Lenihan’s statement to the Dáil:
Further steps may be required in restructuring the Irish banking system to restore long-term market confidence in our banks and ensure that they can function in the future without the need for continued significant Government guarantee supports or indeed significant reliance on ECB liquidity facilities.
As I said yesterday, the Irish Government and its EU partners are still examining options on what shape a package of financial assistance might take. I also said “There is no question of loading on to the Irish sovereign and the Irish state some kind of unspecified burden. That is why the government took great care not to make a formal application at this stage but to engage in intensive discussions to see exactly what the options are.”
What we all need to do is to have a clear and shared understanding of what the facts are.
Furthermore, we are working on our consideration of the four year plan. This will be made public very shortly.
The main focus of the ongoing consultations will be on the banking situation and yes there are very big issues there.
We are part of a common currency within a broader European Union. That brings benefits but also obligations.
5.55pm: Another interesting development this afternoon — credit ratings agency Fitch has announced that it will review its rating on Ireland, if a rescue deal is hammered out.
Fitch currently rates Ireland as A+ (its fifth-highest ranking – and lower than either Moody’s or Standard & Poor’s) with a negative outlook. Now, though, it is increasingly concerned about the country’s banking sector. It cautioned that previous efforts to stabilise the banks do not seem to have worked.
Here’s the statement in full:
As previously stated, Fitch Ratings says that its current Ireland sovereign rating of ‘A+’ with a negative outlook is premised on the Irish government’s commitment to fiscal consolidation, its strong liquidity position, improving external accounts and the measures it had taken to restructure the Irish banking system However, it is now evident that the actions taken in September have not succeeded in restoring confidence in the banking sector.
Despite substantial injections of public capital into Irish banks and the extension of the issuance window for bank guarantees, Irish banks have been struggling to secure market funding and rollover existing debt, rendering them almost wholly reliant on ECB and Central Bank of Ireland liquidity support – some €130bn and €35bn respectively according to the latest available figures.
While losses from commercial real estate lending appear to have been fully recognised with the transfer of related assets to NAMA (National Asset Management Agency) and additional capital injections into Irish banks announced on the 30 September, there is considerable uncertainty over the potential for further bank losses on other assets, including from residential mortgage lending. Official estimates suggest around 10% of residential mortgages are either in arrears or have rescheduled and continue to rise, though more positively, repossession rates remain relatively low.
To underpin continuing financial support for the banking sector and further measures to restore confidence, the Irish government is expected to agree an external financial support package with the EU and IMF in the near future. Fitch will review Ireland’s sovereign ratings in the light of any package agreed with the IMF and EU.
The outcome of such a review will be influenced, amongst other factors, by the financial terms of any assistance provided and their fiscal implications; the agreed policy programme; and the likelihood that it would allow Irish banks and in particular the government to regain access to market funding at an affordable cost.
We haven’t heard from the other two main agencies – who both have a higher rating on Ireland. Standard & Poor’s rates its debt as AA- (fourth place on its ranking order), while Moody’s ranks it as Aa2 (its third highest slot).
So, at least two of the Big Three agencies are wrong……
6.15pm: Events appear to be drawing to a close now. The financial markets are calmer than they’ve been for some days, with the FTSE 100 closing up 76 points at 5768.
Quick recap of the main events:
• Patrick Honohan, Ireland’s central bank governor, hit the airwaves this morning to predict that a large rescue package will be agreed (10.15am)
• Irish finance minister Brian Lenihan admitted there are “very big issues” to fix in the banking sector (5.14pm)
• Ajai Chopra, the deputy director of the IMF’s European department, arrived in Dublin to lead its mission. More staff are on their way (11.23am and 3.55pm)
• David Cameron said that the UK is considering supporting Ireland, either through a EU rescue or via a bilateral loan — the latter would push up Britain’s own deficit (2.50pm)
• Investors showed more confidence in government debt, with bond yields falling across the Eurozone (10.25am and 1.07pm)
• Ratings agency Fitch said that it may change its view on Ireland’s debt, depending how any deal was structured (5.55pm)
I rather suspect we’ll be doing this again tomorrow. But for now, we’re signing off. Thanks all.