From the look of it, the Irish bailout is taking another chunk of another one of FT Alphaville stalwart Neil Hume’s weekends. From Peston
European finance ministers are struggling to reach agreement on the interest rate to be paid by Ireland for the €85bn of rescue finance it is set to receive from the EU and IMF – although they appear to have reached a settled position there should not be losses imposed on providers of senior debt to Irish banks.
The rate Ireland pays for its bailout is to be announced very soon, apparently after some wrangling between the UK government, which wanted 5%, fearing 7%+ was unaffordable, and can see a total bank exposure UK to Ireland of around EUR200Bn, plus trade, and the German government, which, according to their finance minister Wolfgang Schäuble
feels that any rescue loans should not look like cheap money, but should be charged at an interest rate that contains an element of punishment for the reckless borrowing spree of Ireland’s banks, which took the Irish economy to the brink of bankruptcy.
Read this bit again:
…an element of punishment for the reckless borrowing spree of Ireland’s banks…
Umm, who gets punished, exactly? And who gets off?? And whose banks??? Is Schäuble perhaps confused about the nationality of the well-known not-particularly-Irish bank, DEPFA, which changed domicile from Munich to Dublin in 2002, evading the regulatory scrutiny of both Ireland and Germany, adopted a risky, short-term funding model, and then, when the CP markets it depended on stopped dead, in August 2007, worked its contacts, and sold itself, a mere month later, to the definitely 100% echt-deutsche Teutonosuckerbank, aka Hypo Bank? Which ended up in a EUR100Bn black hole by mid 2008:
…Hypo was engulfed by the crisis, with its Depfa operations in Dublin at the centre of the chaos as it failed to find short-term funding as the financial crisis spiralled out of control.
Or is Schäuble confused about the other not-Irish bank Sachsen LB, which nearly collapsed
…after its Dublin-based special purpose vehicles — which fell between the stools of two regulatory regimes — was found to be stuffed with speculative investments in US subprime mortgages.
The EUR35Bn lost by German banks lending to Iceland has slipped Schäuble’s mind, too; or fried it.
Of course, we Brits most definitely have a dog in this fight; a EUR200Bn+ dog. But irrespective of that interest, the German government might want to take it easy with the moral opprobrium and the punitive line. It looks hypocritical and insulting; and imprudent, as well, to anyone who remembers the financial results of the Treaty of Versailles.
Of course, if the Irish state is bust anyway, none of that matters quite so much.
Update: overview and quick take from FT Alphaville