# EU Bailout for dummies



## Whiskey (17 Nov 2010)

Can someone explain in simple english what the potential EU bailout means......(if it happens)

Is it a simple case that the EU will lend money to Ireland at a good interest rate ?  

Or is it a case that the EU will directly lend money to the Irish banks to keep them solvent  (with no impact on the national debt)

Does it have any impact on NAMA ? Will the funds be used to buy toxic assets off bank's balance sheets ?

Sorry about the dummy questions.


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## mmclo (17 Nov 2010)

Whiskey said:


> Can someone explain in simple english what the potential EU bailout means......(if it happens)
> 
> Is it a simple case that the EU will lend money to Ireland at a good interest rate ?


 
More or less, the EU has a fund and the IMF also contribute. AFAIK this is not cash, they raise a bond for this purpose as they are AAA


> Or is it a case that the EU will directly lend money to the Irish banks to keep them solvent (with no impact on the national debt)


 
No this is verbotten, but the EU/IMF can lend to Irl which then loans to banks i think (personally I think this is where it is heading)


> Does it have any impact on NAMA ? Will the funds be used to buy toxic assets off bank's balance sheets ?
> 
> Sorry about the dummy questions.


 
Not sure on this, it is day to day liquidity I presume so they can use it anyway they want but naturally all regulations are tighter and they would make some agreement with Govt. to improve their situation over the next few years


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## DB74 (17 Nov 2010)

Here's my understanding Brian (I have assumed you are either Brian Cowen or Brian Lenihan!)

1. The EU will lend the money at an alright interest rate (I presume better than bond market). They will however insist on some concessions, the main one possibly being the abolition of the 12.5% corpo tax rate. The Govt is keen to avoid this

2. The EU cannot put the money directly into the banks. It is up to the Govt to decide how to spend the money - eg increased salaries for TDs for negotiating such a great little settlement

3. It shouldn't have any impact on NAMA as such. The money still has to be borrowed so whether it comes from bondholders or EU it doesn't really matter.

IMO they should take the bailout and then let Anglo go to the wall. Who gives a **** what the bondholders think once we have our money.


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## NHG (17 Nov 2010)

Should we shift savings out of Irish Banks to the likes of Rabo etc or would the run cause a worse issue for the country (I don't care about hurting the bank's as they don't care about us)?


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## Sunny (17 Nov 2010)

DB74 said:


> IMO they should take the bailout and then let Anglo go to the wall. Who gives a **** what the bondholders think once we have our money.


 
Every Government in Europe cares about what the bondholders think (despite political posturing by German officials). EU come in and burn bank bondholders, it is goodbye to Portugal, Spain and probably Italy as well. Once that happens, it is goodbye to the Euro and probably goodbye to the EU.

This crisis can never be allowed happen again and bondholders/investors should never have this power again. However, the reason they do is that every Country in the EU at the moment depend on these guys to fund the running of their Countries. The bondholders didn't run up huge deficits that needed financing. Governments did.


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## thedaras (17 Nov 2010)

OP; DB74 





> Here's my understanding Brian (I have assumed you are either Brian Cowen or Brian Lenihan!)


Brilliant,


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## Whiskey (17 Nov 2010)

OK, just to get back on thread again can we agree that DB74 hit the nail on the head ?

The EU bailout is nothing more than the government borrowing money at a better rate that they could borrow money from the markets. 
The downside is that there are conditions which may be enforced, like an increase in corporation tax.

For a dummy like me, sounds like a good thing, we can borrow cheap money.

What other downsides (apart from a possibility of increasing the corp tax) might there be ?
Is there a national humiliation involved, I'm living in the UK temporarily, and the Ireland story is taking up a fair bit of media coverage.


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## Bonnie (17 Nov 2010)

confused noobie here (Hi everyone)What alternatives are their to Rabodirect?I opened some 5 year policies with Irish Life that won't mature till 2013, even though they were '100% guarenteed return', should I cut my losses and withdraw for re-investment elsewhere?Thanks


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## DB74 (17 Nov 2010)

Whiskey said:


> What other downsides (apart from a possibility of increasing the corp tax) might there be ?


 
The quote _"he who pays the piper calls the tune"_ is probably the best way to describe it.

If Ireland wants to borrow money from the EU/IMF then we will have to adhere to the conditions attached to the loan. An increase in the CT rate is just one example.

Another poster on a different thread did make a good point however. If the EU is so keen to get us to accept the bailout so as to save/stabilise the Euro then we are in a decent enough bargaining position.

It's hard to believe that secret talks have not been held to discuss the bailout well before the ones revealed earlier this week.

IMO the reason that the Govt are so publicly keen to avoid the bailout is that they don't like the conditions that the EU/IMF are keen to impose because they know that it will be death of them politically


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## DB74 (17 Nov 2010)

Sunny said:


> Every Government in Europe cares about what the bondholders think (despite political posturing by German officials). EU come in and burn bank bondholders, it is goodbye to Portugal, Spain and probably Italy as well. Once that happens, it is goodbye to the Euro and probably goodbye to the EU.
> 
> This crisis can never be allowed happen again and bondholders/investors should never have this power again. However, the reason they do is that every Country in the EU at the moment depend on these guys to fund the running of their Countries. The bondholders didn't run up huge deficits that needed financing. Governments did.


 
Fair enough

The only argument (and it's weak I admit) is that lenders/bondholders need people/countries to lend to. If every country in the EU decides it won't pay back the bondholders what can they realistically do?


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## Duke of Marmalade (17 Nov 2010)

NHG said:


> Should we shift savings out of Irish Banks to the likes of Rabo etc or would the run cause a worse issue for the country (I don't care about hurting the bank's as they don't care about us)?


Many, many people are asking this question. There has already been a massive run on Irish banks, but the haemorrage has been bandaged by 130Bn of ECB support. Ordinary punters don't seem to have panicked yet and as an ordinary punter I am assuming (maybe naively) that even if all deposits were withdrawn from Irish banks the ECB would fill the hole. The promise of our government is no longer worth anything. We are hugely dependent on the support of the ECB and it is hard to see why they would ever pull the rug.

Imagine everybody in Kerry panicked because they heard BoI Tralee was hopelessly illiquid and they all transferred their accounts to BoI Dublin branch. Wouldn't matter BoI Dublin would send the cash back down to Tralee. Same sort of thing is happening here, Ireland has gone hopelessly illiquid but it is only a pimple in the EU. The money has been withdrawn from Ireland and put in other Euroszone countries and the ECB is simply channeling it back.

As long as we are not insolvent as well as illiquid


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## TLC (17 Nov 2010)

Another "Dummies" question for you all - who are the Bond Holders & aren't there different levels of Bond Holders?  I thought bond holders where people who "gambled" on there being a return with investors money, just like people who buy shares?


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## jpd (17 Nov 2010)

Bond holders are just like depositors. 

Both loan money to a bank and expect to get it back.

The Irish Government, on behalf of the Irish taxpayer, guaranteed in Sept '08 that they would both get their money back.

Unfortunately, everyone is now holding the Government to that promise - including the ECB. Seems like the consequences of the promise weren't thought through very well.


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## charlie MacZ (17 Nov 2010)

Here's another one - i thought we were in a global recession. So where does the EU\IMF get all its billions from in the first place ??


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## jpd (17 Nov 2010)

They borrow it from governments - the other governments print it


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## TLC (17 Nov 2010)

Thanks for the clarification jpd


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## fender (17 Nov 2010)

jpd said:


> They borrow it from governments - the other governments print it



Would it be possible to explain this a bit more? Are you talking about governments outside the EU? How can anybody just print money - does money not just represent the wealth of a country?


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## charlie MacZ (17 Nov 2010)

that's what i thought. someone said to me today that a bank note is basically just an IOU - i acted as if i knew what he was talkin about but i hadn't a clue...!


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## jpd (17 Nov 2010)

Government or rather Central Banks add money to their accounts with the press of a button, and hey presto! more money! then they use that money to loan to an ordinary bank and so the money enters into circulation. Remember most money today exists as numbers in a computer.


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## Whiskey (18 Nov 2010)

jpd said:


> Government or rather Central Banks add money to their accounts with the press of a button, and hey presto! more money! then they use that money to loan to an ordinary bank and so the money enters into circulation. Remember most money today exists as numbers in a computer.



Just  to Tone down the conversation a bit more, why dont the Irish Central bank press a button to print 70 billion ?

Can the Irish central bank print money ?


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## Pique318 (18 Nov 2010)

Cos that's what causes inflation. Too much money in circulation.

Ask Mugabe why a loaf of bread cost a gazillion Zim dollars.


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## jpd (18 Nov 2010)

No - only the ECB can print €s


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## mmclo (18 Nov 2010)

We might be able to print as many punt nuas as we want soon so get your wheel barrows ready


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