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Central Bank governor Patrick Honohan Sasko Lazarov/Photocall Ireland

Not burning bondholders was 'significant flaw' of troika bailout: Central Bank boss

We did get stung a bit on the whole deal, Patrick Honohan says.

Updated at 4.17pm

PROTECTING BONDHOLDERS IN the failed banks was “rightly repugnant” and not forcing investors to wear some of the losses was a “significant flaw” in the troika’s bailout.

Those comments came from Central Bank governor Patrick Honohan at a conference involving one of Ireland’s lenders, the International Monetary Fund (IMF).

He said a lot had been made of “burning bondholders”, much like there had been widespread criticism of the 2008 decision to provide a blanket bank guarantee.

“The idea that the newly-unguaranteed remaining bondholders in the failed banks Anglo and (Irish Nationwide) might now receive government largesse was rightly repugnant to many observers at home and abroad,” he said.

Honohan said the Irish government had been “very interested” in a so-called “bail-in” – in which unsecured creditors would have been forced to take a loss on what they were owed – to unpick the damage of the bank guarantee in the lead up to its 2010 bailout.

“Pre-emptively, though, the troika made it clear that no bail-in of senior bondholders could form part of the (bailout) programme,” he said.

This must be considered a significant flaw in the programme design. If the reason was potential spillover effects onto international banking markets from a bail-in, then it would only have been fair, and very much feasible, for the troika to arrange the difference being made available from other sources.”

Governor Patrick Honohan make keynote Sasko Lazarov / Photocall Ireland Sasko Lazarov / Photocall Ireland / Photocall Ireland

Keep it in perspective

But Honohan said the effect of burning the bondholders had to be “kept in perspective” as there were about €16 billion in unguaranteed bonds – only about one-third of which were in the two failed banks.

“This is still a lot of money of course, but would not have resulted in any relatively large or noticeable alleviation of the belt-tightening, bearing in mind that each year from 2008 saw an additional fiscal consolidation effort to reach an annual figure of around €30 billion by 2014,” he said.

Ireland’s total bailout package was worth €67.5 billion and its annual interest bill to service that and other government debts last year hit nearly €7.5 billion.

However, Honohan, who famously announced the bailout on RTÉ’s Morning Ireland in November 2010, said without the bailout “the wellbeing of the people of Ireland would be very much lower than it is today”.

He added it would be wrong to deliver a completely positive verdict on the bailout as it had left a “long-lasting residue of high unemployment” and household debt for the country, and Ireland had been hit with an interest rate that was too high as part of the bailout deal.

TASC FEPS Annual Conferences Mark Stedman / Photocall Ireland Mark Stedman / Photocall Ireland / Photocall Ireland

Second bailout could have been needed

Honohan said had been a high risk that even after three years of the bailout programme it would be too hard for the government to borrow money from anyone at reasonable terms and it would have to take a second bailout.

That didn’t happen and Ireland has successfully struck a deal to repay its highest-interest IMF loans early using cash it could raise cheaply on the markets thanks to its much-improved economic standing.

Meanwhile, Honohan said the “drip-feed” of bad news about the scope of bank lossed meant Ireland had no choice but to take the bailout programme, despite the dangers it posed to the country’s long-term economic prospects.

In short, from the Irish point of view, proceeding with the official borrowing was the best thing to do, even though what was on offer was disappointing,” he said.

“Given the large primary deficit that then prevailed, any alternative would have been much more painful for the Irish people in terms of drastic cuts in services and increases in taxation.”

READ: A Europe-wide conference on debt relief? Hmmm, no thanks: IMF chief >

READ: Explainer: Why a ‘Grexit’ would be bad news for Ireland… but probably won’t happen >

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65 Comments
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    Mute Derek Walsh
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    Feb 27th 2020, 8:25 AM

    It takes a lot of moxie to go into negotiations by declaring that you’re not even going to uphold the agreements you’ve already signed. I’m sure this will all go well for the UK.

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    Mute Peter Hughes
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    Feb 27th 2020, 10:06 AM

    @Derek Walsh: I think Boris wants to crash out, he does not care about the damage it won’t effect him and his rich buddies one bit. It will effect a lot of other people but he won’t care one bit.

    238
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    Mute Sinead Regan
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    Feb 27th 2020, 1:17 PM

    @Peter Hughes: I think you mean Dominic, not Boris

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    Mute ed w
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    Feb 27th 2020, 3:17 PM

    @Peter Hughes: I think you’re him and his backers will make more money in the chaos and sod the people who voted for him.

    12
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    Mute Marc Power
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    Feb 27th 2020, 5:00 PM

    @Derek Walsh: more arrogant, delusional posturing from an arrogant man representing a deluded nation

    10
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    Mute Dow Dubrov
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    Feb 27th 2020, 6:30 PM

    @Peter Hughes: It will affect him if there is an economic downturn and people start accusing him in the streets. He doesn’t want that and is just putting in a show for the media

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    Mute DERMOT DE BARRA
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    Feb 27th 2020, 7:32 AM

    Perfidious Albion at it again

    151
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    Mute Steve Creaton
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    Feb 27th 2020, 7:37 AM

    There is no way tha the EU will stay united during this trade negotiation. The UK will enjoy playing each countries interests off against each other. Perhaps with a little less gloating and ‘kicking the British’ during the Theresa May’s period we could have haf something different.

    This will end with the UK just undercutting the whole of Europe. The EU won’t survive long if it doesn’t change.

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    Mute Dave Thomas
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    Feb 27th 2020, 7:40 AM

    @Steve Creaton: the EU has really torn itself apart during this brexit shambles, unlike those plucky brits. Or should that be the other way around?

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    Mute DJ François
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    Feb 27th 2020, 7:42 AM

    @Steve Creaton: the Brexiteers have been saying this since the referendum, the EU has not cracked. The only gloating was from English nationalists, the EU has moved on, time for little England to fend for itself in the real world.

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    Mute Jim Buckley Barrett
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    Feb 27th 2020, 7:43 AM

    @Steve Creaton: what a lot of bs. The EU offered the UK a fair deal during Theresa May’s time. It was the UKs own MP that ambushed the deals.

    There’s a certain element in the UK that don’t want any agreement that restricts their finance sector, they want to become the Singapore of banking in Europe.

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    Mute Simon Fusco
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    Feb 27th 2020, 7:43 AM

    @Steve Creaton: the EU has been completely united in brexit talks, individual member states have things they want off the UK that’s easier to get if the EU stick together Ireland wants the GFA up healed Spain wants Gibraltar and grease wants its marbles back. Just remember if one country leaving a union was enough to destroy it why didn’t the UK collapse after Ireland left?

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    Mute ShaneO'Mac
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    Feb 27th 2020, 7:48 AM

    @Steve Creaton: There is no evidence Europe won’t be a united front. As they have been from the very beginning of the Brexit process.

    Your post is simply ‘magical thinking’. Britain will have red lines, Europe will have red lines. But the EU can walk away from negotiations if they have to, whereas Britain cannot walk away.

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    Mute Rory J Leonard
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    Feb 27th 2020, 8:44 AM

    @ShaneO’Mac:

    Boris may have 80 seat majority in Westminster but this will count for nought if Trade deal negotiations with EU don’t go according to plan for UK.

    As jobs hemorrhage, and full effects of Brexit are laid bare to traditional labour voters who voted Tory in GE19, those new MP’s will be pressurized at constituency level to halt the madness.

    Any Singapore-on-Thames global Financial centre masterplan by Brexiteer chiefs will soon be dead in the water, as soon as earlier taken-in but now sensible B supporters – like ERG’s Steve Baker MP – finally realize there’s little positive trickle down economic effect from that daft plan for 95% + of UK Electorate, and that EU really is a force of good for betterment of societies throughout Europe.

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    Mute Dino
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    Feb 27th 2020, 9:06 AM

    @Steve Creaton: that makes no sense whatsoever, the EU sends something like 10% of its trade to the uk while the uk sends closer to 50% to the EU. Why would the EU be under pressure to do a deal with the UK? This 10% won’t stop under world treaty rules but it will be effected, the negative effect on 50% of the UK trade will be felt much harder in the UK

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    Mute Dino
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    Feb 27th 2020, 9:11 AM

    @Dino: actual numbers are closer to 8% of eu exports go to uk and 45% uk exports go to EU. The UK does have a trade deficit with the EU but the numbers are small in comparison to overall EU trade. Little England have greatly overestimated their importance to the EU and the world and not for first time.

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    Mute Barry
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    Feb 27th 2020, 12:23 PM

    @Steve Creaton: Brexiter supporters have been saying since 2016 that the EU will ripp itself apart as the UK voted to leave. The opposite has happened, the EU is more united now then it was in 2015.

    If the UK tries to undercut the EU it’ll start a trade war and the UK will loose that war.
    Ultimately its the average joe in the Uk that will suffer, not Bojo and his pals

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    Mute KalEll
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    Feb 27th 2020, 12:32 PM

    @Steve Creaton: Brexiteers have such unfounded and infinite confidence. Kicking the British means reminding them of the rules that the EU is founded on does it?

    It will be damaging to both sides but I know which side of an all out trade war I’d rather be on.

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    Mute Paul Lanigan
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    Feb 27th 2020, 12:39 PM

    @Steve Creaton: plueeese

    15
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    Mute Ossi Fritsche
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    Feb 27th 2020, 12:56 PM

    @Steve Creaton: Your on La LA Land

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    Mute Ossi Fritsche
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    Feb 27th 2020, 12:58 PM

    @Dave Thomas: The UK will break apart in 10 to 20 years time and Boris Johnson, Theresa May and David Cameron will be blamed and Rightly so

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    Mute Denise Gerrard
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    Feb 27th 2020, 2:06 PM

    @ShaneO’Mac: wrong uk can and will walk away ,l don’t know where you get your info from .

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    Mute :)
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    Feb 27th 2020, 2:54 PM

    @Steve Creaton: The Journal needs an award for “dumbest and most ill informed” comment. You’re a shoe in Steve.

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    Mute Paul Furey
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    Feb 27th 2020, 3:24 PM

    @Steve Creaton: that went down rather well. Good man.

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    Mute 2thFairy
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    Feb 27th 2020, 4:42 PM

    @Dave Thomas: what a load of rubbish. The EU are stronger and more united that ever. They hold all the cards. The UK has become weaker and the usual way for them to deal with that is to shout out more propaganda about how strong they are. The EU are a far mightier force than the UK and now that they realise that they will cut loose and blame everyone but themselves.

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    Mute Alan McDonald
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    Feb 27th 2020, 7:52 PM

    @Steve Creaton: You really don’t understand how this works. EU access is what the UK needs…passporting rights etc. The UK holds little outside of import/export of goods over the EU.

    Already Brit farmers are being told larger farms will have a 25% shortfall from losing subsidies.

    I dont recall that being mentioned before the elections or referendum.

    5
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    Mute Willy Mc Entire
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    Feb 27th 2020, 7:51 AM

    EU is going to collapse. Sooner or later .

    78
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    Mute Brian Madden
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    Feb 27th 2020, 8:03 AM

    @Willy Mc Entire: you have been saying this for the past few years now.

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    Mute lambda sensor
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    Feb 27th 2020, 8:12 AM

    @Willy Mc Entire: maybe so, nothing last forever. Brexit will not be the cause however. It has fostered more unity within the EU already. Most informed people see the EU as an effective counterweight to the US on one side and China in the other. No EU country matches either of those alone.

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    Mute Joe Mc
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    Feb 27th 2020, 8:44 AM

    @lambda sensor: I think the agreement on the eu spending budget could do more harm than brexit. Watch this space

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    Mute Laughable
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    Feb 27th 2020, 9:54 AM

    @Joe Mc: Amazing how all these EU experts have come out of the woodwork since Brexit, people that prior hadn’t a clue or didn’t care how the EU functions.
    We’re at the start of another EU budget cycle, this happens every time.
    The only difference this time is the commission budget proposal is higher even if the UK was still contributing.
    So it’s a double whammy, slightly less in the coffers because of the UK and more spending required, for the green objectives and the EU ‘go digital’ economy.
    We’ll all come to an agreement in the end and move on as we always do.

    28
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    Mute Daniel Kelly
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    Feb 27th 2020, 12:42 PM

    @Willy Mc Entire: Maybe, but not in the face of little england

    11
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    Mute Will Keane
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    Feb 27th 2020, 12:57 PM

    @Willy Mc Entire: anything is going to happen sooner or later

    8
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    Mute Ossi Fritsche
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    Feb 27th 2020, 1:01 PM

    @Willy Mc Entire: How are you doing with EU privaleges while living in the EU? While Brits will collapse

    10
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    Mute Johannes Baader
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    Feb 27th 2020, 1:26 PM

    @Willy Mc Entire: You (Ireland) will be fu***d if that happens

    10
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    Mute A2 Poster
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    Feb 27th 2020, 1:51 PM

    @Johannes Baader: I’m a European. We belong in the EU with our European allies and friends. We’re stronger together. Leaving would be madness for such a small country like us.

    16
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    Mute Alan McDonald
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    Feb 27th 2020, 7:54 PM

    @Willy Mc Entire: Later. And long after the UK ceases to exist as it is today

    1
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    Mute Corkonian In Dublin
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    Feb 27th 2020, 12:43 PM

    The EU should walk away now, let the UK sink and the citizens join the all other passport queues at airports.

    71
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    Mute lambda sensor
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    Feb 27th 2020, 8:58 AM

    So the way B.J has set this out he has the backdrop of the WTO standards on 31st December and anything negotiated between now and then will be better than that. Not sure the utopia he thinks is there beyond the end of the year is actually there.

    44
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    Mute ed w
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    Feb 27th 2020, 3:21 PM

    @lambda sensor: the wto standards as far as I read dont actually exist. anyone implementing wto standards actually needs to have the terms agreed by 163 wto members
    https://www.google.com/amp/s/amp.theguardian.com/politics/2019/jan/27/uk-cannot-simply-trade-on-wto-terms-after-no-deal-brexit-say-experts

    3
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    Mute Hakaman
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    Feb 27th 2020, 12:54 PM

    Complete Bluffer, and he somehow thinks the EU is going to blink at his showmanship?

    I guess he did manage to cod an entire nation into voting for him so anything’s possible.

    48
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    Mute DeWitt
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    Feb 27th 2020, 11:06 AM

    Get ready for hard border

    46
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    Mute Barry
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    Feb 27th 2020, 12:24 PM

    @DeWitt: it’ll be interesting if it happens as it will mean the UK knowingly and willingly broke a international peace agreement.

    73
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    Mute Shannon butler
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    Feb 27th 2020, 11:31 AM

    The US and Canada are not UK’s neighbour’s.

    28
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    Mute Corkonian In Dublin
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    Feb 27th 2020, 12:43 PM

    The EU should walk away now, let the UK sink and the citizens join the all other passport queues at airports.

    27
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    Mute Will Keane
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    Feb 27th 2020, 12:55 PM

    Off with ye

    23
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    Mute Paul Atreides
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    Feb 27th 2020, 2:29 PM

    Any British company doing business with Europe should be very worried by the stance of the UK government.
    Any government that reneges on an international agreement will have no credibility with any government around the world. Good luck trying to get trade agreements with them.
    I predict a breakdown of the talks in June with the UK walking away, all theatrics. With hastily reconvened talks in the autumn to salvage some agreement.

    25
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    Mute Paul Maguire
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    Feb 27th 2020, 12:40 PM

    Boris is just doing what is being use by Trump in trade tactics

    15
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    Mute Corkonian In Dublin
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    Feb 27th 2020, 12:43 PM

    The EU should walk away now, let the UK sink and the citizens join the all other passport queues at airports.

    13
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    Mute Denise Gerrard
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    Feb 27th 2020, 4:58 PM

    @Corkonian In Dublin: on the journal the comments are continuately on about uk ,it use to be brexit now its the trade deal ,what is wrong with you people you comment go on and on ,ireland is never mentioned much in uk media only time was when varadker lost the election and the mess that’s there now. You are the little small country that the eu used you to beat the brits over brexit .you said never happen now your saying trade deal never happen . It will .

    8
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    Mute The Great Cornholio
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    Feb 27th 2020, 1:42 PM

    be grand sure June is ages away

    9
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    Mute Hugh Fogerty
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    Feb 27th 2020, 9:07 PM

    The EU is in trouble at the moment, they can’t agree a budget, big cuts coming for Irish farm subsidies, we need the UK as a market for our goods. Likewise the UK need the EU market for their goods including finance. Instead of slagging Boris and the UK we should all be hoping that a deal is done. The UK have left the EU, they will never be bound by EU rules like state subsidies etc. That would defeat the whole purpose of their Brexit. What has been published are the opening positions, if both sides are adult (forget Gibraltar and the Elgin marbles) both sides could compromise but it was very dangerous publishing ‘red lines’ as someone will lose face. Wars have been started on principles.

    9
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    Mute Tommy Fitzgerald
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    Feb 27th 2020, 5:50 PM

    All bluster. Dont believe a word of it. He will put as much pressure as possible on the EU negotiators publicly in order to get the best deal he can get. He will be disappointed though, the EU wont back down and in the end he will have to accept tariffs on various goods. The EU have already said that they wont give him free trade unless he follow eu rules and standards and opens up the uk fishing waters. We will end up with some kind of reasonable trade deal where both sides have to compromise somewhat.

    5
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    Mute 2thFairy
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    Feb 27th 2020, 4:45 PM

    More bluff from BJ and DC. They have no leverage with the EU and have no idea how to negotiate a deal as underdogs.

    5
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    Mute jr
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    Feb 27th 2020, 2:34 PM

    Walk and walk quickly, fool.

    14
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    Mute Michael MC Evoy
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    Feb 27th 2020, 8:20 PM

    Boris, please stop boring the s**t out of us and just go.

    3
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    Mute Robert Preston
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    Feb 27th 2020, 9:02 PM

    @Michael MC Evoy: Jesus christ man you clicked on the article . Nothing to do with Boris

    2
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    Mute AnnaX
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    Feb 27th 2020, 5:48 PM

    waiting here boys..

    me.beep.ie/HNp

    only 18+

    1
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