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THE IMPLIED PROBABILITY of Ireland defaulting on its debt is still 39 per cent, in spite of persistent austerity policies and lower bond yields, according to the chairman of the Irish Fiscal Advisory Council.
Speaking at a seminar organised by European Movement Ireland, Professor John McHale said: “We have made a huge amount of progress in terms of reducing the expectation that Ireland is going to default but we’re not out of the woods yet.”
Professor McHale said the right kind of assistance from Ireland’s partners “in terms of getting a deal on the various components of the banking related debts” would help and is an important part of a strategy to improve Ireland’s fiscal stability.
He added that this debt relief could take the form of extending the promissory note maturity date, investments from the European Stability Mechanism (ESM) into Irish banks or extending the maturity of loans from European partners.
The professor also said that withholding or deferring payment of the Irish Bank Resolution Corporation’s (IBRC) promissory notes as a negotiating mechanism for a debt write down was not in the country’s best interest.
To withhold payment on the promissory notes would effectively default on the Irish Central Bank and ultimately default on the Euro system as a whole. I think that would be an extremely risky thing to do.
He said that he felt that a ‘threat’ is not the best way to get a write-down and that the best approach would be one which emphasises common interest.
http://soundcloud.com/christophermckinley/prof-mchale-focusing-on-the
“There’s a significant common European interest in Ireland successfully getting through its crisis and back into normal borrowing,” he said.
A deal on the promissory notes, or other elements of the debt, makes it more likely that Ireland will be a success story and that’s in everybody’s interest.
“It’s better to focus on that rather than making threats that would be very hard to carry through… and, if [they were] carried through, could be incredibly damaging,” he said.
Professor McHale, who is also head of economics at NUI Galway, said that back in the middle of 2011 the implied probability was close to 90 per cent.
He also believes that “back-up support” after Ireland leaves its bailout program would allow “investors [to be] confident that if Ireland needs additional funding that it will be there.”
“I think that would actually make it much less likely that we would need that funding because I think there will be more [willingness] to invest in Ireland,” he said.
That will help get us back into the markets and essentially reduce any lingering concerns that we might end up defaulting because we couldn’t get the support that we needed, should we need it.
He also said that fulfilling any obligations and conditions set out in the bailout program and any other agreements will help to get the country “back on track.”
McHale accepted that the widespread availability of cheap credit to institutional investors, in addition to Irish government policy, could be a factor causing the drop in Irish bond yields. However, it is his belief that there has been a genuine increase in investor confidence.
http://soundcloud.com/christophermckinley/prof-mchale-discusses-investor
“Certainly the European Central Bank (ECB) has injected a lot of liquidity into the European economy…
[which]…drives down yields,” he said. “At the same time investors are not going to buy an asset if they think they are going to make big losses on it.”
“While I think the ECB’s policies and the liquidity in the market may have helped, ultimately I think there has been a real decrease in the perceived risk that Ireland would end up defaulting,” he said.
Professor McHale was speaking at thematic session about how Ireland is an example of how to cope with challenges posed by the financial crisis at a seminar on 40 years of Ireland’s EU membership.
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Oh dear, we shouldn’t make threats because if we had to carry them out it could be very damaging. Damaging to who? It’s overpaid advisers and overpaid lecturers and overpaid politicians are afraid of damaging their cozy circumstances. We have to carry out this threat if necessary and refuse to make March payments. Until we threaten to pull down this European house of cards on everybody’s head we will be slowly strangled with more austerity. We either get the Anglo debt written off or we default. If Noonan and Kenny don’t stand firm on this (pressure from the electorate would help) then our future will be long years of poverty. Capitalism involves defaults and losses. Taxpayer bailouts is not capitalism – its more akin to slavery.
Comment of the day!
We have to set the ‘ non plus ultra’ . Great comment.
Yes, exactly, ‘damaging to who?’.
John McHale has shown himself more than content to continue with the same deeply flawed macro economics & monetary system thinking that has created this mess & is in fact getting worse. The destruction of Spain & Greece will blow back on the rest of Europe & wider afield.
Who gains from this? The top few percent, which includes the political leaders & their advisers like McHale, that’s who. Not the majority of citizens.
The Euro system has ‘failed’ (& continues) in exactly the way its critics said it would.
But we should be crystal clear about this. It is +not+ a failure for those who designed it & intend to perpetuate it right up to the brink of serious social disorder.
It was designed precisely with the intention of creating the present kind of mess with mass unemployment & governments’ counter-cyclical policy straightjacketed (eliminated) by relinquishing monetary sovereignty &, increasingly, fiscal policy to the instruments of unelected cabal of neoliberal bankers – the ECB & others.
The intention is to roll back the last century of social reforms & protections so hard fought for in Europe by deliberately creating the conditions where they can claim it is ‘unaffordable’. This is nonsense – the EU has never had more productive capability. But if productive capacity on the one hand is held back, and on the other, the welfare burden increased, then the ‘unaffordable’ lie can be made to appear more plausible. Even better if these authorities can also get people to fight and squabble over the crumbs they’ve left us. Divide & rule.
Mario Draghi has clearly stated Europe’s social model is ‘outdated’, requires ‘reform’. His meaning & intent are clear, as it is with other parts of the Troika that have insisted casino banking losses of the top few percent are covered by the rest of us with massive debt load. Rather than health, education & welfare services we must pay ever more ‘tribute’ to the Landlords & their Agents of the top few percent.
the truth hurts it certainly does kenny has people around him like mchale telling him of the great job that he is doing .
Very well said!
Default is the only language these people undersatnd – so the soonnr it is done the better . It is also waht the Trioka fear most .
Slavery actually is their aim . they wont call it that . It will be said that Ireland is competitive – ie has sweat shop labour wages .
as u say this house of cards has to be pulled down – there is in fact no end in sight – all we hear are lies .
@ mike hall – great comment also .
”Mario Draghi has clearly stated Europe’s social model is ‘outdated’, requires ‘reform’”
What is outdated is the failed Neo-liberal economics that were first tried in Chile in 1973 after their 9/11 .
They have failed the majority – and as has been said – they are designed to service the rich at the expense of the less well off and the poor – in which direction we are all headed [ except for the Rich and their a##lickers ].
Neo- liberal capitaism has failed – and they are scared that there can be an alternative – so the Propaganda machine is in overdrive .
Having failed to follow Icelands solution – we must not follow US economic ” theory ” any further . Those who followed it the closest are the ones most in trouble . Let us look to Economies that are doing ok – eg Nordic countries – not those from a failed economy like the USA – with its corrupt politicins and bankers . A country that was founded by people many of whom were slaveowners .
We need to default for our kids sake. In 4/5 years more we be up and running with our punt back. Lock up the banker and free the people …..
Right on.
I seriously doubt you understand the devistating implications of leaving the euro and defaulting .. Do you think the country just starts from scratch then !
Please explain these devastating outcomes jay, I’v asked you before and you refused. So don’t just post crap like the sky is going to fall with out backing it up?!
Ryan please dont lie to try validate your point not at any stage have i ever refused to answer anythin youve asked
1 hyper inflation
2 the punt would be worth at best 50c to the euro so ur €350k house is now worth £700k
3 automatic bankruptcy for any business thats not heavly funded
4 involantary redundancys for 40% of the public sector as we cant get money to pay the huge overspend every year
Not quite the sky falling but not a situation i would like to swap for this current one
Are these facts or made up on the spot facts? At best 50 cent? Involuntary redundancies? I’d quite like that if they came from the top. Hyperinflation yes, for imported products causing a demand for domestic products. Truth is no one can predict with any certainty what the effects would be but we know for sure that the country is going to spiral downward under euro rule and debt.
Nothin can be facts as we havent done it but educated guesses. 50c to the euro research it any economist would tell you that would be a close estimate
Im not sayin that all will definitly happen 100% the problem is no one can say what will happen 100% but they are the risks in front of us.
I think as a country we should say we are going to default if they dont push the promisory notes out 25-50 years and hope they dont call our bluff on it
I think as a country we should say we are going to default unless they write off €64 bn..
We can all hope
Jay the sun will still come up if we left the euro, we would devalue or money which would open the doors to more tourism, we would get our fishing waters back, we would trade with who we wanted cos in the eu we are told who to trade with,we could make our own laws again and remember jay we are the green belt of Europe and the sun will still come up if we left the eu
Er! Do you think we would be going back to the barter system, cop on
Jay, I’d like to know how one can lie when asking a question. Now to your answers, your first post claims doom and gloom 50c in the euro….your second post claims no one can tell what would happen if we defaulted and in your third post you claim ‘we can hope’ for a write down of debt, which in face is default. You have proved my point….the sky will not fall if we default or get a write down. I suppose you will half agree but disagree with this post also.
Yes Jay we are all stupid and reckless. People will still want to trade with us. Being linked to the German economy has had the same effect on Ireland as if you strapped a Mercedes engine onto a postmans bicycle. Sooner or later the wheels would fly off. And thats whats happened. We would be better as an independent nation in charge of ourselves than be part of s group of debtor nations enslaved to a group of powerful creditor nations.. forever
Ryan first of all i said your lyin claiming youve asked me this question before and i didnt answer in an attempt to undermine my opinion and its has blown up in your face ..
My first post is what could quite easily happen upon default Hyper inflation is a guarentee and a weak punt is. A guarentee also the level of weakness will be decided by the markets not me they choose its value not us not the government only the markets
I never said we shouldnt get a write down that what we should hope for and i do hope for this. But a conplete default … No way
I won’t undermine your opinion because you know it all eh….and you will no doubt change your tune to suit another post/comment/question as you have done before….as you were.
Show me where i did it before show me the post??? Clearly ur talking out ur arse…
Mark
The vast bulk of consumer goods are currently imported but the really savage consequence of reintroducing the punt and watching it slide to fifty percent of its opening value would be the price of fuel and transport.
If you double all petrol and diesel prices the buses will stop and so will the trains and so will the cars and so will the trucks.
The Icelandic Krona dropped in value by that amount in the last five years and the only thin saving them is electricity being produced by free thermal power.
Be careful what you ask for Mark.
Hmmm makes you wonder why we’re giving away €1 trillion of our oil for nothing then..
Here’s a thought..we can grow lots of rapeseed for oil here, all diesel engines can be cheaply converted to run on vegetable oil..do this until we can extract and refine our own oil..
This fear of what will happen is ridiculous. The country is going down the tubes and we will be screwed for generations if we do nothing. We need radical steps to save ourselves and all this scaremongering is self defeating. Lets swap long term, externally imposed hardship for hardship of our own making in the short term.
Sweden did, Iceland, the UK, did and we have done in the past. The option taken by our government is not the only option as we are lead to believe.
I love the line “Not in our best interest”.
From this Government’s performance to date, do they even know what’s in our best interest?
We will be very interesting, come the end of March to see do we get a deal on the promissory notes, after all, this Government’s reputation is on the line.
Off topic a bit, but I’ve also heard on the grapevine that there could be very interesting news coming from Sean Quinn soon, re: implicating certain members of Dept Finance, Central Bank & previous Governments. Watch this space.
They mean not in ‘our’ best interest’ ie politicians and overpaid civil servants.
Who is paying this guy’s salary ?
Kenny and Noonan will do what they’re told to do by Germany. Sad fact, but true. They will still celebrate 20 jobs in BallygoBackwards while 100′s of jobs are being threatened in the likes of B&Q and other recent Examinerships & Insolvencies.
Well there is no chance they can save jobs
Funny how you use a foreign mall chain as your example of what should be protected.
The very same type of foreign chain that has decimated village centres and corner shops across Ireland and sucked all business away to retail parks containing UK mega stores.
Ireland had sold its soul long before the Troika got here. We are now just a carcass.
Ireland under this or any imaginable Government will NOT be defaulting. Entertaining headlines sell papers and get high View numbers but when Copied by International media do damage to our economy
Remind me why professor McHale would say such things to sell papers? As far as I’m aware he has not vested interests or holdings in print/digital media. Want to elaborate on your statement.
McHale is saying a default would be a very bad thing and we should avoid it if at all possible.
Really I think he’s trying to say that there is a probable 40% chance of default if we do not get a write down of this unsustainable debt that is not ours.
Still confused as to why this would lend to people buying newspapers ?! The populist rhetoric and doomsayers are out in force this morning.
No one can say what will happen if we default, it’s all hot fearsome air being blown. Greece is still under the sky and they got a write down. How come our sky will fall if we default?
Greece is in ridiculously bad shape. You can’t honestly use Greece as an example of a country that has done well from a ( partial and negotiated ) default. Online chatter aside, it is very unlikely that Ireland will either opt out of the euro or will unilaterally default ( which is not the same as a negotiated and structured default ). Yes, it wouldn’t be in the interests of those in power to do either or both of the above, but it also wouldn’t be in the interest of the general population. It would hurt us more than it would help.
Nikolas, are you German? Which us are you talking about?
No Mark, I’m not German, I’m Irish. I have a German name because my father and his parents got out of Germany for political and religious reasons in the very beginning of the 1930s. If you want to get bigoted about names, you’ve a nice auld Scottish Prodestant name yourself, but I’m not making aspersions about the validity of your Irishness. “Us” is obviously the citizens and residents of Ireland, i.e., the taxpayers.
Apologies Nikolas, that was a half hearted attempt at humour. I disagree that it would hurt us more than it help us. I think a default would hurt the Germans more than us was my point.
It is silly and facile and it shows a total lack of understanding of probability theory and risk prediction to place the risk at a percentage, 39 per cent, or otherwise. It is a specious approach and invalid.
Ireland’s economy is facing 5 major but entirely unquantifiable and uncontrollable threats. Each threat is massive and unpredictable. If any of the threats hit with full impact, Ireland will and unavoidably will default.
I don’t want to be massively negative at the weekend but I will start with just one of the 5 threats. It is the massive iceberg of mortgage default on homes, buy to let and as security for business lending. If one looks at the quarterly reports of the Covered Institutions to the Central Bank of Ireland, which include the mortgage debt impairment figures, it is obvious that there is a massive problem of under reporting. I first spotted this in September 2010 but letters to TDs, the CBI, the IBF and the Minister for Finance have been ignored despite the calm and detailed analysis.
This may seem surprising but no one actually knows the true size of the mortgage debt iceberg but taking the most optimistic assumptions, the Covered Institutions are grossly insolvent and facing a second and vastly worse existential crisis due to mortgage debt. Has Professor McHale factored the mortgage impairment crisis into his analysis? I was unable to find it.
The mortgage impairment crisis is the primary domestic risk factor.
There are four major external risk factors, all outside of Ireland’s control. I could not possible start to assess the potential impact and probability of each of these separately, never mind collectively, but,since they are not visible at all in the good Professor’s analysis, they rob his analysis of any reality in my humble opinion.
I don’t think it is good or sensible for a budget adviser to be throwing out the 39 per cent figure. That is not the way the world or economics works. Even if he knew all the inputs, could factor all of the uncertainties into account, the variables are far too complex and unpredictable to produce from that mess the answer 39 per cent.
It reminds me of the question posed to the great computer. What is the secret of the universe? Answer 44.
The good professor’s guess is that. It is a guess. Personally, I think that Paddy Power would do a better job on this prediction.
Professor McHale will cringe with embarrassment in years to come if he is reminded of this. That is a mere prediction. My prediction of this comes at a probability factor of 61.67399426. Therefore, based on that degree of accuracy, I must be right. Yeah, right!
Very well said Peter, common sense prevails .
Lol , We are shouldering 42% of the total banking debt in Europe ,and we are only 1.5 % of GDP . Stop talking shite . What we have is two generations of Austerity ahead of us.
Iceland have been asked by the bondholders it defaulted on 4 years ago if they would consider repaying thier creditors at thier leisure. And this was within the last week. Ireland get tough
Default the payments as Iceland has shown a quicker economic turnaround after Iceland’s bank crash or permanent 20 year stagflation like Japan awaits by staying in the EURO.
39% seems a very strange percentage to quote for a default and Burtons remark that the EURO needs a success story is a sign that the promised deal is not either what the general public were told or no deal at all.
Are we to suffer more if the glib soundbites from the wealthy economists who either didn’t see or worse ignored the economic signs.
Back to the Punt and our own economic salvation will FORCE the Irish politicians to GOVERN as they are paid with no butt kissers to the EURO in government is what’s required.
Huge progress my hole. The guy is so deep in lies and treacherous actions he cant see the wood from the trees.
Our debt is not sustainable and even if we all felt it was a true debt it still wouldn’t be sustainable. It’s not our debt though! Why should we be crippled by a debt that isn’t ours. Trying to service it has nearly destroyed us. Go out and talk to the people on the street. Something has to give. The only chance to avoid default is to get a serious debt write down. And as we’re paying a debt that isn’t ours the ecb should seriously think about it. It’s not just us on the line
If you are wealthy already a default would be very good news. An opportunity to purchase lots of property at very low prices.
Trick is to convince the little people that they are the ones that want a default, even though they will be the losers if it happens.
Yeah, the number one advantage of the government leaving the euro is the government could slash costs. They could cut the Public Sector pay bill in half overnight. Meanwhile in the private sector Irish labour would be much cheaper. Anyone getting paid in a strong foreign currency would be a king. Anyone with lots of money abroad in euros would be laughing.
There would be some big winners from Ireland leaving the euro. There’d be a lot of losers though, especially the Public sector. It’s hard to see the option winning in a vote.
Who Owen’s the trees
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