Emerging Bailout Details

Courtesy : Market Oracle 


Ireland's Government drops the mantra of no bailout by finally coming clean to the Irish public that a multi-billion Euro bailout has been agreed ahead of markets opening on Monday. Many Irish citizens will be angry that they have been repeatedly lied to as a series of senior government politician's have stepped forward these past few weeks to make announcements that Ireland was not seeking a bailout when the facts where the complete opposite as an accelerating bank run was under way on Irish banks, with depositors having already pulled out an estimated Euro 25 billion.

Emerging Bailout Details

The key bailout test was whether or not Ireland would retain its 12.5% Corporation Tax, which has attracted a number of giant multi-nationals to relocate to Ireland such as Google, Pfizer and Microsoft, much to the annoyance of other European countries, and especially France and Germany who had this at the top of their conditions hit list. The fact that Ireland has apparently retained sovereignty over corporation tax bodes well for eventual economic recovery as the relocated multi-nationals account for more than 70% of Irelands exports and generate more than 50% in corporation tax revenues, without which Ireland truly would be bust for the next decade.

However whilst Ireland can claim victory on capital gains tax, it did pay a heavy price elsewhere as it effectively handed over economic sovereignty to the ECB for at least the next 3 years.

E.U. financing of Irish government deficit for the next 3 years (Euro 40 billion).
International Bond Markets effectively closed to Ireland for the next 3 years.
Ireland's bankrupt banks to be fully nationalised (re-capitalisation) then broken up (Euro 50 billion).
Ireland to enact further tax rises and spending cuts aimed at reducing the budget deficit to 3% of GDP by 2014.
Ultimately much of the bailouts debt will have to be inflated away by higher Eurozone inflation(stealth debt default), especially as other PIIGS are also lining up for a bailout, coupled with restructuring of Irish banks debts (outright debt default).

Bailout was Inevitable
The Irish are trying hard to put up a brave face on the loss of sovereignty (as will soon will Portugal and Spain ) that they really don't need a bailout, however as I pointed out earlier in the week(18 Nov 2010 - Ireland Bailout Imminent, Press Euro-zone Breakup Speculation, Germany Leaving the Euro?) the Governor of Irelands Central bank, Patrick Honohan gave the game away with his statement:

"There will be a large loan because the purpose of the amount to be advanced, or to be made available, is to show Ireland has sufficient firepower to deal with any concerns of the market, so we're ’re talking about a substantial loan, tens of billions, yes."

The Euro, stocks, bonds and commodity markets leapt higher on the comments, by all bouncing higher off their recent lows in anticipation of a Euros 80-100 billion bailout inline with my going analysis that given's Irelands bankrupt banks bankrupting Ireland, a bailout of Ireland is inevitable (14 Nov 2010 - Bankrupting Ireland in Economic Depression Announces Policy of Quantitative Cheesing)

Bottom Line: Where Ireland is concerned, the E.U. will do its best to delay the inevitable debt default, which means a Eurozone bailout (one of a series) is imminent, because if one of the PIIGS defaults then so will they all which would require the mentioned Euro 2 trillion QE bailout virtually immediately (a Euro 750 billion bailout fund was announced in May), rather than perhaps Euros 80 billion for Ireland on its own at this stage of the crisis, and after Ireland will soon follow Portugal, then Spain, then Italy before the bailout cycle returns once more for another Greece bailout (probably sooner rather than later). All of which feed the Inflation mega-trend across the Euro-zone.

The press has been full of commentary of a bailout for Ireland as news, when it has been an INEVITABLE eventuality given the fundamentals (13 Apr 2010 - Britain's Accelerating Trend Towards High Inflation and UK Debt Default Bankruptcy ) (Graph now needs updating following developments of the past 8 months).

Comments