There have been many commentaries suggesting that the Irish financial crisis represents as the Euro Endgame.
Well, not so fast.
This from Bloomberg, (bold emphasis mine)
Ireland’s banks will get as much as 35 billion euros ($46 billion) of aid while senior bondholders will escape the cost of the bailout led by the European Union and International Monetary Fund, the government said.
Banks will get an immediate 8 billion euros to bolster capital, and will raise a further 2 billion euros by shedding assets, the central bank said in a statement yesterday. Lenders will be able to draw on a further 25 billion euros depending on how they fare in a round of stress tests in the first half of next year, the government said in a statement…
The banks are getting the money after rising loan losses and shrinking deposits forced the government to seek the rescue. The state pledged to back all deposits in Irish banks two years ago, requiring the government to inject 33 billion euros into the lenders. The estimated cost of rescuing the banks rose to as much as 50 billion euros in September after losses from the collapse of the country’s decade-long real estate boom jumped, fueling concern Ireland couldn’t fund a rescue itself.
Ireland will in total receive 67.5 billion euros from the EU and IMF, Prime Minister Brian Cowen told reporters in Dublin yesterday after EU finance ministers backed the plan at a meeting in Brussels. The country will pay average interest of about 5.8 percent. The government will meet about half the cost of the 35 billion-euro banking bailout from its own resources, including the National Pension Reserve Fund, Cowen said.
Lenders will use the money to boost their core capital ratios, which gauge financial strength, to at least 12 percent. Bank of Ireland Plc and Allied Irish Banks Plc, the country’s two biggest lenders, will also be able to transfer all their remaining “vulnerable” commercial real estate loans to the National Asset Management Agency, the so-called bad bank set up to take over lenders’ riskiest loans, by the end of March.
As we earlier said, one of the primary role of central banks is to finance government directly or indirectly. And such redistribution process means ‘rescuing’ political privileged interest groups. Apparently this has been the case with Ireland.
Alternatively this means much of the bailouts will be coursed through stealth monetary inflation. Yes, this means you won’t read them on the papers.
To say that the Euro would disintegrate because of the populist upheaval predicated on ‘lack of aggregate demand’ or the rejection of the proposed reduction in social spending programs is pure hooey. While part of the adjustments (reductions) will reflect on the fiscal side, the offsetting (expansionary) part will be the support for the banking system which benefits from such bailouts.
And we should expect to see more of this.
Central banks will use to its hilt their ‘magic wand’. The power to control money signifies an immense privilege, political and economic. It’s not a privilege that would be easily sacrificed by the bureaucracy.
Nonetheless the degree of monetary inflation will always be relative.
Besides, throughout history people flee their currency not because of fiscal austerity or discipline or bankruptcy, but because of rampant debasement or from war.
Russia’s Putin even suggests that Russia may join the Eurozone.
This from the Bloomberg
Russian Prime Minister Vladimir Putin said Friday he was confident in the euro despite Europe's debt crisis and said his country might even join the currency block itself one day.
Putin also sharply criticized the dollar's dominance as a world reserve currency.
Despite the problems in some heavily indebted eurozone countries, the euro has proven itself "a stable world currency," Putin said.
"We have to get away from the overwhelming dollar monopoly. It makes the world economy vulnerable," he told a gathering of business leaders in Berlin through a translator.
In short, like earlier said, Euro bears will be proven wrong again.
And as we earlier wrote, hardline stance by policymakers will crumble in the face of market pressures. Again current developments appear to be validating my view.
This from Bloomberg,
European finance leaders backed a Franco-German compromise on post-2013 sovereign bailouts that waters down calls by German Chancellor Angela Merkal for investors to assume losses and share the costs with taxpayers.
The paper money system is fundamentally deeply flawed. But one system is more flawed than the other. Eventually, like in all historical accounts, the whole system collapses and reverts to the commodity system or a replica of it.
This time won’t be different.
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