A little bit late but I don't see a thread about this.


there is more

So in their stupid eagerness to be seen to be doing the EU-friendly-thing our glorious leaders have led us into a situation where we're being blamed for f*cking it up for everbody in the EU and massively in-debt to boot. Marvelous. Soldiers of destiny indeed.

Almunia mostly nails the situation except for this bit at the very end:

I think he was just trying to be nice and take the edge of otherwise-scathing criticism.

There was nothing "EU-friendly" in the guarantee - in fact it was a blatant attempt to get 'sharks' to go elsewhere for food. Many of the EU leaders went mental when it was announced, and had to rush in their own half-planned measures to remove the target the irish government was busy putting on their (banks) backs.

Yeah, it's a post-hoc rationalisation of what was done "we done it for the european banks guv". It may have had the effect of insulating the other banks, but "you must save your banks" is open to a number of interpretations and a number of methods of achieving that aim.

The guarantee was never about the EU. It was always about keeping the property bubble going. The government of the day were afraid that if the banks ran out of liquidity, they wouldn't be able to continue loaning into the property bubble. Their fear was that this would lead to falling property prices which could large losses and potential insolvency at the banks. It also wouldn't be too good for the landlords and property developers who the FF party represent. If the government could just guarantee the banks, then the liquidity crisis would eventually pass, the banks would be okay, and everyone who got rich in the property bubble would get to keep their money.

In the end the policy of guaranteeing the banks only half worked. The banks incurred devestating losses, which became the responsibility of the taxpayers because of the guarantee. Protecting the banks greatly reduced the severity of the property crash, but it didn't stop it entirely. Preventing the banks and NAMA from foreclosing on developers and landlord's has protected their lifestyles and much of their wealth, but they lost a great deal of money anyway.

The only aspect of the guarantee that really worked was to permanently link the fortunes of the Irish taxpayer to the property bubble. The more the bubble bursts, the greater the losses for the banks, which means greater losses for the taxpayer. If the bubble can be re-inflated, the Irish taxpayer will lose less money. As long as the guarantee is in place, the government can hardly afford to let house prices reach a market clearing level. So despite the fact that FF is no longer in office, the current government is forced to follow policies to artificially prop up house prices, in an effort to limit losses at the banks.

BG.

So we have one faction who state that the guarantee was introduced at the behest of the Eurocrats, and another faction saying that the Eurocrats were caught off guard and were angered by the move.

Who to believe?

I think you're unfairly confusing two things. Other EU leaders were furious we introduced the guarantee. But once it was in place, it contributed to our inability to force losses on bondholders - thus leading to the ECB forcing us to keep pumping money into the banks. At this stage, it stands to benefit the other EU states insofar as it helps to prop up the German / French / etc. banks exposed to the Irish banks.

Barring FFer's I've never heard anyone suggest that the guarantee was introduced at the request of the 'eurocrats'.

On the other hand there is plenty of evidence to the contrary - primarily the fact that the likes of Alastair Darling and Christine Laguarde (in French) and other Ministers of Finance were informed of the guarantee after it had been voted on by the cabinet. And they were apoplectic. The most laughable thing in hindsight is that they were concerned by the prospect of capital pouring from their banks into Irish banks as investors fled to safety.

At home here the narrative in the days after the guarantee also backs this side up. The move was seen as a Ireland doing what it had to do in the circumstances and looking after its own interest. At that time FF were quite happy to allow this line to be peddled, but changed their tune on the basis of a once sentence left on a voicemail from on Lenny's voicemail from JC Trichet 'Save your banks'. Lenny never, or anyone from our side ever talked to Trichet between that point and the guarantee. He couldn't be reached when Lenny tried ringing him back or something.

No, I'm not confusing things - I've read analyses and been told on several occasions by different spectators that the bank guarantee was foisted upon the government by Eurocrats. I'm wondering what the truth is.

ya see, here is the thing i never get about such conspiracy theories,
the background our our ministers.................
would teachers, social workers and solicitors, not to mention a civil servant with a honours degree in ancient history or whateve Neary had,
understand the workings of the market that well?

If they were previously bankers, i would believe this conspiracy theory,
but these are people that proved themselves inept time after time.....

But Cowen's advisers..... ........we really need an investigation into that decision on that faithful night

But that's just it. Only people totally incompetent or out of their minds would think that the confidence fairy could save the Irish banks. The guarantee was a wave of the confidence fairy's wand. It was an enormous spoof and bluster show. Remember that ECB rates were set to tumble. The thinking was probably "hold out until the ECB lowers its rates and everyone (read: our chaps) refinances at more profitable rates. Joe punter has an insatiable appetite for property, we can't go wrong".

Of course, 'nobody' thought of looking where Anglo had put their derivative book - firmly bet on rising interest rates... 'Nobody' else thought that the ratings agencies, following their failure in the US would go on an inquisition and find plenty of heretics - nobody expected that...

What was done was exactly amateurish enough to be a conspiracy.

Point of information: I believe Neary did first year Greek and possibly Latin. He didn't even get a degree.

I believe, though, that he was a moderator on George Lee's dissertation, no?

This is not to say, though, that he couldn't be an autodidact. Many people are excellent at jobs they have no formal qualifications for. The problem with Mr. Neary is that he proved himself to be completely incompetent AND he allegedly had no formal qualifications.

There was a lot of great posts posted on this site about the guarantee back in the day (and still being posted). My conclusion was that Fianna Fail tried to pull one of their classic strokes in the assumption of helping their developer and banking buddies. They miscalculated (or more likely didn't even consider) the size of the problem and it's future implications. This is the same government that ramped up public spending on property taxes that they assumed would last forever (with little or no disagreement coming from the then opposition). Just looking at how the Fianna Fail government ended should show you the rank stupidity that existed/exists in the party. The EU in general was livid with Ireland at the time as we were seeing to be doing a solo run and leaving our EU partners in the dogs dodo. In conclusion I think there was no conspiracy. Just an attempt to pull a stroke (without the EUs knowledge or approval), that went horribly horribly wrong.

That's how I would see things too, more or less. I reckoned at the time that they were willing to try anything to avoid having a bank fail on their watch.

The problem is that the EU and the ECB have bought into the 'irish' solution. It has become official european mantra that bond holders must be protected. I suspect that this is starting to change and there will be burning of bondholders, but at this stage, the clever money has long gone and the ECB is holding the can.

I really can't see that things would have been much different if the EU had been consulted prior to the unilateral decision by the fianna fail/green government. Preservation of rich peoples resources at the expense of the taxpayer is and always was the main aim of those in power. The EU is avidly against market forces dictating political and economic policy. They are in for a rude awakening.