Tuesday, September 28, 2010
Let's look at the reality. What I want to focus on here is the issue of re-mortgaging, equity release and the deluge of cash borrowed against houses, which made us feel richer but which was ultimately wasted. This is the reality and this is why we will default, because the money is gone. The internal default is what drives the external default, not the other way around. The ability of the Government to pay its debts is only the amalgamated ability of us to pay our debts. The "Irish sovereign", as it is so grandly termed, is only the agglomeration of us.
The amount of outstanding mortgage debt at the start of January 2004 was €54.6bn. It is now €118bn. So mortgage lending went up by close to 120pc in five years.
It could be argued that there are many more houses in Ireland since the beginning of 2004, so maybe those numbers are not as bad as they seem -- because at least we have houses on the other side of the balance sheet.
But this is not the case, because on the other side of the balance sheet are cars, second houses, fields, fancy kitchens, flat-screen TVs and holidays on the Algarve. This is what we borrowed for and we used our houses as a large ATM machine, and the banks eagerly facilitated.
At the beginning of 2004, 16pc of our housing stock (by value) was mortgaged; by mid-2010 that number stood at 39pc.
It is important to remember the majority of houses in the State are not mortgaged, or have very small mortgages on them. So a huge amount of the mortgage debt and the re-mortgaging is centred on a certain part of the population, which is likely to be young couples -- the backbone of the society and the generation supposed to drag us out of the pit.
Their plight is now evident. Recent Central Bank data shows that of the €118bn in mortgages outstanding, €6.95bn are more than 90 days in arrears, with €4.8bn of those more than six months behind.
For these people in arrears (there are 36,620 of them) there is no way out, as property price falls mean that they cannot sell their property to relieve their debts (negative equity) and they cannot earn more money to pay off their debts (due to the economic collapse). Essentially, when these people most need money, they can't get it.
So the financial markets are looking at the internal situation and concluding that -- unlike the Greeks who had a government borrowing problem that became a banking crisis -- we have a bank borrowing problem which has become a government problem. If the guarantee was lifted today, a huge part of the State's burden would be lifted.
But that would mean defining reality and our leaders couldn't do that.
Saturday, September 25, 2010
BRUSSELS—Two months after Lehman Brothers collapsed in the fall of 2008, a small group of European leaders set up a secret task force—one so secret that they dubbed it "the group that doesn't exist."
Its mission: Devise a plan to head off a default by a country in the 16-nation euro zone.
When Greece ran into trouble a year later, the conclave, whose existence has never before been reported, had yet to agree on a strategy. In a prelude to a cantankerous public debate that would later delay Europe's response to the euro-zone debt crisis until the eleventh hour, the task force struggled to surmount broad disagreement over whether and how the euro zone should rescue one of its own. It never found the answer.
A Wall Street Journal investigation, based on dozens of interviews with officials from around the EU, reveals that the divisions that bedeviled the task force pushed the currency union perilously close to collapse. In early May, just hours before Germany and France broke their stalemate and agreed to endorse a trillion-dollar fund to rescue troubled euro-zone members, French Finance Minister Christine Lagarde told her delegation the euro zone was on the verge of breaking apart, according to people familiar with the matter.
The euro zone's near death had stakes for people around the world. A wave of government defaults on Europe's periphery could have triggered a new crisis in the international banking system, with even worse consequences for the global economy than the failure of Lehman.
The dangerous dithering was driven by ideological divisions that continue to paralyze the currency union's search for solutions to its structural flaws. Deep differences on economic policy between Europe's frugal north and laxer south, between Germany and France, and between national governments and central EU institutions hindered an effective early response to the crisis. Only when faced with calamity—the collapse of the euro zone—did leaders put aside their differences and reach a compromise.
Complicating matters: The two most important politicians deciding the fate of the euro often had conflicting agendas—and much at stake personally.
French President Nicolas Sarkozy, known in France as the "hyper-president" for his relentless flurry of new initiatives, faced declining approval ratings as his domestic economic overhaul stalled. The excitable 55-year-old leader saw that Greece's woes could rock the euro zone. Mr. Sarkozy seized on the issue as an opportunity to prove his leadership chops and thus shore up his popularity.
For German Chancellor Angela Merkel, 56, the crisis was the biggest test of her career. A trained physicist known for her cautious, deliberative style, she feared a backlash from German voters and lawmakers, and defeat in Germany's supreme court, if she risked taxpayer money on serial deficit-sinner Greece. Despite pressure from Mr. Sarkozy, she fiercely resisted a quick fix.
Wall street Journal