Greece vs Ireland - Austerity Measures

Yes, after availing of the EU/IMF Stability Fund and paying a modest 5% rate of interest on the €110b in funding required to stabilise the country's finances, the IMF and the EU have insisted on the following austerity measures:

*Reduce the budget deficit from 13.6% to 3% by 2014
*Pay freeze on all public sector employees
*Scrapping the annual bonus scheme (basically a 20% bonus on wages)
*Increase in the retirement age from the current one of 62
*Full pension rights increased from minimum 37 to 40 years service
*Pensions to reflect average rather than final salary in the public sector
*VAT from 21% to 23%, increases to alcohol, cigarettes and fuel taxation
*Taxing of illegal construcion
*Privatisation of various state and semi-state bodies

Above we can see what the dreaded IMF will insist on just to provide Greece with the funding required to keep the nation afloat.     Scary eh?      Not really is it?

Let's be clear, regardless of our banking crisis and our incompetent governance, we are not Greece, not by a long way. Firstly we never lied about our balance of payments, we are a genuine open market economy, we have a generous corporate rate of tax, we have a language that everyone understands and we don't rely on tourism as an exclusive means to wealth.

So if we were to avail of the solidarity fund, how much worse would it be compared to the austerity measures that we have put in place and are going to put in place? Not a lot based on the evidence above.

But in the meantime, let's just destroy what's left of our economy while we pretend that the markets will allow us a sub-5% yield and that we can actually manage to get our deficit to 3% by 2014....

The Real Politik behind Quinn Group

Anglo are proposing to pay off the bondholders in QI €550m to ensure that QI stays in the group. The alternative is that QI gets sold for a fire sale price with Anglo last in the queue to get any financial return. That leaves Quinn Group, less the cash cow, owing Anglo €2.8b + whatever has still to be paid to the other banks.

Quinn Group is now insolvent and the carcase gets stripped down and sold for more fire sale prices to the other banks and finally, Anglo get to pick over what's left. Net return on their €2.8b, not an awful lot. In addition we have the politically unpalatable scenario of the Quinn Group collapsing with a large amount of job losses, companies being shut down and the finger of blame being placed on the government.

The alternative that Anglo are proposing is that for another 25% worth of debt in the company (€550m for the bondholders and €150m equity for QI), and bringing the net amount owed to Anglo to €3.5b, they get a controlling interest in the entire group. Sean Quinn remains as chairman, but realistically Anglo will be putting in their own management team.

The thinking behind this means that Anglo are now in a position to sell off the components of Quinn at the most suitable time, using the cash cow of QI to support the areas of the business that aren't functioning. In my viewpoint, this increases their chances of making some money back, and is a better option than the current one, sitting on the sidelines waiting for the vultures to finish off Quinn.

There's also the political aspect behind this. For the current government, failing to save Quinn Group is likely to ferment dissension in their backbenchers, increasing the likelihood of a GE being called at the worst possible time for the governmental parties. It's also highly that the write-off in the debts to Anglo may finally kill off the bank and it will be run down.

I really wouldn't like to be the regulator now, the pressure must be enormous coming from all the interested parties. I do think the opposition should be seen getting involved in what is a critical moment for the State, but they are as hamstrung as the government are in terms of the forthcoming election, and can't be seen to doing anything that will effect their own popularity.

For the record, I do not support the government and have a reputation on the for being ABFF, nonetheless, that doesn't mean that I conveniently ignore the political and financial realism of the current situation.

AIB give two fingers to common sense....

  

  

Colm O'Doherty, the AIB CE) (between the lines) and Richard Bruton (in screaming headlines) were advocating the selling off of AIB's performing assets; namely their operating interests in Poland, the UK and the US.

This is a fire sale strategy to raise as much capital as possible to reduce the stake the State has to take in AIB. It's pretty much the same a bank forcing you to sell off your house right now so you can pay back some or all of your mortgage.

It's also a complete contradiction to the bank indicating that it will raise interest and mortgage rates to customers to become profitable again, whilst simultaneously selling off their most profitable assets.

Will someone please stop this stupidity and put matchsticks into Bruton's eyes.