Don,

What form is the £7bn taking? I ask because I don’t know. But for example, if it’s a loan with a reasonable expectation of being paid back, then you’re not comparing apples with apples. When you spend £7bn on the welfare roll, or on public sector jobs etc. you don’t get your £7bn back.

Tea Party opposition of the US bank bailouts is fantastically stupid. I mean really crazy. Why are we pointing a lunacy, and calling it fantastically good politics we should copy?

I don’t know whether the UK participation in the Irish bailout is a good idea or not.

Louis from notayesmansecomomics blog hope this helps?

I was asked yesterday how we would finance lending money to Ireland. As the UK is heavily in debt and our own borrowing figures disappointed then we would have to borrow the money via our gilt-edged or government bonds. If you take my view that the aid may remain a feature of the economic landscape then it would be logical to borrow the money over a longer time period than the 3 years so far usually assumed by the Euro zone. If we borrowed at out current ten-year rate then it would cost us some 3.4% per year to borrow the money. We would then have to decide what to charge Ireland. If we charged her a similar rate to what the IMF is likely to charge then we might even make a small loss so I do not see that as viable. So perhaps we could charge around 5% and in effect make an annual profit. For Ireland currently there would be a considerable saving on the 8.1% her ten-year bonds yielded at last nights close.

The real danger for us however is the very real possibility that Ireland may be unable to ever pay the money back and this is one of the reasons I would be very cautious on this front. Put another way an interest rate of 5% may yet prove too high for Ireland’s longer-term future.

1

Like Luis, I’ll defer judgement on the Irish bailout until the details are clearer. However, if you imagine that letting the Irish economy implode would be a good thing, you are simply delusional; it’s the worst kind of muddled “Tea Party of the Left” thinking which Aaronovitch warns of, whether you agree with all of his article or not.

Punishing the Irish for the misfortune of having a right wing government which has bankrupted their country might scratch some atavistic itch you have, but it’s consequence is likely to be a worsening of the global crisis, particularly in the Eurozone which accounts for around 50% of our trade, quite apart from our dependence on the amount of our trade with the Irish.

If Labour are so keen to differentiate themselves from the Coalition in policy terms, they’ve made a damn slow start. You don’t have to be the Tea Party of the left to propose a programme that would be electorally popular, economically feasible, recognise that the deficit has to be dealt with one way or another, and (better yet!) is the right thing to do.

Strange that so far we have heard NOTHING that indicates Newer Labour can do this.

How about: a commitment to abolishing tuition fees, scrapping Trident and carrying out a proper strategic defence review, promoting infrastructure projects and house building, encouraging real environmental and green policies, increasing taxes on the rich, closing remaining tax loopholes and working to ensure corporate tax revenues increase*, and of course regulating banks and the financial sector properly and ensuring they don’t rip us off (again).

None of this is beyond the ken of man. You can be left of centre and radical without being New Labour Lite, or being unelectable like the Labour party in the wilderness years of the 80′s – sadly Newer Labour has signally failed to detail any such agenda, falling back into the tired acceptance of a sanitised, watered down version of New Labour sans some of the unacceptable, authoritarian, anti-civil liberties aspects.

*(Interestingly part of the Irish bailout might be conditional on them increasing their 12.5% rate which has effectively been sucking in revenue from countries like the UK, France and Germany; how many billions might co-ordinated action to tackle this problem raise?).

The bailout is guarantees, not actual cash: at least that’s what I think is true.

It’s also true that, even if it is cash, a once off £7 billion is rather different from the spending of £7 billion each and every year off into the future. “The cuts” aren’t just cuts in this year’s budget, are they?

Excellent article by by Don Paskini. I wonder if Labour have got the political courage and drive to take the moral high ground and attack the tories for wasting British taxpayers money on a hopelessly incompetent Irish Government. I’m also wondering where Alex Salmond sits in this fiasco ?

Luis

Don’t underestimate the return to the UK of government spending in the UK. At best we are probably looking to break even on borrowing money to lend to ireland – and at worst they may not pay it back.

Meanwhile there are infrastructure projects here that are estimated to be worth a six fold return on investment to the UK economy that we are cancelling because the government is cutting. That’s a massive dent to the public purse as well as the economy – but government is short termist and sees the cost not the increased tax revenue attached.

Likewise lets not forget that this is a bailout for a country that chose this path and faces what are entirely predictable consequences. If the economy slumps, and you as a government cut spending dramatically and quickly, the economy slumps further and tax take falls further.

Obviously the tories and lib dems don’t want that aspect highlighted – but Labour can highlight it.

(yep – the Germans and the French want to make the loans conditional on the Irish raising their corporation tax rate. Not because it will help the Irish, but because it will help the Germans and French. Here’s some analysis, to be taken with a pinch of right-wing-author salt)

From what I understand, if Ireland were not ‘bailed out’ the country could enter a full-scale depression. For this reason I’m not sure I agree with you about bailouts generally. I think opposing the type of bailout which we had, in which (am I correct in saying this) the banks did not have an obligation to pay us back fully – could work. The trouble with this approach would be that this type of bailout was spearheaded by a Labour government, so it may look hypocritical.
The other issue is that I think it would be particularly good for diplomatic relations between the countries if we didn’t help. Britain has a bit of a history of looking the other way when Ireland is in trouble, so I also think the Irish people might find this quite hard to swallow.
Hard to see how what you’re suggesting could work – unless there’s something I’m missing…

Sorry I meant it *wouldn’t be particularly helpful for diplomatic relations between the countries! Not it would!

margin4error,

well, my rejoinder is don’t over estimate the return of UK government spending in the UK. A loan that is repaid with interest doesn’t just pay for itself, it’s profitable. If we thought that UK government spending paid for itself – i.e. full on free lunch territory, where government spending has a (rough estimate) multiplier of 2.5 – i.e. £1 of government spending raises GDP by £2.5, raising taxes by £1 – then we’d be in a very different situation, the Conservatives would be plum crazy cutting and every sane economic commentator would be crying “spend spend spend!”.

now as you know, I share the view that the government is cutting uncessarily fast and that the social return on government spending is sufficiently high, and the financial return is also sufficinelty high (i.e. £1 of spending will raise taxes by some number >0 like say 50p) especially on things like infrastructure, so I think we should be doing more of it. However, that’s a very long way from a view where spending on welfare, public sector payroll etc. is self-funding to an extent that makes it any way compariable with lending another government £7bn. If indeed that is what’s beingn proposed, which judging by what Tim says, might not be.

7

It will be interesting to see who blinks first on this one! The Irish government were being very bullish that this was non-negotiable a few days ago, but they might be forced to cave in if the Germans make it a pre-condition for the bailout.

Of course, it might not do that much good if companies simply go elsewhere to other “low tax” destinations, hence the suggestion that it needs multi-lateral action, or possibly a change in the way we expect companies to contribute towards their corporate social responsibilities.

Doesn’t sound like the Labour party has much stomach for that debate sadly!

Labour should support the bailout but hammer home the folly of persuing such a policy that has led to it requiring a bailout. We have too much of our own banks money invested in Ireland not to support it.

“as soon as a corrupt, incompetent right wing government and their partners in crime in the banks need our cash, Cameron and Osborne manage to find £7 billion for them.”

Fianna Fáil right-wing? You what?

But if the UK is broke, as the Tories claim, then we can’t afford to be part of this bailout.

But we’re not – so we can. Your point should be pressed by the Opposition but I would have to agree with some of the remarks above: it simply isn’t in our interests to stand by and watch the Irish economy cave in.

Or as you put it only two days ago:

“The government is right to offer a bail out to Ireland.

Britain and Ireland have interconnected economies. British companies export to Ireland, British banks lend to Ireland, British and Irish people have effectively no barriers to a single labour market.

For these reasons, a collapse in the Irish economy would be bad for Britain, So British officials and ministers are right to act to prevent an Irish depression.”

Quite.

Sorry – as Hopi Sen put it two days ago. [Couldn't edit that for me, could you?]

Interesting to see some on the unsensible wing of the tory party calling for an Irish return to sterling. If Frankfurt overplays its hand perhaps that could become a serious runner,

“The other issue is that I think it would be particularly good for diplomatic relations between the countries if we didn’t help. Britain has a bit of a history of looking the other way when Ireland is in trouble, so I also think the Irish people might find this quite hard to swallow.”

Damned if they do, damned if they don’t. Doubtless if we stump up we’ll be accused of some subtle reconquista strategy. I think Cameron should at least ask for the Treaty Ports back in exchange for the dosh – let Queenstown be Queenstown once more. I think Ireland’s difficulty is England’s opportunity …

PS – what a very prescient lady she turned out to be …

“So at our meeting on the evening of Thursday 31 May I tried to stiffen John [Major]’s resolve and widen his vision. He reiterated his concern that we would find ourselves ‘isolated’ in the run up to a general election. He argued that to avoid this we should agree to a treaty amendment establishing the aim of full EMU, but insist on an ‘opting-in’ provision which left it to individual member states whether and when to join. I rejected this. I said that it was psychologically wrong to put ourselves in a frame of mind in which we accepted the inevitability of moves towards EMU rather than attacking the whole concept. We had arguments which might persuade both the Germans — who would be worried about the weakening of anti-inflation policies — and the poorer countries — who must be told that they would not be bailed out of the consequences of a single currency, which would therefore devastate their inefficient economies. I said that I did not regard John’s proposed ‘opting-in’ mechanism as an adequate defence against being drawn into full EMU. The same reasoning which led him now to argue that we had no alternative but to accept the treaty objective of full EMU would be employed later to concede that we could not afford to be left out of the move to a single currency either. So accepting the opting-in mechanism now would be tantamount to joining eventually and I was not prepared to make that commitment.”

The world’s gone mad, mad I tell thee, mad. Labour oppose Oirish bailout? Are you on drugs man? I’m a rabid right wing economist who played a minor part in a couple of marginals & a lovely little council for 14 months before the election and if it was up to a lot of us we’d have watched HBOS, RBS & Northern Crock go tits up and laughed our bally heads off. Labour? Yeah, I shit Labour.

The first thing people need to get clear is this is a state bailout. The Irish state is bust. The Irish state as a sovereign entity does not exist in any meaningful way. They have been wards of the ECB since the summer. Moreover, the IMF do not bail-out commercial banks. The for public consumption of what is negotiable and what is non-negotiable is part of the phony war. A population of 4.6 million do not have 130 billion euro repo operations at the ECB and borrow 60% of their GDP in crisis funding and tell their creditors what is non-negotiable. That is self-delusion and denial. They tell you what you will be doing. The private sector international money markets will not fund the Irish financial system. Hence the repos at the ECB. The ECB are alarmed at that level of repo and want to wind it down. Without some other form of funding they would literally be unable to import food. Therefore, this is a state bailout because the banks and the state are the same thing.

Ireland has indulged in the most appalling crony capitalism for years. The corruption stretched from property developers to banks to right to the top of government. The things that went on there would shame a banana republic. Even during the crisis there was one occasion when they were moving 7 billion euros around the financial system and getting the government to guarantee the same 7 billion on each balance sheet. I don’t buy the idea that the spoils were only shared by a few rich individuals. Even if they had not put a cent into bailing out their financial system they would still have a massive deficit. The whole system and government revenues were built on sand. Where do you think the revenues were coming from to finance the most generous social welfare payments in Europe? Obviously not everyone shared equally in the largesse but everyone was a part of it.
http://www.timesonline.co.uk/tol/news/world/ireland/article6690571.ece

I can understand why some people find it galling that at a time when our own benefit recipients are facing cuts the credit of the UK is being used to bail out more generous payments in a neighbouring state. There really is no argument to justify that. However, they are our neighbours and they are in a crisis.

I have mixed feelings about the Irish corporation tax rate. I don’t believe in corporation tax. However, there is no doubt they have engaged in taxation arbitrage. Therefore, I can understand why other Europeans say it is predatory and it is unfair for taxpayers in other states to bail them out while it remains. They have much more positive things going for them than other EZ periphery states and can come back from this. However, it will be a long slog and they are going to experience quite a drop in their financial wealth.

One last thing. Would it not be nice if some euro enthusiast could come on and at least say sorry for the misery that they inflicted on the euro periphery.

Professor Morgan Kelly take on the end game for Ireland. He was mocked for years for pointing out pointing out that the emperor had no clothes.
http://www.irishtimes.com/newspaper/opinion/2010/1108/1224282865400.html?via=mr

Isn’t our contribution to be 13% of the E60bn Financial Stabilisation Mechanism which was agreed to by…the last government???

Interesting article. I am inclined to agree with you. Any money we lend them will have to be borrowed itself. It’s flawed economics. The idea the Irish will be able to pay this back is ridiculous and as you say, if we are having to cut back here then why should we not invest the 7 billion in ourselves?

From last weeks papers “aviva announce thousands of job losses as they move operations from uk to Eire ” a spokesman for aviva claimed that they are just following their competitors in finance and taking advantage of irelands comparatively low corporate tax levels.

FRom this weeks papers – the Irish government seems reluctant to accept financial help from it’s European partners especially because of the demands that they may place upon the Irish in return for the loans. In particular ireland’s low corporate tax rate is coming under increased scrutiny with the French referred to as predatory over the issue.

Conflicting interests for the British I agree but by throwing money at our neighbours problems we are encouraging corporations to leave these shores to operate out of country that’s primary attraction is that it is something of a tax haven.

that is great man

that is great by 2 ki?ilik, uçak, kayu oyunlar?,dizi oyunlar?

Luis @10

Agree – hence my pointing out that infrastructure projects have been cut – rather than pointing to spending on Cabinet photographers.

@26

I thought the cabinet photographer was a great appointment by Cameron – because finally Labourites have to face up to the fact that not every job in the public sector is critical.

The more you moan about the photographer, the more you have to face up to your hypocrisy when you said that any public sector job losses were a disaster.

its a poor article and makes no reference to the cold reality, it might be radical to oppose it but you would be hurting ordinary irish working people?

To mind the big problem with the bailout is that the IMF and ECB will make their help conditional on further spending cuts. According to some reports a reduction in the minimum wage might be on the agenda. Other reports say that Ireland will try to resist demands that it raise corporation tax, but will insist on increasing tax on ordinary low-paid workers instead. I don’t see how the left can back a bailout that carries this kind of conditionality. We should either offer an unconditional bailout or some more radical solution such as default and/or leaving the euro.

@ 13 Andy,

Fianna Fáil right-wing? not forgeting their coalition partners the Green Party, who claim to be on the left this side of the Irish Sea.

I think it is justifiable to call Fianna Fail rightwing. As a populist nationalist party they defy easy categorisation, of course. But until its breakup they were a member of the rightwing UEN group in the European Parliament. They are now part of the Liberal group (which tends to lean rightwards on economic issues) – and on social issues they have differed several times from the Liberal colleagues, notably on civil liberties, press freedom (they have been reluctant to criticise the rightwing Italian government, perhaps feeling loyalty towards the far-right Northern League, their former UEN bedfellows) ( http://euobserver.com/9/28912 ), and gay rights (they refused to back a Liberal motion supporting such rights).

@30 Dilke,
I don’t know whether the Irish Green Party regards itself as leftwing, but it is clearly collaborating with a neoliberal government. It wouldn’t be the first Green party to do so (the Mexican Greens were in coalition with the right for a time, supported the death penalty and have a fairly poor record on gay rights).

Joseph Healy, a socialist member of the Green Party of England and Wales, writes: “The Irish Greens have made the same error as the Czech Greens of becoming subsumed in a right-wing coalition and, with no basic radical ideology to rely on, becoming a prop for the ruling right-wing party” (by which he means Fianna Fail) ( http://www.greens.org/s-r/51/51-17.html ).

@1 “When you spend £7bn on the welfare roll, or on public sector jobs etc. you don’t get your £7bn back.”

Well you kind of do. Look at it from a smaller perspective. The Government pay a teacher money to educate kids. Apart from the obvious benefit of the education that teacher then goes and spends the money in Tesco on food, John Lewis on a nice new telly, the local petrol station for petrol, (and probably a bar of chocolate and a lottery ticket), so this money flows round the economy and keeps all these people in work and paying taxes and NI, which then goes back to the Government.

I am assuming here that you mean the £7bn is being spent on UK welfare and public sector and not Irish welfare and public sector. If you meant the latter I apologise for misinterpreting you.

@34

That argument though could easily be extended to say that we should take all the money away from people and redistribute it as is ‘fair’. The money will still be spent in the economy, on tellys, food, petrol etc so what difference does it make?

I’ll admit that I don’t see the immediate hole in the argument, but better economists than I, and history, have shown this doesn’t work – so I think it’s safe to say £7bn spent on welfare is not as productive economically as a £7bn tax cut, for whatever reason.

I’m sure it will be a loan we will soon get back, just like all of those other bailout loans which we are now seeing rolling back in from the banks.

Oh. Hang on a minute……….

We did not give any bailout loans to the banks, captain swing. We bought shares in them and can only get our money back when we sell the shares. Nothing that the banks can do about that as it is up to the Treasury when they sell. I am sure the banks would love to get the state off their shareholder register.

I am pretty sure we will not see get the principal back if Ireland has to draw on the bilateral loan. We will get the interest payments and write it off in ten years or roll it over for the next 30 years until it is worth a lot less.

So, this would be the 7bn that the last Labour government (A. Darling) signed us up to provide via the IMF and the ESFS? The 7bn that the new coalition goernment can do nothing about?

Nothing like having a good story get in the way of the facts, eh Don?

Tyler,

We have been members of the IMF before Darling was born. I am pretty sure Darling did not sign up to a commitment to make a bilateral loan. That is entirely a choice of the coalition. Although I think Mr Osborne will need parliamentary approval to give a reported £7 billion to a foreign government. The EFSM is backed by the EU budget and as one of the 27 members of the EU, the coalition could vote against it being used if they so wished. The amount of money they are talking about would overwhelm the EFSM. Therefore, they will probably need to use the EFSF who raise the funds in capital markets by issuing their own paper. The eurozone countries stand behind the EFSF bonds. Well the ones who are solvent.

@ Richard W

Check some of your facts. Paskini’s tale is rather historiaclly revisionist when it comes to labour’s role in all this.

EFSM/ESFS was agreed and signed up to in May by Darling when the Greek crisis was at it’s peak – effectively it formed part of the bailout for Greece (which I note Don Paskini had no problems with….like I said, never let a good story….). The obligations to that fund across Europe stand at 750bn EUR. This, as I say, was agreed when Labour were in power – one of their last acts. The coalition can’t “vote against” it now – the money is already pledged.

The ESFS is not backed by the EU budget – it is a totally seperate facility.

UK is signed up as a member of the IMF and has been for a while as you say.

The total cost to the UK of obligations the coalition cannot back out of to Ireland via the EU and IMF is 3-7bn GBP. Probably on the upper end of that. I imagine Osbourne is pledging extra help for two reasons;

1. Our UK taxpayer owned banks are on the hook for over 50bn GBP of Irish debt. If Ireland goes under then it will once again be British taxpyers paying when RBS needs bailing out again. 7bn might be cheap at the price.

2. I am guessing that extra help to Ireland will be used to mitigate against any costs of bailing out Portugal and Spain (“we’ve already done our bit, now it’s your turn”) which almost certainly will need bailing out. Politically we are closer to the Irish, and we have more to gain helping them than helping the Iberians. Coldly political, but almost certainly true.

So basically;

“But as soon as a corrupt, incompetent right wing government and their partners in crime in the banks need our cash, Cameron and Osborne manage to find £7 billion for them”

should have Brown and Darling substituted in for Cameron and Osbourne…

Tyler,

Turning every issue into partisan point scoring is quite amusing but I don’t care about the politics. The ‘ a big boy made us do it ‘ just will not wash. They are signing up to a bilateral loan. That is their choice. EFSM has two components an $82 billion fund backed by the EU budget and any of the 27 members of the EU could vote against it.

‘ The easiest to tap is the European financial stability mechanism, a €60bn ($82bn) fund backed by the EU budget. It requires a weighted majority vote by the 27 member states, and there are no conditions attached. ‘

Not enough in that budget to bailout Ireland. Now will the coalition be exercising their RIGHT to vote against the funds being used?

The second component of EFSM is the deeper pockets European Financial Stability Facility (EFSF) based in Luxembourg. This organisation issues bonds and is guaranteed by eurozone members. Last I checked we were not members of the eurozone. If I remember correctly the Germans and French were seething when Darling would not stand behind EFSF bonds. He rightly said only eurozone members should guarantee those bonds.

http://www.ft.com/cms/s/0/702b2488-f5c7-11df-99d6-00144feab49a.html#axzz160CPBytL

None of this means I think they are doing the wrong thing. However, let us not pretend they are being forced against their will by the last government.

@ Richard W

The article you link to talks about the 750bn EUR warchest being built up….

But you are in part correct. Germany and France *were* seething about what Darling said….right up until the point he capitulated and in his last act as chancellor signed the UK up to a full obligation in the EFSF. Darling’s major objection at the time you are talking about was that the IMF should be invovled….once it was his objections to the EFSF seemed to disappear.

Again though you seem to be missing some of the information. EFSF DOES NOT issue it’s own bonds. It issues loans backed by Eurozone government debt – a mix of all contributing members.

Put it this way – if you can find me the ISIN number of any EFSF bond i’ll give you a tenner….

The coalition HAS NO CHOICE about the money going to Ireland via the EFSF and IMF. The former was promised by Darling and the second we’ve been contributor signatories to for a very long time. The total this could cost us is about 7bn.

The ONLY CHOICE Osbourne has any real control over are bilateral loans. These have been offered, but the number Paskini is talking about in the article is nothing to do with that.

@ 34. Mark M

“That argument though could easily be extended to say that we should take all the money away from people and redistribute it as is ‘fair’. The money will still be spent in the economy, on tellys, food, petrol etc so what difference does it make?

I’ll admit that I don’t see the immediate hole in the argument, but better economists than I, and history, have shown this doesn’t work – so I think it’s safe to say £7bn spent on welfare is not as productive economically as a £7bn tax cut, for whatever reason.”

Don’t disagree with you there at all. My point was about the lazy comments that we are hearing more and more saying that paying public sector workers and welfare payments is money that just disappears, (the original quote said “When you spend £7bn on the welfare roll, or on public sector jobs etc. you don’t get your £7bn back.”). The fact is that a large proportion of that money circulates around the economy, crossing the boundaries between public and private sector, with a proportion of it ending up back with the government to redistribute again. We could take the argument the other way and remove government funding of everything and let people buy the services they want, (if they can afford them), but I don’t think that is a good idea either. A nice mix of private sector for non-essential items, tellys, petrol etc., with the government funding essentials like health and education from the public purse seems to work pretty well for us, and long may it continue.

The system you have described in your first paragraph is communism isn’t it? I’m not suggesting that is a good idea at all

Gaf

when I wrote “you don’t get it back” I meant that £1 spent by Treasury does not create £1 income for Treasury. When Treasury loans £1, and it is repaid, it does. See comments on financial return and size of multiplier @10.

‘@ 42. Tyler

The war-chest has a 250 billion IMF line in it. If you are a member of the IMF you are always on the hook for their lending.

You Said

‘ Again though you seem to be missing some of the information. EFSF DOES NOT issue it’s own bonds. It issues loans backed by Eurozone government debt – a mix of all contributing members. ‘

Here is what S&P said in September when they rated EFSF AAA

‘ If a eurozone member receives approval for EFSF funding, EFSF would issue bonds in the capital markets and onlend the proceeds to the sovereign borrower after deducting an amount to serve as a fungible reserve. The reserve could be deployed to support all EFSF bonds issued if needed. We understand that EFSF will also establish a loan-specific cash buffer funded by issuance receipts not onlent to the borrowing eurozone member state… ‘

The EFSF is like an SPV collateralised by IOUs. They issue the bonds in the name of one of the sovereign borrower. They then lend it on to whoever it was who wanted to raise funding. It is basically borrowing by using the credit of the EZ triple AAA nations. Only the eurozone governments guarantee these bonds. What Darling agreed to is part of the $82 billion EU budget that the coalition can vote against. The IMF issue is neither here nor there, you are either a member or not.

Luis

Thanks for the clarification. I must admit I was surprised to see a comment like that from you as most of your posts seem to be much more thoughtful. Now I know it was my misinterpretation I’m a lot happier.

What really prompted my comment was the lazy commentary that suggests that the public sector are nothing but a drain on the country and produce nothing in return. This line has been cleverly played by the coalition so we are now at the point where more people seem to blame public sector workers for the current economic problems than the bankers. Since my wife works in a school and my sister and brother in law are teachers I do get annoyed by this skewed version of events.

@ Richard W

EFSF does not raise it’s own money. It has no bonds of it’s own. It relies ENTIRELY on the credit of other EZ nations. In real terms it is a very dirty CDO – and look how well most of those AAA CDOs turned out.

For example, the Greek bailout required other EZ countries to raise debt to finance the loan. Including, funnily enough, Ireland.

That money was then paid to Greece as a series of conditional loans (which they’ve already broken – Austria is now refusing to pay their part).

AAA credit is pretty meaningless when the entity can’t raise it’s own financing or sell equity. It is entirely dependent on the underlying countries….

Darling signed us up to the whole 750bn EUR bailout fund (including the IMF portion). The 82bn EU budget is a seperate issue – it IS NOT the bailout fund.

Tyler,

I don’t how many things I have to provide to show you are wrong. I know it relies on the credit of the EZ, that is what I have previously said. They issue bonds on behalf of the periphery nations if they can’t borrow under 5%. The issuance is in the name of the country who want to borrow.

Let’s see if you believe EFSF themselves.

http://www.efsf.europa.eu/about/index.htm
‘ The European Financial Stability Facility (EFSF) was created by the 16 euro area member states following the decisions taken May 9, 2010 within the framework of the Ecofin Council.

As part of the overall rescue package of €750 billion, EFSF will have the capacity to issue bonds guaranteed by EAMS for up to € 440 billion for on-lending to EAMS in difficulty, subject to conditions negotiated with the European Commission in liaison with the European Central Bank and International Monetary Fund and to be approved by the Eurogroup.

EFSF has been assigned the best possible credit rating; AAA by Standard & Poor’s and Fitch Ratings, Aaa by Moody’s. ‘

Oh look they distinctly said ‘ 16 euro area member states ‘

Let’s look at the EFSF legal framework agreement.

Any sign of the UK in that agreement? No, it is the eurozone members.

EFSF FRAMEWORK AGREEMENT (the “Agreement”)

is made by and between:

(A) Kingdom of Belgium, Federal Republic of Germany, Ireland, Kingdom of Spain, French Republic, Italian Republic, Republic of Cyprus, Grand Duchy of Luxembourg, Republic of Malta, Kingdom of the Netherlands, Republic of Austria, Portuguese Republic, Republic of Slovenia, Slovak Republic, Republic of Finland and the Hellenic Republic (the “euro-area Member States” or “EFSF Shareholders”)

http://www.efsf.europa.eu/attachments/efsf_framework_agreement_en.pdf

What is the agreement the eurozone members have entered into?

(4) EFSF shall finance the making of such loans by issuing or entering into bonds, notes, commercial paper, debt securities or other financing arrangements (“Funding Instruments”) which are backed by irrevocable and unconditional guarantees (each a “Guarantee”) of the euro-area Member States which shall act as guarantors in respect of such Funding Instruments as contemplated by the terms of this Agreement. The guarantors (the “Guarantors”) of Funding Instruments issued or entered into by EFSF shall be comprised of each euro-area Member State (excluding any euro-area Member State which is or has become a Stepping-Out Guarantor under Article 2(7) prior to the issue of such Funding Instruments).

(5 )A political decision has been taken by all euro-area Member States to provide Guarantee Commitments (as defined in Article 2(3)) pursuant to the terms of this Agreement.

Oh they are guaranteed by the other euro-area members. What a relief for the UK. Tyler can sleep easier.