In the wake of the collapse of the Irish government, finance minister Brian Lenihan suspended capital injections for Allied Irish Bank, the Bank of Ireland, and EBS Building society until elections are held on February 25.

Fine Gael leader Enda Kenny said Anglo Irish Bank will not get another cent if his party is elected. However, the Chairman of Anglo Irish Bank said Anglo needs another €15bn.

In response, Irish Debt Rating Cut to Junk by Moody’s

Moody’s cut the ratings of Irish banks to junk status on Friday following Dublin’s decision to defer previously agreed capital increases until after this month’s general election.

This follows similar action by Standard & Poor’s last week.

Moody’s said recent announcements “call into question the government’s willingness to provide additional support to the banks beyond that which has already been provided to date, and reflect the increasing risk of some type of burden-sharing with senior creditors.”

Moody’s acknowledged the “huge fiscal burden faced by Irish taxpayers” as a result of the banking sector bail-out. But as a result it said there was an “increasing risk that this burden could be shared not only by subordinated creditors but by senior creditors, most likely through distressed exchanges.”

Fine Gael stretches lead in Irish election campaign

The Financial Times reports Fine Gael stretches lead in Irish election campaign

Ireland’s opposition centre right Fine Gael party has stretched its lead ahead of the February 25 general election with an opinion poll giving it an outside chance of an overall majority.

A poll by Red C for the Sunday Business Post newspaper put Fine Gael on 38 per cent, up 3 points, ahead of Labour on 20 per cent, with the governing Fianna Fail party on 15 per cent.

The most likely outcome is Fine Gael will seek to form a government with Labour, its traditional coalition allies.

But analysts say as a party approaches 40 per cent of the first preference votes under Ireland’s complex proportional representation system there is a chance of securing the 83 seats needed for an overall majority in the 166-seat Dail or lower house of parliament.

The latest poll confirms momentum is behind Fine Gael, a party traditionally supported by big farmers and urban professionals and business.

With Fianna Fail blamed for the humiliating bail-out by the European Union and the International Monetary Fund, and with all the opposition parties pledged to renegotiate the deal, the election campaign has switched to other issues.

The issue that has caught the public’s attention is Fine Gael’s pledge not to increase taxes just as this month households see their pay packets cut by the tax hikes announced in the December budget.

Michael Noonan, the party’s finance spokesman, has attacked Labour as “the high tax party”.

Even before the campaign opened, Labour dropped its plan for a 48 per cent top rate of tax, a policy adopted by Sinn Fein, which in the latest poll has seen its support slip from 13 per cent to 10 per cent.

Ireland Should tell IMF and ECB “Go to Hell”

It seems like voters are fed up with taxes everywhere. From this side of the Atlantic I certainly understand a low-tax, renegotiate-the-bailout approach.

I also approve the talk “Anglo Irish Bank will not get another cent”. That is exactly the correct starting point.

Thus, Ireland should tell the IMF and EU and especially Jean-Claude Trichet at the ECB where to go, and bondholders can eat 100% of the loss. Whether or not Fine Gael can pull that off remains to be seen.

Irish parties pledge to re-negotiate EU-IMF bailout

The Montreal Gazette reports Irish parties pledge to re-negotiate EU-IMF bailout

As Ireland’s election campaign heats up, the prospects of success in a battle to ease the terms of a massive EU-IMF bailout have become a key issue, even as Brussels insists it is non-negotiable.

To a humiliated nation, the opposition parties are holding out the hope that they can re-negotiate the terms of the 85 billion euro ($115 billion) bailout package if they gain power after the February 25 vote.

Candidates are meeting the full force of the hostility to the bailout terms and the question of why taxpayers have to pay for the mistakes of bankers as they canvas door-to-door.

An IMF review last week appeared to recognise there are difficulties, saying that while the public response to the bailout has remained favorable “a lingering domestic perception of inequitable burden sharing persists.”

The republican Sinn Fein is offering the most radical solutions for the economy and the bailout, although it has little chance of being elected.

It wants no further drawdown of IMF/EU funding, the reversal of many budget cuts and the “burning” of bondholders who lent to reckless banks whose lending plunged Ireland into economic purgatory.

But Bloxham stockbrokers sounded a warning to politicians on Friday about their anti-European rhetoric.

“Throwing down ultimatums to Brussels and rubbishing ’Frankfurt’s way’ might win votes… but it could make life difficult for the next government and cement anti-EU sentiment as a potent political force in a country with a history of putting the brakes on EU ambitions,” its analysts said in a note.

The stockbroker said that with the interest rate on the IMF’s portion of the loan tied to a fixed formula, opposition parties are focusing their ire on the EU, which at Germany’s insistence added a three-percent margin on the rate it is charging for 45 billion euros worth of loans.

“However, giving voters false hope about how much Ireland could save from a reduction in the EU bailout interest rate may come back to haunt both parties and hasten a new government’s early demise,” Bloxham said.

Preposterous IMF Statements

The statement by the IMF that “public response to the bailout has remained favorable” is one of the most preposterous lies I have ever seen.

What’s with this nonsense by Bloxham Stockbrokers?

To be sure there is little to be gained by a reduction in interest rates. That’s why Ireland should default if the ECB and IMF will not restructure.

Please note who is in control here. It certainly is not the IMF or ECB. All Ireland needs to do is tell Jean-Claude Trichet to “Go to Hell”. That would set the appropriate tone for “negotiation”.

If Bloxham thinks that will cost votes to any party, they are sadly mistaken.

Irish Bailout Falls Short

The New York Times reports Irish Bailout Hits Snags

Bank Losses Could Outstrip Rescue Funds; Political Threats

On Wednesday, Ireland’s departing finance minister postponed an injection of cash into the banks that was planned for the end of February, saying a new government should make the decision. Top opposition officials are far less keen to bolster banks.

While the next government appears eager to get a better bailout deal, talks with its primary funder, the European Union, will be delicate. Other EU countries, particularly France, are keen to extract a pound of flesh by eroding Ireland’s low corporate-tax rate. The major Irish parties are united in their zeal to preserve it.

A spokesman for the European Commission, the EU’s executive arm, maintained that the deal wasn’t up for negotiation. It was “decided with the state of Ireland,” Amadeu Altafaj said Friday. “It’s not, let’s say, a program that has been agreed with a particular government and is subject to changes because of that.”

Ireland’s main leverage in the talks will be threatening to impose losses on holders of Irish banks’ debt. At the insistence of the European Central Bank, which fears such “haircuts” would spook investors and worsen the euro zone’s crisis, Ireland’s government refrained from such a move last year.

But Fine Gael hopes to use the threat of a “haircut” to extract concessions from the EU and International Monetary Fund.

“The only card we have to play is the bondholders,” a senior Fine Gael official said Friday. “If we can’t get a better deal … we’re going to be left with no options but to restructure the debt of the banks to protect the sovereign.”

Anglo Irish Bank’s chairman, Alan Dukes, fanned the flames. Speaking that evening at a conference, Mr. Dukes predicted that Ireland’s banks need “somewhere in the region of €50 billion of new capital” to absorb their losses. Officials from Ireland’s two main political parties said Mr. Dukes was overestimating the carnage.

Moreover, the plan provides just half of the €133.9 billion Ireland would need through 2013 to recapitalize banks, pay its bills and pay back its borrowings, including short-term debt, according to estimates released this past week by the European Commission.

Power of the Trump Card

When you have a trump card, you do not threaten to play it, you simply play it.

Ireland need not pay a “pound of flesh” as the Times suggests. There is no need for Ireland to bargain away its corporate tax structure. After all, if France does not like Ireland’s advantage, France is free to change its corporate tax structure.

Agreeing to reduced interest rates in exchange for corporate tax changes would be a horrible deal for Ireland. Its tax rate advantage is its only way to grow out of this hole.

Magic Words

When you have a trump card, the magic word is not “Please”. The magic words are “Go to Hell”. Unfortunately most politicians are far too polite to say those words. Yet, Jean-Claude Trichet and the IMF need to be put in their place, and those three words will do it nicely.

After that, negotiations would go much more smoothly, with the ECB, the IMF, and Ireland negotiating an appropriate haircut. The alternative for the ECB is a 100% haircut – a simple default.

That is the power of a trump card, and Ireland has it, not the ECB, and not the IMF.

Mike “Mish” Shedlock
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