Irish bailout: The European Central Bank is damned if it doesn’t, and dead if it does.

Although Brian Cowen, Ireland’s prime minister, said yesterday, “We are determined to do what’s necessary to achieve international confidence and build domestic confidence”, so far it’s proving hard to do either. There are obvious commercial (Anglo-Irish) and fiscal (the huge debt and deficit) reasons for that – but they aren’t being helped by an EU hierarchy desperate to save itself.

The European Central Bank (ECB) is keen to focus on the Anglo-Irish Bank problem,and pretend that the deficit Elephant is elsewhere. Yet the Anglo-Irish issue is pretty damn big on its own….no matter how small the Irish keep saying it is.

For Standard & Poor’s, the ‘very least’ the Anglo-Irish bailout will wind up costing is €35bn.
Standard & Poor’s credit analyst Trevor Cullinan told Bloomberg yesterday that the total cost of bailing it out would exceed the agency’s previous 35 billion-euro forecast.

“Estimates which were previously strongly against our 35 billion now seem to be coming in line with that recapitalization cost. So the government’s kind of Plan B with Anglo means this 35 billion euros could be exceeded.”

But today finance minister Brian Lenihan lobbed in another €5bn for the bank, and told the media that all was now hunky-dory…at a total of €28bn. Then RTT news said the final bill ‘could easily top €30bn’.

In this morning’s Spiegel there is a rather more dispassionate view:

‘Wages and salaries in the public sector have been reduced by up to 15 percent, leading to savings of over €3 billion. But what is €3 billion compared to the €40 billion that a single bank could end up costing the state? This year, Ireland’s deficit will rise to well over 20 percent of GDP, a much higher level than Greece’s. To make matters worse, this figure only takes into account a small amount of the total cost of the bank bailout. In early October, the government intends to finally disclose how high the final bill for the Anglo Irish Bank will be….’

30….35….40 or more: these things have a habit of going up. A deficit alone at a fifth of total economic output, alongside a total debt of six times the Irish gdp: what does Brussels have to say about all that?

The EU’s first spin-attempt re this one has been for financial commissioner Ollie Rehn to put out more bollocks this morning as follows:

“”I know that the authorities have already quantified the consolidation packages they plan to implement in the following years, and is adopting already now the measures that will over the next years make sure that debt remains on a sustainable path. The Irish labour market is well-known for its flexibility, which will help in the adjustment. Being in the centre of the global economy and having a flexible and well-educated labour force are strong preconditions for growth.”

Mr O’Renn shows signs of suffering from a serious touch of the Blarney there; certainly Moody’s think so – the credit agency has today added some poison to its obvious doubts by saying that it would downgrade Irish debt to junk unless the Government ‘guarantees all bondholders against losses’. That clearly isn’t going to happen, and anyway would be a job for Brussels in general and/or Tricky Trichet’s ECB in particular.

The ECB is virtually doing this anyway: on its own admission it has been buying Irish bonds over the last few days as if they were four-leaved clover. But I know for a fact that the Cowen Cabinet  was ready to go public on its need for EFSF funds two days ago…and was blocked from doing so. Just as the IMF was told that it had not Been There two weeks back.

Yesterday, Cowen told the media that “The National Treasury Management Agency have confirmed that we are funded right up to the middle of next year and I think it’s important to emphasise that point.”

This too is complete bollocks: how can the NTMA confirm any such thing….do they know what bond yields are going to be by then? If they don’t even know what one bank bailout is going to cost, how can they estimate what sort of debt they’ll be servicing at that time? And what happens after June 2011…a miracle on the scale of loaves and fishes? A cure for financial leprosy?

I’m the last person in the world to put Ireland down. But there comes a point at which – even for the Irish taxpayer – it’s better to hold your hands up and admit it’s a fair cop.

The EU gargoyles aren’t going to allow the Irish to do that: they know that a confession now would put the whole eurozone (and most of its banks) in a perilous position. And so in short, this grisly tableau must continue….but not for long.