Irish Economy
UCC economist says more than half Irish bank bonds owned by investors in Republic of Ireland
By Michael Hennigan, Founder and Editor of Finfacts
Feb 17, 2011 - 10:40 AM

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Source: Economic Incentives

Research by an economist at UCC  -- University College Cork - - shows that more than half the value of outstanding Irish bank bonds is held by investors in the Republic of Ireland.

Seamus Coffey says on his economics blog that by April 2010 there was €111bn worth of bank bonds (€6bn more than in September 2008 when the State banking guarantee was issued) in issue, but by the end of 2010 this had fallen to €64bn - - a drop of over €47bn. Most of this money was fully repaid. 

The economist says the biggest drop has occurred for bondholders from the rest of the world which has dropped (or been repaid) by €26bn since the guarantee was introduced and is now down to €20bn. As late as last August there were €41bn of bonds held by rest of the world residents but there was a reduction of €17bn in September.

Irish residents have seen their holdings of Irish bank bonds rise from €38bn at the time of the guarantee to €45bn in April 2010. Since then, these too have fallen and were down to €33bn by December. The proportion of bond held by Irish residents has been rising since the guarantee was introduced and now stands at just over 50%.

In a reference to the campaign to get bondholders to take big 'haircuts' or discounts, Coffey asks: Are we going to burn ourselves?

The economist says since the guarantee holdings of Irish bank bonds by other Eurozone residents has fallen from €17bn to €10bn. This would hardly leave a ripple on the European banking system. This would similarly apply to the €20.5bn held by residents of the rest of the world. Non-payment of the €33bn owed to Irish residents would be far more significant.

Private sector workers whose pension funds are already under water would be hit but last Monday, Trinity College economist, Brain Lucey, who has a pay-as-you-go public pension, advocated a unilateral default if necessary
in an article in The Irish Times.

Journalists such as Fintan O'Toole and David McWilliams have called for a referendum on the issue.

I said in response to the Lucey article, that before discussing our problems with Angela Merkel post March 9th, or even with David Cameron, we should surely start with the facts.

I wrote in December that university academics can advocate massive debt restructuring across Europe, while retaining the "legitimate expectation" of added pension years which has resulted in a State bailout of their pension funds, while the sought after bondholder 'haircuts' would hit private sector pensions.

Finfacts article: Irish debt haircuts would be welcome; Stupid to start immediate war now with Europe

In Denmark, which is not in the Eurozone, the collapse of Amagerbanken, a small Danish lender, showed that Copenhagen “is now far less willing to continue to support bank creditors at the expense of taxpayers” than just a few months ago, according to Moody's, the ratings agency.

Danske Bank, the owners of National Irish Bank, and four other Danish lenders have had their credit ratings cut.

Senior creditors and some depositors face losing about 41% of assets.

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