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Thread: does every bailout have to be provided under conditions determined by the state to be bailed out ?

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    Default does every bailout have to be provided under conditions determined by the state to be bailed out ?

    After bailouts to Ireland, Greece, Portugal there seems to be an idea that the eu has to provide a bailout, and it's up to the insolvent country to decide what bailout conditions are acceptable

    This manifests in cyprus as protesters targetting anger at Angela Merkel and Germany. In our own case we had similar anti german anger.

    In reality there's no obligation on eu or eurozone members to bail out another member state. An insolvent member state has some negotiating weight which is what the other member states stand to lose economically by the insolvency + whatever political goodwill exists.

    Economic losses to other member states are made up of outstanding ecb liquidity, holdings of that sates bonds, outstanding deposits in that state + outstanding target2 imbalances. Also the probable loss of exports to that state

    We dont really know what a member state will lose by defaulting. In Irelands case there was a lengthy debate about whether we'd be better off defaulting or getting bailed out. Defaulting was never really considered by the govt so the answer is we dont know if that's better. We may be about to find out and whatever happens will probably serve as an example for a future italian re-election

    So given that we're going to be contributors to future bailouts rather than recipients, what conditions do we want to put on the recipient before we pony up the cash ?

    - Do we want the bailout be repaid or are we ok to make a gift to the other country ?
    - Do we insist the country changes whatever got it into trouvle so we dont need to bail them out again a few years down the road ?

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    Politics.ie Member Ulster-Lad's Avatar
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    No the conditions are provided by the troika. The state being bailed out can accept it or not.
    ‘The Great only appear great because we are on our knees: Let Us Rise!’ “ (James Larkin)

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    Politics.ie Member Howya's Avatar
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    The obligation for the EU/ECB to support countries in difficulty comes from the basic concept of the European project - either we work together for the benefit of all or we don't and it's every country for itself.
    “Still paying, still to owe. Eternal woe! ” ― Paradise Lost, John Milton

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    Politics.ie Member Lempo's Avatar
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    Quote Originally Posted by Howya View Post
    The obligation for the EU/ECB to support countries in difficulty comes from the basic concept of the European project - either we work together for the benefit of all or we don't and it's every country for itself.
    I love how there are cooked-up constructional obligations after the actual ink-on-the-paper ones about deficit targets, debt targets, sound national economics etc. got discarded by most. Some might say they didn't sign up for this sh!t...

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    Quote Originally Posted by dancl2000 View Post
    After bailouts to Ireland, Greece, Portugal there seems to be an idea that the eu has to provide a bailout, and it's up to the insolvent country to decide what bailout conditions are acceptable

    This manifests in cyprus as protesters targetting anger at Angela Merkel and Germany. In our own case we had similar anti german anger.

    In reality there's no obligation on eu or eurozone members to bail out another member state. An insolvent member state has some negotiating weight which is what the other member states stand to lose economically by the insolvency + whatever political goodwill exists.

    Economic losses to other member states are made up of outstanding ecb liquidity, holdings of that sates bonds, outstanding deposits in that state + outstanding target2 imbalances. Also the probable loss of exports to that state

    We dont really know what a member state will lose by defaulting. In Irelands case there was a lengthy debate about whether we'd be better off defaulting or getting bailed out. Defaulting was never really considered by the govt so the answer is we dont know if that's better. We may be about to find out and whatever happens will probably serve as an example for a future italian re-election

    So given that we're going to be contributors to future bailouts rather than recipients, what conditions do we want to put on the recipient before we pony up the cash ?

    - Do we want the bailout be repaid or are we ok to make a gift to the other country ?
    - Do we insist the country changes whatever got it into trouvle so we dont need to bail them out again a few years down the road ?
    we will do whatever angela tells us to

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    Quote Originally Posted by Howya View Post
    The obligation for the EU/ECB to support countries in difficulty comes from the basic concept of the European project - either we work together for the benefit of all or we don't and it's every country for itself.
    I'm not saying dont help them, i'm asking under what conditions should that help be provided.

    If we accept that bailing out a fellow member state is money out of our pockets then there can come a point where we ourselves become insolvent (again) through the cost of bailing out other member states.

    Or if we dont accept that providing a bailout costs money to those providing the bailout, then we're basically saying that money isnt real and there's no impact from inventing unlimited amounts to support a state that spends more than it takes in

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    Quote Originally Posted by Ulster-Lad View Post
    No the conditions are provided by the troika. The state being bailed out can accept it or not.
    In theory, in the cyprus case the country rejected the conditions under which the bailout was offered and protesters resented the eu and germany specifically for putting such onerous conditions on the bailout. There is similar resentment in Ireland to the conditions placed on our bailout

    So the question is, what kinds of conditions are reasonable for a bailed out country to accept or should money be provided with no conditions and repayment terms as loose as is politically acceptable in that country

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    Politics.ie Member emulator's Avatar
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    They're not "Bailouts" but simply loans with interest....

    The organisations and Countries giving the loans are usually only too happy to help....

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    Quote Originally Posted by emulator View Post
    They're not "Bailouts" but simply loans with interest....

    The organisations and Countries giving the loans are usually only too happy to help....
    it's only a loan if it gets paid back.

    if there are no conditions, then the country receiving the bailout can continue doing whatever got it into financial trouble, requiring additional bailouts. At whatever point further bailouts are not forthcoming, the country will default meaning no repayment of any of the bailout loans + everything else outstanding at the point of the first bailout

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    Quote Originally Posted by emulator View Post
    They're not "Bailouts" but simply loans with interest....

    The organisations and Countries giving the loans are usually only too happy to help....
    That's a bit too sweeping, as I'm sure Lempo will tell you. It's easier to get a Cypriot bailout deal through the German parliament than through the Cypriot parliament, but it's not an open and shut deal.

    We don't see this here because the Dáil makes no difficulties for the government, and so far governments around the eurozone, as opposed to parliaments, have been willing to provide bailouts as needed.

    On the OP, I'd have to say it's obvious that the lenders have to set conditions. The final guarantor of government loans to bailed out countries are the taxpayers of the lending country, and it is irresponsible for governments to put their taxpayers in hock without conditions. Solidarity means that loans are available - nobody has been refused a bailout - but not that the credit of one countries' taxpayers should be handed to another without any strings.
    Never let the best be the enemy of the good.

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