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Will Ireland Deliver a ‘Bomb’shell on December 7th?

Posted by Larry Doyle on December 6, 2010 5:14 AM |

December 7, 1941

A day which will live in infamy.

The course of world events changed forever that day.

Although there is no meaningful comparison between the loss of life and any amount of turmoil in the markets and global economy, we should be fully aware that December 7, 2010 has the potential to be an earth shattering day on our global financial and economic landscape.

The military ‘bombshells’ delivered 69 years ago on our military base at Pearl Harbor had ramifications far and wide. Financial and economic ‘bombshells’ may very well be delivered in the Emerald Isle this coming Tuesday, December 7, 2010.

Anybody with even a passing interest in our markets and economy would be well advised to watch results of this coming Tuesday’s budget vote in Ireland very closely. What are the consequences of this vote?

The outcome of this vote could have profound implications on markets worldwide if not the very foundation of the EU itself.

Thanks to a regular reader of Sense on Cents for highlighting the importance of this vote. If the current trend in the polls continues, the Irish vote against the sitting government’s budget may very well lead to an eventual default on its debt rather than assuming the enormous burden of the bailout proposed by the IMF, the ECB, and the EU. The draws further light on this very serious vote and its potential consequences in writing, SF (Sinn Fein) Swing Can Make Gilmore Taoiseach,

It is now clear that the arrival of the EU-IMF last month — and the perceived dilution of national sovereignty resulting from that — is fuelling a radical rethink among the electorate.

Labour and Sinn Fein have been most strident in their opposition to the terms of the €85bn ‘bailout’ arrangement negotiated by representatives of the Government.

In the Dail last week, Mr Gilmore declared that his party would not be bound by the EU-IMF deal and would seek to renegotiate it.

Labour opposes the entire premise of the agreement that there must be €6bn in cuts and savings next year.

Sinn Fein, meanwhile, has been even more critical and has said that it would default on part or all of the debt.

This stance is supported by the hard left.

The view of several policymakers and economic commentators that the EU-IMF deal has placed an unsustainable debt burden on Irish citizens seems to be persuading voters to look again at an alternative left-wing government, including Sinn Fein.

According to a Sunday Independent/Quantum Research poll today, 61 per cent majority believe the EU-IMF deal is not a good one for the country; that 71 per cent believe the Dail should be given an opportunity to vote on it and that 54 per cent do not believe the next Government should be bound by it.

It has also found that a 58 per cent majority believe the Government should default on all or part of the debt. (LD’s highlight)

Reports last week that the Minister for Justice Dermot Ahern, 55, was to receive a ‘golden handshake’ of €325,000 and an annual pension of more than €100,000 have added to an already huge sense of anger and frustration among the public.

Remind you of anybody? Can you say Mary Schapiro?

Furthermore, reports that Allied Irish Bank paid out almost €60m on bonuses over the past two years, including €3.4m to key staff this year, are deepening a general sense of injustice.

Remind you of anyplace? Can you say Wall Street? How about A-I-G?

In a populist move, Mr Gilmore has promised in Labour’s pre-budget submission to cap the salary of the Taoiseach at €190,000 and to reduce ministerial salaries by 17 per cent.

However, there are major differences between the pre-budget submissions of Fine Gael and Labour.

Fine Gael has accepted the need for the €6bn adjustment, as agreed with the EU and the IMF, with €15bn to be found mostly in reduced spending over four years.

By contrast, Labour wants an adjustment of just €4.5bn, with the savings made up equally between cuts and taxes.

It has pledged to renegotiate the terms of the EU-IMF rescue package.

If the Irish vote on Tuesday shifts the balance of power toward the Labor/Sinn Fein/Independents, then the ‘backdoor bailout’ of the European banking system via the Irish banks will be very much in question.

The ‘tora’, ‘tora’, ‘tora’ calls coarsing through the markets may very well cause everybody to look for cover.

Watch Ireland closely on Tuesday.

Thanks again to the reader for highlighting this story.

Navigate accordingly.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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