this is a much extended version of an opinion piece published in the Irish Examiner on 15 September 2011
For a very long time now I and others (notably but not exclusively Constantin Gurdgiv and Peter Mathews) have been urging that while there may be some reason why Ireland gave its taxpayers over to bond-age in 2008 the time has passed for at least Anglo/INBS to be cast to the wolves. In June 2009 I suggested that we were spending cash we did not have to save a bank we didn’t need. In September 2010 wrote an opinion piece in the Irish times, which attracted much attention. See Irisheconomy.ie for some of the comment. In that I argued, strongly, that the government should cut its (our) losses on Anglo and impose losses on even the senior bondholders. That was greeted with howls of outrage (albeit mostly from anonymous commentators) much of which reiterates the same old same old. : the ATM’s would fail, . this sort of thing was only advocated by “media whores” who were “irresponsible” , Anglo was in fact Ireland ! etc etc. Fast forward to now and we see a very different complexion. Even the IMF seem to be concerned with Anglo and urges that we use the powers and strength we have to resolve the issue. The IMF of course are always and ever concerned about sovereign (not banking) stability, and when did they become the (least worset) good guys? It’s very heartening to see that as time goes on this approach, nuanced and improved on, gets more ans more traction. The latest semi-hemi- demi convert to the notion, at least at a public level, appears to be An Fear Snip Colm McCarthy. Colm is the doyen of Irish economics. He has been there and done that. He is a living, active, influential and cognitive link between the policy making of the 1980s and that of the 2010’s. He has straddled academia and industry in a manner very common in places such as the US and the continent but all too lacking in Ireland. He stated recently that perhaps it was time to reconsider the Anglo situation. That is, if I may interpret and with every expectation of being proven wrong, to me a coded cri de couer to call a halt to the madness. Colm has been some time now moving towards a more overt concern on Anglo and its toxins, and as a low key, pragmatic, and publicity eschewing commentator his words should be take with great interest when he speaks.
The dail, finally,returned this week. At the conclusion of the last session Enda Kenny made a speech that has resonated, whether one agrees with his views or not.. He has an opportunity to do so again. Below is a speech that he could give, but would never be allowed to by the Dept of Finance, Dept Taoiseach, Dept Foreign affairs or NTMA. Europe is facing a massive crisis on the greek front and now is the time for the Irish government to remind the EU and the ECB of the strength we have. And that strength is one of being a bulwark against an even worse crisis than a managed greek default. Back in 2010 I noted that we were hopelessly outclassed , describing the debate on the bailout as “geo-political hardball, Brian Lenihan from Castleknock versus the heirs of Bismarck and Cardinal Richelieu.” Well, what a surprise, the nice man from castleknock didn’t win. However, we now have a new opportunity. Enda is a survivor, a man who was in his time written off as a lightweight, consummate backbencher material, even surviving a coup attempt from his own party just before the triumphant election. However, that apparentl failure may in fact have been a blessing, as it did, according to one seasoned commentator, in effect keep Brian Lenihan, a vote repellent in the General Election, in power. Enda can learn from that. Now, when his opponents are weakeend , is the time to show strength. It would be fitting that in a coalition with Labour he recall to our minds the words of Jim Larkin “The great only appear great because we are on our knees. Let us rise.”
If calling to mind a labour hero is too problematic, perhaps he should take heart from the clerkish but steely W T Cosgrove in relation to the issue of the share of imperial debt which the new irish state should take on “ I had only one figure in my mind and that was a huge nought. That was the figure I strove to get, and I got it.”
So. What should Enda have said?
“Colleagues, we stand in Europe on the edge of disaster. Greece faces a level of debt that is unsustainable. While it can, must and will reorganize its economy and become more competitive, this cannot be done through austerity alone. No analyst now thinks that Greece can repay its debts. When a person, a company, a country has debts too large to be repaid they must be presented with one or more of the following options. The debts must be reduced in quantum, either directly through writeoffs or via depreciation over time through inflation or directly via a revaluation; or they must be given more time to repay the same amount, or they must be given a lower interest rate on the outstanding quantum. In reality, all three are applied.
The failings of the EU in relation to the sovereign debt crisis are well known and I do not propose to reiterate them here. Suffice it to say that our colleagues seem to consider that having allowd their banks to lend foolishly to Greece, having allowed Greece to borrow foolishly from them, the entire burden must fall on the greek people. That is nonsense, and they know it. Greece must, even were to owe nothing, restructure how it collects and distributes taxes, how it regulates industry, how it promotes and demotes enterprises. But it ultimately must do that for the benefit of the greek people, not for any foreign power.
Ireland remains locked out of the bond markets, as much when the yield on ten year bonds is 8% as we were when it was 16% or when it will be 8% again. We have indeed been cast on the (un)kindness of strangers.
Much of the debt, and in particular much of the preemption of irish government tax take, arises from the guarantee on bank debt issued by this house in 2008. The decision to guarantee the debts was one that was generally supported, as being the least worst option presented to us at the time. It is now clear that at best the then government was misled by the banks, at worst it ignored the advice of its officials, or worse again was subject to subtle and backroom pressure from the ECB to not let any banks fail. However this arise, it was clearly presented as and perhaps was sold to the government and to parliament as being a temporary and exceptional issue.
However, we now find ourselves being pressured by the ECB to repay not just guaranteed debt but also to repay unguaranteed debt and debt which is secured on assets. We are in addition pouring billions into the corpse of Anglo Irish Bank and INBS, to ensure that the continue in an existence which suggests to me that we should rename them Schrodingers Banks, neither alive nor dead and whose nature confuses and perplexes. This has to stop. I now give notice that we will cease these payments and instead divert the funds to repaying our true national debt. The Irish taxpayers have paid a heavy price for the regulatory failures that led to the bank collapse. But we are neither capable nor are we any longer willing to shoulder the burden of preventing contagion across European banks. As ur regulator failed so has the ECB and the EU in allowing banks to become overly reliant on one form of debt, senior debt. We acknowledge that in stating that the irish taxpayer will no longer meet these burdens there is a real risk of contagion. Investors will ask, what is to stop German or Dutch or Italian banks from not honoring their unguaranteed senior debt?
The answer is nothing. But nothing does not mean that there is no solution. This problem is either the problem of individual countries, not possible in an integrated financial system and not appropriate in a true European community, or it is the problem of the center. It cannot be the case that when states take the burden of preventing problems in other states, as we have done to date, that they are left to shoulder this alonw. Still less is it appropriate that they be punished, as we have been via an onerous and begrudgingly changed bailout. We in this government judge that the time has come for the ECB to take up its responsibilities for European financial stability. It has the power, financial and otherwise, to do that which we can no longer do. That it has treated Ireland shabbily in issuing veiled threats and refusing to deal meaningfully with the funding problems of the banks is both well known and regrettable.
Some will argue that this decision is illtimed, coming as it does when there are delicate market conditions. While some will argue this from genuine idologicalviewpoints, others will do so from a perspective colored by their professional advice . I counter that there is no good time and no easy way to tell a friend they are engaged in a wrongheaded policy. It is precisely because the ECB and our EU colleagues so fear the consequences of a Greek default that we now find ourselves as a government able to exert this pressure. I am reminded of the words of a venerable and much missed member of this house, Seamus Brennan, to the Green party that they were now playing senior hurling. So too are we. I am further reminded of the words of W B Yeats “ Do not wait to strike till the iron is hot; but make it hot by striking” and hope that the ECB will be reminded also of the words of Yeats “say my glory was I had such friends”.
Juergen Stark, the soon to be ex chief economist of the ECB expresses perplexity regarding the issue of bondholders having gained precedence over taxpayers remains on the Irish political agenda. I say to Mr Stark that by his own words “Concentrate on the items that have to be on the top of the political agenda, to reform the Irish economy to bring the deficit down and not .. bring up issues that in our view are non-issues” he in fact engages in the economic equivalent of doublespeak crossed with doublethink. It is the first, and foremost, aim of this government and I suspect this house that we bring our government fiancens into line. We may be divided on how we achieve that but that is democracy. Politics, I would remind Mr Stark, is the art of the possible, and I would further remind him that his own profession is properly called political economy, the ordering of the words indicating the nature of the beast. It is in the opinion of my government that at the top of the domestic and international political agenda is the putting on a sound footing the finances of states. In the case of Ireland that means that this government no longer feels bound to bail out private bondholders, the more so when doing so endangers the fiscal foundation of the state.
Some have argued that in “burning the bondholders” we run the risk that the ECB will cast Irish banks adrift. This is, to use an phrase, a “bottle of smoke”. First, Mr Trichet has intimated that even were there to be a Greek default the ECB would continue to provide liquidity. If they are willing to do so in the event of sovereign default then it is logical that they will do so where there is none, and where the normal rules of capitalism apply. Second, even were the ECB willing to see a Eurozone country run out of cash, and in doing so force it out of the zone and to therefore bring the currency to the edge of an existential crisis, the Central Bank of Irelands can, via its own liquidity operations, provide sufficient funds. I am sure that the Bank will see its national and European duties in this case as doing so. If the ECB does not wish to see this it must take action in providing long term secured funding to the Irish banks, which it has both agreed is required and has refused to do so. In ceasing payments under the promissory note and in refusing to allow any more taxpayers money to be spent on redeeming unguaranteed or secured bonds (whether guaranteed or not) by Irish covered banks, we are not engaging in a sovereign default. We will use the monies saved on an ongoing basis to more rapidly pay down our true sovereign debt, reducing any hint of a need for default on that. We face even without the banking debts a monumental challenge to right our own fiscal house and this we will do. The result will be a stronger Ireland and a stronger Europe. We do not wish to kick the world but do recall the Dean “Once kick the world, and the world and you will live together at a reasonably good understanding” . It is time for this house to kick, and kick hard, not in a reflexive sense but to kick against the concept that we must place taxpayers in the firing line first last and always.
I close with the words of that distingusihed public servant , servant for both ireland and europe, Dr Patrick Honohan “mature reflection by the financial markets would recognize that a country honouring its debts and guarantees to the letter–and not beyond–was more creditworthy than one which handed over money lightly to unguaranteed risk investors.” . That time has come. “