Hope It's Not The Enda The Line

This is not an encouraging start. Little more than a few weeks ago, on the run-in to the General Election, both Fine Gael and Labour were making some rather bellicose noises in relation to the bank bailout by the ECB and the IMF. They told us, among other things, that no one would get off scot-free.

Where the losses in the Irish banking system were concerned, burden-sharing would be the order of the day. The bond-holders would have to take their quota of pain. And so on. Arguably, it was on the basis of these statements that they won such a comfortable majority in the new Dáil.
Well, the Minister for Finance Michael Noonan went in to bat against the boys in Brussels last week and came back with nothing, unless you count the tail between his legs.
I don’t mean to be disrespectful. Noonan is a tough customer and fights a good fight. But he was told, apparently in no uncertain terms, that burning the bond-holders was not an option. And there seemed to be no big stick he could successfully shake at the guys on the other side of the table.
Why?
For one thing, I could not fathom the constant flood of soundbites coming from Enda Kenny and others in the FG camp, over the past three weeks, that Ireland would meet its obligations in relation to bank debts. As a starting point for negotiations, it has to be about the worst you could dream up.
Think about it: you are sitting at the high table in Brussels. You hear the newly elected Taoiseach say: “Ireland will meet its obligations”. Now: what would you do?
You’d rub your hands together, say thanks very much and refuse to budge an inch. In a nutshell, our European ‘partners’ were told in advance that really there was no risk that we might go for broke and try to pull the plug.
Again, I don’t mean to be unkind. But if you want the financiers in the ECB and the IMF, and the EU finance ministers alike, to get seriously interested in the concept of burden-sharing, you have to convince them that there is a possibility that the whole shit-house may be about to go up in flames. Push Ireland too far – and who knows?
It might have been necessary to get thick about it, the way the Shinners would have if they were at the table: “We have a mandate to renegotiate. We will not go home without some form of concession. It doesn’t matter how long it takes. We are going to stay. Here in Brussels. Until you are so sick of us that you will want to shrivel up and die. And the longer we are here, the louder we will shout. Not just about how impossible the EU is making life in Ireland but also in Portugal and Spain.”
Bob Dylan said it: when you’ve got nothing, you’ve got nothing to lose. Right now we have a mountain of debt, which amounts to less than nothing by a very long way indeed...
How could Michael Noonan credibly communicate that message when Enda Kenny had already queered the pitch with promises that Ireland would pay for the folly of European investors and Irish bankers alike? We didn’t have many trump cards going into the discussions: the bank guarantee given by Brian Lenihan and steered through the Dáil with the support of Fine Gael had ensured that. But we had one: that a refusal on Ireland’s part to continue to play ball would potentially have sent shockwaves through the entire European financial system. Whatever else they might want, or not want, the European leaders cannot afford to risk the collapse of the euro. That prospect might have been enough to trigger a different, less hardline response from the European top dogs.
Instead, in his report to the Dáil, we were treated to the rather embarrassing statement from our Minister for Finance that our European partners had been “good to us.”
Good to us. Insisting that the less than two million paid workers of Ireland should shoulder the burden of a €70 billion bailout of the banks, in order to ensure that bondholders – German, French and UK banks among them – would not lose out?
There is, of course, more than one way to skin a cat. If, for optics sake, the ECB and the assembled Ministers for Finance were insistent that debts to senior bondholders would have to be honoured, then there are other mechanisms through which the EU might provide a balancing kind of support. I’m not talking about tinkering with interest rates either, the effect of which is marginal. On the other hand, a once-off regional grant support of – let’s not be unambitious here – say, €20 billion, paid in the short-to-medium term, would change the dynamic on the ground in Ireland completely. It would not make the fact that ordinary Irish citizens are having to carry the remaining cost of the bank bailout any less unjust, of course, but it would enable the Irish government to create employment directly (on infrastructural projects) and indirectly through support for small and medium enterprises.
– It is a fact that the burden of this entire bailout on ordinary people is crazily, unjustifiably (and potentially unsustainably) high.
– It is a fact that the imposition of it, and the austerity measures which follow from it, will themselves further deepen an already vicious recession here.
– It is a fact that, almost inevitably, more companies will go bust, employment levels will drop even further and tax revenues will diminish accordingly.
– It is a fact that no one can possibly predict when all of this will bottom out.
Indeed it is a fact that so great is the debt, and so huge is the gap between day-to-day spending and the revenue coming into the Irish exchequer, that it may not so much bottom out as collapse entirely.
And on top of that we have to contend with the farce of the ‘stress tests’ on Irish banks. Anyone who knows anything about business understands that this acquires the shape of a self-fulfilling prophecy. Once you start to become aggressively sceptical in your valuations or re-evaluations of collateral against which borrowings have been made, the effect of this action in itself, is to drive the value of everything down. If one property is worth less, then the implication is that every property is worth less. And there is a deeper irony: it is the unavailability of capital, which is driving the value down. The banks are themselves at the root of the problem.
We will now end up with banks that are ridiculously over-capitalised – while the country is broke. Young graduates just out of college will be forced to emigrate – thereby taking the benefits of the investment made by the State in their education elsewhere. And…
I could go on but maybe I shouldn’t. We have to pick ourselves up, take a whiff of the smelling salts and go back to the negotiating table, but in a more business-like style.
And this time, make them sweat for a change...

See also The Whole Hog (Page 61) and Ireland’s Young: The Forgotten Victims of the Recession
(Page 59)