October 2011        

How broke is the state?

A review of “An Audit of Irish Debt”

With very little media attention or analysis, the first quality report on the scale of Irish debt was published in September. It was compiled by Dr Sheila Killian, Dr John Garvey and Frances Shaw of the University of Limerick and sponsored by the Debt and Development Coalition, Afri, and Unite.
     Here we briefly review the report and draw attention some of the most important findings, but we recommend that all readers read the full report, which is available from www.debtireland.org/download/pdf/audit_of_irish_debt6.pdf.
Scale of Irish national debt on 31 March 2011€371.1 billion
     Contrary to Government and establishment opinion, it is patriotic to seek out and publish the true bankruptcy of this state, the class of parasites that run it, and the system and relations responsible for this.
     The CPI welcomed this report as a vital tool for activists, especially those involved in the Repudiate the Debt Campaign (www. nodebt.ie), as it clearly vindicates the position of repudiation from both a moral and an economic standpoint.
     Readers might remember that Socialist Voice reported back in June of this year that while the Government quoted national debt as about €100 billion, the true figure was closer to €150 billion. This is because a significant amount of debt that the state is liable for is not being recorded as either national debt or general government debt by the National Treasury Management Agency (the state body responsible for managing the national debt).
     Appallingly, an accurate account of our state debt cannot be obtained from a state agency; and that is why a report like this one needed to be undertaken to uncover the true state of the debt problem.
     The report begins by stating its scope as being to “quantify the scale of the Irish national debt in the first half of 2011 . . . It examines all debt for which the Irish state has direct or indirect liability.” Figures are taken from March of this year.
     In attempting this, it looks at three areas—government bonds, NAMA, and bank guarantees—and comes to the conclusion that, “overall, it is clear that the bulk of Irish government debt has arisen directly from the banking crisis, the decision in September 2008 to rescue all of the Irish banks, and the subsequent ELG and ELA [guarantee] operations . . .
     “Ireland’s national debt derives from two main sources: direct government borrowing which includes both government bonds and borrowing from the EU/IMF, and the borrowings of banks now under state control which are underwritten by the Irish state.”

     While this is far from ground-breaking, the detailed explanations of the precise make-up and origin of the debt and how the state’s liability stretches far beyond what is reported by the NTMA is what makes this contribution both welcome and valuable.
     The report provides details of the difference between the “national debt” and “government debt,” as described by the NTMA. “National debt” merely includes debt incurred directly by the Government—some €91.8 billion—while “government debt” adds to this the debts of local government bodies and also more than €30.9 billion in promissory notes to Anglo-Irish Bank and Irish Nationwide (now a merged entity known as the Irish Bank Resolution Corporation).
     All our current debt is denominated in euros and can be seen to have grown significantly from the late 1970s, with a big increase from the mid-90s and obviously an even more dramatic and devastating rise from 2008.
     From September 2010 the Government was no longer able to sell government bonds, but debt continued to grow dramatically following the EU-IMF imposition and continued bank liabilities.


While the Government may not consider NAMA debt as part of the state’s, it is clear from this report that it is, and it is also clear that international spectators also consider it part of the state’s debt. NAMA uses “special-purpose vehicles” (SPVs) to deliver the NAMA bonds, and this keeps them off the state’s immediate books. However, the state is ultimately responsible for the €28.7 billion in NAMA bonds delivered to the banks through these vehicles and for the decreasing value of “assets” the state received in return.

Bank guarantees

The bank guarantee was the start of the policy of “no bondholder left behind” and saving the finance system at all costs. It has become clear over the subsequent years that this was a policy forced on the state by the elite and powers in Europe as a result of the interbank lending and exposure of big German, French, British and Dutch banks to peripheral countries.
     What is not widely known is that the bank guarantee is in fact two guarantees: the original Credit Institutions Financial Support Scheme (CIFS), which covered retail and interbank deposits, senior unsecured debt, covered bonds and subordinated debt without any cap on the amount covered, and also the Eligible Liabilities Guarantee (ELG) from 2009. Altogether the report calculates a figure of some €111 billion under the ELG scheme and €74 billion of other deposits guaranteed.
     Resulting from the initial scheme, the Central Bank of Ireland has had to lend money to the banks through its Emergency Liquidity Assistance (ELA). Ultimately, the report concludes, the state is responsible for all profits and losses of the Central Bank and so is exposed to the tune of some €34.6 billion of short-term penalty-rate loans.
     Importantly, the report also states that “there is considerable concern, nonetheless, about the quality of collateral for the ELA loans.” Furthermore, it would appear that some of the banks used the promissory notes from the state as collateral for even more lending from the state through the Central Bank—meaning that potential exposure from this area is likely to become actual bad debt.

Government bonds

When all this is added together, the report finds the state responsible for the following bank debt:
ELG scheme€111 billion
Deposits guaranteed€74 billion
Promissory notes€30.9 billion
NAMA bonds€28.7 billion
Central Bank ELA loans€34.6 billion
Total bank debt supported by the state€279.3 billion
Add to this
Direct government debt€91.8 billion
and the result is
Irish national debt and exposure to debt€371.1 billion
     There is, of course, a difference between the full total of debt that the state is exposed to and debt that will have to be paid fully and by the state. Nevertheless this report reveals the shocking amount of debt that this state is paying, and will have to pay, how this could get a lot worse, and who is responsible.
     It reveals the necessity, now more than ever, of building a very clear, principled and focused Repudiate the Debt Campaign.
     Repudiation is the only way that people will relieve themselves of the odious debt that this state has heaped on the shoulders of ordinary working people and families. It is not that when we reach a certain point enough is enough; nor is it about saving one sector from cuts while another is laden with cuts: it is about stating very clearly that this debt is not our responsibility, and we will not pay it.
     Let the finance houses responsible either pay it or declare themselves insolvent and let the creditors go to the courts. Re-establish a sovereign currency and a state banking system. Nationalise our oil and gas. Provide employment through productive state enterprise. Build strategic international alliances that benefit Ireland, not using Ireland as a clearing house for their surplus capital.
     A national democratic economy is not only possible but necessary if working people wish to have a decent standard of living.

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