March 2012        

It’s all a con

The Government is well on the way to “restructuring” the €31 billion promissory notes for Anglo-Irish Bank and “negotiating” a “wider” agreement on bank debt, the media proclaim. Government ministers try to look conspiratorial and start talking about the need for the Irish people to get a “psychological boost.” It’s not hard to know that there’s a referendum in the offing. And of course it’s all a con, as usual.
     Take the “negotiations”—about detail, such as the length of the repayment period and interest rates, but certainly not about repudiation of the debt.
     The last Government agreed that the state should pay €31 billion to IBRC (formerly Anglo-Irish and Irish Nationwide) over a thirteen-year schedule ending in 2025. The first payment of €3.1 billion was made in March 2011. The next payment is due on 31 March this year.
     As the maverick Fine Gael TD Peter Mathews has acknowledged, these payments amount to a “totally unjustified, odious debt burden on the people of Ireland.” And, because the mortgage loan loss element of debt is rising at a steady pace, the country’s total loan loss could soon reach the €100 billion mark.
     And before we start seeing Enda and the boys and girls of the Government as popular tribunes beginning to right an obvious and blatant injustice, we should remember what is involved. Normally, when banks collapse, their funders do not get all their money back. In Ireland, bond-holders got all their money back, with interest, at the insistence of the European Central Bank.
     Since the end of 2008, as payments to bond-holders fell due, neither the banks nor the state had the resources with which to pay them. That’s where the ECB stepped in. It lent approximately €135 billion to Irish banks to enable them to repay the bond-holders and also to replace lost deposits.
     Under normal capitalist principles the ECB should not have shielded bond-holders from the consequences of their investments; nor should the ECB object to writing off the loans it advanced to the Irish banks.
     The central issue is that the Irish state and Irish taxpayers should never have had foisted on them the burden of paying this sum back to the ECB. Instead of the Irish banks owing the ECB this vast sum of money, the Irish state—i.e. taxpayers—had the burden landed on them, to be discharged by means of a massive sale of the recapitalised banks and state assets generally—the NAMA loans, Coillte, An Post, the ESB, An Bord Gáis, etc., and Ireland’s natural resources—so that we can pay back the money the ECB is putting into the Irish banks, essentially in order to ensure that private banks in Germany, France and Britain do not suffer losses on their Irish operations.
     And of course if the Irish banks all closed tomorrow morning the ECB would not get its money back, because that money is now in the system in Ireland. The ECB knows that Ireland’s banks have not got the money to pay these vast sums. From the ECB’s point of view, its best plan for recovering the money it advanced to cover the reckless lending of the banks is to keep the burden of repayment on the Irish people.
     Hence the continuous political and media scaremongering that if there is any popular defiance the ECB will close down the ATM machines, so there will be no money in the system. This is only so much scaremongering, to intimidate the public into accepting liability for debts it is not responsible for.
     Instead, if the Government was really serious it would act in accordance with the old saying: If you owe the bank a million you are in trouble, but if you owe it a hundred million it’s the bank that’s in trouble!
     The ECB stood irresponsibly by while the German, French and British banks shunted huge sums on the Irish property market for years. As the euro zone’s lender of last resort, the ECB should pick up the tab.
     And the second part of the con? The Government’s plan to hold a referendum on the so-called “Fiscal Compact Treaty” but no referendum on the even more obnoxious European Stability Mechanism (ESM) Treaty, which it will be rushing through the Dáil within the next few weeks—perhaps even in the next few days.
     Why the rush? The ESM Treaty has to be ratified by all seventeen euro-zone states by their appropriate constitutional procedures, and Citizen Enda wants to get the treaty ratified before the Fiscal Compact referendum to have it as a bludgeon with which to browbeat a bamboozled electorate into voting Yes in the referendum.
     And how can we describe the European Stability Mechanism as a bludgeon? By committing ourselves to it we will be obliging ourselves to contributing €11 billion to a permanent euro-zone bail-out fund—made up of so much cash down and so much in guarantees and “callable capital” if required. There is already talk, even before the fund is established, of boosting it by another few hundred billion once it is established; and of course Ireland would have to make an extra contribution as a result.
     And the preamble to the treaty says it all: “It is acknowledged and agreed that the granting of financial assistance in the framework of the new programme under the ESM will be conditional as of March 2013 on the ratification of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union by the ESM Member concerned.”
     Hence the rush: to ensure that the Government can claim that if the people vote No to the Fiscal Compact Treaty we will be depriving ourselves of possible access to the permanent euro-zone fund at some time in the future.
     Political cynicism of the highest order is alive and well in Ireland!

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