The former Minister for Finance, Brian Lenihan, feels he was forced to take the loan from the EU/IMF, so that the Irish taxpayer would put capital into the Irish banks. This was done so that these banks could repay money they had borrowed from the European Central Bank. In other words, it is argued that the Irish taxpayer is now rescuing the ECB, as much as the other way around.
There is also the point I made myself in a letter last January to President Barroso. The European banks, who lent foolishly to the Irish banks and thus helped inflate the Irish bubble while hoping to profit from it, were part of the problem too. They were not adequately supervised, either by their own national central banks, or by the European Central Bank.
The ECB has had, from the day it was founded, a clear legal responsibility for supervision of credit institutions, and for the financial stability in the euro zone. Events show that it did not exercise these responsibilities adequately between 2000 and 2008.
Irish taxpayers are paying for the errors of the Irish central bank, when it allowed Irish banks to borrow too much from other European banks to fuel a property bubble. But the taxpayers of those European countries should take a proportionate responsibility for the errors of THEIR central banks, when they allowed their banks to lend this money in the first place.
It is frustrating that none of these points are even being acknowledged by the central bankers, Governments or politicians of other EU countries. They pretend that the problem is purely an Irish one, and that the lending, and bond buying, decisions of their own banks have nothing to do with it.
They act as if Ireland must first be “punished“ for its sins, by being forced to increase its corporation tax rate, before it gets any reduction in the interest rate on the loan .
All this is fine. All these are valid points. But where do they really get us?
Irish history shows that one can nurse a grievance for a long time, and feel morally superior to those who wilfully fail to understand it. But grievances do not pay the bills at the end of the week. Indeed, in all areas of human life, un assuaged grievances often distract attention from things we can actually do something about, and that are our own sole responsibility.
There is one very important thing that is the responsibility of the Irish people themselves. That is the fact that the cost of government services in Ireland, before rescuing any banks or paying any interest on debt, will be 53 billion euros this year while tax revenues will be only 41 billion euros!
So even if all our debts were wiped out by some miraculous act of generosity by the EU, the IMF, and the private banks, Ireland is still 12 billion euros short on its day to day spending on salaries, wages, social welfare etc.
Those who talk about “restructuring” existing debts, should keep that 12 billion gap in the forefront of their minds.
A country that has to borrow 12 billion euros of new money, every year, just to keep going, is not in a great negotiating position to demand concessions on its existing debt. This is because it will be demanding those concessions from the same people from whom it also wants to borrow more new money, on top of its old debts, every year.
Ireland needs to get into a position that it can borrow on the commercial sovereign bond markets on reasonable terms as quickly as possible, if its economic independence is not to be permanently compromised. Delay will not make things easier. Conditions on sovereign bond markets are likely to get harder and harder, year after year. Interest rates are likely to go up, not down. If “restructuring” by any sovereign borrowers take place, interest rates on all new sovereign bond issues will tend to rise even further. There is a lot to be said for accelerating the 2012 budget process, and taking decisions earlier than the financial markets and our EU partners expect them to be taken. Waiting will not make things easier.
The United States, which is 20% of the world economy, is having difficulty maintaining its credit rating. Japan, which is 8% of the world economy, has a debt/GDP ratio of 200%. It may run out of domestic savings as its baby boomers retire, and may enter the international bond markets. Even Germany will have to borrow more to cater for an ageing population.
Competing for funds with these voracious borrowers will not be easy for Ireland, especially if the supply of funds is reduced because the lenders, China and the oil producing nations, have to keep more of their money at home to meet the needs of their own restive populations.
So I believe that it is now time for our economic commentators and pundits to come home, to turn their forensic and investigative skills away from the deficiencies of the ECB, the EU, the foreign banks, our banking exiles, and all those worthy foreign targets, and focus their analytic skills instead on that huge 12 billion euro gap between revenue and spending here at home.
When Ireland has bridged that 12 billion euro gap, it will be in a much better position to talk to the ECB, the EU, and the bondholders.
Ireland urgently needs to surprise the markets with some good news.
Imagine the effect of bringing the 2011 deficit in substantially below market expectations.
Imagine the effect of a 2012 budget that involves less borrowing than the market expects.
Imagine the effect of some speedy sales of distressed assets, and some ghost estates actually being sold.
That is what is needed now, not more finger pointing.