Troika puzzled as public left footing speculators' bill

INSIDE POLITICS:Thousands of ordinary families in distress don’t have debts of €3 million, so why the high threshold?

THE PROPENSITY of the Irish political system to be captured by narrow vested interests rather than operating for the common good has been illustrated once more by the terms of the Personal Insolvency Bill which will allow people to write off debts of up to €3 million.

The ostensible purpose of the Bill is to protect families in financial distress and ensure that they do not lose their homes. It seems, however, that our politicians are using this as a pretext to protect the interests of those who speculated in the buy-to-let property market.

What other explanation can there be for the €3 million threshold when the average mortgage is in the region of €350,000? The thousands of ordinary families in distress don’t have debts of €3 million but they do need quick and decisive action to allow them to write down much smaller sums.

The delay in getting the legislation on to the books has been caused partly by the reservations of the EU-ECB-IMF troika about the €3 million threshold. Minister for Finance Michael Noonan conceded on Thursday that the troika wanted a much lower threshold of €1 million, at most, but he insisted that the Government was determined to proceed with the €3 million figure.

He even pointed to the fact that the Oireachtas justice committee had stated that the Government’s figure was too low and had suggested a much higher threshold of €10 million.

Cynics could be forgiven for concluding that a sizeable number of our politicians must have run up debts of millions of euro during the boom and are putting in a high threshold to cover their own speculative losses. It is striking that far from objecting to the €3 million threshold the pressure from backbench TDs was to raise and not lower the limit.

While some politicians undoubtedly have big debts, the cynical explanation that they are acting in their own interests is probably wrong. The more likely explanation is that, as happens so often in Irish politics, vocal small but powerful groups and individuals have pressurised the political system into doing something that does not necessarily accord with the common good.

The cavalier attitude of politicians and others to writing off bank debt is undoubtedly a reaction to the irresponsible way those entrusted with running the Irish banks behaved in the years running up to 2008 but it misses the point that the taxpayer now owns the banks.

The €3 million threshold looks odd from every point of view. For a start it means that the taxpayer, who now owns almost the entire banking system, will have to foot the bill for losses run up by those who speculated in the property market.

It will also impose an extra pressure on the banks and put further obstacles in the way of their recovery. A healthy banking system is a vital cog in a modern economy and the very politicians who are denouncing them for not lending are making decisions that are damaging their recovery prospects.