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.
The troika pointed this up in a diplomatic fashion during the week in its statement after the eighth review of the bailout programme. Having pointed to the fact that the Dáil was considering an ambitious reform of the personal insolvency framework the statement added: “For this essential reform to succeed, a careful balance should be struck that addresses borrower’s financial distress and protects the family home, while also reinforcing debt service discipline.”
The code here was that while it understands and supports actions to protect the family home it wants to see the banks being allowed to chase other debts in a normal fashion to enable them to support a modern functioning economy.
Apart from the local considerations the Irish political system needs to appreciate that decisions taken here are being closely observed from outside. If we expect German chancellor Angela Merkel and other powerful European leaders to agree to wipe out a big chunk of Ireland’s debt we can hardly be surprised if they find our personal insolvency arrangements a bit lax.
There are other aspects of the current Irish question that puzzle outsiders. The continuing protection afforded to highly paid hospital consultants and a range of senior public servants under the Croke Park agreement is difficult to understand let alone justify.
International statistics published by the OECD show that Irish hospital consultants are paid far more from the public purse than equivalents in rich countries such as Germany, Italy, the UK and Finland and are four or five times better paid than those in poorer EU countries like Hungary, the Czech Republic and Slovakia.
Yet Irish politicians and the media are demanding that all of these other EU states, rich and poor, should contribute to writing off the Irish bank debt while people paid from the public purse here retain far better salaries, allowances and working hours than their counterparts in other states. While facts like these are being noted in Brussels and Berlin they are still giving us the benefit of the doubt and our foibles will be forgiven as long as we keep hitting the headline targets.
The overall troika assessment of Ireland’s progress remains positive. It has recognised what few politicians and commentators here accept; that the adjustment made by the State since the crisis began has generally succeeded in protecting the most vulnerable in society from the full impact of the economic crisis.
There is a recognition that Ireland has made hugely painful decisions and that more are on the way. The key message from the troika is that continuing tough decisions should be based on the twin principles of protecting the vulnerable and making genuine reforms that will benefit the economy in the years ahead.
It is in Europe’s interest as much as our own to ensure that the programme works and that we stand on our own two feet as soon as we can. Whether we do it in such a way that the economy is put on a sound footing for the longer term is a matter for ourselves.