Frankfurt's difficulty is Ireland's opportunity
WE HAVE one last chance. Europe is up in the air. It will land and take shape over the next three months. Within that period, the Government has a final opportunity to lift the most odious part of the burden of banking debt that is crushing Irish society. But it can do so only if it is willing to go against all of its instincts of obedience and respectability. It has to be willing to do what it dreads most – to cause some trouble in the euro zone, writes FINTAN O'TOOLE
On the face of it, there is no good option for Ireland that could make a referendum on a new euro zone fiscal pact meaningful. The Greeks described the abortive referendum they were not allowed to have as a choice between being killed and taking your own life. The same would apply to us. Do we make permanent our current experience of being ruled from Frankfurt?
We know what that feels like: a relentless subjection of Ireland’s interests to those of the big euro zone players. Or do we join David Cameron and the braying Tory Eurosceptics in a new United Kingdom whose sole guiding principle is the protection of the worst casino capitalists in the City of London?
Given such bleak alternatives, we have nothing to lose – except our chains. It is too late for us to escape the consequences of the bailout of our main commercial banks. But it is not too late to stop paying for the sins of Seán FitzPatrick and Michael Fingleton. A relentless, selfish, stubborn campaign will be required. But it will have a clear aim: to stop paying the IOUs written by the last government for Anglo Irish Bank and Irish Nationwide Building Society (INBS).
Most of the Anglo and Irish Nationwide debt has not been repaid. It was recorded as public debt in 2010 (giving us one of the largest deficit to GDP ratios ever incurred by a state during peace). But it is being funded through giant IOUs or promissory notes.
The promissory notes for Anglo and Irish Nationwide total €31 billion. The interest on these notes, as set out by Michael Noonan in September, is €17 billion. We are to make annual payments of €3.1 billion up to 2024. The payments continue at smaller, but still significant, levels until 2031. A child born in 2008, when the bank guarantee was given, will (unless she emigrates) still be paying a chunk of her taxes towards Anglo and INBS when she is 23. Actually, even these mind-boggling figures don’t tell the whole story. The truth is that the Department of Finance doesn’t actually know how much the total cost of the promissory notes will be. Michael Noonan’s written reply to Pearse Doherty on the subject in September contains the phrase “It is difficult . . . to isolate precisely the exact cost of the interest payments on the borrowing undertaken to fund the promissory note payments.” We’re borrowing money to pay the interest on the money we’ve borrowed to bail out Anglo and Irish Nationwide – and we don’t know how much it is. But the official estimate is that in 2013, when the interest payments kick in, the annual cost will be €1.8 billion. To put this in perspective, the interest alone on the promissory notes is nearly three times the annual yield from the new 23 per cent rate of VAT.
Why are we paying these vast sums? For no reason at all. The initial excuse was that Anglo and Irish Nationwide were systemically important banks. Now, they’re not even banks. They don’t exist. The real reason was that the European Central Bank insisted that, in order not to destabilise the European banking system and the euro, no bank should be allowed to fail. But, even leaving aside the injustice of the notion that Ireland should sacrifice its own vital national interests to save the euro, this policy has been an obvious failure. The euro, as even the ECB must have noticed by now, was not saved by beggaring Ireland.
There is no rationale for sucking over €4 billion a year out of a depressed Irish economy. Even in the narrow terms of the proposed fiscal union, it is madness. It is gross fiscal irresponsibility. Ireland’s chances of running a balanced budget are slim enough. With a continuation of this phenomenal waste, they are non-existent. The significant thing about the promissory notes is that they are not part of the troika deal. They’re also isolated from the general European banking system: there are no knock-on effects if they are torn up. So why are we stuck with them? Because we’re being good.
The Government has been making soft noises about the promissory notes and getting nothing but soft noises and pats on the head in return. So long as we are meekly compliant, why should the Germans and French pay us the slightest attention?
The Government has to announce the truth: that it is unable to meet these payments. It has to make a vast problem for Ireland into a minor (and easily solved) problem for the euro zone. Frankfurt’s difficulty is Ireland’s opportunity.