Government beginning to deliver results for State
OPINION:The Republic cannot follow Greece into default on debts as this course of action would be disastrous for our embryonic recovery, writes ENDA KENNY
THIS GOVERNMENT’S strategy of working to improve the bailout deal in order to get the country working again after almost four years of recession is starting to produce a return. The economy started to grow again in the first half of the year; the public finances and unemployment have stabilised and deposits are now returning to Irish banks.
While we have a long way to go, we have made a decent start and are now on the right track.
The deal agreed by EU leaders last Thursday morning is another step in the right direction. It is intended to avert a banking crisis and another recession in our biggest European trading partners, thus allowing our export-led recovery to continue.
Moreover, the expansion in resources available to the euro zone bailout fund underpins the renewed commitment of fellow euro zone members to continue to support countries such as the Republic that are pursuing sustainable economic policies.
Some have argued that this State should use the restructuring of Greece’s debt as an opportunity to repudiate the deal with our partners and to renege on our own debts.
Such a course of action would be disastrous for our recovery. By cutting ourselves off from further international loans, we would have to close this year’s €16 billion Government deficit immediately rather than over a number of years. This would plunge the economy back into recession and impose a degree of social hardship beyond anything experienced so far.
Given our vastly better economic circumstances compared with Greece, default would mark us out as a country that “won’t” rather than “can’t” pay our debts, killing off foreign direct investment and resulting in even higher borrowing costs for the State and Irish businesses that would strangle recovery and lower living standards for a generation.
It is empathy and solidarity, not envy, that I feel for our fellow EU citizens in Greece. As part of the deal, they are being forced to sell €50 billion of state assets, cut monthly pensions above €1,000 by 20 per cent, cut tax-free income thresholds from €12,000 to €5,000 and suspend 30,000 civil servants on partial pay.
On top of this, they face another 10 years of austerity and troika surveillance. While it is not surprising that a deal of this nature is being put to a referendum by the Greek government, who could possibly want this for the Republic?
The Irish Government’s strategy is growth, not default. We will not unilaterally repudiate the agreement with our partners, but will instead continue to improve its terms to make it more affordable and jobs-friendly. Our ambition is to be the first euro zone country to restore market confidence and emerge successfully from a bailout.
It is this strategy that has already seen us change the terms of the deal we inherited from the previous government in order to:
Secure €7 billion in private sector contributions to the cost of recapitalising our banks, including over €5 billion from burden sharing with junior bondholders;
Finance 5,000 national internship places and cut the rate of PRSI on low-paid jobs and the rate of VAT on tourism services in May;
Reduce the interest cost of the bailout loans in July by almost €10 billion;
Change the measures in the upcoming budget to minimise any negative impact on incomes and jobs.
Part of the existing agreement with our external partners is not to allow any Irish bank, including Anglo Irish Bank, default on its debts to bondholders for fear of paralysing wider European financial markets. I share the Irish public’s dismay at the cost and unfairness of this policy and the delay it caused to the State’s recovery.
But the unfortunate truth is that the vast majority of Anglo’s debts were paid off under the previous government. Of Anglo’s €97 billion in liabilities in September 2008 when the previous government offered it a blanket guarantee, €3.3 billion in unsecured private debts now remain, including the €700 million due for repayment today.
This horse has well and truly bolted.
In the absence of support from our external partners, potential gains to Irish taxpayers from forcing the bank to default on these bonds, while not insignificant, do not justify the enormous risks from such a courseof action. Allowing Anglo to default would create doubt over the future of the €110 billion in funding being made available by the European Central Bank and the Irish Central Bank to Irish banks at a low interest rate and could mean a renewed flight of funds and even tighter credit conditions for potential Irish job creators.
This Government is working every day to undo the painful legacy of the calamitous banking policies pursued by the previous administration. From the wreckage of the banking system that we inherited last March we have carved out two pillar banks – AIB and Bank of Ireland – as engines of economic recovery. We will close Anglo Irish Bank at the earliest opportunity. We have not put a single cent of taxpayer money into this bank on top of what was already legally committed by the previous government. We have merged its loan recovery operations with Irish Nationwide and are aggressively cutting costs. Only last week we completed the sale of a large chunk of its $9.2 billion in US assets.
Moreover, the additional flexibilities and resources now available to the euro zone’s bailout fund offer us the chance to negotiate more improvements in our bailout on top of what we have already achieved, including more help with funding our banks. This is something my Government will pursue with determination over the coming months.
Enda Kenny is Taoiseach and leader of Fine Gael