Time to turn our attention to the things we can change
The bailout deal debate should not distract us from our €12 billion tax shortfall on spending, writes JOHN BRUTON
THE FORMER minister for finance Brian Lenihan feels he was forced to take the loan from the European Union (EU) and International Monetary Fund (IMF) so that the Irish taxpayer would put capital into the Irish banks. This was done so these banks could repay money they had borrowed from the European Central Bank (ECB). In other words, it is argued that the Irish taxpayer is rescuing the ECB, as much as the other way around.
There is also the point I made in a letter last January to the president of the European Commission, José Manuel 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 national central banks or by the ECB.
The ECB has had, since it was founded, clear legal responsibility for supervision of credit institutions and for financial stability in the euro zone. Events show it did not exercise these responsibilities adequately between 2000 and 2008.
Irish taxpayers are paying for the errors of the Central Bank of Ireland, which allowed Irish banks borrow too much from other European banks, thereby fuelling the property bubble. But the taxpayers of those European countries should take proportionate responsibility for the errors of their central banks, for allowing their banks to lend this money in the first place.
It is frustrating that none of these points has even been acknowledged by the central bankers, governments or politicians of other EU countries. They pretend the problem is purely Irish and the lending and bond-buying decisions of their 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 its loan.
All this is fine. All these are valid points. But where do they get us?
Irish history shows 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, unassuaged grievances often distract attention from things we can do something about and that are our sole responsibility.
There is one very important thing that is the responsibility of the Irish people themselves: the fact that the cost of government services in Ireland, before rescuing any banks or paying any interest on debt, will be €53 billion this year while tax revenues will be only €41 billion.
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 short on its day-to-day spending.
Those who talk about “restructuring” existing debts should keep that €12 billion gap to the fore in their minds.
A country that has to borrow €12 billion every year just to keep going is not in a great position to demand concessions on its existing debt. This is because it will be demanding those concessions from the people from whom it wants to borrow more money every year.
Ireland needs to get into a position as quickly as possible in which it can borrow on the commercial sovereign bond markets on reasonable terms, if its economic independence is not to be compromised permanently. Delay will not make things easier. Conditions on sovereign bond markets are likely to get more difficult; interest rates are likely to go up; and if “restructuring” by any sovereign borrowers takes 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.
The United States is having difficulty maintaining its credit rating. Japan, which has a debt-to-GDP ratio of 200 per cent, 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 is reduced because the lenders, China and the oil- producing nations, have to keep more money at home to meet the needs of their restive populations.
So I believe it is now time for our economic commentators and pundits to turn away from the deficiencies of the ECB, the EU, the foreign banks, our banking exiles and all those worthy foreign targets and focus their analytical skills instead on that huge €12 billion gap between revenue and spending here.
When Ireland has bridged that 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 expected.
Imagine the effect of some speedy sales of distressed assets, or some ghost estates being sold.
That is what is needed now, not more finger-pointing.
John Bruton is a former taoiseach.