What's Latin for tear up these odious notes?
A LITTLE Latin is a dangerous thing. The EU economics commissioner Olli Rehn, when he waved “pacta sunt servanda” at us last week undoubtedly meant it as a politer way of saying “monstra mihi pecuniam” or, indeed, “futue te, Hibernia”.
In fact, “pacta sunt servanda” is an argument, not for paying the odious promissory notes issued for Anglo Irish Bank and Irish Nationwide, but for tearing them up.
The established meaning of “pacta sunt servanda” in international law is, to quote the Court of Arbitration at the Hague, that “Every state has to execute the obligations incurred by treaty bona fide”. We can break it down into three simple parts: (a) a state entered into an obligation; (b) that obligation is part of an international treaty and (c) the obligation was entered into bona fide – in good faith. Not one of these conditions applies to the promissory notes.
Did the State enter into a contract when Seán FitzPatrick and Michael Fingleton were shovelling gold into the open maws of Irish and international property developers?
Of course not. These were private loans, given for speculative, high-risk investments, many of them outside Ireland. No government guarantee was given or implied at the time the deals were made. These “pacta” are plainly not ours.
Secondly, are the promissory notes covered by any international treaty? No. They represent an agreement between the Irish Central Bank and the State. Not only is there no treaty, but the agreement is not even international. If the promissory notes are torn up, there is no cost to the European Central Bank or the European Union as a whole. The money is effectively burned by the Irish Central Bank – every year for the next 20 years. This payment structure was, as Karl Whelan, puts it, “tacitly agreed to by the ECB governing council”. But there’s a vast difference between silently allowing something to happen and entering into a binding international treaty.
Thirdly, even if all of this were somehow to add up to an implied international obligation, was it an obligation entered into in good faith by the Irish people? On the contrary – every stage of this fiasco has been characterised by bad faith. There was bad faith in the inclusion of Anglo and Nationwide in the bank guarantee in 2008 – the Government was told that these institutions were illiquid rather than insolvent, a monstrous untruth.
There was bad faith when the Irish people were given figures for the burden they were taking on in underwriting Anglo.
In March 2010, when the promissory note process was set in motion, the then minister for finance Brian Lenihan told us that the cost could be as high as €18.3 billion – a gross underestimate.
We were also told that “the amount will be paid over a period of 10 to 15 years, thereby reducing the impact on the exchequer this year and stretching the payments into the future”. But the payments actually started just a year later and are stretched over 20 years. The impact of the notes – the annual vaporisation of sums equivalent to all the cuts and tax rises being inflicted on us – was never made clear to citizens. Parts of the arrangement, such as the basis on which the interest is set, have never been explained at all. There has not been a single moment at which informed popular consent to this process has been sought or given.
Olli Rehn has therefore done us a favour by making “pacta sunt servanda” the test for the promissory notes. Raising this moral principle in this context is grotesque in itself – the bank bailout is predicated, not on the fulfilment of obligations, but on the destruction of the basic principle that those who take the risks should take the consequences.
But in any case, it simply does not apply to an internal arrangement imposed on an ill-informed citizenry by a government that had no idea what it was doing.
In passing, it is worth mentioning that there is also a long tradition that a state is not obliged to fulfil treaty obligations to the extent of ruining itself. The great Dutch philosopher Spinoza wrote in 1670 that “no holder of state power can adhere to the sanctity of contracts to the detriment of his own country, without committing a crime”.
But the point is moot.
Morality and justice lie entirely on the other side of this argument. All of the very painful cuts to services and payments for mostly vulnerable people in the current budget amount to savings of €811 million.
The promissory note to be paid at the end of this month for a dead bank is almost four times this amount.
In 2014, interest alone on the promissory note will force tax increases or spending cuts of €1.8 billion – six times what is saved by all the cuts to the education budget this year. And all of this for something that achieves absolutely nothing for Ireland and whose absence would cost the ECB absolutely nothing.
It is time to carpe diem and tell the commissioner “Perite, Ollius, et ipsum caballum”.