Why Greek exit from the euro zone would suit Enda Kenny

‘There is a strong case for allowing Greece – now in surplus before interest payments – to ease up on its budget adjustments’

Greece’s prime minister Alexis Tsipras. “The Greek economy is in a completely different place to Ireland’s, but the political resonances of a small country fighting with its creditors are real.” Photograph: Jasper Juinen/Bloomberg

Greece’s prime minister Alexis Tsipras. “The Greek economy is in a completely different place to Ireland’s, but the political resonances of a small country fighting with its creditors are real.” Photograph: Jasper Juinen/Bloomberg

 

Grexit – a Greek exit from the euro zone – or Greek capitulation on its debt writedown demands would suit Enda Kenny. Either of these extreme outcomes would help the Government’s case that Europe does not “do” debt write-offs. There are political dangers for the Coalition in the middle ground – if the Greek government keeps on talking to Europe, and in time gets significant concessions.

More talking is, indeed, on the way, after yesterday’s deal in Brussels,which has taken “Grexit” off the table, for the moment at least. That assumes that Monday’s list of reforms to be forwarded by Greece gets the nod. If it does, then Greece gets funding for another four months and thoughts will turn to whether a longer term deal can be done.

The Greek economy is in a completely different place to Ireland’s, but the political resonances of a small country fighting with its creditors are real. Our wounds are still pretty raw.

If Greece gets debt concessions, Fine Gael and Labour would be accused of not fighting hard enough after they took office and of letting the June 2012 EU leaders’ agreement, which appeared to offer an opening for Ireland, slip away.

However as we found out, international diplomacy is a rough business and, after the drama of this week, the Syriza-led government has given a lot of ground. Like Ireland during the crisis, the ticking time bomb of a banking system was the key pressure it faced.

It had to concede to play the game by Europe’s rules. And if this continues with talk of debt being extended, rather than forgiven, then it gives our government cover.

The bigger debate between Europe and Greece may well centre on austerity and the speed at which it should adjust its public finances. There are fewer political dangers for our Government here, given what Greece has already gone through and the limited scope it is likely to be given. There is a strong case for allowing Greece – now in surplus before interest payments – to ease up on its budget adjustments

Any concessions on cuts may raise the political temperature here. But the reality is that for us, “austerity” is over. We don’t need further big tax hikes or spending increases. To suggest we should somehow reverse austerity is a ludicrous proposition. As one observer said to me, it would be like choosing to drive from Dublin to Cork rather than get the train, but turning back at Cashel to head for Heuston Station.

The debt debate

Prime Time

Instead he fell into the old political habit of never admitting that anything ever went wrong or did not work out as was hoped. It was particularly strange to see him hark back to the June 2012 EU summit, when EU leaders promised to “break the link” between governments and bust banks and added that ways would be examined to help Ireland. Some ground was made in rescheduling payments and renegotiating the promissory note, but the hopes raised in the immediate aftermath of the summit were not realised. Europe did not take on a significant portion of the banking burden, and likely never will.

The Taoiseach made some play about a figure of €50 billion in payment savings on the national debt. This refers to various deals to change the interest rate and term on EU loans, restructure the infamous promissory note borrowings and buy back expensive International Monetary Fund loans. Government officials calculate this led to about €10 billion in savings – money we will never have to pay back because the interest rate is lower. The remaining €40 billion is money which would have had to be paid back over the next decade, but will now fall to be repaid later.

This is not debt forgiveness but it has made things easier. Back in 2011, for example, the forecast was that national debt repayments this year would cost €11.3 billion. The latest forecast is €7.4 billion, still a big increase on the pre-bust years, but nearly €4 billion less than if the various deals were not done. Lower interest rates, by cutting the cost of raising new debt, have also helped.

Futile hindsight

We were indeed, as Miriam O’Callaghan put it in the Enda Kenny interview, “skewered by Europe” in terms of our bank debts, even if the likely gains from any deal were less than much of the debate implied. We got some concessions since.We should continue to fight for more and the Greek debate will provide some context for this. But we have a lot of other things to be getting on with as well.

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