February 16, 2011
No wonder the Greeks are upset. Yesterday, the IMF and the EU were busy trying to limit the damage following their mission to Greece. One auditor, also the EC representative, Servaas Deroose, encouraged the Greeks to “sell beaches” to pay back the IMF/EU loan.
We should take heed, because we are next.
What would you be prepared to sell to pay back the IMF/EU deal, which is designed to bail out bank gamblers who punted on Anglo? The Aran Islands? Dogs Bay or maybe a big slice of Achill? The Rock of Cashel — that’d make a few quid.
Mr Deroose has revealed something about the thinking behind the IMF/EU loan and the sequence of events in Greece and Ireland as the EU Commission sees it. Bad enough to have a citizen of the most fiscally incontinent country in Europe — Belgium — lecture us on government excess, worse to have him indicate that the fire sale of state assets is the endgame.
So let’s get things straight: the Irish citizen is being asked to take on the debts of the European banks and pay for this by selling our assets for half nothing to the same banks so that we can bail them out. We take on debts without a discount and sell assets without a premium. At the moment these loans that we are being asked to pay are trading at a deep, deep discount because the “assets” they were supposed to back have collapsed in value. Yet we are being asked to pay for these loans at par.
At the same time, our crucial and profitable state utilities — like the ESB — will be sold at a discount because the buyers will know that the sellers are screwed.
This is what is going on. An organised heist, which will play out in front of our eyes and reward the very investment banks that blew their own and their clients’ money on the promises of David Drumm and the like. Meanwhile, our politicians argue over the rate of interest, begging for crumbs when they should be fighting for us.
Someone has to stop this because the words of the EU Commission in Greece are directed at us too.
Is there anything we can do?
Yes there is. Whatever you might think of some senior European politicians, they are democrats. They are bonded together by the vision of Jean Monet and Schuman — the founders of the EU. Central to this vision was the notion of forgiveness. When I studied at the College of Europe in Bruges, this message was articulated again and again. Europe was a family of nations and once you were in the family, the family treated you as an equal and no matter what your previous behaviour, there was always a chance of redemption.
This allowed Germany to recover after the War and it is the same attitude which is allowing Serbia, a country which orchestrated genocide in Bosnia less than two decades ago, to seek EU membership.
In short, there are many more democrats in European politics than there are central bankers.
There are many more elected politicians with a broad European view informed by history than there are unelected central bankers with a narrow monetary view.
We need to bring this battle to generous European politicians and wrestle the details out of the mean fingers of bureaucrats and central bankers who were never elected and have no mandate.
You put it to the people. The new government should put to a referendum the question of making any further payments from the citizens to the bank creditors. This would give the new government a clear democratic mandate with which to negotiate. There is no democrat in Europe who would oppose the will of the people and it would get straight to the point where the political economy bulldozes the financial economy. It would also give the Government huge authority on the biggest issue facing us all.
But can it be done?
Yes, article 27 of the Constitution governs the circumstances where a decision which is of “such national importance that the will of the people thereon ought to be ascertained”. Article 27 has never been used for this purpose but there is provision in the Constitution for a referendum on something which is simply so important that the people should be able to vote on it.
So it can be done, but is it now too late?
No, it is not too late for two reasons. The first is that if we do not stop paying out money to the bondholders, we will default on everything — sovereign debt and all — eventually. This would be a disaster for every Irish person. The second reason is that the situation is getting worse.
Behind our back, the Irish banks keep issuing government- backed paper in our name and this is happening on a daily basis, welding us ever tighter to the delinquent banks. This has to stop.
Since the last week of January, Irish banks have issued â‚¬18.35bn worth of government guaranteed debt. So the reliance of Irish banks on government guaranteed debt has risen from â‚¬16billion in mid-January to about â‚¬34billion today.
This debt is being issued to allow the banks to either (a) unwind their positions with the Irish Central Bank’s Emergency Liquidity Assistance (basically the printing of money by the CBI) or (b) boost their funding position ahead of the bank stress test that is currently being carried out by the Central Bank.
Of course, all of this bank stress-testing is missing the point. The stress test that is now needed is a stress test on the State. Instead of believing the politicians that the State will be able to pay â‚¬100bn to the banks and everything will be fine, we should test the numbers and see if that is actually possible.
But, of course, that test will not be carried out. Because a stress test of the Irish State would show the one thing that no politician is willing to admit — that the State is currently insolvent, and the Government guaranteeing another â‚¬18billion of debt only serves to make that problem worse.
One way to put a stop to this madness is by holding a referendum. If ever there was an issue of such national significance, this is it. The time for a popular plebiscite has come.