October 24, 2011
Have you ever seen someone actually sweep something under the carpet? There is a delicious, secretive irresponsibility in the very act.
Many years ago, I remember seeing an old relative do this and being amazed by it, somuch so that,when she left the room, I lay down and peeked under the carpet to see piles of stuff thatmust havebeenbuilding up under there for days. The funny thing about this slovenly old lady is that she lived with her fastidious sister,whoknewdamnwellwhatwasgoing on.Every week, the tidy one would clean up after the messy one, sweeping away the little piles of rubbish fromunder the edges of the carpet.Thereafter,thewhole process would start again.
Whenwe look at the EuropeanUnion, we can hear a sweeping sound as the Europeans try to sweep as much financial rubbish under the carpet as possible.The Europeans – particularly the French – are desperately trying to convince us that the banks’ balance sheets are clean by sweeping the dirty bits under the ECB carpet.TheGermans are like the fastidious sister,who is not prepared to allow the rubbish to build up on the ECB’s balance sheet.
But the problem is that everyone is wise towhat is going on; the world knows what the European banking elite is up to.The very act of evasion makes the problem worse.The French are trying to save their own skins, or at least save their balance sheets fromthe repercussions of their own recklessness.Worse still, they are evoking the name of Europe to justify their grubby little act of financial deception. We should listen to the words of Bismarck about those who evoke Europe to disguise their own actions: ‘‘I have always found the word ‘Europe’ in the mouths of those politicianswhowanted fromother powers something they did not dare to demand in their own name.” Sarkozy is one such politician.He wanted the rest of Europe to pay for SocGen.He does not want France to save theFrenchbanks.Hewants you to save the French banks.How much has changed in three years?
At the beginning of last week, the France of October 2011 was beginning to look like the Ireland of October 2008.By the end of the week, followingMoody’s threat to downgrade France, the 5th Republic looks like a mirror image of Ireland in the dark days of 2008.The French state knows that if it undertakes to prop up its banking system now – as it urged the Irish state to do in 2008 and throughout 2009 – it will contaminate the French sovereign and French bonds will slump.
Last week, French bond yields increased by 0.6 per cent.France wants Europe to pay French debts,yet it wants the Irish to pay for the debts of Irish banks – much of which is owed to French banks. How does that make you feel? France is nowon the hook and needs a European-wide slush fund to bail out its banks. It is, of course, invoking the abstract cause of ‘Europe’ to disguise its own begging bowl.There are many who might conclude that, after a few years of lecturing the rest of Europe on how to behave, the French are getting their just desserts.
Maybe EndaKenny could mischievously raise the issue of loopholes in the French corporation tax system, which allow French companies to pay effectively less tax than corporations in Ireland, and suggest that we should only agree to a euro-wide bailout of French banks if these are closed off immediately. Such a bit of playfulness might wipe the smirk off newDaddy Sarko’s face and, in so doing, remind himthat the EUis a family of nations. When one member of a family is in trouble, they help each other out.The targeting ofour corporation tax rate by France whenwe were without friends was despicable and totally against the spirit of forging a political union.
At the very least, Ireland should see this chaos as an opportunity to stop paying any more to unsecured bondholders of the rogue banks that previously operated here. We should negotiate hard now.But the signals are not good. In the next few weeks, the government seems intent on ploughing ahead with the depraved policy of paying negligent bondholders. InNovember alone, close to $1billionwill be paid by you – the taxpayer – to ‘‘professional investors’’who screwed up by lending to that rogue outfit,Anglo.
Paying thismoney now is ludicrous at a time when our chief European tormentor of last year, France, finds itself a cropper. Most crucially, paying out more money now will not make our balance sheet better, it will make it worse. With the whole of the EUin turmoil, no one expects to get paid.That is what the crisis is about in the first place.Therefore, we should wait and see how Europe is going to deal with its bondholders. It is clear thatGreece will get at least a 50 per cent haircut on all its debts.Every other member of the eurozone should be handled in the same way; after all, you can’t have functioning monetary union if one region gets special treatment.
How can two bankrupt countries be treated differently? BankruptGreece gets a huge write off,yet bankrupt Ireland gets none. That makes no sense. It means Ireland will actually be penalised for being the good boy,while Greece is rewarded for giving the creditors the two fingers. Treating debtors differently would also contravene the fundamental freedoms of the internal market.Remember, it was the EUCommission that penned the ‘One market,onemoney’document that argued EMUwas necessary to bolster the single market. If you treat capital in different countries differently,you have no level playing field and no single market.
Once Greece is given a haircut, the precedent is set for us to give back to the bondholders their bonds inbust banks and tell themthe game is over.By the way, this is called capitalism.This approach is not radical or unorthodox, but mainstream and entirely normal in everyday business. Furthermore, this raises the question of reverse ‘‘moral hazard’’. In the past few weeks, there have been many voices cautioning against moral hazard for borrowers in the case of debt forgiveness for mortgage holders.But if they believe in moral hazard, then itmust cut bothways.
Consequently, the bank that lends recklessly should not get paid in full because it will only embolden it to lend recklessly again. Now that Europe is in turmoil,we should be good Europeans and invoke the single market to get equal treatment with Greece.Following Bismarck’s logic,we are using Europe to demand something for ourselves that we haven’t the balls to demand in our own name.