ENDA KENNY IS looking for cash from our European partners to recoup the cost of the bank bailout. But is he whistling past the graveyard?
Ireland owes its creditors €207bn, or 123 per cent of GDP. Almost a third – €64bn – of this debt arose from pumping capital into viable and defunct banks.
Enda wrote last week to 26 EU heads of state reminding them of an alleged commitment he got in the small hours of 29 June, 2012 that Ireland would get special treatment in relation to recouping some or all of this money.
There are two problems. As a country we’ve gone from being the poster boys of globalisation and deregulation from 2000 to 2007 to being the poster boys of austerity economics from 2008 to 2013. Our mates in the EU don’t really believe we’re ready to rock any boat.
Germany CAN pay, but it WON’T pay
Secondly, the German position is crystal clear. It CAN pay, but it WON’T pay.
Merkel is adamant. She won’t pay for retrospective funding of bank bailouts. This would include the likes of AIB, Bank of Ireland and Irish Permanent. She won’t pay for defunct banks like Anglo and Irish Nationwide. Before she’ll even think about using German money to help survivor banks she’ll tap a long list of suitable targets first.
These include in sequence: bank shareholders, banks’ junior bondholders, banks’ senior bondholders, bank depositors, other banks within the affected nation state or the EU and finally the government responsible for the troubled bank (in our case, Enda’s government).
Even if we got close to tapping the EU’s special rescue vehicles such as the EFSM, the EFSF or the more recent ESM, we would find that in each case Germany has limited its own exposure by incorporating these entities in Luxembourg. In each case Germany has limited its capital commitment to 27 per cent of the fund size, reflecting its share of eurozone GDP.
The maximum German exposure to the ESM is €190bn, of which €27bn is paid-up capital. That’s just a blip on Merkel’s fiscal radar screen: the German GDP is €3.3 trillion a year.
Regular wimpish reminders
This is all part of a pattern. Previously the Germans rejected suggestions that eurozone countries might fund their individual deficits through the collective sale of eurobonds. This proposal would have cut the cost of funding for the weaker states and was backed by eurocrats like Jean Claude Juncker and Giulio Tremonti. But Germany said no.
Realistic observers think that Enda is digging a hole for himself by his regular wimpish reminders of the June 2012 commitment, which was described by him at the time as a “seismic shift” and by Tanaiste Eamonn Gilmore as a “gamechanger”.
This is not an issue of academic importance, especially for young Irish people who can choose between emigrating now or sticking around working in underpaid jobs or as interns to help the government pay €9bn a year in interest to German and French banks.
Take us for granted
The longer we continue with the current policy of box-ticking for our eurozone masters the more likely they are to take us for granted.
So what do we do? Unlike Italy and Spain we’re not big enough to qualify for special treatment under the “too big to fail” rule.
When the financial markets in these two Club Med countries went into meltdown, European Central Bank chief Mario Draghi suddenly located €1 trillion to supply their countries’ banks with long-term credits at near-zero interest rates.
Later he gave an open-ended pledge to support the Italian and Spanish gilt markets, taking the heat off interest rates. There was no mention of sending the Troika into Madrid or Rome either.
Ireland’s options are more limited. In terms of scale we don’t really count.
We could threaten to go bust like the Greeks. Their poormouth approach has so far got them two bailouts worth €245bn and a massive and well organised default on sovereign debt to private banks which was paid for by the ECB and presented as a perfectly harmless “debt exchange”.
In terms of scale we don’t count
But Ireland doesn’t do this sort of brinkmanship. It never has and never will.
Alternatively, in the absence of any relief on our debt, we could adopt a much more belligerent and obstructive approach to eurozone business while simultaneously cultivating much deeper financial relationships with both the UK and the United States. We could start by audibly exploring the possibility of securing a “debt exchange” on part of our €207bn sovereign debt.
Otherwise the game-changing, seismic communiqué of 29 June 2012 is in danger of fading into the European memory.
You may recall that on that fateful night Spain’s Mariano Rajoy and Italy’s Mario Monti claimed the link between sovereign and bank debt had been broken once and for all.
Kenny agreed, claiming further that the deal would see Ireland “re-engineer our overall debt” that the “unachievable had become reality”.
“Difficult, unpredictable, unmanageable”?
Was he gilding the lily? Hopefully not. But the text of the communiqué from the heads of state said simply that eurozone finance ministers would “examine the situation of the Irish financial sector with a view to further improving the sustainability of the well-performing adjustment programme”.
That’s a lot more measured and temperate in its use of language than Kenny and Gilmore. Maybe the Germans were reluctant to make the concessions more explicit that night.
Some hours earlier the German soccer team had been stuffed 2-1 in the semi-final of Euro 2012 thanks to two game changing goals from Italian striker Mario Balotelli.
Balotelli is frequently described as “difficult, unpredictable and unmanageable”. Not at all like Enda Kenny.