It's Time to Tell the EU and Its Leaders That We Just Won't Pay Back the Debts of Rogue Bankers

The Mail on Sunday (London, England), June 26, 2011 | Go to article overview

It's Time to Tell the EU and Its Leaders That We Just Won't Pay Back the Debts of Rogue Bankers


Byline: COMMENTARY By Stephen donnelly independent td for wicklow

TAKE a look at the history of countries whose economies have collapsed and that needed International Monetary Fund intervention, you'll see a pattern. Overall, the IMF record is shaky. It comes into countries like Greece and Ireland, lends them an awful lot of money and insists on massive spending cuts. Very often, that borrowed money runs out.

The priorities of any IMF team are to protect the IMF money and to get the country back to the markets.

They would prefer to do it with as little hardship as possible, but their job is not to protect society as it happens.

That is our job but we don't have much room for manoeuvre. Countries in our situation typically have three options - cut spending, print money or default. Within the euro, unilaterally printing cash is not an option, leaving cuts and default.

Irish Government and IMF policy is to cut - impose austerity and hope the export-led private sector will grow quickly enough. Harvard professor Niall Ferguson points out that in the past 200 years, only one country has ever grown its way out of debt without printing or defaulting, and that was England during the Industrial Revolution.

Ministers are trying to stimulate growth via its jobs initiative but the amount of money being invested will have a minor effect. It is worrying that they refuse to say how many jobs the [euro]1.8bn tax on private pensions might yield. It is even more worrying if, as I am beginning to suspect, they do not know themselves.

What we do know is that viable businesses are closing all around Ireland due to a lack of access to cash. These businesses are key to growth because our economy is skewed. Over 50% is funded by the public sector, 15% is the export-led private sector and the remainder is the domestic sector.

Exports are growing but the domestic sector is collapsing. The public sector hasn't collapsed because of the money being poured into it, but that money is running out. Effectively, we're betting the house on 15% of the economy. If the sector grew at 25% a year, maybe that would be understandable, but it's not going to happen. Given all of this, there is a growing consensus that the 'cut and hope for growth' strategy is not going to work. The combination of the banking debts and 'real' national debt is simply too big.

Two options are emerging: continue as is and hope for another international bail-out in 2013 - the 'do nothing' option - or renegotiate the banking debt.

We must remember there is sovereign debt and there is banking debt. 'Default' is what Argentina did - they reneged on sovereign debt. Absolutely no one is suggesting we do that here.

SO, WHAT of the banking debt? There is about [euro]100bn in banking losses being covered by the Irish people. Fine Gael TD Peter Matthews's proposal, with which I agree, is that [euro]25bn is shaved from the value of the remaining bonds, the Irish people pay [euro]25bn and the other [euro]50bn is taken on by Europe through the European Central Bank. …

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