Medium-sized EU economies (Spain and Italy) are facing an attack from the speculative bond markets. This has pushed the cost of state bonds above 4%, a rate that is unsustainable in the medium term. Acting Prime Minister Monti demanded help and President Hollande agreed. This forced Germany to consider the European Financial Stability Facility (EFSF) as a vehicle for direct investment into private banks ?not a solution but a gesture at least? but even that is on the long finger. If such a measure were in place in Ireland in the recent past, Ireland might not have even been asked to take on the illegitimate debt in the first place
Pundits in Ireland seem to think that this further empowers Ireland?s negotiators to begin to do some real negotiations to receive a retroactive par deal and I would suggest that they are right.
If only they would do so!
Sovereign debt negotiation has to be proactive. It was a mistake to make private debt sovereign in the first place (but now it is) and the mistake has to be undone. Let us assume that it is true that the French and Italians can bring a free-rider for Ireland. Let’s further assume that this might lead to an offer by the troika which might reduce the illegitimate sovereign debt obligations. Would the new government simply accept the first offer made as Fianna Fail did back when the IMF thought they could make a thirty billion offer (later vetoed by Geithner at the G-20?)
Will Noonan also scream “You have saved Ireland!” or is Noonan willing to make the first offer and then negotiate?
To date the evidence is clear that Ireland’s finance civil servants seem to have decided that they are neither able, nor willing, to negotiate with financial markets. Would they rather privatize the mountains by selling coillte? Would this make the slightest bit of difference for a 90Bn.+ new financial debt? Despite a change of government ?the result of the rejection of the previous government?s policies on illegitimate debt? the replacement government (a Fine Gael and Labour party coalition) is silent on the reversal of the previous government’s disastrous financial policies. The patient (the Irish national economy) is on the critical list. Failure to act will guarantee fatality yet the department of finance is frozen by denial. This game is called: Heads the bond-holders win; tails the taxpayer loses.
I don’t buy it!
I smell a rat, or should I say a rat pack? Ireland?s Finance Professionals and their partners in crime in global real-estate speculation have handed over this mess to their banker, regulator and political friends. Meanwhile they wrap their offshore profits so deep in trusts or transfer them as family gifts that they become invisible. The usual suspects are up to their neck in the root causes of this mess. It was they who defaulted on these extraordinary private debts. Then the state happily socialised their debt on the Nation. Protected behind the Nation’s recently expanded libel laws, they have hit the mute button on the last tragic episode of the Irish Tiger. One might remark at the coincidence of the battles for the control of the nation’s largest newspaper chain, Independent Group of Companies. Big fish splashing in a small pond such as Denis O?Brien, Dermot Desmond and the O?Reilly clan battle for control of a media empire. In recession Ireland information, or rather the manipulation of same, is at a premium. When a financial collapse can be traced directly to the shenanigans of a very small group of powerful people, libel laws can be used as a shield. In Iceland, the people prosecute bank executive and politicians, the guilty facing fines and jail time. In Ireland no-one with influence needs to endure such rough treatment. There may be an enquiry, some time in the future, but with each subpoena comes immunity to prosecution.
The tactics: “For God’s sake keep the lid on this one!”
The intention of my visit to the department of finance was to share some real-life experience from South America in pre- and in post-default scenarios and present a copy of our book “What if Ireland defaults?” The book incorporates some salient advice from various authors including Nobel prize-winner Joseph Stiglitz. The officials knew of the book’s existence, they accepted a free copy; but then their eyes glazed over, despair returned, it was as if their hands were tied behind their backs.
The impression I left with was that Ireland had not yet learned to interact with the speculative (secondary) bond markets. If the US and France are no longer AAA, and Ireland’s credit is junk, surely this implies it is time for the Irish officials to change tack, re-learning how the game is played at new tables with different rules. For now, it seems, Ireland?s only tactic is to hover close to the AAA tables looking over the shoulders of their old pals (those with good credit).
Ireland does what it is told. Should one be surprised?
Ireland, the island of my birth, is as generous with its taxpayer funds as it is with its human capital. Bowing to the troika it agreed to export the nations public savings ?present and future? to repay private debts that are by no means sovereign obligations. Then (surprise surprise) we find that austerity causes economic contraction and unemployment. No worries! Nothing for it but to return to the time-proven policy of exporting the excess educated talent via emigration. Better still by putting these excessive debt payments on the long finger, a future regime can deal with the current regime?s mistakes. Problem not solved but at lest it is off the table till the next election.
Born after 1985? Watch out! One might want to press for policy change now, at home, while you still have one! Failing that, have your tickets and visas ready. This is happening already. In social and economic terms emigration is a running sore, but politically, it is a safety-valve that serves to protect an uninspiring elite muddling their way through another profitable scandal gone wrong. Ireland?s non-resident citizens, even those forced to emigrate and wishing to return, lose their voting privileges unlike many their European counterparts where non-residents do not only have the right to vote, they have an obligation to do so.
So I asked around. Why is Ireland allowing this economic suicide to continue? Why are they protecting their own elite; many of whom were intimately involved in collapsing the nation’s private financial sector through speculative activity? If they caused this mess why are they not forced to fix it? How could it be that these one-time multimillionaires and banking executives and their rich clients are now bankrupt?
Dubliners are a dark lot. Time and again during my Spring-time visit the response was: ?There was nothing that could be done.? It was a sad media mantra, a smokescreen for inept inactivity. The Irish public’s depression is understandable; a quick read of Naomi Klein’s book “The Shock Doctrine” written here in Buenos Aires in 2002, explains why this happens during a financial shock and what to do about it. In fact a lot can be done!
But it is not being done!
There are many alternatives; the world is full of good ideas and unexpected allies. Various authors, myself included, had included some such ideas in the book I handed to the Department of Finance executive. National debt audits, internal defaults, alternative sources of ?solidarity funding?, there were many more, and many have worked in the past. One might think that the current Irish government would be well advised to listen with an open mind to all the new ideas they can come across. They could then choose the best cocktail of policies in their public?s interest and act accordingly?
No one has all the answers but the problem is not beyond resolution. Choose the right policies, enact the legislation and put the plans into practice. Yes, selfish plans if needs be! Plans in favour of the nation-state and Irish citizens! Even if these plans might be at odds with the interests of local elites or financial interests in Berlin, Paris, London or Washington DC! This is more than the sovereign’s prerogative, it is their duty as public servants. Go ahead! Ruffle the feathers of a feathered elite. It’s your job.
A small nation taking action against such powerful interests faces a terrible task, just ask the Icelandic people! But, the alternative, continuous inactivity, guarantees a world of pain to the Irish people over the decades to come. This syndrome is called illegitimate debt payments. Irish citizens, myself included, first found this new government?s inactivity puzzling. Now it is simply embarrassing. Taking on international private financial interests is not just warranted in these dire situations; it is essential! What is unacceptable is watching the government spend the last few euros of their public’s pension funds to pay off private debts that the public never owed. The patient is gravely ill, she needs her health-insurance.
To resolve the current disaster in public finances requires Irish politicians and civil servants to step outside their comfort zones. Unfortunately it is easier for a civil servant to bury one’s head in one’s work or to publish another peer-reviewed paper. As John Maynard Keynes once put it: “Worldly wisdom teaches that it is better for reputations to fail conventionally than succeed unconventionally.” Inactivity has zero career risk; it could lead to a nice post in the IMF or the European Commission even if this does imply a slow and unnecessary death for the patient.
In Latin America there is a saying that it is sometimes necessary to change a government so that the economic policies may stay in place. In Argentina they changed the government again and again till someone had the gumption to act. Time to seek a third opinion? Instead of a referendum on the fiscal pact let’s have a referendum on and audit of illegitimate debt or better still let’s elect a new government willing to do its job.
Ireland should receive at least what was available for Greece, their debt is even more illegitimate. The department of finance should base their negotiations on real estimates of the ?socialised? banking debt: closer to 100 billion not the 60 billion which the government likes to mention in the press. There is still a long road to travel and it is in nobody?s interests but the Irish taxpayer to press ahead. The Irish have meekly whispered that they are not the Greeks, no they are not! They need to battle even better than the Greeks!
May the road rise to meet them!