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THE IRISH GOVERNMENT has hailed what it describes as a “seismic shift” in European economic policy – after the leaders of the Eurozone countries agreed to a deal which hopes to separate banking debts from national ones.
Enda Kenny said that while the nuts and bolts of the deal had yet to be worked out, the deal would mean a vast improvement on the terms of Ireland’s banking debts – while Eamon Gilmore also insisted that any deal for other countries would be applied retroactively to Ireland.
But what’s it all about? What’s the problem with things as they are? What have the leaders actually agreed to? And are there any question marks?
Here we’ve tried to explain the basis of what the leaders have agreed.
Firstly, a quick revisit of the background. Greece became the first Eurozone country to enter a bailout in 2010, with Ireland following in November of that year. Portugal has since followed, while Spain and Cyprus are on the way.
The causes of the difficulties in each country are not all the same, however. While Greece and Portugal were forced into bailouts largely because of difficulties in government funding, in Ireland and Spain’s case the problem relates to the banks.
In 2008 the Irish government had agreed to guarantee the entire liabilities of the banking sector, hoping to soothe the nerves of investors who felt the banks might not have the means to meet their liabilities as they fell due.
While by all accounts the government believed its guarantee would never be called in (Brian Lenihan memorably called it the “cheapest bailout in the world”), over time the government was called upon to bail out most of the country’s banks.
The end result is that Ireland had to put so much money into its banks that investors – on top of its difficulties balancing its own budget – then began to wonder whether the Irish government itself was creditworthy enough to merit being lent to.
Eventually they started charging Ireland so much money that it simply became unaffordable – sending Ireland into the arms of the EU and the IMF for its money.
Spain has recently found itself heading in a similar path – with its banks looking like they would need the government’s help to ensure they survived any significant round of mortgage defaults.
The size of Spain’s problems, however, meant Europe needed to take another look at its system – because while Ireland’s bailout came to €67.5 billion, with that money also funding the government as well as the banks, Spain suggested it might need a whopping €100 billion for its banks alone.
In Spain’s case, because the bailout was not directly funding the government itself, questions arose as to whether the bailout money would be given directly to the banks, or be sent through the government – adding the money to the national debt.
Ultimately – apparently at the insistence of Germany – it was decided that the money would go directly to the Spanish government, which in turn would then give the money to its banks.
This was received pretty badly though – with the cost of borrowing for the Spanish government shooting up, as investors suspected the same fate could befall Spain as had already happened to Ireland.
In a single sentence, this is what the Eurozone leaders have agreed to change: when Spain’s banks will be receiving bailout funds, the money will go directly from the new bailout fund – the European Stability Mechanism – being established in two weeks’ time.
In a significant move, the Eurozone heads of government specifically agreed to examine how this principle would be applied in Ireland’s case – splitting, as far as is practicable, the link between the government and the banks.
The mechanics of how this will be done will be considered by the Eurozone finance ministers when they next meet.
Assuming the same principle applies to Ireland as will apply to Spain, and the banks will get their recapitalisation funds from the ESM, there are a few question marks that still remain.
Firstly, it should be noted that most of the money needed by the Irish banking sector has already been put in by the government – there isn’t (touch wood) any need for further cash, and the banks have already been recapitalised to the extent they need, with the end result being that the government owns a majority in every Irish bank except for Bank of Ireland, where its stake is around 15 per cent.
Though the government’s long-term plan is to sell the banks again, it hasn’t arranged any sort of mechanism where it would automatically be repaid the money it’s put in so far. In other words, once the money is put in, it’s gone – and can only be recovered if the bank is sold off altogether.
The question therefore arises about whether any mechanism allowing the ESM to recapitalise the banks could allow Ireland to back out of this. That is: would the likes of AIB be able to give its money back to the government, reducing the government’s ownership, if it was able to substitute this money with money it borrows from the ESM?
That’s a major question – because if the answer turns out to be Yes, Ireland will be able to recoup tens of billions that it’s used to recapitalise the banking sector.
A more certain prospect is what the Taoiseach calls a ‘re-engineering’ of the deal on the promissory notes held by Anglo Irish Bank, or rather the Irish Bank Resolution Corporation as it’s now officially known.
In that case, the money hasn’t all been handed over yet – with the government making the infamous annual repayment of €3.06 billion at the end of every March instead, something it’ll probably be doing for the next 16 years or so.
If this could be financed by the ESM, the Irish government would no longer have to make these massive annual cash payments – but that’s not to say that it gets off entirely. Don’t forget: the Irish government still owns 100 per cent of Anglo.
If Anglo is able to borrow from the ESM to repay the Central Bank for the cash it got using its promissory notes, it’ll still ultimately be up to the government to make sure that money is repaid.
The advantage, however, is that replacing one loan with another presents the possibility to totally renegotiate the timetable for repaying this back – reducing the overall cash burden on the government, and freeing up money to be used in other ways.
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Who’s more dishonest?
Prisoners or the ones they’d be voting for?
It seams like prisoners have more rights than their victims
If you read the judgement, the ECHR (not the Court of Justice in Europe, by the way) objects to a blanket ban on all prisoners voting. They agree, in principle, that some prisoners can be banned, but not all. So I’m not sure how you’re arguing that a mugger has more voting rights than the victim or a drug dealer has more voting rights than a drug user.
They’ll have more voting rights than everyone who’s been forced to emigrate. Commit a murder and you get to be involved in shaping a government?! Enforced emigrants can’t vote from abroad so can’t help reshape the government that caused their exodus. Something’s wrong with that picture.
If you read the judgement, you would have noted they don’t say it has to be extended to murderers, simply that a blanket ban against all prisoners is disproportionate. What about those serving minor sentences?
I think it would be really interesting for Irish emigrants to take a case to the ECHR, however. It’d be a good case with these precedents.
Even more reason to leave the EU
The EU and the European Convention of Human Rights are two separate organisations.
Nick, EU Membership requires accession to the ECHR.
Do you think he was referencing that distinction or that he had confused the two? I’m betting on the latter….
I’m more inclined to give him the benefit of the doubt.
You’re clearly less cynical than I am. :-) Regardless, I do think there’s a lack of understanding of the distinctions between the two and it’s important that when we’re talking about it, that it’s clearly pointed out what the ECHR does and what the Court of Justice of Europe does.
How far can the ECHR go in interfering with the way countries are run?
Surely suffrage is a constitutional matter.
I don’t believe that prisoners voting is mentioned in the Italian constitution (certainly not in the UK). I heard the arguments being made on behalf of the prisoners and it was quite compelling – the idea that when politicians (not constitutions) define who should be able to vote, it’s a dangerous concept of democracy.
Suffrage is generally granted by the state. Should it be imposed from above?
And the UK doesn’t have a written consitution it has a history through law.
It seems it comes down to how much you believe that voting is a human right and how much you think it should be a sovereign matter. Considering that voting has typically been denied to women and minorities in a lot of states, I view it as a basic human right (of course, I’m in the minority that believes children should be able to vote, so I doubt I’m representative of the whole populace).
If you perceive voting as a basic human right, this judgement makes a lot of sense. You don’t seem to view it as a right, but as something which states can legitimately deny portions of the population.
Sorry, I’ve been agog since I read that you want kids to vote.
They can’t decide whether they want sausages or fish fingers for dinner but you want them to elect governments.
Mad. As.
I believe in pure democracy. But I don’t think they can do worse than some other voters in Europe!
Diluting the franchise doesn’t strengthen it, unless you believe in homeopathy.
I don’t know what that comparison is about, but if you argue that you believe in universal suffrage, there should be no exceptions. But then we’ve already established you believe governments should be able to take the vote away from people without any form of oversight.
I also would love to live in a society governed by pure democracy but could only ever work if everyone was informed on what they have the power to vote on, take for example some people I’ve meet recently who plan on voting yes, they can only reiterate what the TV told them about “stability” and future bailouts. They hadn’t the foggiest clue what I was on about when I mentioned my concerns and skepticism over certain articles of the treaty or our relation to the ESM if we ratify it what it means to vote Yes and our then commitments, they switch off and say “ah but shure the Gov. are looking for a yes so we can get more money and the no are a bunch of shinners and out from the fringes as usual”
These people who wont go to the bother of looking into what they been asked to make an informed decision and vote on are dangerous, and a sad byproduct of democracy led by laziness and persuasion when they will vote the way they are told if its repeated enough times and made sound the safer option between the ads for Eurovision.
Even though they will not question the accuracy or merits of what they are taking as positive points.
This can be said for people who vote the other way also mind, but since the Gov are pushing these things in a certain direction pure democracy has little chance of achieving its true potential of everyone in society making a valid contribution through their informed decision when real assessments and clear wordings are absent and drowned out with garbage, garjon and scaremongering.
My understanding of an individual being punished for crimes committed means ‘no rights to anything that is happening in the outside world. Did the crime – do the time!
It is in my opinion that if you are in prison for committing a crime you forfeit your right to vote until you are rehabilitated and released!
Next thing you know they’ll expect the jails to let the inmates nip down to their local voting centres, “of course we’ll be back, honest g’vnor.”
Sinn fein will be thrilled!
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