The recent bailout of Spain – and ensuing agreement that the EFSF could be used to fund banks directly – has sparked speculation that Ireland could renegotiate our own banking debt.
Here Anthony Phillips agrees – but a recent visit to the Department of Finance didn’t give him much hope…
IRELAND’S FINANCIAL CIVIL servants seem to have decided that they are neither able nor willing to negotiate with financial markets. Despite a change of government – the result of the rejection of the previous government’s policies on illegitimate debt— the Fine Gael and Labour coalition is unwilling to reverse disastrous financial policies. The patient (the Irish national economy) is on the critical list. Inactivity will ensure mortality yet the government activity is paradoxically frozen by denial. This game is called: Heads the bond-holders win; tails the taxpayer loses.
The intention of our visit to the Department of Finance was to share some real-life experience from South America in pre- and 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 whose credit is still good.
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 to export the nations public savings, the finance department could not have been surprised to find that austerity causes economic contraction and unemployment. There was 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.
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 forced to emigrate lose their voting privileges – unlike many of 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 their speculation? If they caused this mess why are they not forced to fix it?
Dubliners are a dark lot. Time and again during my springtime 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; but 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! Even if they might be at odds with local elites or financial interests in Berlin, Paris or London. This is more than the sovereign’s prerogative, it is their duty as public servants, even if it risks ruffling the feathers of a well-feathered elite.
A small nation taking action against such powerful interests faces a terrible task. Ask the Icelandic people. But 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 not acceptable 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. The current prognosis: 100% fatality. She needs her health insurance payments.
The current disastrous situation of public finances requires that Irish politicians and civil servants step outside of their comfort levels. 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 implies 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.
Ireland should receive at least what was available for Greece, their debt is even more illegitimate. They need to base their negotiations on real estimates of the “socialised” banking debt: closer to €100billion than the €60billion 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 harder than the Greeks.
May the road rise to meet them!
Anthony Phillips is a graduate of UCD who has lived and worked in Ireland, Britain, Australia, California and Germany and now resides in Buenos Aires. He has a Masters degree in regional economics from the University of Buenos Aires.
He is a journalist and political economic analyst published in more than six countries and works for publications such as Le Monde Diplomatique. Anthony also writes at densidadregional.org and projectallende.org.
To embed this post, copy the code below on your site
have your say