A COMMENT ON THE COMMENTATORS...IRISH ATTITUDES TO THE EURO CRISIS

A lot of superficial commentary appears in the Irish Sunday papers. 

But there are two columnists I always try to read, because they usually have something to say that  you will not read elsewhere.

My favourite is Colm McCarthy, who writes in the Sunday Independent .

The other is Damien Kiberd, who writes in the Sunday Times(Ireland edition)

This week, Colm McCarthy’s article is entitled

“Now we are asked to trust the guys who screwed up EMU originally.”

Damien Kiberd’s is on a similar theme, and his article is entitled

 “Austerity leaves us in No Man’s Land”.

COLM MCCARTHY

Colm McCarthy claims that the EU single currency has been

 “an unmitigated disaster”. 

He refers to the recent admission by the German Finance Minister, Wolfgang Schauble, that the euro project was

” riddled  with design  flaws”.

Colm claims the “design flaws” were put in place because powerful lobbies in the French and German banking industry lobbied against effective banking union.

 He calls for a public enquiry into how these design flaws came about, because, he argues,  the EU public will be unwilling to  vote for greater EU powers, unless they can first  see that  the reasons for the original mistakes have been  honestly explored. I believe he is right in this.

He also says that

“During 2010, the Irish Government was bullied and harassed by the ECB, acting beyond its powers, into bankrupting itself through paying off foreign investors in bust banks”

This is a reference to the Irish state being required to pay back , in full, the senior unguaranteed bondholders of banks ,like Anglo Irish Bank, that were already bust.

Again he is right, and I agree with him, but he overstates his case a bit.

It was indeed senseless for EU institutions to have insisted on private investors, in a private bank, who made a mistake, getting 100% of their money back from the Irish taxpayer, when bondholders of the Greek sovereign state were subsequently required to take a large haircut.

Surely those who lend to Governments should have got preference over those who lent money, for a good potential rate of return, to private banks!

On the other hand, financial confidence was much more fragile in 2010 than it was in 2012. Perhaps the ECB was afraid of a knock on effect if unguaranteed bondholders were not paid back in 2010. But if the burden of the ECB’s caution has fallen on the shoulders of the Irish taxpayers alone, that burden should be relieved now that the panic is over.

But I think Colm overstates his case in suggesting that this has “bankrupted” the Irish state.

Ireland’s   financial difficulties derive, to a much greater extent from the gap, which still exists to this day, between tax revenue and daily spending on things that have nothing to do with money put into banks, or even interest paid on past debts.

THE IRISH STATE STILL HAS A PRIMARY DEFICIT...  THAT IS IT IS SPENDING MORE, EVERY DAY, THAN IT IS TAKING IN, EVEN IF IT HAD NO INTEREST TO PAY ON PAT DEBTS, AND HAD NOT PUT A SINGLE CENT INTO RECAPITALISING A BANK! 

This awkward fact is not much mentioned by Irish economic commentators. I do not know why. It is only fair to add that, while this primary deficit still exists, it has been dramatically cut since  2009 by the budgets since then, and will probably disappear altogether in 2014, if all goes according to plan

DAMIEN KIBERD

In his article, Damien Kiberd attacks what he calls “austerity economics”.

He says these austerity policies have been 

“dictated by EU leaders who are totally unaccountable –just like the elites that caused the First World War”

He complains that Irish banks were ”forced” to dump non performing loans which resulted in these loan losses being “crystallised within a very short time and at a very high cost”.

Damien’s thinking is a bit loose, to put it mildly. The elite, who” caused” the First War, WERE held accountable, actually. Several lost their thrones. The British Liberal Party never recovered. The Italian Liberals never saw power again. 

Did he really think the Irish banks could have continued carrying those big losses on their books, without recognising or quantifying them, and carried on lending as before? Of course, they could not have done so without a risk of a run on their deposits.

As far as “austerity” being “dictated by the ECB and EU leaders”, as Damien claims, the question he avoids is a simple one.....If the EU, the ECB, and the IMF did not lend Ireland money in 2010, to bridge the gap between day to day spending and day to day revenue, where else was the money going to come from? Who else was going to lend the money?

And if the answer is no one,  that would that have meant more, and faster, austerity, to achieve an immediate and complete bridging of  the entire gap between revenue and spending in ONE year, or even one month.

It would be more accurate to say that what  the EU, the ECB and the IMF “dictated” to Ireland  was that it bridge the gap between its own spending and its own revenue more SLOWLY than it would otherwise have done, by lending Ireland the  bridging finance.

If Damien is saying Ireland should have refused the EU/ECB/IMF money, then he is saying we should have had a huge dose of austerity in 2010, and risked a crash in our entire social system.

Some argue that, while austerity is inevitable for Ireland, Germany, Sweden and the Netherlands should run bigger deficits. Maybe.

But how easy is for them to do that if they are also having to put money aside, to lend to countries that may get into difficulty, and to provide funds for all their own baby boomers who are on the brink of retirement?

German incomes grew at about one fifth the pace Irish incomes grew in the 1994 to 2005 period. 

That is the reality German politicians have to face, and Irish economic commentators should address themselves to German voters, because those are the people who now have to be convinced.