Thursday 21 September 2017

Ireland must 'play hardball' to get deal on bank bailouts

Willem Buiter, chief economist at Citigroup Inc.
Willem Buiter, chief economist at Citigroup Inc.
Donal O'Donovan

Donal O'Donovan

Irish negotiators have been told to "play hardball" by threatening to veto any European banking deal that does not include recouping the cost of our bank bailouts from the eurozone rescue fund.

The risk of short-term unpopularity was worth it for the long-term economic gains of winning back €30bn to €60bn for taxpayers, Citi's chief economist Willem Buiter (pictured) said.

And he said Ireland should have taken "every sheckle" of the €14bn offered by investors when the country sold 10-year bonds at an interest rate of 3.5pc earlier this month, and used it to pay off more expensive IMF bailout loans early.

Finance Minister Michael Noonan met his European peers for talks in Brussels yesterday, where the faltering plans to create a European banking union are among the topics on the table.

A structure to allow the European Stabilisation Mechanism (ESM) be used to directly recapitalise struggling banks is among the main elements of the planned banking union – but senior policy-makers are reluctant to include "retrospectively" unpicking the bank rescues here in that, because the money has already been paid.

In Brussels, Mr Noonan said he was pushing for a deal.

ARGUMENTS

"Commitments were made about the retroactive recapitalisation of Irish banks at the heads of government meeting in June 2012 and we are holding to that position," he said.

Mr Buiter said he backed that Irish move but warned that reasoned arguments would not be enough to win a deal.

"Ireland cannot rely on generosity and decency, the only option is to play hardball," Mr Buiter said.

Ireland "does not have many chips" in the negotiations, but the fact that this country's agreement was needed to move ahead with direct bank recapitalisation was one, he said.

If Ireland did not get what it was after, it should threaten to block the entire deal, he said.

Failure would leave Ireland with "zombie banks" that would hold back the potential of an economic recovery, he warned.Yesterday Mr Noonan said the State was "pragmatic" about selling its stakes in the banks to private investors if a deal cannot be done with Europe.

But Mr Buiter insisted there was no comparison between the benefits from a one-off deal with Europe to recover the cost of the bailout and selling bank stakes over the longer term.

Ireland was a unique case that "took one for the team" by bailing out the banks, and had fulfilled every condition under the bailout, Mr Buiter said.

The country played "hardball" to keep the 12.5pc corporate tax rate, and should do the same for a bank deal, he said.

Meanwhile, Citi lifted its growth forecast for Ireland to 2.1pc for this year, saying prospects are good for the years ahead as economies in the UK, US and Europe recover, including growth of 4pc by 2018.

However, Mr Buiter warned that the crisis in the eurozone was not over yet – with France and Italy particular concerns.

Citi said it raised its Irish growth forecast because jobs numbers were on the rise, and there were "signs of life" in the housing market. The forecast compares to expected growth of 2pc in Germany and 3.3pc in the UK this year.

Irish Independent

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