Sunday 23 November 2014

Default! Say the people

Irish negotiators raised defaulting but 'Europe went completely mad'

Published 28/11/2010 | 05:00

A SUBSTANTIAL majority of the Irish people wants the State to default on debts to bondholders in the country's stricken banks, according to a Sunday Independent/Quantum Research poll.

The finding that 57 per cent favour and 43 per cent oppose default reflects a growing view among policymakers and opinion formers that the State simply cannot support the debt burden it has taken on.

The telephone poll of 500 people nationwide has also found that a majority of around two-thirds opposes the headline measures in the Government's four-year plan.

Following Fianna Fail's loss of the by-election in Donegal last week, the findings will add to political uncertainty as an austerity Budget approaches on December 7.

As Ireland awaited the fine details of the international bailout, which are expected tonight, it was learned last night that the Irish delegation negotiating with the EU-IMF last week raised the issue of default.

"The Europeans went completely mad," a senior government source said.

Government sources have also denied an RTE News report on Friday that the average annual interest rate on the €85bn EU-IMF bailout would be 6.7 per cent.

Last night the Minister for Finance, Brian Lenihan, told this newspaper that such an interest rate was "not acceptable to me".

But whatever interest rate is eventually agreed -- it is expected to be closer to 6 per cent -- the State will be burdened with a colossal annual interest payment of around €5bn over nine years, if or when the bailout is drawn down.

This effective doubling of the interest payments that are already being made has helped to convince the public here that there must now be a default on a portion of the debt -- specifically, the portion lent to Irish banks, including senior bonds.

If that was to happen, it would be likely to cause a severe shock to the financial system worldwide and raise the risk of an international meltdown. However, advocates of a default say it is no longer in Ireland's national interest to prevent senior bondholders taking a hit.

The argument goes that a bailout from the EU-IMF will effectively neutralise the argument that default on bank bonds would cause investors to stop lending money to the Government.

If Ireland is forced to default, there is a view that it should happen after the financial system has been restabilised, reformed and restructured, so that it can absorb the losses without the risk of meltdown.

Yesterday, around 50,000 people took to the streets of Dublin to register their opposition to the Government's four-year plan to cut the budget deficit to 3 per cent of GDP by 2014.

The huge turnout -- in spite of atrocious weather -- is an indication that the measures announced by the Government last week are meeting with the disapproval of the public.

The Sunday Independent/Quantum Research poll has established a near consistent level of opposition to the Government's plan.

Asked if they agreed with a proposed €1 reduction of the minimum wage, 66 per cent said no, while 34 per cent said yes. Asked if they supported a proposed cut to child benefit, 60 per cent said no and 40 per cent said yes.

A proposed increase in third-level fees was rejected by 65 per cent and approved by 35 per cent. Asked if they agreed with a proposed reduction in tax relief on private pensions, 59 per cent said no and 41 per cent said yes.

The public was more evenly divided on the issue of broadening the tax net. Asked if they agreed that everybody who earned over €15,300 a year should be included, 52 per cent said no, while 48 per cent said yes. The proposed €100 property tax was rejected by 55 per cent, with 45 per cent in favour.

The political and economic crisis in Ireland has rapidly accelerated in recent weeks and days to the point that it is now undermining the stability of the entire eurozone.

Nonetheless, the German Chancellor Angela Merkel will this week intensify her lobbying for reforms tying debt holders to sovereign bailouts, despite concerns that she is further unnerving investors.

In her latest intervention last week, Ms Merkel invoked what she referred to as "the primacy of politics" over the "limits of the markets".

She has said that she wants bondholders to take a hit on the value of their holdings when a country is in trouble, potentially saving taxpayers billions of euro.

The German Chancellor's insistence on raising the issue at this time may be populist and of benefit to a resurgent Germany, but it is causing near panic in the financial markets.

In Dublin, there is barely concealed outrage at the interventions of Ms Merkel and at the position adopted recently by the European Central Bank, which precipitated the arrival of the EU-IMF team in Ireland.

"The ECB f**ked us," one government official in Dublin was reported yesterday to have said.

With calls for a bailout of Portugal intensifying and worries about Spain, Italy and even Belgium growing, the German Chancellor is keen to show her domestic audience that once the febrile mood is calmed, there will be an orderly mechanism for dealing with a repeat situation.

Sunday Independent

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