FG's strategy: kick and scream until needs are met
Published 05/02/2011 | 05:00
MICHAEL Noonan resembled an airline hijacker yesterday who threatens to shoot the pilot while 10,000ft in the air, unless all his demands are met.
It is a high-risk strategy that can only be used a few times before it becomes completely untenable, but it is the centrepiece of Fine Gael's banking strategy.
The stark warning to Europe came in a Fine Gael policy document yesterday that says his party could unilaterally restructure around €15bn of bank debt not covered by a state guarantee if Europe does not cut the interest rate attached to the €85bn bailout.
"Should some credible combination of these options prove not to be available from Europe, the next Irish Government would . . . be left with little choice but to unilaterally restructure some of the private debts of those Irish banks in greatest need of recapitalisation," the party says.
Fine Gael wants to impose the losses on bondholders in state-run lenders Anglo Irish Bank and Irish Nationwide but where the losses are imposed is hardly important.
What is important is that the two banks are in state control and that the European Central Bank (ECB) is completely opposed to such a move.
The ECB fears it could pull down the entire Irish banking system by destroying the last vestiges of faith in Irish banks overseas.
Time will tell whether Fine Gael has the courage to repeat the threat if it is returned to power in three weeks.
While happy to threaten Europe, Mr Noonan still appears strangely confident that he can also charm his counterparts into taking long-term stakes in Allied Irish and Bank of Ireland and cancel orders to the two banks to sell assets.
What Mr Noonan plans to give back for all these concessions is not clear. Perhaps the threat of default will be enough.
The stakes are high. If Europe does not believe Mr Noonan and decides not to change the interest rate Mr Noonan will have to welch on the banks debts and see what happens. Failure to do so would destroy his credibility forever.
The finance spokesman has other ideas. He hopes to change the rules around NAMA, attract the US Silicon Valley Bank here to lend to business and encourage investors to put money into Irish institutions.
His most unusual idea is to ask for a bailout from the US Federal Reserve using the dollar assets of Irish banks, estimated at around $50bn (€37bn), as security. Mr Noonan reckons this would be much cheaper than the ECB and IMF, with interest rates at as little as a quarter of 1pc, but it is one of those nice ideas that needs to be fleshed out.
There was no suggestion that he had approached the Federal Reserve to discuss the matter. Perhaps a quick call to the US embassy would let Mr Noonan know the answer, but this election is not working out like this. We must hear 10 suggestions which depend on the agreement of overseas institutions before we hear one that could be implemented on our own.