'Get debt sorted or we'll drown in it,' warns TD
Use threat of unilateral default, says Donnelly
Published 25/12/2011 | 05:00
A year ago, Stephen Donnelly was flying high with the global management consultancy firm McKinsey. Deeply angered by the arrival of the IMF into this country and the continued policy of the taxpayer having to pay back German and French bondholders, he said enough was enough.
He would do the unthinkable and stand for election.
"I was quite excited from what I was hearing during the campaign. I mean, I wasn't sure whether I'd end up in government in some way or not," he says.
Stephen Donnelly stood as an independent candidate and took the seat previously held by Fianna Fail's Dick Roche in the Wicklow constituency.
Ironically, as Mr Donnelly was having his picture taken for this interview last Thursday on the plinth in Leinster House, Mr Roche (using the privilege that all former Dail members can use the car park) walked past without a single word or acknowledgement.
"He doesn't like me, hasn't spoken to me since the election," Mr Donnelly comments.
Up in his office, I begin by asking him how he thinks the Government has done in its first nine months in office.
"Very mixed," he responds. "There was a lot of tough talking on Europe. And there was a lot of tough talking on reform. And with a centre right and a centre left government, in an ideal situation you get the best of both. They cancel the excesses of both out. But actually what we are getting instead is the worst of both."
He continues: "When you look at the public finances, Fine Gael said no change in income tax, Labour said no change in social welfare and they both said no change to public sector pay. You can't fix the budget that way. It's simply not possible. It is mathematically impossible."
He thinks Taoiseach Enda Kenny is likely to struggle now his Government has introduced its first Budget, which he says is deeply flawed.
He has accused Mr Kenny of being a "bullshitter" in his refusal to properly engage with the Opposition during Leaders' Questions.
"I think Enda Kenny will struggle now. I think there is going to have to be a supplementary Budget. All he has done so far in the Dail is blame FF for everything. You did this, you did this, is all he has said."
He adds: "I think that is done now. But he is not good on his feet, I have seen him rattled once or twice in the past two weeks and he has been all over the place. He just repeats the question back to him, runs down the clock. That is a problem.
"Every time he does that, every time he doesn't answer the question, he harms democracy in this country."
He continues: "Leaders' Questions is a very important part of our democracy and him not engaging is a major problem. If these guys can't come into the Dail and engage properly then we are in trouble, and Kenny is refusing to do it. Every time Kenny stands up in leaders' questions and bullshits, he sends a message to the whole country that nothing has changed."
He also accuses Finance Minister Michael Noonan of scaremongering and deliberately trying to mislead the people on why his Government has not gone further on burning bondholders.
"Noonan, himself, in Opposition put forward the best possible arguments as to why bondholders could be burnt. But now, both he and Kenny have warned that the IMF money would stop. They have been using very emotive language and have been scaremongering people."
He adds: "I wish the Government would stop the disinformation. Noonan keeps saying that if we burnt bondholders, the IMF money would stop and there would be no money in the ATMs. That is simply not true. That is emotive scaremongering and it is scaring the wits out of people. It shows a real contempt for the people. Of course, the IMF money is not contingent on whether we do or we don't inflict losses."
Mr Donnelly, who has established himself as a leading financial thinker in the 31st Dail, has many bold ideas. So what would he do if he was in the Department of Finance?
"We need to sort out the debt at a national and at local level quickly. We are drowning in it. We need to stimulate jobs, through a massive stimulus package. In terms of the debt, it is difficult. The Government have negotiated really hard and the ECB have just flatly said no."
Mr Donnelly says the time has come for Ireland to threaten a unilateral default on our banking debt to force Europe into reducing the burden.
"There comes a point, and we are past that point that we have to act unilaterally. We don't want to. We are Europeans, but the cost of bailing out European banks has sunk us. It is economically stupid. The IMF say you are completely wrong and I would start making noises that Ireland will act unilaterally. I would contact the bondholders and tell them that there will be massive haircuts. That will bring them to the table. You have to bring them to the table voluntarily."
He adds: "Noonan and Kenny keep telling bondholders they are going to be paid. You guys came into government saying you'd burn them. The bondholders were expecting it. But let's remember, these are not our debts. We are paying back speculators so there is major sabre rattling needed here."
Mr Donnelly also says that the payment of bonds against the continued expressed wishes of the people has called into question our democracy.
"We can't afford it and we never owed the money in the first place. Even Noonan has said he doesn't want to be paying this. The cash cost has been massive. Now the Government say they will save one and a half times that amount through other avenues. That's fair enough. But there is also the moral argument. I think the damage this is doing to Europe and to our society and our people will last a long time. You have just broken the social contract and that is very serious." He adds: "I was really disappointed what has happened on the bondholders.
"The new Government had a massive opportunity to say to the ECB and to Europe that we were elected on this platform, this is democracy. We know you don't want us to do it, we get that, but this is what our people want and we are going to play a bit of hardball here. I think that would have worked. But ultimately, I think the ECB just said no and our guys just accepted that."
Mr Donnelly shares the view that the Government have been far too deferential to the banks. I ask him why they are like that given the billions of taxpayers' money the banks have received.
"The Government are scared of the banks," Mr Donnelly says, "but they don't understand them or how they operate."
"I have respect for Kenny, Noonan and Howlin, but they are all teachers. There is nothing wrong with teachers. The three of them and Gilmore, who is a former trade unionist, form this economic management committee.
"They are not technically proficient enough or qualified enough to understand what's going on. Those guys are hard-working, good, honest patriotic people, but they are not technically qualified to deal with the situation. And neither is the Department of Finance," he says.
The independent TD's most thought-provoking arguments have to do with reducing the burden of debt on the citizens of this country who are in most distress.
"Why are we burning our own people when we are not burning bondholders. What is not happening, the banks are not passing on the debt relief to the customers. The principle I believe is that those who caused the problem must contribute to the solution. I am in negative equity. Did anyone put a gun to my head? No, so I should take some pain. The banks played a role so they should help out, so should the Government."
He argues: "What annoys me and makes me angry is when I hear we must avoid the moral hazard of the bad Irish people, who are bailing everybody out. There was not one mention of moral hazard when it came to the banks."
I ask him for his solutions.
"So a few things just have to happen. The banks must be forced by legislation to pass it on. I like the new beginnings but I would go further. I like the idea of a debt-for-equity swap with the banks or the State which is fair and reasonable. Until we do that, there is an entire generation of Irish people, me and all my friends, who are stuffed."
He adds: "I have people coming to me with masters degrees, good jobs who bought an overpriced house who are waiting for the new bankruptcy laws to come in to declare bankrupt. These are some of the most productive people in the country. There has to be debt-for-equity stuff."
Mr Donnelly is in agreement with the Government that the public deficit (this year €25bn including banking recapitalisations) must be brought under control.
He says given that income tax, social welfare rates and public sector pay are protected, the Government hasn't a hope of correcting that deficit.
"Croke Park isn't worth the paper it is written on and it never was. The Croke Park deal is not going to hold, it never was. I understand why it came in to try and get the unions on board to get some reform," he says.
"But to my mind Croke Park is not the way you do reform. I think it gives the unions too much power. I would like to see them bypassed as much as possible. The unions are now saying increments are an absolute. For them to say that they are willing to strike if they don't get a pay rise during a national bankruptcy is total insanity -- it's insane," he adds.
"Increments have to stop for now. Every increment paid means a pay cut for those on non-permanent contracts. We also have to do more with higher-end pay.
"Those at the bottom in the Irish public sector are actually below the European averages but middle to senior managers are toward the top," he says.
He concludes: "Welfare rates also have to come down. There are too many allowances and I think the level of benefits act as a significant barrier to looking for work. There are many categories of people who are getting multiple payments way above the original intended amount."
Mr Donnelly feels strongly that the Government must tackle the mounting crisis in our education system.
He says: "While the debt and the deficit are the immediate crises facing the country, the medium-term crisis is education. We are in deep sh**.
"We have seen the sharpest drop in standards of anywhere in the western world in the past decade. My view is if we don't sort out the education system, and by that (I mean) having one of the best systems in the world, we are toast." He adds: "This system is broken. We don't have a single university in the top 100 anymore. All of them bar NUI Galway are going backwards. They are being asked to educate more students with less money.
"Our primary system has reformed but literacy, maths, and science numbers are falling. Our secondary system is broken entirely. The Junior Cert and the Leaving Cert need to be thrown out and replaced with an examination process that is fit for purpose."