Thomas Molloy: The logic is mad but we'll benefit from Greek deal
The philosopher Friedrich Nietzsche once said: "I'm not upset that you lied to me, I'm upset that from now on I can't believe you." It is a sentiment that has often been expressed by many other people -- from friends and lovers to the bond markets.
The deal cobbled together for Greece this week falls into this category and this creates an opportunity and a challenge for Ireland. It is an opportunity because it will make it easier for the Government to argue that something should be done for us, but it is a challenge because many people already fear that Ireland or some other country will now follow in the footsteps of Greece and default on a large portion of its debts.
Taoiseach Enda Kenny was quick out of the traps yesterday when he popped up on Bloomberg television to promise that Ireland wouldn't do a Greece and force those holding Irish government bonds to take a loss.
"We'll pay our dues in full and on time," he said in his homely way when he appeared on the only television network in the world whose target audience is bond dealers.
The Taoiseach and Finance Minister Michael Noonan have been telling the same thing to anybody who will listen over the past few months, but what happened in Greece this week means that the two men will have to continue hammering home this simple mantra for some time to come with added intensity. The trust is gone.
Mr Kenny and Mr Noonan probably believe what they are saying, but the boys and girls who invest hundreds of billions of euro in the sovereign bonds won't be so confident. They have no particular reason to trust Ireland these days, the rest of Europe's politicians or the European Central Bank.
This is not helped by the fact that the State has gone to extreme lengths to hide the real scale of the nation's debts. Few people now claim, or have the patience, to understand the details anymore but everybody with even a passing interest in finance knows Ireland's borrowings are enormous and unsustainable.
The European Central Bank has promised, on bended knees, that what happened in Greece won't happen again elsewhere in Europe unless the International Monetary Fund agrees.
The problem for the bond markets is that this promise means very little. After all, the IMF may well agree to further debt writedowns in other countries.
Even if the fund doesn't, there have been so many flip-flops by politicians and so much indecision that nobody believes the ECB when it promises that Greece was just a fling that will never be repeated.
These fears are not limited to Ireland. Investors are even more worried about Portugal's economy these days and are almost as worried about Italy and Spain.
Thomas Costerg, an economist at Standard Chartered Bank in London, described yesterday's tentative Greek agreement as a Pandora's box that would make it hard for the ECB to force many other countries to behave.
Amid all these challenges, the Government has set itself the necessary but difficult task of renegotiating the promissory notes that the last government created specifically to clear up Anglo Irish and keep the cost hidden from overseas investors.
In a nutshell, the Government wants to pay lower interest on the €30bn debt or pay it over a longer period or both together. Mr Noonan said on Tuesday that any concessions that Greece gets from the ECB could help our negotiating position on the promissory notes.
"If the ECB are prepared to make this kind of concession to Greece, it would encourage me to think that they might be prepared to make a concession on the promissory note," he said in an interview with RTE's Bryan Dobson.
Why is not really clear; the two types of debt are completely different. It is akin to a cancer patient awaiting treatment from a reluctant doctor and drawing solace from a patient in another ward who has been given a heart transplant.
It is very difficult to judge whether the campaign to renegotiate the promissory notes will be successful.
Much of the Government's position is characterised by a good dose of wishful thinking. We hear repeatedly that Europe needs a success story to prove that austerity works and Ireland is the best candidate. The truth is that Germany's decade-long battle with austerity already offers proof that austerity works and Europe remains far more interested in preventing the debt crisis from destroying Italy, France and Spain than teaching anybody a lesson by using Ireland as some sort of laboratory rat.
The good news is that Ireland will probably be saved in the end for the same reason that Greece has been saved this week; the alternative is simply too grim and too potentially calamitous to contemplate.
The Irish Government has crafted a coherent narrative; that Anglo Irish was nationalised by gallant Ireland to save Europe. This is a logical fallacy of the post hoc ergo propter hoc variety but remains the official position and is reasonably easy to peddle overseas.
It could also prove reasonably easy for the ECB to swallow as it casts around for excuses to reduce our debt burden. The ECB can't be seen to break its word once again by allowing Ireland, Portugal or any of the other countries in trouble to write down debt.
The promissory notes excuse allows the ECB to slip Ireland a helping hand without anybody noticing too much and this is unequivocally a good thing.
The danger is that Ireland won't be the only one hoping to benefit from the Greek deal. Portugal is already said to be preparing for a second bailout and other almost unnoticed countries like tiny Malta also have their begging bowls out.
The danger of a stampede towards the ECB's shrinking rescue funds remains a real possibility and could undo much of the Government's diplomacy.
The Government will want to move smartly in case the funds are exhausted but not so quickly that it looks like events in Greece inevitably have a knock-on effect here in Ireland.
Irish Independent
