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Friday 29 August 2014

Gene Kerrigan: Relax, all is well as we Exit the Bailout

Let's not worry about RSA. Or mortgages. Or unemployment. Or emigration, writes Gene Kerrigan

Gene Kerrigan

Published 10/11/2013 | 01:00

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SHOULD we be worried about this RSA mess? You know all about the RSA mess, right? Or, perhaps you don't. Perhaps you haven't been paying attention? Well, don't worry about the RSA mess. In fact, don't worry about anything – everything's going really well. Pay no attention to the naysayers and the worriers. Things couldn't be better.

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After all. we're about to Exit The Bailout.

And everyone knows, because government ministers and their media cheerleaders are never done telling us, that politics in 2013 is all about Exiting The Bailout. We used to call it Waving Goodbye To The Troika. So we're now Waving Goodbye To The Troika as we cheerfully Exit The Bailout. Mission accomplished.

What about Blackstone and Bord Gais? Should we worry about Blackstone and Bord Gais? Is this some kind of a straw in the wind?

Well, no doubt the worriers will fret about what's going on, but sensible people will pay no attention. Indeed, the chances are that most people aren't even aware of the Bord Gais problem.

And that's the way it should be. Sensible people shouldn't have to bother their heads about silly little details.

Leave that to the experts. And if we need to know, they'll tell us what to think.

Far from being something to worry about, Blackstone and Bord Gais are part of the success story. RSA is just a blip.

Unemployment? Sure, no one cares more about the unemployed than Enda and Eamon. Emigration? Well, travel broadens the mind.

Warnings from a Nobel economist that government and EU policies have condemned us to another 10 or 20 years of recession? Oh, there's always some negative crank who'll talk down the economy.

What's important is that we're about to Exit The Bailout! The plan worked! We've turned the corner! We're back on track! Sovereignty restored, we're in charge of our economic destiny, striding forth into a future so bright we'll have to wear shades.

To sum up – here's the fairytale the Government and their media fellow travellers have woven: government spending under Fianna Fail was so reckless that in 2010, as Eamon Gilmore told the Dail last week, the country "ran out of money" (Boo Bertie!)

So, our Troika friends stepped in to help. (Hurrah for Mr Chopra and Mr Trichet!) The new Government took over in 2011 and set itself the target of "restoring the national finances" (Cheer Enda!)

Which is what Mr Gilmore told the Dail last week they had now achieved (Cheer Eamon!)

So, now, with the help of "our external friends" (thank you, Mr Draghi!), we've achieved our goal. There are a few problems to be tweaked (unemployment, an economy deliberately deflated year after year), but government courage and the self-sacrifice of the Irish people have ensured that the big one has been dealt with – we're Exiting The Bailout.

Of course, there's another way of looking at that. And there's another way of looking at the RSA and the Blackstone events.

Let's do so.

We didn't "run out of money" in 2010. In the autumn of 2010, the collapse of the economy had led to a deficit, but it was manageable. Yet the cost of State borrowing went through the roof. Why?

Because only then did the money markets discover the true cost of the notorious bank bailout. As the figures were released, it dawned on the people who loaned us money that the Irish State was committed to bailing out the Irish banks and the bondholders behind the UK, German and US banks who had gambled on the property bubble.

And that meant we might go bust and be unable to pay back sovereign debt. So they put up the cost of borrowing, until we couldn't afford to borrow any more. Enter the Troika.

All of that has been flushed down the memory hole. The official history is now that we simply "ran out of money".

Why did the investors in Irish sovereign debt get scared? Because bailing out the bankers was costly. How much did it cost Irish citizens to save Europe's banks?

Well, economist Michael Taft got the official figures from Eurostat and did a neat table. The average German paid €491 to bail out the bankers. And every Brit was done for €172. And across the EU the average sting each individual felt was €192. And the average cost to each Irish person was €8,981.

We picked up the tab for 42 per cent of the cost of saving Europe's banks. That's what's known as "Frankfurt's way", as directed by the European Central Bank. And FF bought into it, the Greens too. And FG and Labour, and the media. And they presented it as a "bailout". We were portrayed as beggars, who had "all partied" and who ought to be grateful for ECB alms.

The ECB lent us money (at a profitable rate) to channel it to the bankers – and because they dare not let a eurozone country collapse. In July 2012, however, the euro was so rocky that Mario Draghi announced: "The ECB is ready to do whatever it takes to preserve the euro."

This signalled to the money markets that the ECB would stand behind sovereign commitments – and the cost of borrowing money in Ireland, Spain and Portugal began to come down.

The Government sold this as "restoring the national finances". The ECB used the "bailout" crisis to insist that we do some things long on their wish-list. Austerity policies, for instance, that deliberately deflated the economy and which everyone now knows were a ruinous policy.

And, of course, selling off State assets. Right-wingers love to sell off State assets, on principle. In the UK, they've just sold off the Royal Mail at dirt-cheap prices, making vast fortunes for people who already have too much money.

In Ireland, under Troika direction, the harvest rights to our forests were to be sold, despite it being obvious to the most right-wing of economists that this was a stupid, dangerous and costly policy.

The policy was so obviously moronic that even the Right grew embarrassed and the sale of the forests was dropped.

The Government, under Troika direction, has been trying to flog Bord Gais Energy for €1.4bn. As it's a forced sale, bidders offered considerably less, most dropped out.

Now, as part of what the Financial Times calls "frantic efforts by Dublin to reinvigorate a flagging sales process", the Government has gone on bended knee to Blackstone, a US investment bank, to ask them to buy. Not because we want or need to sell, but because it's part of "Frankfurt's way".

Meanwhile, RSA, the country's biggest insurance group (HQ in London), on Friday suspended three of its top executives. And put €100m into the company's reserves. Shivers ran through the business. What's going on?

Oh, never mind. We're Exiting The Bailout. The kids are leaving in droves, unemployment is high, prospects are worrying. Increasing numbers of people can't pay their mortgages. The economy has been flattened by austerity. The banks are as stable as – oh, say, a big insurance company.

Chin up. The financial sector in this country is thoroughly reformed and effectively regulated. Thank God for Enda, stay calm and keep emigrating.

Sunday Independent

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