Marc Coleman

Tuesday 22 July 2014

Euro vote could be debt game-changer

Without our sacrifice, the euro might have gone under, so Europe owes the Irish people, writes Marc Coleman

Marc Coleman

Published 04/05/2014|02:30

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The suffering endured by Irish people helped bring the EU back from the brink
The suffering endured by Irish people helped bring the EU back from the brink

To share the blame or to share the debt? That is the question. Whether it is nobler in the mind to add to four books on the banking crisis (at least), one official report (Nyberg) and a plethora of radio and TV debates and documentaries on the banking crisis as to who is guilty of the wreckage it caused, or, to ask a different question: Having spent years spreading the guilt, is it now time to spread the burden of debt created by that crisis? And which of these two questions is more important?

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Last week Judge Martin Nolan dispensed some guilt on Pat Whelan and Willie McAteer, who were found guilty of illegal share purchase but spared a jail sentence because, according to the learned judge, they were led by the State into illegality. Indeed. A banking inquiry will now seek out the culprits for the banking crisis.

But guilt and liability are different things. Pat Whelan and Willie McAteer were found guilty but effectively not liable. We, the people are not guilty for the banking collapse. But we are liable.

Since April last year some €29bn in bank debt became a public liability when the Irish Bank Resolution Corporation was liquidated and its debt made a charge of the Exchequer. True, the repayment for this debt was pushed out from 2023 to 2053. Compared to the interest that would have been paid on the original repayment structure, billions of euro (economists differ on the exact amount) were saved.

But should the taxpayer ever have been liable for the debt in the first place? Particularly taxpayers of the future who never enjoyed the boom but who now, due to the longer repayment period, will contribute to its repayment?

Guilt for the collapse of a bank is, anyhow, an odd concept. Free markets are full of business collapses. But in free markets those losses are borne by shareholders and unsecured bondholders. Just as turning water into wine requires supernatural powers so turning private losses into public liabilities requires the power not of the market but of the State; to guarantee bank debts (as in September 2008), to seek assistance from the EU (as in November 2010) and, last but not least, to require the Irish Government, as a condition for any help, to honour debts incurred by financial institutions with unsecured bondholders.

Who let Anglo go bust is one question. Who turned its losses into our problem is another. We can only hope the banking inquiry will address both. A more urgent issue arises: Will the debt be spread in proportion to the guilt?

In four weeks, the first elections since the 2012 EU summit and liquidation of the IBRC takes place. And it is a European election in which the promise of the June 2012 summit on the special treatment of Ireland's bank debt is a highly valid campaign issue.

And here is why it should it should feature strongly: Once expected to leave the euro and possibly bring it to destruction, Greece and Portugal have stabilised within the euro, Greece re-entering the bond market early last month and Portugal now coming close to exiting its bailout programme.

Without the suffering inflicted on the Irish people and the Irish leadership, it is unlikely these two countries, or the euro, would have made it. Next week, a new book Ireland and Germany: Partners in European Recovery will emphasise that point. Co-authored and co-edited by myself and the German-Irish Chamber of Commerce, it is aimed principally at a German audience that has been misinformed by some of the purely negative coverage of our economy. It emphasises how we led Europe in turning the corner and how despite harsh conditions imposed by the Troika in relation to bank debt we could not have achieved that turnaround without the help from Europe which we received in 2010.

But the book emphasises two further points: That securing that recovery requires protecting our competitive business model from increasing international attack and that deepening it – particularly to the domestic consumer sector – requires tackling private and public debt levels.

Back in March the EU, ECB and European parliament agreed on the bare bones of the Single Resolution Mechanism. Under this mechanism, member states with bad banks can call on an EU war chest – €55bn to begin with – for help. So the question is, does the June 2012 summit entitle us to call on that war chest retrospectively? Or was the retiming and restructuring of that debt last year as good as it gets?

If it is then so be it. But if an inquiry is to ask who is responsible for bank failure then it should also deal with the decisions that turned bank failure into public liability. And if European elections are designed for anything it is to ask where we stand in Europe. Few issues are more relevant in that regard than our chances of retrospective help with our bank debt.

By all means let's ask to whom we owe blame for the crisis (the answers may point as much to the continent as to ourselves). But let's also ask to whom Europe owes thanks for saving the euro. The answer is Ireland. The next four weeks are our last chance to say so, and to specify how we would like to be thanked.

'The Marc Coleman Show' Sundays, 9pm, Newstalk 106-108fm @MarcColemanShow

Sunday Independent

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