Business Irish

Wednesday 25 April 2018

Has incoherent government got a Plan B?

This week's fall in the value of the euro against both the dollar and sterling was the best piece of economic news we have had for quite a while. Unfortunately, this was offset by the revelation that the ECB is obstinately refusing to cut us any slack on the Anglo promissory notes.

With almost half of our imports coming from the UK and the United States, compared to less than a quarter from the rest of the eurozone, and with the share of our exports going to the UK and the US, at almost 40 per cent, being similar to that going to the eurozone, a cheap euro and sterling has always been much more in Ireland's interests than those of our European "partners". That is why this week's fall in the value of the single currency to less than $1.30 and 84p is such good news for this country.

Unfortunately, when it comes to the Irish economy, every silver lining seems to be accompanied by a very dark cloud, lots of very dark clouds. This week we learned that the Irish Government had effectively abandoned its campaign to persuade the ECB to lower the penal 8.2 per cent interest rate we are being charged on the €30.7bn of Anglo promissory notes and to extend the repayment period.

The apparent failure of the campaign to lower the interest rate on the promissory notes makes a nonsense of the strategy being pursued by this government in its dealings with the EU/ECB/IMF "Troika". Incoherent doesn't even begin to describe the shambles we are now confronted with.

For anyone who has spent more than a couple of minutes analysing the situation, it should be abundantly clear that the Irish State cannot hope to repay the full amount of the Irish banks' losses. While the cost to the taxpayer of bailing out the banks has been put at "only" €62bn-€63bn, in reality the actual figure is much higher.

Starting with the almost €150bn which the Irish banks have borrowed from the ECB and the Irish Central Bank -- of which €70bn was used to repay bank bonds at par -- there are also the promissory notes, about €31bn of NAMA bonds and the remaining €15bn-€16bn of bank bonds. Even when some double-counting is factored in, it seems reasonable to assume that most of the NAMA bonds have been pledged as collateral against ECB loans, the net exposure is probably somewhere in the region of €200bn.

By the time the "official" national debt, currently standing at €116bn, is added, the Irish taxpayer is on the hook for over €300bn. This is madness. There is no way that we can hope to repay this amount.

So is there a Plan B? Has our government prepared a strategy to escape from the decades of debt misery to which our continued membership of the eurozone condemns us? We can only hope so. This week Finance Minister Michael Noonan travelled to London to meet his new best friend, British chancellor George Osborne. Now what were they talking about?

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