Friday 15 November 2019

ESM 'must ease pain in Spain first'

Brendan Keenan

Brendan Keenan

ANY deal on Irish bank debt will have to wait until there is a deal with Spain, a conference on budgetary policy will hear today.

But John FitzGerald, research professor with the Economic and Social Research Institute (ESRI), said it would be in everyone's interest if the new EU rescue fund bought the remaining Irish banks at their current value of €20-€30bn.

"The danger is that we wait for ever," said Prof FitzGerald, who will deliver a paper on medium-term budgetary policy at the conference.

He described the comments on bank debt by the finance ministers of Germany, the Netherlands and Finland as another example of the "one step forward, one step back" approach to the euro crisis.

"Every time you think things are being settled, somebody says something which destabilises them."

In his paper, Prof FitzGerald says the new European Stability Mechanism (ESM) could buy the Irish Government's shares in the operating banks without any further payment to Ireland.

"It would merely swop debt owed by Ireland for shares in Irish banks," he says. But Ireland's debt would fall by up to 20pc of GDP. making a full return to the markets more plausible.

"The three ministers spoke of the ESM paying 'real economic value' in rescuing banks. It is not clear what this means, but it could leave room for negotiation. However, it will be hard to get anything before next June, which is what matters for an end to the bailout," he said.

"However, were such a deal to be negotiated for Spain, there would be strong equity reasons for applying a symmetric approach to Irish banks."

Prof FitzGerald says the planned €3.5bn Budget corrections for 2013 should go ahead, but disagrees with the suggestion from the semi-official Fiscal Advisory Council that the austerity programme be tightened.

Lower growth caused by external factors should not be a reason for extra taxes and cuts to meet deficit targets, a position endorsed by the IMF, he says. The paper favours the introduction of a property tax.

"Even with some links to ability to pay, a property tax would have a minimum negative impact on employment," it says.

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