Saturday 24 March 2018

Forget the fights, we all know a deal will be done

THIS week's summit was a disaster but I firmly believe that we will come back from the brink.

It is easy to focus on the disagreements, which were all too apparent in Brussels, but sometimes it is also worth searching for common ground. So let's do that.

Let's forget about all the rhetoric from all sides and concentrate on the figures. Those figures tell us that this country has too much debt and will be unable to repay that debt within a few years unless something is done to reduce the debt or extend the repayments.

Both of these options will have to be explored if this is to happen.

Pretty much any independent observer of Irish debt dynamics believes that it could take up to 20 years to rid ourselves of the banking burden if we don't get EU help.

No country will ensure fiscal consolidation for 20 years because no voters, no matter how stoical, can endure that sort of hardship.

That means Ireland and Europe face a stark choice between bank debt restructuring now or probable sovereign restructuring down the road.

Almost every independent analyst also concludes that the only way to avoid this would be for some sort of outside organisation to get involved in the process.

This would have a double-whammy effect of easing sovereign concerns and aiding economic growth.

Everybody agrees with this, which is why it will happen. At the moment, we are arguing about the process and how to distribute the burden.

The good news is that few people disagree that it needs to happen.

That's why some sort of compromise will be agreed in the end.

Reuters was reporting yesterday that some sort of arrangement was already knocking around.

The news wire says eurozone officials are exploring the possibility of sharing the cost of dealing with "legacy" toxic bank assets between the European Stability Mechanism and host governments, a crucial step to break the so-called "doom loop" between sovereigns and banks.

What Reuters is really saying is that some officials in Brussels have not lost sight of the obvious fact that a solution will have to be found and that solution will involve hardship on both sides.

The news wire adds that the compromise could enable Spain and Ireland to shift some of the cost of propping up their banks off their balance sheets and on to the books of the ESM, which is underwritten and guaranteed by the 17 eurozone countries.


Eurozone finance ministers may even have another crack at a meeting in Brussels next month but it will probably drag on until next year.

We will probably issue some sort of long-dated bond on part of the debt we keep on our books -- something Mr Kenny seemed to admit on Wednesday in Bucharest.

It will be technical but all the technical stuff about back-dated direct recapitalisation and all the arguments about the ESM are only really arguments about words.

The reality is that a deal will be done that will see some sort of debt reduction and some mechanism to spread out repayments. The rest is detail.

Irish Independent

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