Friday 19 January 2018

Angela, your bailout claims are total rubbish

Of course Europe can alter the punishing terms of the rescue deal -- and it's very much in its interests to do so, says Brendan O'Connor

Brendan O'Connor

Brendan O'Connor

EVER got the feeling you've been had? We voted for change but suddenly everything is back where it was before the election campaign began. The attitude from Europe seems to be that they turn a blind eye to politicians saying reckless things during election campaigns, putting it down to the exuberance of electioneering.

As Olli Rehn's people put it last week: "The campaign is over and we are moving to another phase now where campaigners who are political leaders will take responsibilities in government, in administration." In other words, you've had your fun boys. Now move on and start acting "responsibly". Which, in European terms, means that we continue to beggar ourselves to pay off European banks who lent recklessly to our banks and we stop talking about interest rate decreases and defaults.

Not only did the Europeans let everyone shout and roar about defaulting and changing interest rates for the last month, they even allowed a certain impression to develop that change might be possible. We were led to believe that Enda Kenny had a cosy tete-a-tete with Angela Merkel and he put it up to her about the interest rate on the bailout. And Angela certainly did nothing to disabuse us of that notion at the time. But while Angela may have allowed people to believe during the election that Enda Kenny had a hotline to her, and that she might suddenly be more amenable to lowering our bailout interest rate, now she is firmly telling us that there will be no change in the interest rate.

And we saw how high we are on Merkel and Europe's list of priorities during the week, in the run up to the meeting of the European People's Party in Finland on Friday. Enda was insisting he would be getting a private meeting to push the interest rate issue with Angela. "I'll certainly get a few minutes," he told us. The German government didn't wholeheartedly agree, saying: "In Helsinki there is very little time for any bilateral meeting. So it is not certain that a meeting with Kenny will be possible." In other words Enda, we don't even merit a few minutes out of Merkel's busy schedule. It's actually humiliating, for him and us. By Friday we were being told by Enda's people that obviously Enda couldn't go into negotiations given that he still wasn't in office, and that what he would actually be doing in Helsinki was paving the way for other chats. On Wednesday Merkel made is clear she wasn't for turning when she told us that: "Interest rates are ultimately an expression of confidence in a country ... We can't artificially lower them. One benchmark is that interest rates have to reflect refinancing costs." Now I'm not an economist but it doesn't take an economist to know Merkel is talking crap here.

Firstly the interest rate we are paying on the bailout is not "an expression of confidence in the country". Let's face it, interest rates that reflect the confidence the markets have in Ireland would be far higher than what we are paying on the bailout. That's why it's a bailout, because we weren't able to pay the interest rates that were an expression of confidence in the country. The bailout was supposed to be cheap money.

Secondly, Merkel says the EU can't artificially lower interest rates. That is to suggest that the interest rate we are paying on the EU portion of the bailout is something that naturally occurred, that was arrived at by the market forces of supply and demand. But it is not. It is an artificial interest rate and it is one that the European Financial Stability Facility (EFSF) has artificially bumped up by a notional three per cent in order to punish us. That was a figure that, as far as we know, was plucked out of the air as a suitable number to ensure that we didn't get too fond of being bailed out, and, presumably, to show the German taxpayers that we are being punished for our partying.

Merkel's final assertion, that rates have to reflect financing costs, is also disproven by the three per cent premium. The money isn't costing the EFSF 5.9 per cent. It reflects the cost of the funds to them yes, in that the cost of the funds is less than half what we are paying. But of course it's not surprising that Angela is talking crap to us. While we sometimes believe that there is something inherently superior about politicians in major European countries and at EU level, because they have been put in charge of bigger ships and because the dour central Europeans act superior to us and our hot-blooded Mediterranean cousins, we can't forget that Merkel and co are just politicians too. And so they talk crap. And they also disregard the will of the people as a matter of course.

The civil servants aren't much better. Last week Olli Rehn was the other half of the pincer movement to squeeze us back into our boxes.

While Olli played good cop on the interest rates, hinting that maybe something should be done on it, he made it very clear that there would be no defaulting on any debt, telling us this "is not on the cards nor on the agenda concerning Ireland". So not only is it not going to happen, it's not even up for discussion. While Olli refused to elaborate, his spokesperson hilariously asserted that the EU/IMF programme is "the best tool to support Ireland's economic recovery". And again the words of Willem Buiter of Citibank come to mind: "The current [interest] rate really is an invitation to sovereign default -- it makes no sense as part of a package that is meant to avoid sovereign default." Olli Rehn said that he was watching the Irish election campaign very closely. He clearly wasn't watching it closely enough. Because if there was one issue in this election for most people, outside of kicking Fianna Fail in the balls, it was that of defaulting and cutting the interest rates on the bailout. The two parties who 'won' this election had as central planks of their economic policy the judicious renegotiation of certain bank debts and the lowering of the interest rate on the bailout.

Indeed, any party that had default as a major policy did historically well in this election -- Fine Gael, Labour and Sinn Fein. And the party who made the bailout deal originally? Destroyed.

If Olli Rehn was watching that closely he will have seen that this election, apart from being an exercise of vengeance on Fianna Fail, was a de facto referendum on the bailout. And the people overwhelmingly said that they think it was a bum deal. It makes you wonder what we have to do to tell Europe what is on our minds.

In the hope that Olli might be still closely watching the situation here, let us air a few home truths. I don't need to explain to Mr Rehn that not only is Ireland's debt immoral, it is impossible too. He knows that. Practically the whole international economic community from left to right are in agreement about that, and neither Rehn nor Merkel nor any of their Euro colleagues have ever provided a compelling argument against it.

What Olli might not realise is that we are reaching the end of our tether here. If a new government is not allowed to do something to change Ireland's impossible debt situation they won't last a year. And if Olli thinks we were a bit flaky in our voting this time, wait until he sees what we do next time. Because this time we were actually quite restrained. But already there is a notion gaining ground in this country that we have merely booted out one kind of ineffective Government for another. Already we're being told, by Europe and by people like Patrick Honohan, that nothing is going to change. And already we're feeling like we didn't go far enough in our cleansing of the political system, that we merely swapped one branch of the same tribe for another. And if we have another cleansing to make our point, the results will not be pretty. People who would never have dreamt of voting Sinn Fein before did so this time because of their Euroscepticism. The next time there will be even more people willing to put aside the murder issue and vote Sinn Fein.

We also elected hard lefties and dope smokers this time and the world hasn't ended. In fact, we are quite enjoying it so far.

This country is in danger of becoming truly free, because we have nothing left to lose. The fact that we are now about to be saddled with higher mortgages interest rates, the last thing our economy needs right now, in order to calm the German's pathological fear of inflation, isn't going to help.

The Europeans might find that while our recent governments may not have been willing to leverage the threat of Irish delinquency, our next one will. Particularly if the EU continue, through their unreason, to make us unreasonable. In the end Enda Kenny came back from Helsinki with nothing except with an admission that there will be no defaulting. What a surprise.

Sunday Independent

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