Sunday 15 September 2019

Marc Coleman: Forgive debtors or risk wrath of God

Marc Coleman

Contrary to what Pat Rabbitte says, the promissory note has been paid, but there is still hope.

Some of us are still traditional enough to believe Christmas is more about moral messages than giving gifts. And my favourite moral message of all is in the parable contained in Matthew chapter 18, verse 21, which basically goes like this: A master forgives one of his servants of a massive debt only to find that the same servant has had one of his own slaves imprisoned for a far lesser debt. Cue righteous anger and the wrath of God and the hypocritical servant is ultimately tortured, jailed and probably killed. Such is the penalty for moral inconsistency in the Bible. So – as we saw last week – it is in politics too.

Last Sunday, Pat Rabbitte pleaded for forgiveness from the Government's masters in Frankfurt. "We didn't pay the promissory note this year and as far as I'm concerned we're not going to pay it next year. It's as simple as that." Now actually it isn't "that simple". We traditional Bible-reading types don't like correcting our elders and betters. But on this one, I have to correct Pat. Go to the latest (November 2012) Exchequer release and look under 'Sources and Applications of Funds' and you will find an item 'Promissory Note issued to IBRC' with two asterisks beside it.

The asterisks guide you to a note that says the following: "The €3.06bn transaction in respect of the Promissory Note for IBRC is not included in note 6 due to the statutory payments basis (no cash issued arising from the transaction) of the Finance accounts and the exceptional nature of the transaction in that regard." Boring as hell, I know (scripture is much more fun) but what it means is this: This year's promissory note was paid. It just wasn't paid in cash. It was paid by issuing a Government bond sold to Nama which then sold it on.

Because of the "exceptional nature" of the transaction, the payment occurred "off the books" and didn't result in an embarrassing contrast with tax hikes and spending cuts. But paid it was. And rest assured unless a deal – a substantive deal (ie cut) in bank debt is done, either we or future unborn generations will pay those debts in full.

Is a deal likely? Nothing will happen before September's German federal election, that's for sure. Having forked out €80bn to bail out Hypo Real Estate – which went bust because it was ultimately regulated by our Regulator – German voters are unlikely to vote for any party that promises anything to Ireland. So for the next nine months Angela Merkel will pull a poker face and promise nothing. But there is hope. More than hope, in fact.

Last Friday, Merkel said that there could be a "stick and carrot" approach to risk-sharing for troubled countries of the eurozone, adding that: "We are talking about support linked to improvements in competitiveness". On the same day, in an interview with the Financial Times, ECB President Mario Draghi had this to say: "The countries that have been successful in adjusting and in reforming have mitigated the short-term contractionary effects of fiscal policies" to which his interviewer responded: "Are you thinking about Italy?" and to which Mr Draghi responded: "No, I'm thinking about Ireland." Without debating the finer points of how far Ireland has or hasn't reformed, the point is that Merkel has held out the prospect of helping countries that are seen as reformers and Draghi has made clear that the ECB regards Ireland as one of them. And that is good news.

So even if he is wrong about our payment of the Promissory Note this year, Pat Rabbitte may yet be right about not paying it next year. But as the Government expects to be forgiven, it is heaping a property tax on those suffering from negative wealth (equity).

Worse still, as the Government seeks forgiveness from its ECB master, Justice Minister Alan Shatter is preparing legislation to undo the impact of FF legislation that protected property owners from repossession. If debt forgiveness is forthcoming from Europe then it must filter down. Otherwise it is of PR value only. And even this could turn out to be as negative as the value of the property "wealth" about to be taxed: A government praising itself for achieving a deal on debt with the troika while at the same time the weight of the property tax bears down on indebted households could make the reaction to the carer's allowance look like a picnic.

If the Government gets a deal on the promissory note it will hopefully be a substantive cut. If so it will need to pass this down to those suffering negative equity and mortgage arrears. If instead any benefit is ring-fenced to fund the Croke Park deal then last week's Labour revolt could spread to Fine Gael.

And if a cut is not secured but instead prolonged repayment is achieved, then we will need to be honest about what that means.

Marc Coleman presents 'Coleman at Large' each Tuesday and Wednesday from 10pm on Newstalk 106-108fm

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