Monday 27 May 2019

Stephen Kinsella: Are we paying too high a price for our stability?

I'm going to become violent with the next person to describe the €67.5bn loan Ireland received in 2010 as a bailout. It wasn't a bailout for anyone except the private bondholders who took the debt of private, badly run, banks, who stood to lose everything, and ended up with all their money back, all to aid in the preservation of the stability of the European banking system.

For everyone else, the banks' shareholders, the government, and especially the taxpayer, it was a loan: a massive loan, to be repaid to our creditors with interest. Ireland's debt servicing costs in 2011 were €5.4bn. To give you a sense of scale, the value of the output of the entire domestic economy in 2011 was around €130bn.

The repayment of this loan and others will become our new religion over the next few years, because these debt-servicing costs will rise, and will eat into the government's ability to deliver enhanced services.

In fact, every major policy decision and every public debate will be framed with reference to this debt, because servicing the debt will act as a drag on all aspects of fiscal policy.

Take the fiscal compact treaty, for example. The debate so far on the treaty amounts essentially to:

1. What is it?

2. What does it mean for our debt if we need a second bailout?

Other, equally important issues will be similarly framed.

In terms of policy priorities, our debt is second only to the unemployment problem. Proportionally, we are paying an enormous amount for a stable system and for the ability to sort our affairs out without another catastrophic shock to the Irish economy.

Let's not get carried away though. We should remember that without the funds from the EU and IMF, this year the Government would have to reduce its expenditure by €16bn in one year, or roughly our entire health service plus €2bn.

Rather than impose austerity, by their lights the troika are actually reducing it. Or at the very least, stretching the austerity out by years. From the public's point of view the agencies of the State are being used to protect one class of citizen at the expense of all other classes.

There is evidence for both points of view. It very much depends where you stand.

One thing both sides agree on is that austerity will not be put off for long. At some point, someone will have to pay. And that someone will most likely be the taxpayer.

In the last quarter of 2011, Ireland's domestic economy shrank more than 7pc, with personal consumption dropping over 2pc during the Christmas season. Not good.

Of course the taxpayer also benefits from the stability of the system and the increased levels of state service provision thanks to the EU/IMF bailout.

But is the cost worth the benefit? What price is too high for stability?

I've argued before that Ireland should pay the debts it has run up as part of the crisis. But all debts are not created alike. Between 2008 and 2015, Ireland is forecast to issue around €100bn of 'pure' government debt in the form of bonds. This €100bn of debt excludes the direct payments we made to the banks, the tens of billions for NAMA, and the €31bn worth of promissory notes.

The cost of rescuing just the banks is coming in at €63bn.

Remember the scale we are working to: the output of the domestic economy was about €130bn last year. So if you made€130 last week, but borrowed €100, then you would be forgiven for being a little worried about the direction of your debt.

The anthropologist David Graeber has written a fascinating history of debt from 5,000 years ago to the present.

Mr Graeber's work shows that all civilisations and religions throughout history have put debt and sin in the same basket, and that redemption tends to come from wiping debt away.

We won't do that, we'll continue to pay, and that, perhaps, is as much an expression of who we are as a society as anything else. So rather than asking for debt forgiveness, it will be forgive us not.

Stephen Kinsella is a lecturer in economics at the University of Limerick

Irish Independent

Today's news headlines, directly to your inbox every morning.

Don't Miss