Saturday 7 December 2019

Stephen Kinsella: Why it's good to be the canary in coal mine

SPARE a thought this Christmas for canaries. Canaries have tiny lungs. The average canary's heart beats 1,000 times a minute, compared with 80 beats per minute for the average human. Canaries were used for years in mining to detect harmful gases because they were more sensitive to the gases than their miners.

When the miners saw the little canary freaking out, they knew carbon monoxide or methane might be present, and they knew it was time to go. To be a canary in a coal mine is to serve as a warning to others. The canary, importantly, has 'skin in the game' when it comes to detecting these gases. The quicker it chirps, the quicker the miners get out, and the more likely the canary is to survive. Once the little bird is down the mine, it needs the miners as much as the miners need it.

Ireland, of course, is the European Union's canary when it comes to banking crises.

We had our banking crisis first, we did almost everything wrong when it came to guaranteeing the assets and liabilities of the banking system, and the Irish taxpayer helped stabilise the eurozone's banking system as a result.

In terms of overall support since 2008, a recent EU Commission report shows our state aid to banks is roughly 365pc of our national output–far, far higher than any other EU member state.

It's not all bad news. Ireland properly stress tested its banks first, too, and moved quickly to implement many of the troika's recommendations around restructuring the banking system, which is well under way, ahead of most other EU member states, who all need to do the same thing. We have become an object lesson in crisis management.

The belief that Ireland will recover is becoming more and more widespread. International capitalists love us. An editorial in the influential 'Financial Times' urged EU policy makers to 'let Ireland succeed'. Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley, describes Ireland as the 'star' when it comes to austerity and dropping unit labour costs. We're really, really good at taking the pain, it seems.

Since 2008 we've put through €28.5bn in spending cuts and tax rises in an economy producing about €160bn of output per year.

We have nearly beggared the country in the search for stability and prosperity. It has been a strange time. Domestically and internationally Enda Kenny is talking tough on the promissory note part of our banking debt, arguing that we'll see a 'conclusion' to this key issue before the next payment of €3.1bn in March 2013.

Mr Kenny's argument is that Ireland was the canary in the coal mine, and as such deserves a break on any mistakes it made, because it made them together with the EU authorities. Ireland's recovery is fragile, Mr Kenny will insist, and because of this the bank debt deal is crucial.

The latest Budget passed through the Houses of the Oireachtas with very little trouble given the scale of the cuts and the gross unfairness of some of the measures. Our credit ratings are slowly, slowly, edging upward from 'junk' status.

A lot of the upward momentum depends on Ireland securing a deal on its banking debt. A lot of the confidence international investors are showing assumes the EU authorities will restructure some of Ireland's €64bn of bank debts, perhaps by using the EU's new bailout fund, the €500bn European Stability Mechanism. The issue in implementing this measure is Spain.

Any deal done for the Irish bank debt would apply to the Spanish bank debt as well, which would hammer the Stability Mechanism's funds. Spain is a much bigger bird than Ireland.

It's time to revive an old philosophical idea. The notion of a doxastic commitment is one where your beliefs go beyond just talk, where you are committed enough to a belief in something to take personal risks on foot of it. After breaking almost every electoral promise and core principle, the Government has hung its credibility on securing a deal on the banking debt. This is a doxastic commitment.

The canary and the miners have a doxastic commitment once they are down that mine. The EU authorities don't have a doxastic commitment: their beliefs don't have to correspond to their actions because they take no personal or institutional risk.

It's worth separating those with commitments, and those without. Those without doxastic commitments have the potential for cheap talk, and for noise-making for the sake of noise.

But you can be sure the canary means it when he chirps.

And you can be sure Mr Kenny means it when he talks tough on the bank deal.

Why? Because his reputational skin is in the game. Think carefully about listening to those whose skins aren't.

Irish Independent

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