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Brendan Keenan: Instead of flogging the state silver, let’s use it as collateral

AN old Russian proverb says that he who lands you in the smelly stuff isn’t necessarily your enemy, and he who gets you out of it isn’t necessarily your friend. Just like the bailout, perhaps?

Certainly Enda Kenny could be forgiven for being glad he is not Jose Luis Rodriguez Zapatero, Spain’s PM. And, of course, he could not possibly be Silvio Berlusconi. There is all that cheap money for a start. Last week, the Italians had to offer an interest rate of 5.6 per cent to get investors to lend it a piddling €8bn for five years. The Spaniards are having to offer almost as much.

That’s more than three percentage points above the borrowing costs of the German government. Under July’s instalment of the How to Save Greece saga, Ireland (and Portugal) pay around just one percentage point more. The EU Commission plans to be even more generous; it proposes that the fund which it administers would not charge any premium at all. Unfortunately, all 27 EU states have to agree to this, and the ones outside the euro, but who still have to stand over the Commission borrowings, may think it is a bit too generous.

The Latvians, who crammed as much austerity into one year as the Irish are doing in four, might wonder about being so nice to those wealthy Irish. But no doubt the British will be helpful again. However it turns out, bailout borrowings will be a lot cheaper than those available to Italy and Spain in the markets. Then there is very cheap lending to banks from the ECB. This is the opposite of the Ritz Hotel — theoretically open to everyone but in practice you have to be on your uppers to be a customer.

All very helpful, although mainly in the longer term. Some of the loans do not have to be repaid for 30 years. (Sure Fianna Fail might be back in office by then.) More helpful in the immediate future is the distraction value of the European confusion. It is almost October and the media has hardly had a chance to start on about the December Budget. There is even the sneaky thought that the continuing troubles of Europe might bring us more windfalls beyond the cheaper interest rates and longer loans. Not always so sneaky either.

No less an authority than economist Colm McCarthy mused that, with Greek banks already being told to book losses on their holdings of government bonds, and others getting ready to do so, Ireland might have a better chance of being allowed impose losses on un-guaranteed lenders to Anglo. This would not be a government default. Mr McCarthy is against that. But I noticed an intriguing parallel between the looming €3.5bn repayment to Anglo bondholders with no government guarantee, and Mr McCarthy’s recent efforts on the sale of state assets.

The sum owed to the bondholders might be as much as one would get by selling all of the ESB, never mind the small change likely to come from selling a minority stake in the power stations. Stitching the bondholders would not remove the argument for selling state assets. That rests on the cold logic that, if you have excessive debt, you ought to raise what cash you can. If it was good enough for AIB and its star Polish subsidiary, then it is good enough for the state and its rather less than stellar public companies.

Less cold, more fuzzy logic might come to different conclusions. We all know, deep down, that the Government is not going to win this one. The semi-state trade unions hold the power of veto. If something threatens their vested interest (and their interests are highly vested) the something will not happen. No wonder the programme for selling state assets is so lukewarm. A government defeat here could embolden others, where the stakes are much higher. That would be a cruel irony.

Ireland is famous across Europe — probably unjustifiably so — for having endured €20bn in austerity measures with hardly a strike or serious protest. The troika should be careful that it does not risk that reputation by provoking a battle over a few hundred million. Perhaps, rather than try to sell the semi-states, we should put them up as collateral instead. The Finns are very keen on collateral. They do not want to lend to over-excitable peoples who might not repay unless there is something they can take instead of the cash. As luck would have it, the Finns are also experts on power generation, peat and forests. Workers in these companies would remain state employees, with the mighty benefits which that brings. Only if we failed to repay our bailout debts would they find themselves working for Finns.

It might even give them an incentive to help avoid such an outcome by doing more and taking less.