Tuesday 21 May 2019

Brussels makes its excuses and leaves us with no answers

President of the European Commission Jean-Claude Juncker
President of the European Commission Jean-Claude Juncker

Constantin Gurdgiev

Benjamin Franklin once remarked that "he that is good for making excuses is seldom good for anything else".

Yesterday's release by the European Commission of its long report into Ireland's Economic Adjustment Programme for the period of 2010-2013 is an exemplary proof of his insight.

The report is full of platitudes on Ireland's exemplary execution of Troika prescriptions since November 2010: much of it is largely deserved. However, amid the praise as a way of background, the commission devotes some attention to the subject of the two banking guarantees of 2008 and 2009, both pre-dating the bailout. In this, the report finds that Ireland's original guarantee of September 2008 was based on false assessments of the crisis: confusing banks' insolvency for illiquidity.

As a result, Ireland - acting of its own accord and unguided by the European institutions - saddled itself with guaranteeing secured and unsecured, senior and junior banks' liabilities to the tune of €375bn - or double the size of the country's GDP.

The rest, as they say, is history: the guarantee made it impossible for the State to impose burden-sharing on even the most junior of banks' bondholders and precipitated contagion from the banks to the taxpayers. In other words, no one but the Irish authorities is to be blamed for the costly mess that followed the September 30, 2008 decision - according to the commission. The report acknowledges (in a footnote) that, as late as October 2010, the EU continued to direct all member states that any "potential bail-in of bank creditors was not to take place before 2013".

But it does not link this and similar insistences to Irish government decisions regarding the guarantees.

The commission also mentions that the EU failed to act decisively and timely in developing legal frameworks for bondholders' bail-ins.

Even as late as November, 2010, two years after the first guarantee, the European authorities had no roadmap for addressing systemic shocks to the banks and the sovereigns. But no one, except for Irish people, is to bear the burden of these failures.

Keen on finding excuses, the commission washes its hands when it comes to explaining why the Irish authorities were left on their own to deal with a crisis that was threatening the entire euro system. For those of us forced to pay for European institutions' insistence on Ireland shouldering the burden of rescuing European banks, this admission is of little consolation.

The report recognises that, in late 2010, the Irish crisis warranted exceptional lending from the IMF, despite the fund's assessment of Irish debt dynamics as being 'high risk'.

But there is not a single mention in the report of the infamous 'seismic' promise to provide burden-sharing relief made by the EU on June 29, 2012.

"With hindsight the bank guarantee appears too generous, and the fiscal impact could have probably been limited if banks had been subject to stricter requirements…" says the report.

For those of us who, from day one of the crisis, called for more robust restructuring of the banking sector and its liabilities, this admission comes as too little, too late.

In the end, we know the upshot: Ireland has been saddled with the Government debt that is, on a per capita basis, the second highest in the OECD.

The EU Commission report simply amounts to saying that Brussels is not to be blamed for this. It is a report full of excuses of the type that expose the commission as an institution hardly capable of leadership in a crisis - both back in 2008 and today.

Irish Independent

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