As money leaks out, Ireland must show we can restructure debt

05 Feb 11

We are distracted from the only game in town – the European summit in March – as the world views us as a country under foreign rule, writes ELAINE BYRNE in the Irish Times February 4 2011


“IRELAND IS well on the way to bankruptcy.” That’s the verdict of an acquaintance of mine who is the manager of a multibillion- dollar investment portfolio for influential American blue-chip clients with significant financial interests in Ireland. Since the International Monetary Fund (IMF) and European Central Bank (ECB) came to Dublin in November, Mark – I’ll give him that name as he would rather retain his anonymity – has been in weekly contact about the prospects for Irish political stability.

When he rang yesterday, Mark told me he personally knew of 40 different depositors from multinational companies and others with capital in investment and pension funds who have pulled investment from Ireland.

During the week, the Central Bank revealed depositors from outside Ireland had withdrawn €35 billion in December alone. That figure is simply unprecedented given that for the entire 12 months of 2010, just over three times that figure was withdrawn.

What, in God’s name, will it be for January? Irish politics has been fatally distracted for the last few weeks.

The only game in town, as far as the markets are concerned, is the European summit on March 24th and 25th, where key reforms to the European Financial Stability Facility (EFSF) rescue fund are to be announced. Mark never refers to it though as a European summit, but as the “German and French agreement”.

The German local elections three days before this critical meeting, however, suggest the under-fire German chancellor, Angela Merkel, does not have the domestic political capital to convince a sceptical German public to accept the prospect of Greek and Irish debt restructuring. Europe will not save us from bankruptcy.

So what of a new Irish government? International investors regard Irish politics as a sideshow. That’s another word for irrelevant, by the way.

Mark’s casual references to Argentina as a point of reference for Ireland were frightening. The very clear perception is that Ireland’s domestic economic policies are being directed by the ECB and that there is an inability by Irish politicians to make their own decisions anymore.

That was the distinct impression given by Michael Lewis in his Vanity Fair piece this month. “The most obvious change in the country’s politics has been the role played by foreigners,” he wrote. “In some new and strange way, Dublin is now an occupied city: Hanoi, circa 1950.”

Before Christmas, Mark’s questions focused on what the composition of the next government would look like. There was some apprehension about the ability of a centre-left and centre-right Labour-Fine Gael government to implement the parameters of the ECB-IMF four-year plan. That’s off the table now. “The only thing that’s going to make politics in Ireland important again,” Mark says, “is if the next government make the decision to restructure senior debt. Restructuring is a no-brainer.”

The date of the Irish election, a month in advance of the March European summit, offers a window of opportunity for Ireland to force the issue of debt restructuring or sovereign default on to the euro zone agenda.

Mark has hired people to read, listen and watch every Irish newspaper, radio programme and television output on economics and politics. He asked if Michael Noonan’s piece in the Sunday Independent a few weeks ago on restructuring was mainstream Fine Gael policy and why this debate was not more central in Irish public life.

He asked if Fine Gael would bottle it because of the leverage the EU holds on Ireland due to the mentality we should be grateful for all the benefits that the Irish have received since membership. On the charge, he was anti-EU; Mark said he was “just anti-plans that don’t work”.

So, the central challenge for Irish politicians is the decision to initiate change or wait for it to be imposed on us. Decisions will be made on our behalf in March by countries that do not have our interests at heart.

“Everyday that passes, the situation in the future is going to get worse, because everyday there is money leaving Ireland,” says Mark. The worst message an incoming government could give is to tell the markets there is nothing it can do about the ECB-IMF deal other than tinker at the edges. A renegotiation of the interest rate is not enough.

There is no best option any more, only a second-best option. No outcome will be perfect. It is too late. The consequences for debt restructuring are unknown but will be painful. With world attention on Ireland, election night offers the opportunity for a new government to send out a crystal clear message about Ireland’s intentions to restructure its debt, whether Europe likes it or not.

Note: A newspaper article last weekend said I was asked to run for election. For the record, I was asked in December to run and I said no. I am a writer and a teacher, and not a politician.

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