The prospects for default? Elaine Byrne in the Irish Times February 18 2010
I WROTE some of my first opinion pieces for The Irish Times during the 2007 election. I had just finished college and was working for the United Nations. Living abroad offered me the opportunity to look at Irish elections with a different perspective, without the distraction of short-term outlooks that election campaigns induce. Sometimes the further you are away from something, the clearer things can become.
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My boss used to proof-read my columns and it became a problem when I wrote about Bertie Ahern’s personal finances, the political appointments he made to the Dublin Port Authority, the private deals with Independents and the millions in undisclosed donations to political parties taking part in the 2007 contest.
He didn’t believe such things could happen in Ireland and asked me to reconsider the columns. He was fearful it would cause a diplomatic incident given that a UN employee was writing such stark things about a member country. We resolved this issue with the formula that I ignored his direction and any fallout would be my responsibility. I wonder what he thinks of us now.
Using this principle of distance to achieve perspective, what do these outsiders reporting on Ireland think of the Irish elections?
There is the bizarre. Reports that “thousands of horses and ponies are being abandoned in the Irish countryside as a result of the ongoing economic crisis” went viral. The Department of Foreign Affairs even responded with a “briefing note” on horse welfare in Ireland.
Then there is the more serious focus. Foreign bankers, investment advisers and journalists see Ireland as an international playground for fundamental economic principles.
I even got an e-mail from a game theorist who advises US policymakers on foreign policy negotiation tactics on suggestions for how the next government can generate the leverage required to negotiate with the ECB.
Hervé Amoric is a reporter with France 24, an international news channel. His editors are not that interested in the outcome of the election. There is more curiosity about how Ireland’s party system is realigning towards European standards with clear distinctions between right and left emerging.
His news packages next week will focus on how the young generation has responded to the political crisis.
The other question that foreign journalists often ask of Ireland is: if this election marks a major realignment of the party system, why are the policies more or less the same? This perception earned credence when Brian Lenihan claimed last week that Fine Gael’s tax proposals are similar to the Government’s four-year plan.
For Jochen Bittner, a political correspondent with Die Zeit , Ireland is seen as the first case of a government toppling due to economic mismanagement and a couple of months ahead of continental Europe. When he comes to Ireland next week to report for Germany’s most widely-read weekly newspaper, he will write that “to take a look at Ireland is to take a look at our own future”.
He reckons that Enda Kenny may prove to be Angela Merkel’s “worst enemy”. Kenny’s blunt refusal to countenance changing the corporate tax rate may impose huge political difficulties for the German chancellor.
The rate is increasingly looked upon as a political prize in return for the ECB bailout and a precondition for any revision of interest rates. If Ireland does not accede to German demands for a reformed monetary union or endorse Merkel’s austerity plans, why should the Italians, Spanish or anyone else? The future of Ireland is now linked to the future of the euro zone.
But this is incidental. Hervé and Jochen see Ireland as a “lab for resolving the underlying debt problems in the euro zone” yet debt restructuring is not in their vocabulary. It is an issue that has not been seriously considered by French and German politicians and decision makers.
The elephant in the room is default. It was reported on Wednesday that since the last week of January, Irish banks have issued €18.35 billion worth of government-guaranteed debt.
This suggests that the banks may effectively be issuing sovereign paper with the approval of the Government, the Central Bank and the ECB. In other words, the banks have effectively increased Ireland’s public debt by about 11.5 per cent of GDP in the last few weeks.
Since they are unlikely to be able to repay this debt any time soon, a future government will have to. To appreciate just how extraordinary this is, €18.35 billion of government-guaranteed debt is more than half the entire tax revenue for 2010 at €31 billion.
All this makes Ahern’s finances that summer look trivial now.