The public’s ideas will beat those of the ECB

03 May 11

Elaine Byrne: There is apparently no room in Irish public discourse for any criticism of Europe. Instead, it seems, we should be grateful for their guidance
The Sunday Times Published: 17 April 2011

Buried deep in the BBC website is an entry entitled “common Irish slang”. This guide for would-be British visitors to Ireland helpfully explains that “to blather or rabbit on about something is to waffle at length” and “to talk 90 to the dozen is to talk so fast nobody has a clue what you are saying”.

When this method of communication fails, Irish public debate diverts itself into ad hominem attacks on those with whom we disagree. Even those who have held the office of taoiseach have been guilty of this. Bertie Ahern dismissed campaigners against the Lisbon treaty as “loolahs”, and wondered why commentators asking critical questions about the property boom didn’t “commit suicide”. Now, those advocating debt restructuring are being rejected as “celebrity economists”.


This “with us or against us” dogma has suffocated rational, constructive exchanges of views on contentious issues, particularly on the European Union. Uncritical deference to Europe has assumed a sacred status that was once the preserve of traditional Irish Catholicism. Absolute reverence to a doctrine, however, ultimately breeds narrow-mindedness and an anti-intellectualism that dedicates itself to keeping out new ideas. This has translated into an infallible belief that Europe is not central to Ireland’s problem.

On the one hand, the European central bank (ECB) is keeping Ireland open for business. To date, it has committed more than €140 billion to Irish banks at the low interest rate of 1.25%. As Patrick Honohan, the governor of the Central Bank, acknowledged recently, “this is a huge, almost unprecedented level of support to the financial system of a single country”.

The line goes that to bite the hand that feeds is obviously not smart. But what the ECB gives with one hand, it takes with the other. Jean-Claude Trichet, the ECB president, recently raised interest rates by a quarter of a point. This will increase repayments for more than 75% of Irish mortgage holders at a time when many are already struggling. In a survey by the Irish League of Credit Unions, even before the interest rate hike, 210,000 adults were found not to have enough income to cover essential bills. What an appalling state of affairs.

The ECB also refused to entertain the state’s proposals to “burn” bondholders in Bank of Ireland and AIB. So much for Leo Varadkar’s vow before the election that “not another cent” would be given to the banks unless losses on bondholders were imposed.

Meanwhile, in an opinion piece in the Financial Times last Wednesday, Lorenzo Bini Smaghi could not have been more clear on the ECB executive board’s long-term view on its relationship with Ireland. Irish taxpayers “will foot most of the bill” for the bailout of our banks.

Paschal Donohoe’s response the next day was the closest thing Fine Gael does to criticism of the European doctrine. “Ireland did make mistakes,” said the Dublin Central TD. “But these mistakes were not made in isolation.” The ECB insistence on a policy of austerity has not worked and will never work. For example, the credit default swap (CDS) price for Ireland late last week was 547. This means that Ireland needs to pay $547,000 (€380,000) to protect $10m of Irish bonds for a period of five years.

The CDS is an instrument the market uses to hedge against the potential risk of default. Ireland’s CDS price remained relatively unchanged in the weeks before the general election on February 25, when it hovered between 552 and 631. In other words, the markets do not believe that the Fine Gael/Labour coalition has done anything different to the previous government. On Friday, Moody’s, the credit-rating agency, cut Ireland’s sovereign rating by two points and kept its outlook on negative, despite Ireland’s implementation of the IMF-EU-ECB deal.

The case of Greece is instructive in assessing what lies ahead for Ireland. More than a year ago, the European commission, ECB and the IMF intervened in Greece with a rescue package to prevent bankruptcy. Despite severe budget cuts and financial reforms introduced by George Papandreou, the Greek prime minister, his country’s credit rating is almost the same as 12 months ago. Even more austerity and privatisation plans were announced on Friday.

According to Der Spiegel, the influential German weekly news magazine, a report by the troika has found Greece’s economy is contracting more than previously feared. One of the chief causes behind this is the harshness of the austerity measures. There are growing fears Greece will default in the near future. Last Thursday, Markit, a credit default swaps pricing service, estimated that Greece had a 65% chance of default over the next five years, or 22% some time in the next year. Der Spiegel reports that the IMF is putting pressure on Papandreou to restructure its debt.

Greece is exposing the fault lines within the troika. The IMF and the ECB are not natural bedfellows. European conservatism grates with the IMF’s instinct to introduce restructuring, as it has done in many previous programmes.

Europe is happy to kick the can of burden-sharing down the road. Nicolas Sarkozy, the French president, and Angela Merkel, the German chancellor, are preoccupied by difficult domestic election contests in the next two years. Portugal, Ireland and Greece do not matter. This is simply a group of member-states on the periphery with relatively small populations. As Sebastian Mallaby, the Financial Times’s contributing editor, wrote last week: “Europe’s leaders lack the guts to inflict losses on investors, and fear a backlash from voters if they bail out the periphery.”

The IMF knows its reputation is at stake. It learnt painful lessons from Argentina — where it stayed too long and supported unsustainable policies. The IMF failed in Argentina because its policy of prolonged austerity ultimately proved counter-productive.

Despite all this, there is no room in Irish public discourse for any criticism of Europe and the ECB’s insistence on severe austerity measures. Instead, it seems, we should be grateful for their guidance.
In the meantime, the government in its first 40 days has busied itself with the perception of power. A proxy war with the troika gave the coalition the minor victory of a revised memorandum of understanding. But the restoration of the minimum wage and no change, for now, to the corporation tax rate will not solve Ireland’s debt problems. These are merely false protagonists in a long battle the government will have to fight against the ECB.

We the Citizens, an independent initiative that will host regional deliberation events in Kilkenny, Cork, Galway, Dublin, Letterkenny and Athlone in May and June, was launched last week. These public consultation events will build up to a national citizens’ assembly at the end of June in Dublin which will make specific recommendations for reform.

In an IPSOS/MRBI nationwide survey commissioned by this civil society project, 31% said they would like to “burn” the bondholders while 25% believed that Ireland should honour its debts to maintain its reputation abroad. But the most interesting finding of the survey was that 41% of those polled didn’t come down too strongly on either side.

We may be very good at talking in Ireland, especially at 90 to the dozen, but most of us are blindly unaware that the same hand that feeds us will also starve us.

Dr Elaine Byrne is an adjutant lecturer in politics at Trinity College Dublin and a member of the academic team of www.wethecitizens.ie

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