Have you ever heard of a ‘debt audit’? It is a fascinating idea.

Together with a referendum on paying bankers and bondholders, a debt audit is another important piece of weaponry which could be deployed by the new government in debt negotiations in the weeks and months ahead.

Before we discuss the debt audit, let’s recap on what we know. We know we can’t pay all the bank debt and sovereign debt together. We know we can, and should, pay all our sovereign debt.

We also know that the more bank debt we pay, the less money we will have to pay the sovereign debt.

We know that the reason we are in an IMF programme is that the financial markets do not believe we can pay the sovereign debt and the bank debt together. That is why they refuse to lend to us.

We also know that the European elite wants us to pay the bank debt to prevent the share price of big German and French banks getting into hot water. Together, Irish, Spanish, Portuguese and Greek banks owe French and German banks over €900 billion.

If Ireland gives the bank debt back to the bondholders who actually own it, this will cause contagion, giving the Spanish ‘permission’ to do something similar and bringing the German and French banks down because their balance sheets would be forced to bear the responsibility of their own actions.

So we know all this. But what do we do about it?

Before you negotiate for your country, why not get onto the moral high ground and appeal to the morality of the European elite?

In passing, we might remind Germany of the Marshall Plan’s debt forgiveness approach, versus the Versailles Treaty’s punitive approach – and the social and political results of each.

Or that more recently, when it unilaterally decided to reunify, peripheral Europe paid for that in penal interest rates, massive capital flight and, ultimately, mass devaluations of peripheral currencies.

As a direct consequence, the wealth of the citizens of peripheral Europe between 1990-1993 was diminished in order to increase the wealth of east Germans.

Irrespective of how we argue or what past events we invoke, morality is key, particularly as we understand that forcing Irish citizens to pay the gambling debts of Anglo’s financiers will force us to default in the end.

The current policy of the European elite could be termed ‘economic nihilism’. If so, what might economic constructivism look like?

Bear with me, and consider the following unforgivable episode. Of all the actions taken in the dying days of the last government, the decision to secretly pay some €750 million of Anglo Irish Bank’s debt is probably the most scandalous.

On January 31, Irish citizens paid a maturing bond worth €750million. The total cut in this year’s welfare budget will be €873 million.

The ‘investors’ who purchased this bond invested their money with Anglo on January 17, 2006.The bond was senior unsecured debt and was not covered by any state guarantee.

It is enough to make your blood boil. But what can we do about it? This is where the idea of a debt audit comes in.

A debt audit is when a country goes through its debts and decides which ones are legitimate and which are not.

On Friday, Greek trade unions, economists, academics and politicians issued a call to set up a public commission to examine their debts. It’s the first ever call for a debt audit in Europe.

Supported by more than 200 prominent Greek and international figures, it is a concrete proposal as to how Greek people might begin to regain control of their economy.

The idea comes from a strategy that was successfully implemented in Ecuador.

Now you might say, hang on – are we following the policies of a banana republic? Well, hold that thought: I will come back to Ecuador in a tick.

The Greeks have called for the debt to be looked into, so that ordinary people have an opportunity to understand properly where the debt came from. The call says: ‘‘The Greek people have been kept in the dark regarding the composition and terms of public debt.

The lack of information represents a fundamental failure of the democratic process.

The people who are called upon to bear the costs of EU programmes have a democratic right to receive full information on public debt.”

Precisely the same could be done here. In fact, given that all the Greek debt was taken out in the name of the Greek people and none of the Irish bank debt was incurred in the name of the Irish people, our case for a debt audit is much, much stronger.

The audit could explore who took out the debts and for what, what the original contracts were and who were the signatories to these contracts.

The interim behaviour of the banks would also be germane. For example, we know that the banks lied to the government at the time of the guarantee. Surely this affects the legitimacy of who pays what.

The audit – and an accompanying referendum – would give us the moral basis from which to argue for the separation of sovereign and bank debt – guaranteed and unguaranteed.

The idea of a debt audit is inspired by movements in poor countries, which had lots of debts.

In 2007, President Rafael Correa of Ecuador – a former economics professor – established a debt audit commission, claiming his most important debt was to the people of Ecuador. In 2008, the commission reported that some of Ecuador’s debts had caused ‘‘incalculable damage’’ to the people and environment of that country.

As a result, Ecuador defaulted on some of its ‘toxic debt’. Interestingly, the sky didn’t fall in.

On the contrary, the country reported 3.7 per cent growth in 2010 and is forecasting 5.1 per cent growth in 2011.

The bond default was part of social change in Ecuador, one of the poorest countries in the world.

The socialist president has focused on education and infrastructural development as his priorities.

The number of children in education has risen from 77 per cent in 2006 to 86 per cent in 2010; the country is engaged in hydroelectric schemes and road building to improve the economy’s growth prospects.

Most importantly, the country, which has a junk credit rating, is back in the market looking to raise funds.

And there is strong demand for Ecuadorean bonds again – just two years after a ‘will not pay’ repudiation rather than a ‘cannot pay’ default.

The market has moved on, and so has the country.

If Ecuador can do this and be forgiven – partly due to the moral stance of the president – couldn’t we? Particularly when there is a black and white case for a debt audit.

The debts of the banks are not the people’s debts – that is clear.

A debt audit followed by a referendum would work here.

The new government could deploy this very effectively.

The Greeks are already agitating for it and their case is much less strong. Maybe the new government could direct the new Seanad to carry out and oversee an Irish debt audit commission with a two-week time horizon.

In the time ahead, we need to marshal all our arguments, change the conversation and thereby change the game.

We could set the example for all of Europe. We need to change our image from that of a beaten down bunch of dodgy bankers to a proud race that is doing the right thing.

This is away of snatching victory out of the jaws of defeat.

Why not go for it?

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