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?
Common and commercial sense would dictate that such an audit is required prior to addressing the with the EU, i.e. now. If the affairs could be set out forensically with ‘namawinelake’ precision and clarity, it would be of great assistance going forward. My questions in relation to the audit are as follows: – If the cost of the audit is [as it will be] higher than the threshold for service providers, does this have to be tendered out to auditing companies? Or – If the issue is urgent [it is], can the service be negotiated with one provider? Or –… Read more »
David, I do appreciate your insight and guidance to the political parties, do you have any advice for the minions that are actually listening to you? I am inclined to move my bank account to a different bank to my mortgage provider and then pay my mortgage provider as little as I want, rather than as much as they want, be it last year’s rate less all the extra tax I now pay. Any thoughts?
Kevin
subscribe.
Good idea again but who will listen?
The last administration believed that they had all the answers and didn’t need any outside Economists interfering!
Will this new administration be any different?
Alas I suspect not!
Who heard Eamon Gilmore’s speech about joining FG in government? He crowed about how politicians need to be seen to take the pain like the rest of society, to ‘suffer with the people’ were the very words he used. Great Eamon – take a pay cut, reduce the number of TDs by a few, and the majority of the Irish electorate will think things are changing. Meanwhile, go to Brussels, take the 100 basis point decrease in the bailout interest rate, and a small majority will think we’re turning things around. George Hook can roar on our negotiating team from… Read more »
For me the important aspect of what David is saying is that we stand up and the extortionists in Europe that forced this deal on us will have no choice but to renegotiate and suffer the the humiliation of an audit. There is no doubt that Trichet and Barosso are bag men for Germany.We have to take it one step at a time. No need for panic, all extortionists get their comeupins in time.Our next problem, when the powers that be decide to let us know is the negative equity problem and the repossessions. The very second the bank takes… Read more »
David. You ask ‘why not go for it’. Well firstly, those who can make an audit, those empowered to do so are part of the insider culture running things. The one trillion PIGs debt was made by private banks. And its not the countries who are making the debt its the private banks making business located in these countries. I say lets do an audit of the entire private banking system and expose how interlinked it all is through the behind the scenes networks which rise above any national interests. The private banking system wether it be in France or… Read more »
Please lets not get into the wrong argument here.Concentrate on the bigger picture.The election is over lets not dwell on what was said before and more on what they do from now on.
A good idea David but they would never allow such transparency and I think you know that yourself Appeal to the morality of European elites? I nearly laughed when I read that as I was wondering what gives you the idea that there are any morals to be found there in the first place. A touch naive I think but I hope I am wrong. Our own elites have no scruples either and paying out 750m while taking 873m from social welfare proves it. The place is being carved up by IBEC/FG and ICTU/ILP who will look after their own… Read more »
DMcW says ‘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’
Wait a sec. Isn’t it the German and the BRITISH banks who have lent the most to our banks, over 100bn from each country? Didn’t French banks lend around 40bn?
Why the omission of Britain’s central role in this?
Great article. Only problem there is the following: “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” Two weeks? Its taken NAMA 2½ yrs to audit the Anglo loan book and its not finished. There’s the whole question of separating the value of bonds from the value of toxic assets. On the positive side, Honahan as a once off last week from ICB gave total exposure of Irish banks as €63 bn. But the figure should be audited and written down in details pls. Other… Read more »
@Paul Divers I think the Irish vote conservatively because they are so terrifyingly exposed in terms of personal/household debt. They think any experimenting or changing of anything is likely to mess everything up even more for them. They want to keep their heads down and ‘get through’ this ‘recession’. Of course, they are deluded. They or their families will default on their mortgages and then the real upheavals will begin. However, I personally have yet to meet even ONE Irish person who will admit that he is >100K underwater and therefore will have to run away to Australia and change… Read more »
Here’s a link you should enjoy, http://bit.ly/eTPN9L
Neither Conor nor Charlie appear open to persuasion by morality based arguments, but you can make up your own mind:)
David has done his readers in Ireland a great service in providing information on what is happening in Greece. We here in Greece cannot understand why the people of Ireland do not take a stronger stand particularly as their case regarding bank debt is so legitimate. I note that the Irish media choose only to report on the Greek crisis when there are demonstrations and street violence. They ignore the analysis that is taking place here regarding alternative measures to the crippling “solutions” being imposed on us by what we call the “Troika” of the EU Commission, the ECB and… Read more »
Meanwhile back at the Brussels funny farm. http://www.breakingnews.ie/ireland/rehn-bailout-terms-should-be-extended-to-seven-years-496297.html Some of you might be thinking, “well, that’s nice of you Olli-you have a heart”. Actually, it is nonsense. Olli takes a very strict line on certain things. Irish taxation will have to increase. The bondholders will have to get all their money back. He is defending the credibility (hilarious) of Europe’s banking system. This makes him the anti-clown prince of making Europe’s banks look good. Basically, Olli is saying that if the Irish cannot repay in five years, they will repay in seven. And he is shiving the issue of the… Read more »
Now you’re talkin, David. The best weapon against the bondholders is the truth, and that means opening the books of Anglo and the other banks and doing an audit. Instead of just handing over money to faceless bondholders, make them come to Ireland to try to justify why they deserve to be paid. Before they get paid a single cent, they would have to answer various questions about whether they exercised due diligence before buying bonds. For example, did they take into consideration the very high loan to deposit ratio of the banks or the very high price to earnings… Read more »
on the 19th of Jan 2011 Joe Higgins, put the moral question to barosso, who responded by getting very angry and refusing to answer the question. http://www.youtube.com/watch?v=uah_BVTmHeM
so much for european morals.
regarding the referendum issue, the man charged with inspiring many of the (apparent) revolutions in the middle east (forgotton his name – article in yesterdays sunday independent) describes many non violent means of achieving revolution. among those was the idea of staging a mock referendum. imagine the publicity a referendum held on the eu loan (not bailout) would generate, official or not!
Great article. Only one problem it needs a real man to stand up to the EU and there ain’t none in Ireland. Have a read of Frederick Forsyth’s article ‘Spirit of rebellion still dimply flickers’ in the Sunday Independent. Says it all. I would actually prefer to live in Libya at least they have guts and prepared to spill their blood for their rights. We are a nation of f—–g useless assholes and deserve everything we get with our sick door mat attitude. And for those who think we spoke up in the election absolute f——g bol—s we only switched… Read more »
Who is going to carry out this audit? We need a Europe-wide commission like the SEC in America.
I don’t know if the referendum on the IMF bailout will make any difference. Interest rates are going up. We might be better off to settle for some sort of deal fast, rather than engage in a protracted process that could make matters much much worse. The sand has shifted as a result of the US Administration’s print-baby-print policies which have driven up food prices in the Arab Street. Now, central bankers will try to make the currency stronger, so as to make the regimes in the middle east more capable of survival. Otherwise we will be taking multiple bus… Read more »
David a debt audit is a good idea. In fact, I cannot understand why it never happened in the first place. I mean even Eddie Hobbs could have told the DoF/CBoI/IFRSA that a debt audit was necessary and a wise course of action.
High Moral Ground? – Sorry High Moral Ground????? You can climb Carrantouhil and you’ll still not find “moral ground” on this island! Alas even the Independents are considering their position on the €40,000 “Bertie Grant” Every man has his price and that’s what made Ahern the most devious, most cunning of all. And the end result is a country where the guys who two weeks ago held up the flag of principle and honour have suddenly found the ground beneath their moral feet seems to liquify at the thought of a €40,000 lump sum! I even heard Shane Ross say… Read more »
The proposal for a debt audit would get a lot of support if it were put to the people. The question is how to make it happen. The chances of the Irish people following the Greek example do not look too good if you look at how they were completely uninspired by Iceland’s refusal to take on private gambling debts. Ireland’s crisis is much closer to that of Iceland in that it was a banking crisis and not one of government borrowing like in Greece. The one thing that Ireland has going for it now is that there is not… Read more »
Deco, I’ve replied up top to your suggestion.
While we’re at it, why not do an audit of the behaviour of the bondholders?
For example, Deutsche Bank who were fined a half a billion dollars in December for helping rich people evade US taxes. Or Goldman Sachs who were also fined a half a billion dollars a few months earlier for misleading investors. Goldman Sachs also helped the previous Greek government cover up its huge debts, which resulted in Greece’s current crisis.
Any financial institution with a proven track record of dodgy dealings should be treated with suspicion regarding their dealings with Irish banks.
Absolutely correct! But NOTHING IS GOING TO HAPPEN. Did you not notice the bun fight between FG and Labour over WHO GETS WHAT?? Kenny dropped his manifesto and cabinet seats galore RATHER THAN talk to a handful of very smart Independents (coz he knew he would have to take some action and a few risks). Its business as usual in the Dail! ENDA KENNY IS NOW DOING TO THE COUNTRY WHAT HE ALREADY DID TO GEORGE LEE!!!
Can you point to any government or even politicians who place being moral as their critical objective? Moral high ground is great David but it won’t make our debt problems go away!!
I will be very happy to pay any “debt” upon proof of claim that I Lawfully owe anything towards this “debt”
Just a thought for the future. Should we insist that the offices of the the attorney general and the director of public prosecutions be elected ones? They would then answerable in some form every 4 years. It would have to be a very well paid position, one worth holding on to and no pension conditions out of the ordinary. The position open to all lawyers including the civil servants but if and when replaced no position held in reserve. They would be out of a job..for however long.
Re “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.” Yes, that is scandalous and sickening. I’m just wondering if journalists have access through the FOI of a breadcrumb paper trail that gives blow for blow how that money was paid, who paid it out? Is… Read more »
A interesting here take on the Debt Audit visa vi Ecuador and Greece.
http://ftalphaville.ft.com/blog/2011/03/04/505191/
As an aside maybe we should carry out a wealth audit, i am starting to discern a very visible split in ireland i.e. has anyone noticed the amount of 2010 & 2011 luxury cars on our roads.
It seems to me that to a substantial part of the population the recession is well and truly over or never started.
I just listened to the affable laughable John Bruton on News At One: He made the following points: 1. We should point out to Europe that Ireland’s rescue of Anglo saved European taxpayers for having to fork out for its losses. He really deserves a guest role in some future remake of Fr Ted or Black Adder. As DmcW says above, don’t worry yourselves, pints are on us, Irish taxpayers, we’ll pay 2. We should not burn bondholders because though we might make some short term gain, future generations of Irish people would have to pay for this, also ‘our… Read more »
italics should be missing from par 1 at 2, sorry my fault.
i feel we need to let the new goverment know that we the people dont want to want to pay the bank debt and can not afford to pay it . how do we get this point across ? anyone any ideas on how to get them to hold a referenum ? petition letters to TD’s a day of protest . its time to act !!!
Having lived in Ecuador for a couple of years I was somewhat familiar with the economic situation there. I had a friend who worked in the Ministry for Energy. She said that Ecuadorian military guys in the 80’s had signed away much of their petrol for free to foreign companies in long term contracts, like 50 years with not a red cent of tax to be paid. The foreign companies got these favorable terms by depositing millions of dollars into the personal bank account of the then military government leaders. I suggested that the contracts should be declared invalid becuase… Read more »
It was nice to see so many candiates rejecting the bailouts of insolvent banks running, getting elected and getting about 600,000 first preference votes, with a more co-ordinated action, e.g. less running they would have won more seats. It shows that there is a base of people there who both understand what is going on and believe in Moral justice. I think this figure has been helped by the efforts of David and co over the last couple of years.
Grenouillere
When Frogs are being boiled they never jump out only as long as you do it slowley .
I believe since the Election that the EU perceive the Irish as an indiginous tribe on the western ocean front that was once part of the Mayan civilisation now long past where proper politics should now be served .
We have lost our legs.
DMcW is really srcapping the bottom of the barrel for this stuff. His comments really remind me of the program for government ….lots of waffel and no concrete figures. Reality check …. the IMF/EU/ECB are running our country. Along with a debt audit ( which will be the next phase of our analysis ) we really need to know how much assets are backing these debts. For instance if a landlord borrowed a million to buy 5 houses how much are the houses actually worth. I have heard that according to the ERSI Irish companies and individuals have assets of… Read more »
Defaut = default ( pronounced dafoe )
Should you want to end this default ( debt ) should enda change his name to ‘Enda Defaut’
Kennys name does not rub well – ‘can he !’ rhyme ‘kenny’.
Either Kenny can or he cannot .
I am calling into Sarkozys office tomorrow so wish me luck.
Default or no, I figure the rise in the cost of petril – now beyond 1.50, will be the real change we will need to manage. I know it’s all speculative etc right now, but with the Arabs threatening Obama with price rises if he interferes will their putting manners into the Shi’ites. It’s all teetering. This idea that we just need poicies to get back to old fashioned late 20th Century economics is cobblers. Same old rat races, more debt and consumerism. Yuk! This debt is a load of old nonsense as is the price one pays for a… Read more »
We need an ambassador of ‘Quan’
http://www.youtube.com/watch?v=VH64hzWqnFk&NR=1
Wills,
I read your comment about the pretence being presented to us about the financial system, and I think you are correct.
Save Irelands Forests http://www.youtube.com/watch?v=iSJZu6PdJzs
Is it about time to stop feeding the Monster? http://www.youtube.com/watch?v=4PZnCy5NJzA or Is this too Radical a step?
We now have a debt audit. A new study, “An Audit of Irish Debt,” conducted by faculty from the University of Limerick, was published just three weeks ago. It points out that Ireland’s debt is €371.1 billion, to be exact. If my cancelling of the zeros is right, that works out to roughly €90,000 for every soul in Ireland — and if only 1 in 8 is working, then €730,000 for every worker in Ireland. For details, see: http://www.debtireland.org/resources/publications/an-audit-of-irish-debt/ Despite the assurances of politicians, I see no way that that this debt can be repaid. David McWilliams, what say you?… Read more »