The news that the State has secured a deal to push out Ireland’s debt repayments represents a victory for the Government’s – or more accurately the EU’s – giant “delay and pray” strategy. The deal would see the repayment of a significant chunk of the €40bn troika loan pushed out for another 15 years. What we have executed is in effect a “gentleman’s default”. We won’t pay what we said we’d pay and the creditors won’t get what they expected to get and we’ll see how we are all fixed after a dozen or so years. Let’s look at the details to see what this means.
It appears that €10.5bn of EFSF/EFSM debts, which were due to be repaid in 2016, will now be kicked out to some future date. This will ease repayments. There was going to be a dramatic spike in the amount of money due in the next few years. With the economy fragile at best, there was no guarantee that the Irish State would manage to squeeze more cash out of us. From the EU’s perspective, a fresh Irish bond crisis must be avoided at all costs. Yet a bond crisis may have been the most sensible outcome. Debts that can’t be paid won’t be paid.
Maybe it would have been more effective to recognise this now and extract a real concession on principle rather than postponing the problem for another few years – but more on that point later.
There is another €18bn owed to the IMF which falls due in 2020 and, presumably, this will be the focus of the new negotiations.
When we take a bit of altitude, we can see that the EU needs a victory in Ireland because its entire “austerity works” strategy is based on Ireland squeezing itself out of the bailout next year. This overlooks the fact that the term “exiting the bailout” only means postponing debt repayments in order to incur yet more debt and fresh borrowing next year.
The EU top brass also know, considering what happened in Italy last week, that austerity doesn’t win elections or popular legitimacy. In fact, the opposite is the case. Remember, the man the financial markets and the EU wanted to win the Italian elections, Mario Monti, won less than 10pc of the vote.
In the strange alliance that has emerged in Europe, which pits the interests of the EU/bond market/establishment civil servants against the will of the people, the new triumvirate of barrow boys, hedge funds and unelected policy makers, is doing whatever it can to force through its agenda.
As a result, we have the bizarre and inconsistent spectacle of the EU – which has just slapped caps on bankers’ pay because of greed – exalting the wisdom of the same bankers and relying on the sagacity of the bond markets to justify their actions.
How many times have you heard people in Brussels and Merrion Street refer to the fall in Irish bond yields as if this fall represents the totality of the economic picture in Ireland?
The fact that much store is put in the opinions or positions of financial markets – like the bond market – ignores the fact that it was the financial markets’ inability to assess risk that caused the bubble in the first place. These were the same guys who financed Irish banks up to the very last minute, who drove up stock prices to stratospheric highs and who have revealed a profound inability rather than ability to assess hazard.
So having failed so miserably to predict the future on almost every measure, we are now supposed to prostrate ourselves in the face of their wisdom?
So what does all this mean? These types of deals whereby everyone tries to buy time are regularly described as “kicking the can down the road”. But what if the truer metaphor is “rolling a giant snowball down the hill”?
What if we are simply storing up problems and, rather than facing facts now, we shove the responsibility on to our children?
Supporters will counter the “future generations” argument with the response that while we may be storing up more problems ahead, isn’t it just human nature and good economics to kick things out a bit? Don’t we all tend to do this when in a bind, we buy a bit of time, we try to sort things out and hope time will heal?
Supporters will point to the fact that the creditor in this case accepts that he will not be paid back when he thought he would and the debtor is given a bit more time. The logic of this argument is that if the financial markets are prepared to back these types of deals and finance the State, surely this is the best option?
I can buy this line of thinking except for the fact that what hasn’t been mentioned in all this is the economy itself. The Irish economy may emerge from the bailout unreformed and weaker, unlike the original plan. The “insiders” – those with a stake in society – have moved to protect their interests despite austerity. The “outsiders” – those without a stake such as the young and unemployed – have truly shouldered the burden.
In the end the country won’t be more competitive, but less competitive because the people who want to, and can, make a difference don’t have the capital or are simply not here anymore. Capital is still tied up in a dysfunctional banking system and the mass emigration of the young, educated population weakens growth prospects in the years ahead.
In contrast, the problems in the economy – such as carrying a big expensive public sector with a smaller tax base, carrying huge mortgage arrears, which is still destroying domestic demand – have not been addressed.
SO, like George Bush declaring victory in Iraq prematurely, victory is declared but there is no real victory at all. All that has happened is the debt pack is reshuffled to avoid a principal default but the economy is not just fragile but less able to take on the challenges of the globalisation.
In a sense this might be the worst of all worlds – a fictitious victory based on kicking the debt problem out to future generations, high fives from Europe, slaps on the back from the financial markets, a herd that will change their minds in an instant, while locally, the same old snouts remain in the trough.
That outcome would truly be hard to take. The crisis and the opportunity it presents to really change is wasted, the bill is given to the next generation and a bit of financial jiggery pokery is dressed up as a game changer when, in fact, nothing has changed.
goodday all
Quite right David. Nothing changes. Debt is still owed. No debt relief provided to the working (workless) population.
Bankers protecting their own at the expense of the rest of us.
There needs to be a radical change in the money system and the debt based fiat currency sent the way of the Dodo.
The international physical market will impose the eventual change. Sound money is on the way via the Chinese, Russians etc.
David, it is good to see a perspective from the other side of the world. “the world is not waiting for Ireland to get its act together” Indeed, most of the world probably doesn’t know what, who or where Ireland is. If you mention Ireland to young people on the other side of the world, they flaunt around their knowledge of Ireland. It is part of England and more importantly – the town where West Life lives. And the older generation are generally more detailed in their knowledge – Roy Keane and Padraig Harrington, River dance are the first names… Read more »
Sorry, this was comment was meant for the previous article.
If had the control these financial boys had, I would certainly over heat the system as much as I could and make a killing on shares rocketing and commissions. On the inevitable crash, I would be shorting like crazy and making loads on the way down AND collecting commissions on transactions AND consultancy fees from Governments who think I am brilliant. These financial guys understand hazard very well and leverage it very well. They are not worried about “economies”. They milk it on the big ups and downs. Central banks and government institutions did nothing to stop it because it… Read more »
Yes , Agree. It’s a device to keep the “status quo”. By postponing the crash as long as possible the “insiders” will not face any pressure for urgent reform. We’ll have more meaningless “Croke Parks” and more huge TD’s salarys. The Dail mantra “We got a deal so all is well, lets keep on at the trough and cement our privileged positions, no reform needed here !!!. We’er great lads, Thank You” I got sick when I heard about this “deal”. In reality it will place us in never ending hardship for at least 150 years, this is the death… Read more »
Hi David, for the first time I can really see the anger in your words. I agreed with most of what you have been saying throughout this crisis, but I could rarely share your positivity, although I wish I could have. I hope you get it back because it’s a hard existence being fatalistic all the time.
Hi David, Like Thomas above I do detect a tone of despair creeping into your articles… I’ve been in that place for a long time as I see this country being torn apart by those who seek to protect themselves at the cost of our sovereignty and future generations!! The noses as you say are well and truly in the trough and sooner rather than later, we will see the young and the poor rise up not just here but in Europe and take control. I for one cant wait but I hope we get a rise from the left… Read more »
I hear from the radio that the latest method for filling the trough has already seen some results… 1200+ Defective light fines X 60 = €72,000 in 10 Days. AND no doubt a defective light was a useful ruse for the private political police force to invade citizens freedom to travel and lead to more fines for the overtime trough. Maybe some of these “offenders” will end up in the civil (commercial) courts where they are guilty until proven otherwise. I can just picture the fat pigs sitting around their trough salivating. The last time I was in court disputing… Read more »
I agree – all we’re getting is sales talk – there’s no simple way out of this trap. Our big expensive public sector is what will ultimately bring the whole thing crashing down. The markets aren’t going to take on a dead weight with no underlying reality to support it.
Services will only generate enough to keep us bouncing along the bottom at best – we need an oil well and we need it fast.
Well, we’ll be lucky if we get to read David this Sunday, as the Sunday Business Post has had in interim examiner appointed this afternoon and it’s not clear if there will be a publication this Sunday…
http://businessetc.thejournal.ie/sunday-business-post-interim-examiner-822505-Mar2013/
I’m sure the irony isn’t lost on us that I’ve posted a link from a free news website.
Same crap different day.
If we are so broke how come the golden circle are so well payed,when the government keep saying we are broke ,we have no money they are not talking about themselves ,they are simple talking down to people,
It’s like a pack of wild wolves,you have to know your place at the feet of your master ,so the people you elected have another 3years left of this picking bones from the masters table.
@ fivefingers, Couldn’t agree more with what you had to say!! The ordinary Jane and Joe soaps are the people who are really suffering at this time, but the trouble is that the majority of the Jane and Joe soaps won’t go out and do anything positive about trying to change their situations. If want to know the wholly all of it they don’t seem to realise that they are the ones who keep on contributing to their and everyone elses misfortunes. They’re are the ones who keep moaning about this and that without doing anything of a positive nature… Read more »
Good article Davido and a very fine day to you Sir First paragraph echoes the title of your new book – I’ve not read it but it’s title makes me curious. It reminds me of my Sligo Granny who sometimes rambled about how important it was to appreciate fine things and fine people and how to behave with a bit of decorum Only trouble was decorum did not get you far in the streets. You had to be hard like Sean Fallon, stand up for yourself and follow their example of how to be a gentleman The stories were rare.… Read more »
Any government needs to inject some “good” news every now and to keep up the spirit. This so called “good news debt deal” about the victorious action by our government is in my opinion concocted and rehearsed some time ago and it only needs good timing to bring it to the people. It only needs dressing up as you said. Everything needs timing and dressing up. The “delay and pray” strategy is shaped in such a way that it sounds good. After all that is how banks dressed up and sold all their loans to the people. The longer the… Read more »
Heaven is closer now today The sound is in my ears I can’t believe the things you say They echo what I fear Twisting the bones until they snap I scream but no one knows You say I’m familiar, cold to touch And then you turn and go Feels like heaven See how we planned for saddened eyes [ From: http://www.elyrics.net ] And tears to pave the way I fought the fever as I knew My hair returned to gray Study your face and fade the frame Too close for comfort now We can recall the harmony That lingered but… Read more »
Why not politically procrastinate today when you can politically get someone else to do the real honest in your face procrastination tomorrow.
The examiner is in the post…
A post mortem examination…
A post business examination…
The recovery has been posted as the debts have been postponed but business is postmortem and the banks are on life support while sucking lifes blood like a parasite.
Hi David, excellent article. So sorry to hear about the Business Post. Hope it survives. That is where I started to read you articles 12 or 13 years ago and was inspired by them. I’ve just been listening to Noonan talking to Pat Kenny. Talk about propaganda. Lying through his teeth. Here’s what the cso says – Industrial production down 1.9% in Jan since Dec 2012. Industrial turnover decreased by 8.5% between Jan 2012 and Jan 2013. But don’t worry. Noonan is says we’ve turned the corner. By taking yet another billion out of the local economy in the next… Read more »
Turning corners brings you back to where you started from but less shoe leather and worn hip joints.
If you have ever been here before you would probably know just what to do wouldn’t you. Spinning in circles makes you dizzy and you forget where you came from so socialism for capitalists thrives.
Piss poor is an expression which came from those who did not have a pot to piss in the piss was used to tan leather.
Things might be hard now for people,but if you add up all the things being piled on top of people ,over the next few years and add in no pay rises and the cost of living going up . At what point will people snap. At what point will enough people do something about it,because at the moment people seam to be sitting back and taking it. Why should people have to eat porridge for dinner. Why should people go cold. Why should people go starve. This is a bitter pill to swallow,when what’s running things. I was listened to… Read more »
Latest Headlines off the Beeb today….
US labour market shows strong rise
China export growth beats forecasts
Japan growth figures revised upwards
Meanwhile, back home…
Private sector job growth continues to be strong.
FDI in Ireland still very healthy
Public spend and costs continue to drop
If there was a vote tomorrow, Journal.ie reports on satisfaction with govenrment. 46% No…50% Do not know and majority would vote for Fianna anything.
Not exactly gloom and doom – is it? Next question is how to interpret meaningfully. Personally none of it makes sense. But reality may be beckoning otherwise.
FG and there lap dogs are these the party of the rich for the rich. After there two years in government I think it’s fair to say they have pissed a lot of the public off. Please remember one think FG and there lap dogs represent the rich ,who are in the minority. It reminds me of the Deep South ,we are being told what to do and they are controlling our lives. It’s time the so many told the so few where to go and slig there hook else where . The government said they can’t touch retired ministers… Read more »
Well said about the porridge Paddy.
Spoon of sugar and a few raisins is the ticket.
My old man used to take it with salt.
Thought sugar was for wimps.
67 comments haha. Must be a prophesy.
David a bit of football for you. Best enjoyed from 4.20
Regards
http://www.youtube.com/watch?v=cEM-uU58DBQ
The people instinctively know they, on aggregate, binged like fools. Everyone knows deep down you should only spend what you earn in life, but they don’t want to accept that as they have been rared on profligacy, waste greed, sloth, vanity all without consequence. Until now. The game is up. Italians can vote for ex comedians and randy old lechers all they like, but it doesn’t change the fact that they have been living beyond their means for years. In my eyes they are a shower of spoilt brats. The western world is full of entitlement, but is short of… Read more »
Confidential document lifts lid on AIB veil of secrecy on mortgage deals
9 Mar (Sinn Féin News Report) Sinn Féin Finance Spokesperson Pearse Doherty TD has today released a confidential non-disclosure document used by AIB to gag borrowers in the buy-to-let market on mortgage deals with the bank.
How’s that for joukery-pawkery? AIB is doing deals behind closed doors, gagging the lucky, and FG/LP matches it with jiggery-pokery.
Sachs vs. Krugman
http://jeffsachs.org/2013/03/professor-krugman-and-crude-keynesianism/
Usual mix of good comments and some judgemental preaching. Some but few people binged in the bubble. Facts are most people do not understand market dynamics and depend on the experts, the media and their advisors for the information to buy property. The Government and their agencies taking close about 35% of the price of the house said buy, the media said buy in fact said you would be mad not to , the Banks not only said buy but said here is the money to buy it is a good risk. The government got an EU bailout, the Banks… Read more »