Last weekend, I went to see Roddy Doyle’s clever adaptation of Gogol’s The Government Inspector at the Abbey. Go to see it if you can – it is wonderful. Of the many highlights, one of the most memorable is Don Wycherley’s performance as the Mayor.

As I left the theatre, I was marvelling at Wycherley’s talent, because the last time I had seen him on the stage was at the Abbey in Conor McPherson’s hauntingly brilliant The Seafarer. Again, he was superb.

Central to McPherson’s Tony-nominated play is a pact with the devil which one of the characters made many years earlier. One Christmas night, the devil comes back for the man’s soul.

The idea of the pact with the devil is one of the oldest in Christian mythology. This is the basis for the temptations of Christ when Jesus was at his weakest fasting in the desert. All this stuff has deep Biblical resonance.

Over the years, there have been many variations on this theme from the Faust legend developed by Marlowe in the 16th century to Thomas Mann’s version in the 20th century. In all these versions, someone makes a pact with Satan in exchange for wealth, youth or power.

Of course, the price of the wager is that the devil takes your soul. He always collects. The power, wealth or fame can be snatched away by Old Nick at any time and we all know the conclusion. (Well, maybe not in McPherson’s terrific finale.)

Keep this devil’s pact idea in your head and now think of the pact that the European governments have made with the banks since this crisis started. In every European country, under the watchful eye of the same people who make up the troika, European governments have made a devil’s pact with the banks. (This metaphor is mentioned on Well worth a read for anyone interested in finance.)

The idea was that the governments would be strong enough to carry the banks. It has not worked out this way. And now the banks are destroying the governments from the inside out

The governments undertook to save the banks’ balance sheets. In return, the banks have taken their souls.

Politicians are seeing their careers destroyed because they feel trapped in this devil’s pact. I bet there is no politician around who wouldn’t be shot of these banks if they felt they could get away with it. But they are caught and the banks are waiting to take their souls,
so everything is contaminated.

The way out of this is for the governments to actually face up to the bullies at the ECB and cut the banks loose. This can and will eventually be done, but in the process many good people will be destroyed. At the moment, politicians are not cutting off the banks because of something stupid which we will call the ‘tyranny of credibility’.

The governments are being advised by bankers – now there’s a surprise – that they can’t reverse policy because they will lose credibility.

But the opposite is true. They lost credibility because they continue to pay for the banks. The reason Ireland is in the clutches of the troika is not because it didn’t pay the bondholders, but because it did.

And the more we pay, the less credible we are. So when we pay yet more to Anglo bondholders this week, it doesn’t make Ireland more credible; it makes us less credible because we are borrowing money to pay for dead capital, capital that is gone. What part of basic economics do
these troika people not understand?

So now we have – not just here, but all over Europe – the spectacle of bankrupt banks being propped up by cash injected by insolvent governments, which are in turn being propped up by insolvent banks which are buying the bonds of the insolvent governments.

This is the devil’s pact which is corroding the political soul of governments and making them more and more remote from the people and from their own political values.

For example, last Friday we had Michael Noonan, Minister for Finance, saying he might be able to get the bill for the promissory notes on Anglo down a bit. But he has no obligation to pay them at all. Tell the ECB to get lost. And do you know that they would do? Nothing.

The reason that nothing would happen is because paying the bondholders goes against the golden rule of insolvency. The rule is that old capital always loses and new capital always wins. That is what capitalism is all about. But because of the devil’s pact, the old owners of the banks and the new governments are caught in an embrace that can only destroy the governments.
In fact, it is already destroying them, both politically and financially.

Look at the chart to see how the governments are destroying themselves. This shows how countries have lost their AAA ratings in the past two years. What we see is that in 2010, 15 per cent of S&P-rated countries were held to be risk-free bets. There was no question of them defaulting or not meeting their obligations.

Now look at what has happened since the widespread devil’s pacts became ‘normal’ policy. The number of countries with AAA ratings has halved. Now only 8 per cent of all S&P countries worldwide have a flawless credit rating.

What does this mean for global flows of money? It means that there are fewer and fewer safe havens. So, rather than making the world a safe place by doing a deal with the banks, the governments have made the world a less safe place.

So what does this mean for the governments that have sold themselves to the banks? They have lost their financial soul and money is leaving them and heading to the few safe havens left. Rather than being rewarded for their insistence on saving the banks, they have been punished by the markets. So they are not becoming more credible, they are becoming less credible. What bit of this don’t they understand?

In the process of losing their credit ratings, they are losing their way. Noonan may be many things, but he is not a fool. And he has been around a long, long time. So what was he doing saying emigration is a “lifestyle choice” when he knows this country and our history as he

He was saying it because of the devil’s pact. Politicians have become possessed. Wily politicians, many of them decent people, have waltzed themselves up a political and financial cul-de-sac for the sake not of the banks, but of the former owners of former banks.

The only way out is to see the light. There is no bogeyman. The markets don’t care. They have no memory. They want to finance new opportunities, rather than the losers who gambled on the banks years ago. Face them down. That’s the way you deal with bullies.

It is time for elected politicians to save their souls.

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