I share the Irish public’s dismay at the cost and unfairness of this policy

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In this morning’s Irish Times, the Taoiseach, Enda Kenny, offered everyone the wisdom of his thoughts on the payment of a €700m unsecured unguaranteed Anglo-Irish Bank bond. The whole piece is worth a read.

He states that:

Part of the existing agreement with our external partners is not to allow any Irish bank, including Anglo Irish Bank, default on its debts to bondholders for fear of paralysing wider European financial markets. I share the Irish public’s dismay at the cost and unfairness of this policy and the delay it caused to the State’s recovery.

Stephen Donnelly, the independent Wicklow TD, provides three direct refutations to this over at theJournal.ie, linking to several sets of comments by the Finance Minister, Michael Noonan, that directly contradict his party leader. On one hand, Donnelly points out that Noonan stated that there has never been a threat over repudiating unsecured and unguaranteed debt (as transcribed by Name Wine Lake here). In answer to the question:

…is there a threat, Mr Noonan, from the ECB if you were to go ahead and burn these bondholders that they [the ECB] would remove that money?

Noonan said:

No, no there’s no threat and they never threaten…

Bizarrely, this point was even conceded by the Taoiseach during the exchanges that took place in the Dáil today. Donnelly also flags Noonan’s own words during a Dáil debate in 2010:

The position has now become indefensible that the Irish taxpayer, even the poorest taxpayers, should be required to underpin the speculation of hedge fund investors.

Efforts by Sinn Féin, independent and ULA TDs to hold a Dáil debate on the bond payment were voted down prompting a walk-out from the chamber. This evening, Paris and Berlin, or least their [current] resident premiers, appear to have given Greece an ultra vires ultimatum over it’s eurozone membership, largely for threatening to go to the people with a referendum.

The mechanism by which Sarkozy and Merkel imagine they can eject Greece isn’t actually clear. What is pretty evident, though, is that, as far as they are concerned, the democratic will of the Greek electorate certainly isn’t of any interest to them.

Having reached that point, the game would now seem to be up for the eurozone project.

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  • Alias

    “Part of the existing agreement with our external partners is not to allow any Irish bank, including Anglo Irish Bank, default on its debts to bondholders for fear of paralysing wider European financial markets. I share the Irish public’s dismay at the cost and unfairness of this policy and the delay it caused to the State’s recovery.” – Enda Kenny

    Kenny is correct about that point. The State is required to put the EU’s interest before the redundant national interest, and thereby acting according to the common good of the EU.

    Folks might cite Article 6 of the Constitution to refute that:

    “All powers of government, legislative, executive and judicial, derive, under God, from the people, whose right it is to designate the rulers of the State and, in final appeal, to decide all questions of national policy, according to the requirements of the common good.”

    Article 6 states that the government is only authorised by the people to decide policy according to the common good of the Irish nation, so why then are they acting according to the common good of the EU against the common good of the nation?

    Simply because the people qualified Article 6 with the Maastricht Treaty and the Lisbon Treaty to replace the conmon of the nation in respect of the sovereign powers derogated with the common good of the EU.

    Those treaties form part of the Constitution and duly bind the government. Even though Kenny admits that the policy is destructive to the common good of the nation (“the cost and unfairness of this policy and the delay it caused to the State’s recovery.”), he is not acting unconstitutionally by blatantly violating Article 6 simply because the nation itself has violated it by ratifying the relevant treaties.

    Unfortunately, the nation gave its sovereignty in these matters away to a supranational authority which therafter exercises that derogated sovereignty to promotes its own interests, and not the interests of those who gave the sovereignty away. It is in the EU’s interest that debts should be contained within the borrowing state by a process of converting those debts into sovereign debts rather than those debts to defaulting to the lending state.

    The State retains very limited sovereignty in this area, so while it may have on constitutional paper the right to refuse to force its citizens to claim debts that do not belong to them, in practice the process can proceed without the government’s approval and that forces the government to comply with the direction of those who now hold the sovereignty that it has given away.

    For example, the Irish Central Bank is an instrument of the ECB and takes its policy and guidelines from the ECB. It is actually illegal under the Maastricht Treaty for the government to offer any advice whatsoever to the Irish Central Bank about what policy might be deemed helpful to the Irish economy or the nation. The Irish Central Bank, as an executive instrument of the ECB, has used its sovereignty over banks to convert circa 180 billion worth of bank debt into sovereign debt without the knowledge or consent of the Irish people and without any veto whatsoever by the Irish government.

    While the Minister of Finance is the sole shareholder in the Irish Central Bank, all of its executive powers are exercised by the ECB to promote the EU’s interest, not the redundant Irish national interest. The Irish taxpayers have 0% executive control over the Irish Central Bank but they remain 100% liable for how the ECB uses its sovereignty over it.

    So Irish taxpayers now owe all the debts accumulated by the Irish Central Bank in its efforts to bail-out bondholders. The Irish banks now own zero since the ECB, via the Irish Central Bank, has taken all of their prime assets as security for the loans its advanced which were in turn used to bail out EU bondholders. There is not a thing left to pay the depositors.

    In any default situation, there would be absolutely nada left in the State, and all of that was done without the government’s consent as such consent comes directly via the treaties that have amended the Constitution.

    In simple terms, the government has sovereignty over three or four toes while the EU has sovereignty over both legs. Uncooperative toes might cause a stumble or two, but not much else. Eventually, the toes all into line amd make sure their movements line up with the legs.

    Kenny, like Cowen before, has to operate within the limitations that the nation imposed on him. At the end of the day, they gave their sovereignty away and now they’ll have to face the firestorm…

  • Alias

    “No, no there’s no threat and they never threaten…” – Michael Noonan

    There is a longstanding government policy that EU rule should be passed off to the public as domestic rule so as to disguise the extent of it from the public. Noonan is simply implementing that policy by claiming that the dsecision was made internally to promote the national interest rather than made externally to promote foreign interests (the Americans weren’t too happy about EU haircuts either).

    Another example of this policy of deceiving the public about how detrimental EU rule is to Ireland was when the government claimed last week that an unsecured bond from Anglo was to be paid by Anglo itself from its assets and not the taxpayers.

    It neglected to mention that Anglo was owned by the taxpayers and bankrupt, with all funds provided to Anglo being provided by the taxpayers and all assets sold by Anglo to repay EU bondholders would not be assets that were sold to repay taxpayers.

  • http://[email protected] joeCanuck

    The mechanism by which Sarkozy and Merkel imagine they can eject Greece isn’t actually clear.

    Get real! The Greek PM sat down last week and agreed on a bailout that must have beyond his wildest dreams. He didn’t tell anyone about his referendum idea. What a devious “partner”. Don’t underestimate the Germans and the French. If they want to throw Greece out of the door, they will find a way to do it. They should probably do so, regardless; the Greek PM is not a reliable partner..

  • Cynic2

    Greece will go because nonone trusts them. They lied about the finances and misled on the referendum.The only reason they are still in the Euro this morning is that the EU needs time to work out how to eject them.

    The reason Ireland did its deal is strategic. It wants to stay in the Euro and gained credibility through its stance. It is seen as a reliable partner – something that is to the long term advantage of everyone in the State.

    As for burning hedge funds, lets be clear. The Irish banking crisis is due to a burst housing bubble in which EVERYONE who owned property participated gleefully. That was probably 80% of citizens.

  • Alanbrooke

    You don’t honestly think Merkel will let german banks suffer? She has enough problems elsewhere, pay up. The people kept electing the Soldiers of Destiny and this is where they took one and all. The maddening thing is this has to be gone through again and again for the next decade before there’s any light shining down the tunnel.

  • Rory Carr

    “The Irish banking crisis is due to a burst housing bubble in which EVERYONE who owned property participated gleefully. That was probably 80% of citizens.”

    “80% of citizens” ! I would question that figure, not that I have any other to contest it, but simply on the basis that it seems over-largely preposterous to me.

    Do you have any evidence whatsoever to support it>

  • Rory Carr

    “>” was intended to be “?”.

  • Abu Mikhail74

    Cynic I strongly disagree. Everyone who bought a house is responsible? No way. 80% of citizens? Come out of it. The decisions that broke our economy were made by a tiny, unrepresentative, incestous coterie of greedy developers, supine bankers and greasy-palmed politicians,abetted by a media whose mental age seemed to drop with every year of the so-called boom. It wasn’t Sean the garda and Mary the teacher struggling to get a mortgage on their converted thirty-year old corpo house in Drumcondra, built for sixteen grand and now selling for five hundred, because any mortgage was better than having the landlord poking around every Thursday looking for half your salary. It wasn’t me either, and I’d say it wasn’t you.

    We shouldn’t have to pay.

    As far as being a reliable partner… we’re in partnership with Europe now? Sure, like a kid going into partnership with the schoolyard bully. We’re reliable alright, a reliable patsy. We have gained credibility? When you hand over your lunch money to the bully you may avoid an immediate beating, but you don’t gain a lot of credibility.

  • John Ó Néill

    Joe – I hate to tell you – but there is no mechanism to remove members from the eurozone.

  • Harry Flashman

    “Joe – I hate to tell you – but there is no mechanism to remove members from the eurozone.”

    I suspect Greece is just about to discover that in fact there is.

    There’s an old saying if something can’t go on, it won’t.

  • Abu Mikhail74

    Can people stop hammering away at the Greeks please? Papandreou decides to consult his people about a financial deal that will affect their entire lives for at least twenty years and this is shameful double-dealing. How dare he, the slimey little ouzo merchant! Consult the people? The very idea!
    If Papandreou had decided to grow a pair after all this time then fair dues to him. He might look back on a little of his country’s glorious history for inspiration: he could try Metaxas’ one-word response to Il Duce’s ultimatum for starters, but I’d like him to look further back to Leonididas the First. “You say you want our savings, our homes, our jobs and our children’s future?
    MOLON LABE!”

  • John Ó Néill

    Harry – feel free to locate the expulsion mechanism for us.

    There is a paper here on Withdrawal and expulsion from the EU and EMU from 2009. It points out that it is pretty much impossible to expel a member.

    Since they have no formal way to do it, Sarkozy and Merkel are trying to strong-arm Greece into voting on it’s EU membership rather than a new bailout deal in the referendum by delaying any further stability funding – effectively handing the Greeks a bottle of whiskey and a fiscal revolver…

    All the while, Italy’s sovereign yields have crept over 6.3% and rising (7% was the trigger for the peripheral state bailouts).

  • Old Mortality

    Abu
    “It wasn’t Sean the garda and Mary the teacher struggling to get a mortgage on their converted thirty-year old corpo house in Drumcondra, built for sixteen grand and now selling for five hundred, because any mortgage was better than having the landlord poking around every Thursday looking for half your salary.”

    Leaving aside the subliminal implication that public sector workers were too virtuous to contemplate property as an investment and were only the most reluctant of property owners, it is simply ludicrous to suggest that the ‘plain people’ of Ireland were passive victims in the property debacle. The property boom would never have escalated to the extent that it did without the enthusiastic participation of the Irish public. They may have been witless but they were not innocent.

  • Zig70

    My reading is that leaving the euro would benefit Greece. Especially if it can leave the euro, remain in the eu and get help to restructure. Greece has fallen from its heyday as a holiday destination and a cheap drachma would certainly boost it. The trick is funding the governement after they kick the bankers in nuts. The Greeks are going to suffer either way but at least the shackles are off after a default. For Ireland I suspect that top brass politicians are taking sweetners from the bankers to pay loans they don’t have to or not to renegotiate payouts where the terms are very favourable to the banks. How else can you explain it? I couldn’t go to my boss with a quote without him asking is that the best price with a cost of few £k. The impression is they didn’t even ask, so now I think they are crooked.

  • Harry Flashman

    John I am currently reading an account of the 1916-23 years in Ireland and I’m at the part were Lloyd George is telling De Valera that there is simply no way that Ireland could possibly remove itself from British dominion. It was impossible, there was no mechanism for such a process.

    He was right, there wasn’t. Remind me how that turned out.

  • Abu Mikhail74

    Old Mortality, thanks for your response. I’m sorry if I’m giving subliminal implications so let me be very clear: public sector workers (and most private sector workers) weren’t ‘too virtuous to contemplate property as an investment’ they just didn’t have the money. Irish people have never been reluctant property owners, deep in our national psyche is a fear of eviction and we have always sought to ameliorate that fear by ownership.

    Is it your contention that ordinary Irish people caused or contributed to the property debacle (good word by the way) by wanting to own their own homes? What was the alternative?

    They were NOT enthusiastic participants. How can you be enthusiastic about a three hour commute every day because the only house you can afford is in Kildare? With a prefab school for the kids and babysitting at 25 euros an hour because you’ve no family nearby? There were more people in the country and they all wanted a home of their own.

    That’s it, that’s the reason. People wanted homes and the only ones available cost the earth. So those were the homes they bought. Long, long before the ‘bust’ there were lots of double-income families barely keeping their noses above the water because of mortgage, transport and childcare. Instead of trying to take the heat out of the market and thereby bring prices down the FF government just kept collecting those lovely five grand envelopes from developers.

    The overwhelming majority of people who purchased houses in Ireland were not making ‘investments’ they were buying HOMES.

    I restate my position: this is not our fault.

  • John Ó Néill

    Harry.

    In this context that makes no sense.

    The issue here is two *equal* members states threatening a third with expulsion when no such option is available to them either unilateraly or as the whole eurozone minus Greece.

  • Abu Mikhail74

    And Zig70, I agree completely. The only real solution to the current crisis is a devalued currency. By God it will hurt, but I can’t see that it will hurt more than at present. It will boost exports, reduce imports and increase tourism. Ireland should at least consider it as well. The euro is dead.

  • Harry Flashman

    I was merely pointing out that whether the mechanism exists or not and I bow to your greater knowledge that it does not, nevertheless it is almost a dead cert that Greece will not be within the eurozone by mid-2012. I’ll put a bet on it.

    I have no opinion on the threats or otherwise made by Mer-kozy.

  • Alias

    As of Last Febuary, only 6% of the country’s households were in mortgage arrears so this is one crisis that can’t be blamed on home owners.

    However, that figure will rise dramatically due to the government bailing out EU bondholders and banks as more home owners are forced onto the dole and those still blinging to a job are forced to pay higher taxes to bail out EU banks.

  • Mick Fealty

    It reads like a double bluff to me.

    On the one hand, the Greeks have been given a diet of worms in order to save German and French banks a shedload of losses. The imposition of those cuts will leave the country with 120% debt ratio (haircuts included), and negative growth.

    On the other, the Greek government is coming back with the referendum idea without having implemented any cuts at all. Here’s where Zig’s observation comes in, “Especially if it can leave the euro, remain in the eu and get help to restructure.”

    Exiting Greece is not a cost free option (for either side). For one thing, the instability undermines the Troika’s strategy and could bring Italy into the equation. ‘Fart’ and ‘spacesuit’ come to mind.

    So, we have a referendum on one hand and a set of hysterical threats from a side which (as John points out) possesses no powers to implement. And we have national sovereignty struggling against the interdependence of international capital.

  • Mick Fealty

    Harry,

    Sarkozy’s threat was to push them out of the EU. That’s what they cannot do. As for exiting the Eurozone, that’s Greece’s prerogative, and the likely subject of the referendum.

  • John Ó Néill

    Whatever happens with Greece, Italy is now in that liminal space where the state is borrowing at the unsustainable level of 6%+ but has yet to reach the invisible line of 7% which triggered the peripheral bailouts. In the case of the Republic of Ireland this was a mask for the socialisation of private banking debts, a fact which the political establishment still appear loathe to admit.

    Since it is currently hard (or even impossible) to see Italy getting sufficient buoyancy to allow it to drift back from such high costs, so it seems we are now facing into a bailout of one of the ‘soft core’ of the eurozone. The fact that Sarkozy and Merkel are now desparately threatening ultra vires action is telling enough.

  • Cynic2

    “The decisions that broke our economy were made by a tiny, unrepresentative, incestous coterie of greedy developers, supine bankers and greasy-palmed politicians,abetted by a media whose mental age seemed to drop with every year of the so-called boom.”

    No they weren’t. The whole country was complicit. The ‘big boys made us do it’ defence doesn’t wash. Asset Bubbles like the one in Ireland (which is somewhat different from those in other states) are inflated of individual greed

    Why were you paying €25 an hour for babysitting? Because workers inflated wages beyond all supportable levels. Look at the way prices rose and rose – you were all paying yourselves in funny money and kidding yourselves that you were rich, borrowing to the hilt on the back of ‘rising’ property [prices and insulated from reality by the Euro.

    Face up to. It was you as well as them. You borrowed the cash so pay up

  • Alias

    “You borrowed the cash so pay up” – Cynic2

    No one is arguing that people who borrowed money should not repay it: the argument is that those who did not borrow it (the taxpayers) should not be obligated to repay it on behalf of those who did borrow it but can’t repay it.

  • John Ó Néill

    @Cynic2

    Individuals took on mortgages for property at very inflated prices. They still owe the balance of those mortgages to the lender, although they are impaired in the sense that the properties now are valued (on average) well below the outstanding loan.

    Developers took out huge loans, then, once they were impaired, had them transfered to the state via NAMA. The banks took on huge loans, then, once they were impaired, had them passed onto the state. Finance houses lent money to the banks and now those loans are impaired the EU is doing it’s best to make sure that they don’t lose out.

    You can see the injustice in this?

  • Alias

    Mortgage default isn’t the problem but Cynic has his own agenda. As of June, the percentage in arrears is 7% and the amount of those arrears is 2 billion – which is less than 1% of the amount of eurosystem debt that the government has socialised. Also, almost 1 million of Ireland’s 1.7 million households do not have a mortgage.

  • Alias

    To put it another way: the government could wipe out 100% of all mortgage arrears by diverting just one unsecured Anglo bondholder payment for the purpose.

  • Cynic2

    “those who did not borrow it (the taxpayers) should not be obligated to repay it on behalf of those who did borrow it but can’t repay it.”

    …. but you joined a currency union so Ireland plc owes the debt to states that hold Euros.

  • Cynic2

    “You can see the injustice in this?”

    No I dont. You elected a Government to manage this. You own the State. Its YOUR responsibility

  • Abu Mikhail74

    Alias answered Cynic better than I could have. ‘Maith agat.

  • http://[email protected] joeCanuck

    ..a set of hysterical threats from a side which (as John points out) possesses no powers to implement..

    I hope Harry has no objection to me reprinting his apt comment:

    Harry Flashman (profile) says:
    3 November 2011 at 11:02 am

    John I am currently reading an account of the 1916-23 years in Ireland and I’m at the part were Lloyd George is telling De Valera that there is simply no way that Ireland could possibly remove itself from British dominion. It was impossible, there was no mechanism for such a process.

    He was right, there wasn’t. Remind me how that turned out.

  • Cynic2

    “Cynic has his own agenda.”

    Really? What is that?

  • tuatha

    Cynic – to be a rabble soother & troll for the Boss?
    Alias, AbuM & JO’N have said all that I intended.