Bailout blues and predictions of bankruptcy

Meanwhile back in the real world.. spare a thought for the wee 26.  Morgan Kelly has returned to the fray with the most devastating indictment of the bailout yet. He pursues all the players, Lenihan, Holohan and their coalition successors, the weak kneed Commission, the IMF and above all the European Centre Bank. This is the kind of landmark  article that once could  turn opinion and change policy.  But as there have been so many of them, will anybody notice?  Discussion threads of this in Politics.ie will be worth following.

Kelly extracts

WITH THE Irish Government on track to owe a quarter of a trillion euro by 2014, a prolonged and chaotic national bankruptcy is becoming inevitable. By the time the dust settles, Ireland’s last remaining asset, its reputation as a safe place from which to conduct business, will have been destroyed.

Ireland is facing economic ruin.

At a stroke, the Irish Government can halve its debt to a survivable €110 billion. The ECB can do nothing to the Irish banks in retaliation without triggering a catastrophic panic in Spain and across the rest of Europe. The only way Europe can respond is by cutting off funding to the Irish Government.

So the second strand of national survival is to bring the Government budget immediately into balance

By bringing our budget immediately into balance, we focus attention on the fact that Ireland’s problems stem almost entirely from the activities of six privately owned banks, while freeing ourselves to walk away from these poisonous institutions. Just as importantly, it sends a signal to the rest of the world that Ireland – which 20 years ago showed how a small country could drag itself out of poverty through the energy and hard work of its inhabitants, but has since fallen among thieves and their political fixers – is back and means business.

Of course, we all know that this will never happen. Irish politicians are too used to being rewarded by Brussels to start fighting against it, even if it is a matter of national survival. It is easier to be led along blindfold until the noose is slipped around our necks and we are kicked through the trapdoor into bankruptcy.

The destruction wrought by the bankruptcy will not just be economic but political. Just as the Lenihan bailout destroyed Fianna Fáil, so the Noonan bankruptcy will destroy Fine Gael and Labour, leaving them as reviled and mistrusted as their predecessors. And that will leave Ireland in the interesting situation where the economic crisis has chewed up and spat out all of the State’s constitutional parties. The last election was reassuringly dull and predictable but the next, after the trauma and chaos of the bankruptcy, will be anything but.

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  • New Yorker

    This is an important article that will be widely read. His analysis seems solid, his prediction of debt 60% greater than GDP in three years is stark and dire. His prescription may be the only viable option. He is correct about the US Treasury Secretary being a pawn of the bankers; he’s one of the few bad appointments Obama made along with Summers. Obama should have listened more to Paul Volcker, and it is not too late to do so.

  • Canisp

    But the 110bn of euro-dominated sovereign debt would be as unservicable by a rapidly depreciating Punt Nua-denominated economy (or whatever alternative currency arrangements the RoI would be forced to make by a vengeful ECB) as the status quo. Rock and a hard place springs to mind.

  • aquifer

    ‘ a rapidly depreciating Punt Nua-denominated economy’

    Currencies may depreciate, but a functioning economy can produce wealth in any denomination. The Irish economy can presumably work because it did before, fuelled by a generation of well educated and trained young people and the happenstance of sharing the first language of the first or second largest economy in the world.

    Merkel’s blinkered monetarism did not make the grade as euro statespersonship. Her irresponsible statements made matters worse , and for a world champion exporter they did not even add up. The Irish should put manners on her and burn her bankers.

  • Alias

    Good article, but nothing in it that some of us haven’t been saying for yonks.

    Morgan Kelly acknowledges the rapid europhilia of Ireland’s political class and how destructive it has been to the national interest, his solution is bizarrely predicated on europhiles suddenly becoming nationalists and putting the redundant national interest before the EU’s interest. That will never happen for two reasons: firstly, the policy that the three main political parties have of excluding eurosceptics from selection as candidates for public office has resulted in a political parties that are 100% europhile so there is no one within those parties to challenge EU rule or to promote the redundant national interest; and secondly, it is constitutionally illegal for the government to conduct monetary and macroeconomic policy or to conduct related economic policy without consideration of the EU’s interest as sovereignty over same has been derogated in a ratfied treaty to the EU, so the Supreme Court would strike down any act that involved the government conducting such policy.

    Kelly is also incorrect on a few points. The governor of the Central Bank does not take his policy or guidance from the Irish government and nor does he act in the redundant national interest. Again, it is constitutionally illegal for the government to offer any advice whatsover about what monetary and macroeconomic policy might be helpful to Ireland’s redundant national interest. The Governor acts in the EU’s interest and is legally obligated to “act in accordance with the guidelines and instructions of the ECB.”

    He is also incorrect in his claim that Ireland could simply walk away from the 186 billion worth of debt that the ECB has used its control of the Central Bank to create. The ECB holds the assets of the banks as collateral for these loans, so the depositors would get zero. Under the Maastrict Treaty, the rabid europhiles hoodwinked the citizens of the state into giving the ECB exclusive executive control of the Irish Central Bank while the state, via the finance minister as sole shareholder, remained liable for all the debts of the Central Bank. That meant that the ECB could lend 186 billion to eurosystem banks in Ireland who would in turn use it to repay their loans to eurosystem banks outside of Ireland but that the taxpayers would be laible for every cent of it. In effect, the ECB used its control of the CB to convert 186 billion worth of eurosystem debt into sovereign debt without the knowledge or consent of the citizens of this state.

    And one last point for Morgan: isn’t it obvious why the EU involved the IMF? It was to prevent Ireland from seeking finance outside of the ECB, thereby locking the state into the guarantee it provided for eurosystem bondholders. As the IMF is the state’s lender of last resort, there is now no last resort for the Irish state. This is it.

  • Sean o Russell

    Kelly extracts

    WITH THE Irish Government on track to owe a quarter of a trillion euro by 2014, a prolonged and chaotic national bankruptcy is becoming inevitable. By the time the dust settles, Ireland’s last remaining asset, its reputation as a safe place from which to conduct business, will have been destroyed.

    This Nation Needs it’s Ned Kellys…. The last election was reassuringly dull and predictable but the next, after the trauma and chaos of the bankruptcy, will be anything but.

    Beware the Return of Skin The Goat…..