Is there an easy way out of Ireland’s debt crisis?

Interesting to watch Enda Kenny talk at Davos today. He seemed relaxed and reasonable, and indeed at one point one of the other speakers noted that others who were in the throws of a debt crisis needed to follow Ireland’s example (of being ‘good little boys’? – Ed). Though Denmark’s new PM Helle Thorning-Schmidt, was keen to point out that what’s currently missing is any convincing plan for growth.

In the Dail at leaders questions on Tuesday, when accused of choosing to do things the hard way by Gerry Adams (as he himself had been once asked in Castlereagh), the Taoiseach asked Mr Adams if he thought there was a easy way. It’s worth watching the uncut exchange (courtesy of Sinn Fein):

The Taoiseach makes it clear that he’s looking for flexibility in repayment rather than a write down, saying that Ireland cannot afford to break solemn promises undertaken by the previous government, however unwise the guarantee of the ill starred Anglo Irish Bank may have been.

In today’s Irish Times, Leo Varadkar further noted:

…defaulting would bring us into sharp conflict with the ECB and other EU member states, at a time when we need them most. We need their support to restructure the €30 billion in promissory notes. These promissory notes are an appalling, unjust and expensive sovereign commitment foisted on us by the last government. Restructuring these €30 billion in promissory notes is a much bigger prize than imposing haircuts on the remaining rump of senior bondholders. It would not be wise to take such a big risk now, for so little potential benefit.

The whip hand, as Colm McCarthy noted on Sunday lies not with the Taoiseach but with the ECB; who to be fair have been slightly preoccupied with saving (for now) the Italian and Spanish economies.

There are limits even to the prodigious soft power of nations like Ireland when faced with a systemic crisis of the scale of the Eurozone. Even the Spanish and Italians only have a breathing space in which to enact painful structural reforms. To be fair to the Taoiseach, it doesn’t seem like there is an easy way.

  • Alias

    According to the CSO, Ireland’s external debt stood at 1.67 trillion in the first quarter of last year. That was down from its peak of 1.84 trillion. However, the Central Bank’s debt to the ECB rose to 180 billion during the same period.

    What you can gain from that is that the domestic economy wasn’t able to generate the wealth to repay any of its debt during that period, and Irish banks could only repay their debts to external lenders because the central bank provided them with the loans to service those debts. In effect, the central bank (controlled by the ECB) converted 180 billion worth of external debts into sovereign debts while adding 10 billion onto it for good measure.

    Given that the domestic economy has been unable to generate the wealth to repay these debts during the previous period, why does the state think it will be able to generate the wealth to service them during the term of the loans?

    Does it think that the overleveraged ECB can provide the central bank with the full 1.67 trillion as and when it falls due? he domestic economy couldn’t even service its external debt if it dedicated every cent of GDP for the express purpose.

  • iluvni

    When Kenny replies to Adams in ‘the native tongue’, do you reckon Adams understands a word he says?

  • NOT NOW JOHN

    He doesn’t appear as a man who even understands a word when he, himself, speaks in ‘the native tongue’.

  • wee buns

    ‘We’ve never looked for a debt write down….’ said Enda.

    Didn’t FG get elected on the promise of…er…looking for an urgent debt write down?

    Easy ways, there are none – but breaking election promises – easy as pie.

  • Mick Fealty

    Indeed wee buns… Have to wonder who can retain national
    Legitimacy after dealing with Ireland’s real status abroad.

  • Zig70

    Ireland is not a big player. It’s woes are small compared to the ECB’s and the ECB needs Ireland on board. So I’d argue they are in a prime negotiating position. To say that not paying the 1.25bn would result in empty atm’s is just wrong. I’m hearing 1.25bn to save face. It’s not defaulting just managing your debt. I’d be calling for the unsecured loans to be set aside and still hold the trump cards in negotiating the 30bn promissory notes. What better position than ‘play ball or we’ll start contaigon’? Mind you Ireland deserves it, more people turned out for septic tank protests than Dame st.

  • DC

    Sometimes the simple questions are the best.

    Adams asked who are the bond holders? Good question.

    But I reckon there should have been a question prior to that one – does the Irish government understand how the credit bubble came about and how it eventually burst, which ultimately caused all these Irish banks to go bust and require taxpayer bailouts?

    I hold the view that the Irish government has an obligation to explain all of this because then the ordinary people – the public – will have the information at hand to be able to make up their own minds on whether a default is a good thing or not, as it may be the case that much of these loans may not be worth repaying.

    As things stand much of the future productive wealth of Ireland (i.e. sound money from trading real products and services) will be used to pay back massive speculative gambles gone wrong in the Irish property market. Created by banks that lent too much (unsound?) money. Money which in fact – as it turns out – they never even really had in the vaults in the first place, as if the banks did it would have been possible to cover most of those loans which turned bad and soured.

  • DC

    Easy way out – hyper-inflation?

  • dwatch

    Gerry Adams is out of his depth regards this subject and is only making a total fool of himself and SF.

  • Harry Flashman

    “Gerry Adams is out of his depth regards this subject”

    In fairness in the election before last, at the peak of the Celtic Tiger nonsense, SF stood on a policy of nationalizing the Irish banks. They were lampooned unmercifully by the media and Fianna Fail for this.

    FF won the election and subsequently nationalized Ireland’s banks.

    Now even a stopped clock might be right twice a day but credit to SF; their lack of economic knowledge was substantially less than all the clowns in the other parties, the media and the civil service in Ireland who thought Ireland had somehow found a way to make money out of shite.

  • Mick Fealty

    Harry’s crudely made point points to a deeper one; all politicians are amateurs; and are only as good as the information they have or are provided with. SF are on an exponential learning curve at the moment. And Adams is getting his feet under him in the Dail.

    There is no easy way out of this mess and he knows it. And his party’s policy is changing with the wind (but so too did the last opposition’s) But still he’s clicking up a few singles as he goes along, and he has the great advantage that the media are currently paying very little attention to anything he says or does.

  • Harry Flashman

    The beauty about the Irish electorate is that they don’t actually expect the parties they vote for to follow through on election commitments so long as they stick one into the other shower.

    I well recall FF in 87 winning on a platform of opposition to Fine Gael’s austerity and a renegotiation of the Anglo-Irish Agreement, they got in and Charlie Haughey as cool as a cucumber accepted the AIA as it was and sent Ray Mac The Knife McSharry to slash public spending in ways never yet seen in Ireland.

    No one batted an eye, they just wanted rid of Garret Fitzgerald’s administration and weren’t bothered about what replaced it.

    SF could do the same, campaign on a populist ant-austerity, burn the bondholders, ticket and then when they get into power simply say that it’s not that simple after all and frankly the sheeplike Irish voters would accept it.

    Forgive me for generalizing but there are few electorates as herdlike and unthinking as that of the Irish Republic (with the possible exception of the North of course).

  • tuatha

    HarryF –there are few electorates as herdlike and unthinking as that of the Irish Republic except for the one county that voted NO to Lisbon, started the rout of FF with the long denied, delayed, decried-as-undemocratic election of a Senator for their region, the SW of the great county od Donegal.
    Connected to the Free (sic!) State only by a 2 lane bridge & some, illegal (again SICK!!) bog back roads, there are enough folk here wondering about whether to cut loose from the gombeens & shysters down south.
    Free Tir Connail, self sufficient & beholden to none, we’ve enough turf and Coillte tree weeds to burn and can eat well enough of our own spuds, dulce & fish while the rest of youse drown in your own debt

  • wee buns

    Zig70 –
    ‘Mind you Ireland deserves it, more people turned out for septic tank protests than Dame st.’

    If there is to be a tipping point reached (we live in hope), the septic tank charges shall be it.
    A tad presumptuous to draw comparison between those protests & Dame Street protest – we are not all of us free to hop on a bus with our children & other dependants to sleep rough in Dublin. But the septic tanks farrago shall affect almost everyone to the tune of several thousand euros to update; momentum behind these protests is based on genuine inability to pay. People do not ‘deserve’ this level of austerity.

  • Alias

    If Scotland did become independent, it will find that smaller member states pay the highest per capita amount to the EU. Ireland contributed a net 1.976,0 to the EU in 1999 while the UK contributed a net 2.763,7 despite having a population 17 times greater than Ireland.

    The europhile Irish political class have manipulated the figures as a matter of policy to falsely present Ireland as being a net beneficiary of the EU. This fraud is undertaken to create a favourable impression among the public about EU membership.

    One thing that won’t be cut as an austerity measure is the amount of money that Ireland gives to the EU.

  • wee buns

    ”Is there an easy way out of Ireland’s debt crisis?”

    Simply lower the cost of living?