Irish Tribe Buck the Markets

It seems that finally, a developed country has reached the point of saying ‘enough is enough’. Enough of transferring bank losses onto public balance sheets and destroying the public services that a civilised society requires. Enough of allowing the financial sector to create fictitious wealth at our expense. That country is Ireland and the outburst of discontent with the hegemony of the financial markets is emerging from the main opposition party Fine Gael.

Fine Gael Spokesperson on Enterprise, Trade & Employment, Leo Varadkar TD argues the banks took on the risky loans so it should be the shareholders who take the consequences, not the taxpayer. Under the party's so-called Good Bank policy, the National Assets Management Agency 'will pay the banks up to €54 billion for €77 billion of property loans. If the losses on these loans turn out to be very large, as many experts predict, our proposals could save the taxpayer up to €15 billion.' Given the much greater size of the UK banking sector, if we had adopted a similar policy it could have reduced the money paid to banks by a sum similar to this year's public sector borrowing requirement.

Refusing to respond to the shotgun demands of the banks that they receive their next fix of capital at the public expense is a bold but inevitable strategy in a country whose public borrowing is now ten times the size it is permitted by Eurozone rules and which has been on the verge of banktruptcy for at least a year. So much for bank debt, but what of the state? When the governments of Latin America got their people into excessive debt in the 1980s eventually they reached a point of refusal. The result was that the debts were ‘rescheduled’—either extended over a longer term or reduced so that credits got a proportion of their original loans back. Similarly, following Argentina's financial collapse in 2001, a solution was eventually negotiated where creditors received only 70% of their original loans.

In the case of Irish national debt, Fine Gael has been very careful to make the distinction between the debts of banks that are based in Ireland, and therefore backed up by the Irish government, and the debt that the government itself has taken on in the name of the Irish people to pay for its services. This was predictable, since Varadkar knows that the government will be turning to the market to sell more debt and its credibility must be maintained.

The UK government has taken a different tack through its Quantitative Easing policy. This has enabled it to wipe out chunks of our national debt on the sly. Money is created from thin air inside the bank of England and then used to buy bank national debt from the financial organisations who hold it. My assumption is that, since all such debt is time limited, it will quietly decay inside the bank's 'vaults' until it reaches its sell-by debt and goes to 'bank heaven' or perhaps--to keep my metaphor consistent--the rotten-money skip round the outside the back door of the bank. The banks are happy, since they now have 'real' capital that they can use to fill the black hole on their balance-sheets; the government is happy because its debt-to-GDP ratio looks more respectable than otherwise. We should be happy since this is less debt for our children to pay back.

Two questions remain: why are we not negotiating with our banks and their shareholders over how much of their fictitious wealth we agree to take responsibility for; and why should we not use the Quantitative Easing policy more creatively instead of seeing our public services decimated?