Economics Irish Style

(Originally Published on in November 2010)

The last week will be remembered in Ireland as one of the most tumultuous periods in Irish history. We are hurtling downwards at an ever increasing speed. Future generations of Irish people are to be burdened with the debt of the bankers and the entire Irish banking industry. What was once unthinkable is now likely to pass and all of this is down to the actions of the government and their friends. In the two years since the banking guarantee was enacted, there have been no major steps taken to sort out the financial mess that the banks have gotten the country into and now that problem is having its final and fatal effects on the future of the country; a political party with no mandate from the people is in the process of turning Ireland into a debt serving nation and nothing more. The leader of said party is doing nothing more than cling onto power for as long as he can in order to serve out his own agenda, whatever that may be, and no “hair shirt budget” is going to change the fact that Ireland is both an economic and political basket case.

In a week when the Green Party demanded an election in mid to late January, everyone expected the Taoiseach, Brian Cowen, to step down as leader and call an election. Instead what we have is a beleaguered leader clinging on to his last vestiges of power in an even more beleaguered political party. This is the party which is currently negotiating, with the ECB and IMF, the conditions of the bailout of the Irish banking system and economy which will amount to €85 billion. What they are failing to tell us is that the interest rate on this bailout will likely be 6% or 7% which is something the country cannot afford to pay.

So, let’s break down the figures a little. Our present borrowings amounts to €110 billion, €23 billion needs to be redeemed on Irish bonds within the next 3 years, roughly a further €35 billion will be needed for the banks, sovereign debt runs to €45 billion, €100 billion from the ECB which has been given to the banks as emergency liquidity and the Central Bank has injected roughly €30 billion into the Irish banks. In total this adds up to €343 billion of nothing but debt.  These figures come from economists Brian Lucey and Peter Sommerville who simply highlighted this issue on last night’s episode, the 23rd of November, of Tonight with Vincent Browne. To add further credence to their figures, David McWilliams has done some of his own calculations, in his most recent article in the Irish Independent, and has come to the figure of €275 billion or “just over 200% of GNP”.  Simply put, Irish debt is heading for well over €200 billion and the country cannot afford this.

These figures have been mentioned nowhere in the mainstream media by government officials and Minister for Finance, Brian Lenihan, has been unsurprisingly silent on the issue. Along with his other party officials, he likes to obfuscate the facts and dodge questions by giving convoluted long winded answers to questions no one has asked. This is being done to protect themselves and their fellow PODS. In my previous writings, I have used the analogy of PODS to refer to the politicians, developers and bankers. They are one homogenous entity which for all intents and purposes is sucking the life blood out of the country in order to prolong their own financial gain and power.

We saw this perfectly this week when everyone expected Brian Cowen to resign, under pressure from the Green Party and backbenchers within Fianna Fáil. The bond markets even expected him to do so as they know, and have always known, that the current government has no credibility left whatsoever. Instead Brian Cowen announced that he is staying in power and a general election will be called once all of the legislation regarding the upcoming budget has been enacted. The problem with this is that the legislation could take months to be enacted and this means that feasibly Fianna Fáil and Brian Cowen could remain in power well into the New Year.

As I have mentioned, the markets have always known that the government ran out of credibility long ago. This makes the upcoming budget meaningless. You cannot please people by lying to them when they know that they are being lied to. It’s a rather elementary lesson which the government does not seem to take any heed of.  At this stage, the budget is a method of punishing the Irish people for no other reason than an attempt to appease the masters in the E.U and the bond markets. With cuts to social welfare, education, health, minimum wage and rises in tax, the effects will be felt throughout all of Irish society. What makes it all the worse is the fact that the government’s budget will do nothing in terms of the Irish debt which, as I have said, we simply cannot afford to pay. We are being forced to accept the bailout by the E.U as they are afraid of the knock-on effects of a possible Irish default on the rest of Europe and wider banking system but this is something which can be played to our advantage.

Frankly and honestly, we need to say to the E.U that we will not accept the bailout at interest rates of more than 5% as the country can’t afford it or else, we’ll default. This isn’t a major advantage but it is an advantage that we have nonetheless. Despite this, I think Ireland shouldn’t accept any bailout whatsoever. We should default on our debt and default now. David McWilliams has been calling for this for over a year now. We bring the pain forward and have a short, sharp, shock instead of a long and drawn out recession which will end in a default anyway. Bring forward the pain so that the country can get out of the debt stranglehold which is killing it. It is simply bankruptcy but on an international level. Things are bad for a short time as massive deflation takes place but things soon pick up and can pick up very strongly within a short period of time. This has been shown throughout economic history but as usual, the current government ignores this as it attempts to appease those who cannot be appeased.

What we need is a new government with the willpower to make the hard decisions and not simply toe the line when it comes the E.U. Whoever is in power needs to tell those in the E.U that the German and French banks, who loaned the money to the Irish banks in the first place, are just as culpable or even more so than the Irish banks.  Instead we are left with an incompetent government which is corrupt to the core and is unlikely to last into the second half of the next year. These are the people who are gambling with the economic future of Ireland. This is economics Irish style.