consensus behind disastrous decision
13 February 2011
By Vincent Browne
Two dates haunt this election campaign: September 30, 2008 and November 28, 2010.
The first was the date of the bank guarantee. The second was the day of national shame, the day oft he EU/ IMF rescue deal.
The bank guarantee represented the most spectacular single transfer of wealth from society at large to a financial elite in the history of this country.
The elite were depositors of more than €100,000 (depositors up to €100,000 had been guaranteed previously) and bondholders who had lent money to the banks.
Even if the banks had not collapsed subsequently, it was still a huge transfer of wealth because of the insurance it gave the big depositors and bondholders.
We are hearing much in this campaign about who did or did not support that guarantee and who said what at the time.
Finance minister Brian Lenihan said: ‘‘I stress that the provisions we are asking the House to approve are in no way a bailout for the financial system. . .
The terms and conditions on which the guarantee is provided will ensure the taxpayer gets value for money.”
Fine Gael finance spokesman Richard Bruton said: ‘‘We are offering support to this bill because we believe it is important that we copperfasten our financial system. . . I support the view of the government that it is better to provide the broad deposit guarantee involved in this legislation.”
Taoiseach Brian Cowen said: ‘‘In the event of there being a future situation where one had to work out the assets of an institution, if it emerged after working out those assets that there was a deficit, clearly the sector would pay for the difference through a levy over time rather than expecting the taxpayer [to cough up].”
Labour’s Joan Burton offered no opposition to the bill at second stage (the crucial initial procedure where the principles of a bill are debated).She wanted to be assured there would be no exorbitant payments to executives of the banks during the period of the guarantee. She said Labour was willing to provide a guarantee, but not a blank cheque.
Micheál Martin said: ‘‘I applaud the decision taken by the Taoiseach and the minister for finance to bring this issue to the attention of the government yesterday evening.” The Greens’ John Gormley bemoaned the absence of a global financial regulator, while urging support for the bill.
Only Labour’s Pat Rabbitte expressed unease. He said: ‘‘The question remains as to why the markets are frozen towards Irish banks.
The answer has to be that international banks regard Irish banks as having too many bad debts and bad loans on their books.
‘‘Banks who have been lending Too much to dodgy builders come in the back door to Merrion St and make a case, presumably that one or other of them is in deep trouble, and we opt to convert the country into a massive AIG.
We are one massive insurance policy now for some €400 billion.” But even he protested he was not against the bill.
Not a single party voted against the bill at the second stage (where parties opposed to a measure can indicate their disapproval by voting against).
The Labour Party did vote against the bill at the final stage, but only because of disagreements with technical elements of the bill.
So every party agreed to this massive transfer of wealth and every one of them ignored alternative and less risky measures that could have been deployed.
Patrick Honohan is quoted as an authoritative supporter oft he bank guarantee. However, before he became governor oft he Central Bank, Honohan wrote in the Economic and Social Review (www.esr.ie/Vol40-2/Vol-40-2Honohan.pdf): ‘‘No public indication has been given that the authorities gave serious consideration to less systemically scene-shifting – and less costly – solutions.
For example, they might have provided specific state guarantees for new borrowings or injections of preference or ordinary shares – approaches that were widely adopted across Europe and the US in the following weeks.”
It was this guarantee that brought us to November 28, 2010. It was not the deficit in the public finances that caused that humiliation, it was the guarantee to the banks which precipitated that crisis and caused the surrender of part of our sovereignty.
To a large extent, the election campaign is about that EU/IMF deal: whether it can be renegotiated or whether it can be abrogated.
The stuff about the 5.8 per cent interest on the €80 billion loan provision misses the point that the European Central Bank is subverting our banks to the extent of €150 billion at an interest rate of1 per cent.
The 5.8 per cent interest rate will be reduced after a while, and some posturer or other in the new government will claim credit for that.
But getting rid of some or all Of the bank debt will not be a runner in the EU, according to a source that knows. And disowning it all would cause massive problems, not just with the bondmarkets, but otherwise.
If Ireland is seen to breach contracts at will, what confidence would any prospective investors or traders with Ireland have in the sanctity of their contracts?
Like I say the established political parties are all the same and they have no real differences we need independent realistic alternatives
First step is to recognize that the Irish State cannot pay back these enormous sums. The private bets of gamblers must not be placed on the shoulders of the ordinary people of Ireland and only the independents are saying so