The terms of the EU/IMF’s €85 billion ($113 billion) bailout for Ireland are much worse than analysts had anticipated. Ireland will be required to use its National Pension Reserve Fund (NPRF) to shore up its insolvent banks and to maintain government operations. At the same time, senior debt-holders will not share any of the losses brought on by the banks reckless lending. According to Bloomberg News, “Prime Minister Brian Cowen told reporters there had been no support in talks to ask senior bondholders to lose part of their stake on loans made to Ireland’s debt-crippled banks.” Thus, 100 percent of the EU/IMF’s €85 billion “Financial Rescue Package” will be paid for by Irish taxpayers.
This is a very bad deal. Irish workers have already endured nearly 3 years of depression-type conditions with shrinking wages, soaring unemployment and dwindling home equity. Now Brussels is taking aim at pensioners to save bondholders in Berlin and Paris from any losses on their bad bets. And that’s not all. Here’s an excerpt from the government’s statement:
“The facility will include up to €35 billion to support the banking system; €10 billion for the immediate recapitalisation and the remaining €25 billion will be provided on a contingency basis. Up to €50 billion to cover the financing of the State…..If drawn down in total today, the combined annual average interest rate would be of the order of 5.8% per annum.”
This is nothing but extortion. If Ireland wants to put its banks on solid footing, there’s a way to do it that doesn’t involve years of debt-slavery for its people. The government can underwrite the banks with a €10 billion loan from the Pension Reserve Fund that will guarantee deposits while the banks are nationalized and restructured. It is an excruciating process, but it’s been done many times before. Ireland does not have to accept indentured servitude if it chooses not to.
And why would the government even consider paying an interest rate of 5.8% per annum? Interest rates should be the same as they are for the banks; 1 percent. Should a sovereign nation get a worse interest rate than a crooked banker who ripped off millions of investors?
Besides, Ireland is in the drivers seat. It’s Ireland that should be making the demands, not the IMF or the EU. After all, the government currently owes the European Central Bank more than €130 billion. If the ECB wants to get its money back, it should be flexible about the conditions. Otherwise, Ireland can simply cut off negotiations and let the ECB hire a collection agency. See what good it does them.
Here’s more from the government’s statement:
“The Programme for Support lays out a detailed timetable for the implementation of the measures contained in the National Recovery Plan….The Programme has two parts – the first part deals with bank restructuring and reorganisation and the second part deals with fiscal policy and structural reform.”
(Note–Bank restructuring is a moot point. Ireland can use its own national pension fund to guarantee deposits and underwrite loans.)
“The Programme endorses the structural reforms contained in the Plan which will underpin a return to sustainable economic growth over the coming years….The Programme endorses the Irish Government’s budgetary adjustment Plan of €15 billion over the next four years, and the commitment for a substantial €6 billion frontloading of this plan in 2011….The adjustment will be made up of €10 billion in expenditure savings and €5 billion in taxes….”
In other words, more penance for the victims. More belt-tightening, higher unemployment, more foreclosures, fewer social services, slower growth, and an ever-deepening slump. And for what? To be a member-in-good-standing in Brussel’s Banktopia?
German chancellor Angela Merkel had been pressing other EU leaders to create a framework in which senior debt-holders would share losses with taxpayers in the future. On Sunday, Eurogroup Ministers announced the creation of a European Stability Mechanism (ESM) which was designed to address Merkel’s concerns. It works like this: If a member state appears to be insolvent, then they must agree to a “restructuring plan” that may involve haircuts for bondholders. So far, so good, only that’s not the way the ESM will work. Here’s an excerpt from the Statement by the Eurogroup which explains why:
“This would enable the creditors to pass a qualified majority decision agreeing a legally binding change to the terms of payment (standstill, extension of the maturity, interest-rate cut and/or haircut) in the event that the debtor is unable to pay……We restate that any private sector involvement based on these terms and conditions would not be effective before mid-2013.” Statement by the Eurogroup, Financial Times)
So, an insolvent country (like Ireland) would need to get “majority” approval before it could declare bankruptcy. How’s that going to work if the other countries are only interested in protecting their own bondholders? Surely, they would block the process.
Jean-Claude Juncker, the head of the Eurogroup, more or less admitted that the ESM was a fraud when he said that “private creditors would be forced to take losses only if ministers agreed unanimously that the country had run out of money.” (Bloomberg) There’s no way that German government officials would allow a country like Ireland to declare bankruptcy if its own banks stood to lose billions of dollars. (which they would)
This should remove any doubt about whose interests are really served by the Eurogroup.
Prime Minsiter Brian Cowen has sold out Ireland bigtime. The so called “rescue package” should have been rejected outright. It merely provides shady bankers with more money for speculation while condemning the rest of the population to years of grinding poverty and high unemployment. It’s a “lose-lose” situation. Here’s a blurp from a post titled “Ireland is Bankrupt…letter from an Irish citizen” which seems to sum up the mood pretty well:
“It doesn’t matter that we struggled for 800 years to achieve independence, that millions died in the process; it doesn’t matter that the folk memory of harsher times is still very much alive; none of this mattered to the few generations that have dismantled our country institution by institution and thrown the Irish people to the wolves….. Our political system is in ruins. The people have lost all faith in their elected representatives. They feel that welfare for the wealthy, bailouts for crooked corporations and rewards instead of punishments for embezzlement and thievery is the rule of the land. … Our independent republic is less than a century old and already it’s in smithereens — we’re in the gutter and being dictated to by the UK, Germany, France and the IMF. Mr. Ajai Chopra is our new vice-chancellor, our new Taoiseach, our new overlord and big boss and we’ve just been recolonized, first by our own brood of inbred gangsters and now by international bankers….
…But the blame game serves no useful purpose now: we’re all fucked.” (Ireland is Bankrupt…a letter from an Irish citizen”, angrybearblog.com)
MIKE WHITNEY lives in Washington state and cvan be reached at firstname.lastname@example.org