by Frank Schnittger
Sun Feb 6th, 2011 at 07:00:00 AM EST
The phrase "We are where we are" has probably become the most dominant and most annoying catch phrase of the Irish general election campaign. It is used even by those who argue that the Government Bank Guarantee was ill-advised; that the ECB/IMF deal was poorly negotiated by a distracted Government; and that the consequent austerity plan will be ruinous for the Irish economy and society. It is used to argue that nevertheless, the Irish electorate have no choice but to "suck it up" and carry on as best we can in the severely diminished circumstances that are its inevitable outcome.
Nothing could be further from the truth. There is nothing irreversible about the bank guarantee: Governments can and do restructure sovereign debts all the time. Insolvent banks can and often are "restructured" without any loss of ongoing functionality for the general public and business sector. A central function of central banks is to provide liquidity to banks and economies which are experiencing a crisis of market confidence.
Neither is it impossible to renegotiate the ECB/IMF deal. Of course all the players will rehearse their opening negotiating positions in advance trying to safeguard their own positions as much as possible. But there are a few irreducible truths to which all must ultimately comply: Debts which cannot be repaid, will not be paid. It is better to default before the real economy implodes completely, rather than afterwards, and ultimately all the players have a stake in avoiding a spiralling descent into recession under an unsustainable burden of debts, interest payments, taxes and diminishing economic activity.
This crisis is not about retirement ages, constitutional brakes on sovereign indebtedness, or corporation taxes as Chancellor Merkel and the neo-liberals in her Government would have us believe. Neither is it about excessive public expenditures or health and social welfare benefits, although inefficiencies in public service provision can and should be addressed in any case.
It is about BOTH private creditors and debtors who lent and borrowed irresponsibly. It is about regulators, both Irish and European, who failed to do their jobs properly. It is about a common Eurozone currency area which does not have the fiscal mechanisms in place to manage structural and regional imbalances.
Above all, it is about a government that didn't and apparently still doesn't understand that the public taxpayers should never be put on the hazard for the private losses of investors and speculators; that sovereign debts are routinely restructured when they become unsustainable; that insolvent banks can be restructured and separated from their bad assets whilst traditional retail and business banking activities flourish; and that it is the job of central banks to step in and provide liquidity when private markets lose confidence. That is what "quantitative easing" as practised by the US Federal Reserve is all about.
What is required now is that the Irish people and incoming Government do not lose their nerve and repeat the mistakes of the outgoing Government. If necessary the Irish Central Bank can, and indeed already has issued new Euros to keep the banks liquid. There is no reason why the Irish banks cannot continue to provide basic banking services until such time as their balance sheets have been repaired. The ATMs can and will continue to work.
Moreover if the ECB wants itself and foreign banks and investors to be repaid at all, it has to agree to a debt restructuring, schedule of repayments, and interest rates which are sustainable by the real Irish economy. All else is political posturing by those with an ideological agenda.
The current IMF/ECB plan is based on false assumptions and will fail sooner or later. It is best for all concerned that it be fixed sooner rather than later. Irish Growth rates have already been down graded from those assumed in the plan. Once the current (and three future!) austerity budgets kick in, there won't even be any spoils for those who think they are the victors in the current dťb‚cle to fight over. The patient will have died: Irish people, enterprise and jobs will have migrated to the US, Canada, Australia and the Far East. Europe, as well as Ireland, will be the loser.
What we need is a Government with real balls and the ability to negotiate properly. Such negotiations cannot be delegated to civil servants and the Governor of the Central Bank as happened with the ECB/IMF deal. We live in a Democracy, not a Bankocracy; in a European Union, not a new German Reich. We will have to negotiate with our EU partners as equals at head of Government level. It is thus important that our next Government is led by Ministers who are both serious thinkers and heavyweight negotiators.
We cannot be kicked out of the EU or Eurozone, and however much Merkel et al may wish to create a two speed Europe, they cannot do so without our agreement. If we are forced to default because they sought to impose punitive terms they will only have themselves to blame. In the meantime, it is to be hoped that all European leaders quickly get what we in Ireland call some "cop on". They need us to thrive more than they might think, and much more than the majority of our leaders seem to realise.
We aren't where we think we are at all - a nation without liquidity, resources, access to markets or friends. Our European partners need us to bail out their banks (who foolishly lent to our even more foolish banks) and to keep the Eurozone functioning and stable. No one has an interest in forcing a default or an implosion of the Irish economy. The rise in Euroscepticism such an implosion would cause would also place any future Treaty changes requiring an Irish referendum in jeopardy. What has been lacking all round, is clear-sighted analysis, vision and leadership. Ireland would be doing its partners a favour if we helped to rectify that deficit.