Speaking last week in the wake of the decision to burn depositors in banks in Cyprus, the German finance minister was asked what implications this had for Ireland, where we had been forced by the EU to pay back all the bondholders and depositors in full to avoid undermining confidence in European banks.
Minister Wolfgang Schauble said that this was different and that Ireland itself had the "sole responsibility" for giving the bank guarantee in 2008. This was very interesting because despite strenuous efforts by the media here, no one knows what happened at the all night meeting on September 30, 2008 between the bankers, the politicians and their advisers.
Even though this is the most important financial decision ever taken in Ireland, we have been kept completely in the dark. Here at last was a chink of light.
Schauble stated categorically that the disastrous blanket bank guarantee was an Irish decision alone. It was not forced on us by Germany or the European Central Bank or the IMF, as has often been suggested. According to him, we dug our own grave.
This is a vitally important issue for Ireland because it was this decision, effectively turning the mountain of debt owed by the banks into sovereign debt owed by the Irish taxpayer, that caused us to go under.
Despite what Schauble says, we don't know how much pressure was put on Ireland at the time to give the guarantee, even if the final decision was left to us. We do know, however, that it was an absolute condition of us getting the EU-IMF €85 billion bailout in 2010 that all depositors, bondholders and other lenders to our banks had to be paid back in full.
It was the EU view that any default by Irish banks could cause "contagion" across European banks and a possible bank run in some countries. So us failing to pay back some big investors/depositors or imposing a haircut on bondholders was out of the question.
So Ireland bit the bullet and started paying back all the bondholders and investors, a process that is now almost complete and was achieved with bailout money that has to be paid back.
Since then we have seen the EU policy on this question shift in Greece and now in Cyprus. It seems that now bondholders or depositors can and will be burned if an EU bank gets into trouble.
What this means, of course, is that the EU is now admitting that the full bank debt repayment policy it imposed on Ireland, either in September 2008 or in the couple of years after that, was wrong.
Forcing Ireland to transform all the private bank debt into sovereign taxpayer debt was wrong.
Despite this effective admission, however, the EU is not changing its policy towards Ireland on the debt question. We got a half promise last year that private bank debt and sovereign debt would be separated in EU countries that got into trouble.
We argued that this should be applied retrospectively to us. But so far, despite the Cyprus deal, nothing has been done.
If it did happen, the new EU financial rescue funds could take over our bank debt and leave the Irish taxpayer to deal with our budget deficit debt. If Spain and Italy get into deeper trouble, you can be sure that some variation of this will happen. Either that or more depositors/bondholders will be getting a haircut.
Ireland's problem is that it was the first country to get into trouble, and since then the rules of the game have changed. And in spite of all the sympathetic guff from our "colleagues" in Europe, no one cares too much that we have been left holding a very bad hand.
As you know, we recently got a deal from Europe on about half of our bank debt mountain (the Anglo-Irish half) which extended our repayment time for that part of the bailout money by a couple of decades. But, crucially, it did not include any debt write down.
We are also campaigning in Europe for a similar deal on the rest of the bank debt mountain, to push our bailout repayments on that out into the future. But again there is no suggestion of a write down.
Morally, all of this stinks. Ireland was forced into the dire position it is now in by the EU, but Europe does not want to share the cost of what has happened to us. They refuse to help even though it was saving European banks and the euro that got us into the mess.
Europe thinks it's okay now to change policy and offer different solutions to other countries, and that Ireland's taxpayers should carry on as before bearing a huge repayment burden.
The end of the state guarantee last week does not change any of this. Nor does it mean Irish banks are out of the woods.
There's a mountain of bad domestic mortgage debt coming down the tracks here which could make the Irish banks insolvent again. Unless of course the Irish government puts more borrowed billions into them and the Irish taxpayer is again left to pay the bill. Watch this space.
Log in with your social accounts:
Or, log in with your IrishCentral account:
Don't have an account yet? Register now !
Join IrishCentral with your social accounts:
Already have an account ? Log in
Or, sign up for an IrishCentral account below:
Make sure we gathered the correct information from you
You already have an account on IrishCentral! Please confirm you're the owner.
Our new policy requires our users to save a first and last name. Please update your account: