Fianna Fail and the IMF con job

Talk about fiddling while Rome burns! Fianna Fail are worse than the ancient Romans ever were.
On paper this country is almost bankrupt. We face an enormous challenge to avoid that paper bankruptcy becoming a tangible reality. We don't have any time to lose in the battle to retain our economic independence.

And what have the senior members of the government here been doing for the past week? Squabbling over whether Taoiseach (Prime Minister) Brian Cowen should remain as Fianna Fail leader, that's what.

The matter was finally wound up on Tuesday evening at a meeting of the Fianna Fail parliamentary party, when Cowen survived a vote of confidence in his leadership.

A week of internal convulsion in Fianna Fail came to an end. Cowen said he was now ready to lead the party into the election in a few weeks and defend his record in very difficult times.

He was up for the fight, he said. It sounded almost like a victory.

Well, I've got news for Cowen and Fianna Fail. Nobody cares. We're way past the Tweedledum or Tweedledee stage in Fianna Fail now.

As far as most people here are concerned, it doesn't matter which of them leads Fianna Fail, which collapsed to 14% support in the last national opinion poll and is headed not just for opposition but for political annihilation in the election.

It doesn't matter because the problems are much bigger than any Fianna Fail politician can handle. Their record to date shows that. And they are not going to be in power to handle the problems anyway.

It doesn't even matter to most people here which opposition politicians will follow Fianna Fail, because there's not much sign that they will be any better. We are where we are, as our politicians are fond of saying.

And where we are is up to our necks in debt, saddled with an enormous International Monetary Fund/EU loan to keep the country going while a program of savage cutbacks in state spending is implemented. We're in a dire situation, and there's no sign of the leadership we need to get out of it.

Over the past few weeks, many people here have begun to rethink their attitude to IMF/EU loan that "saved" Ireland at the end of last year, and to the state guarantee given to the Irish banks back in 2008 that precipitated the crisis that made that loan necessary.

The initial perception was that there was no alternative to taking the loan on the terms offered. We were unable to borrow on the money markets, and the state only had enough money to keep going for another six to nine months. The alternative to the loan appeared to be financial breakdown with the collapse of many state services.

The €80 billion IMF/EU loan facility that was given to us came at a time when the international money markets wanted 9% to lend to Ireland, effectively ending the state's ability to borrow.

Even with the cutbacks it's going to take a few years to get our deficit down to an acceptable level, and before the IMF and the EU stepped in it seemed certain that we would run out of money long before that could be achieved. We're spending one-third more than we raise in tax revenue and that's a huge gap to close quickly.

The nightmare scenario of schools or hospitals closing was close. That was unthinkable, so there was some degree of gratitude here when the IMF/EU came in with the funds and offered us a lifeline.

But the public attitude here to this is now changing. Increasingly, the unlimited guarantee given by the state to the Irish banks and the terms of the IMF/EU deal are being questioned by commentators.

From respected economists to newspaper columnists to the ordinary man in the street, the mood has shifted from acceptance to skepticism. The feeling is growing that we made a horrendous mistake in giving a blanket guarantee to the banks back in 2008 and that the IMF bailout is a con job.

The blanket guarantee to the banks effectively transferred all the debts of the Irish banks to the state and that, coupled with our yawning budget deficit, was what turned the markets against us. We could have handled the deficit alone.

But the huge bank debts on top of the deficit convinced the markets that the Irish state was potentially another Greece, or even another Argentina. So they stopped lending to us.

We now know that the Irish banks effectively pulled the wool over the eyes of Cowen and the Minister for Finance Brian Lenihan when in September 2008 they talked the government into giving the blanket guarantee to cover all bank liabilities. A run on some Irish banks was imminent, and the two Brians panicked and gave the banks a blank check.

Since then, of course, we have found out that the few billion that the banks said they would need on that fateful night in September has now turned into liabilities heading towards €100 billion.

We were told back then that there was no alternative to the bank guarantee. We now realize that there was an alternative, that the two most reckless banks could have been allowed to fail (like Lehmans) and that the holders of higher risk bonds (for which they were getting higher interest) could have been forced to take a write down. In general, a sizeable proportion of the debt owed to the lenders could have been switched into equity in the Irish banks.

What happened with our banks is one reason why a lot of Irish people have now begun to see the deal we have been given by the IMF/EU as a con job. Most of the tens of billions that the Irish banks blew away in the property bubble were billions that they had borrowed from European money markets, mainly from German, French and British banks. These banks took a risk in lending into the overheating Irish economy, and they did so with their eyes open because the returns were so high.

When it all went pear-shaped the Irish government stepped in and guaranteed all loans and liabilities. Instead of being forced to take the pain, the European banks were going to get all their money back, every last euro of it.

There was just one little problem -- the Irish state could not afford it, and the international markets would not lend us even more money to pay our debts.

If the Irish state had to default or write down debts, the banks in Germany and France that had loaned us the tens of billions would not be getting all their money back. Something had to be done. So the IMF and the EU stepped in to "save" us.

Except that the ones they were really saving were the German, French and British banks that had lent the Irish banks all the money to begin with.

The IMF/EU money has to be paid back, of course, and the Irish people have been saddled with the cost of that huge burden, though cuts in state services and higher taxes. Billions of our taxes every year will be going to pay the interest on the IMF/EU money.

And while the standard of living here plummets as a result, the European banks who lent us all the money in the first place will be paid back, in full and on time.

A lot of people here are now asking whether this is fair. Since these European banks took a risk lending to us, why are they not sharing in the cost of the collapse?

To add insult to injury, we are paying close to 6% on the IMF/EU loan facility, even though we have now learned that the IMF and the EU are paying only around 3% on the money they are loaning on to us. Why?
Because the IMF and the EU have decided that giving us cheap money would set a bad example to other over-spending countries. Or in other words, we must be taught a lesson.

Of course it is true that we cannot borrow the money on the markets so, unless we default, we have to borrow the money from the IMF/EU. But is it fair?

Should they really be penalizing us like this when they are supposed to be helping us? Should they be screwing us like this when the European banks who lent us billions to fund the property boom are being let off the hook without any penalty?

The rogue Irish bank that was most to blame in the property bubble was Anglo Irish Bank. And what almost sank Cowen in the last few days was the recent revelations that he had spent a day playing golf and dining with the head of Anglo Irish Bank in July 2008, shortly before the controversial government guarantee for the Irish banks was announced in September that year.

Cowen has insisted that banking business was not discussed that day, and that the game of golf had been arranged by a long time friend of his who is a former director of Anglo Irish Bank. But the revelation was highly damaging.

It showed again how small the circles are at the top of business and political life in Ireland. And it increased the suspicion that we have only been told half the story of what really happened when the Irish banks were rescued. The suggestion is not that the two Brians did anything corrupt, only that the two of them (both lawyers, not financial experts) were completely out of their depth.

Cowen has survived, for the time being. But there are huge unanswered questions in the air.

I mentioned at the end of last week's column that there are things we could do to transform the situation in Ireland. I said I would reveal all this week. I'm not going to spell it out for you. If you read between the lines above, you will see the solution yourself.

The sad thing is, as I said last week, this course of action is likely to be far too radical for the next government, whoever that may be.

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