|German Chancellor Angela Merkel|
The agreement reached by European leaders in the small hours of last Friday morning can be seen in two ways from an Irish perspective.
The shift in European policy allowing the trillion euro European Stability Mechanism (ESM) to be used to directly recapitalize bust banks rather than routing it through the governments of the countries in question is something that Ireland has been seeking for the past year without success.
Now it's going to happen, which is great news for us. From that perspective, it is a hugely significant development.
But there is another way of looking at it, which is rather humiliating. The fact is we've been begging, cajoling and demanding the EU to give us something like this for a year, pointing out that the bailout deal that was imposed on us by the EU and the IMF was grossly unfair and was crippling our economy.
What was really killing us, we pointed out, was the massive cost of fixing our bad banks, which had been turned into sovereign debt in a way that was not only questionable but immoral. Something needed to be done to change that, or we would be stuck in a depression for decades.
But all our pleading got us nowhere. No, no, we were told. Or more precisely, nein, nein, since it is the Germans who hold the purse strings.
Of course they knew that turning our bank debt into sovereign debt made the Irish state liable and therefore put an enormous burden on the Irish taxpayer.
Of course they knew that making the Irish taxpayer pay back all the bad debts of the Irish banks was unjust because a lot of those billions were owed to German and French banks who had speculated on the Irish property bubble, lending recklessly to their Irish counterparts to get a slice of the action. Now the EU was insisting that they be repaid in full.
Yes it was very tough, we were told. But we could not be given a break because other countries in trouble would want the same, it would set a bad example, the euro might collapse, we created the mess and now we must pay the price while it is being cleaned up. And so on.
Everyone was sympathetic, but sadly nothing could be done.
Except that now it is clear that something could have been done.
Our problem was not that we did not have a strong case. Our problem was that we are too small. So we could be ignored or bullied, like the Greeks.
The Italian and Spanish prime ministers at last Friday's critical EU summit were not going to put up with any of that. With their bond yields climbing to unsustainable levels, Monti, the Italian leader, laid it on the line for Angela Merkel and the rest of them. Either the EU did something, or the euro would soon be history.
Loading the cost of shoring up Spanish and Italian banks on to the sovereign debt of those countries would lock them out of the markets and the cost of rescuing them would take the euro down. A different solution had to be found, Monti said.
Spain and Italy were too big to ignore. They were certainly not going to be bullied. So Merkel blinked and at around 3 a.m. that morning the deal was agreed.
Our Taoiseach (Prime Minister) Enda Kenny called it a "seismic" shift.
Our Tanaiste (deputy leader) Eamon Gilmore said it was a "game changer."
They both implied that the deal was a confirmation that their policy of appeasement (or should that be abasement?) in relation to Europe had paid off.
Which of course is garbage. We are riding on the coattails of Spain and Italy, in the hope that whatever they are given we will get as well.
Our policy seems to be to rely on the misfortunes of others, as we did last year when we got a reduction in our bailout interest rate only because a lower rate was being given to Greece.
But however we get it, the fact is that this new deal is likely to be the best thing to happen to us since the property collapse.
The last government's decision at the end of 2008 to give a blanket state guarantee to all the deposits and bonds and debts of the Irish banks was a national disaster. As the hole in the banks got deeper over the following year, the cost escalated to unbelievable levels.
Eventually, combined with the collapse of tax revenue because the property boom had ended, it brought the country to its knees, begging bowl in hand.
Enter the EU/ECB/IMF troika to rescue us with a bailout that tied us into repaying all our bank debts in full, with the taxpayers carrying the can.
The austerity program started as we battled to get our budget deficits down and cut spending to match revenue. A huge part of our spending, of course, is now our interest payments on the bailout deal, dead money that does nothing for our economy.
The cost of bailing out our banks is over €60 billion, and the repayments on that part of the bailout have wiped out the effect of the spending cuts and tax increases we have had to suffer for the past three years or more.
The painful corrections we have made in the recent hairshirt budgets have been offset by the huge cost of our bank debt. We're running to stand still.
The situation is so grim that there has seemed to be little point in staying here since we are being bled dry to pay off the bailout, much of which has been used to pay off bank debt.
Now, however, there is hope. Exactly how much hope we don't know yet because the detail of what was agreed by the EU leaders last Friday morning is far from clear.
But if the headline agreement is followed through and applied fairly, then the deal will allow us eventually to step off the fiscal treadmill we have been on.
Allowing the ESM to invest directly in failing banks in Spain will stop Spanish sovereign debt reaching unsustainable levels. Similarly in Italy. Under EU rules, the same deal will have to be made available to any EU country which needs it.
And in Ireland's case equality of treatment, which is a basic EU principle, will mean the deal will have to be backdated to cover what happened in the Irish banks. If that happens, the €60 billion plus in bank debt the Irish state and taxpayers are carrying will have to be taken up by the ESM.
That means that Irish government debt could be reduced by up to €64 billion, which would drastically reduce our Debt/GDP ratio, the key indicator watched by the international money markets. That would enable us to get back into the markets sooner than expected, rather than taking the bailout cash.
In fact this Thursday Ireland will be auctioning three month Treasury bills, the first time we have gone to the markets since they refused to lend to us and we were forced into the bailout. It's not the same as selling a few billion of our longer term state bonds, but it's an important first step.
So are we off the hook? Well, not really.
We still have to get our budget deficit down as fast as possible.
Since our revenues collapsed with the property bust, the gap between our spending and revenue has been huge.
Taking the bank debt interest payments out of the equation will help, but the annual deficit in our state finances is by far the biggest part of the problem. So our austerity regime will have to continue until our finances are back in balance.
Before we put the champagne on ice we also need to see the detail of what was agreed by the EU leaders. That is still being worked out.
But it seems that if the ESM is going to take on our bank debt, that EU fund will replace the Irish taxpayer as owners of our banks until the debts are cleared some time far into the future.
The other factor is that the Germans will never allow the ESM to put money directly into ailing banks without the construction of a pan-European bank regulatory system. That will mean that our banks will be monitored, not only by our own regulator or by the Irish Central Bank, but by a new EU bank regulator who will be the ultimate boss.
This is to prevent a repeat of the mad speculation the Irish banks got up to during the boom and given the abysmal performance of our own regulator at the time, it may not be a bad idea.
All we got from the EU leaders as dawn broke last Friday morning was a headline agreement of the principle involved. The devil will be in the detail. It is likely to be extremely complex and it will take months to work out.
One final point -- money does not vanish, it just gets shifted around.
So where will the €60 billion plus of Irish bank bad debt end up?
The ESM fund is being accumulated by contributions from all the EU nations, but Germany will be by far the biggest donor.
What is happening is a sort of mutualization of the bank debt of bust countries like Ireland, Spain, Portugal and Greece. That means the taxpayers of Europe will end up carrying the can, especially the taxpayers of Germany.
The German taxpayers are already critical of Merkel for the cost to them of propping up the euro, and this new deal will increase their anger. They want countries like Greece and Ireland to pay their own bills.
The financially responsible Germans have little sympathy for what they see as irresponsible spending in Ireland and massive failure to pay taxes in Greece. But they need to look closer to home for the guilty party where Ireland is concerned.
The fact is that the German banks funded the boom in Ireland by lending to the Irish banks so that they could get a share of the much bigger returns that could be made here at the time. They poured money in here.
If we were irresponsible, so were they. On that basis, it's only fair that the cost of sorting out the mess in the Irish banks should involve the German taxpayer as well as the Irish taxpayer.