The 85 billion euro question


There's only one question that really matters in the general election campaign now beginning in Ireland.  It's the €85 billion question -- the question of what the various political parties here will do about the €85 billion bailout fund put together by the International Monetary Fund (IMF) and the EU to stop Ireland going bust and accepted by the outgoing government. 

Fianna Fail says it's the best deal that was available. Fine Gael and Labor say it's a poor deal and must be renegotiated.  Sinn Fein says it's such a bad deal we should tell the IMF and the EU to take their billions back. 

And the Green Party ... well, who cares what the Greens think any more.

The €85 billion question is the only one that matters because it dwarfs everything else.  It makes all the other issues here look completely insignificant.  More than that, it determines everything else. Everything a government does costs money, and without those billions any government here in the next few years would be unable to do anything beyond the very basics.

There's no doubt that we need the money.  Thanks to the collapse in tax revenue, the gap between Irish government spending and revenue -- the deficit -- is huge. 

Last year it was around €19 billion (we spent around €50 billion and got in just over €30 billion). This year, even with the severe cutbacks already announced, the deficit is going to be only a few billion less than that, partly due to the interest payments on our growing debt mountain.

It's going to take several years of very painful cutbacks to begin to get our budgets close to being balanced again. And in the meantime we need the bailout money to keep going, to enable the government to pay the police, keep schools and hospitals functioning properly, pay welfare to the half a million people out work and so on.  The alternative would be an implosion of the Irish state, social unrest, possible riots on the streets.

Even if we manage to stick to the plan agreed with the IMF and EU, the deficits over the next three years plus the cost of state bonds that will mature in that time period will come to around €65 billion. So that takes care of most of the €85 billion bailout fund. 

The other €20 billion, of course, will be used to keep our reorganized banking system afloat ... we hope.
The interesting point about this is that most of the €85 billion bailout fund will not be going to the banks, as many outraged people here seem to think.  It will be going to keep the lame duck Irish state going over the next three years.  

So yes, we do need the money.  We need it badly and we have to take it. 
And since the markets won't lend to Ireland except at rates that don't make sense, the only place we can go for the money is the EU and the IMF. 

The question is not do we need an €85 billion fund. The question is whether the EU and the IMF are treating us fairly, and whether this particular deal is the right deal for us.  

Two weeks ago in this column I referred to the deal as the IMF/EU con job.  I did so because, like a lot of people here, I am sick of listening to senior Eurocrats saying that the aim of the deal is to help Ireland, to rescue Ireland from going bankrupt. 

I did so because, like a growing number of people here, I believe that the real aim of the deal has little to do with rescuing Ireland. 

The real aim is to rescue the euro single currency and the major German, French and British banks who lent tens of billions to Irish banks during the property boom.

The Irish state, as you know, has guaranteed all the deposits and liabilities of the Irish banks, effectively turning these billions in outstanding liabilities into debts of the Irish state.  Were the Irish state to default the fallout in Europe and the effect on the euro would be severe, possibly catastrophic. 

And that is why the IMF and the EU made the provision of the €85 billion bailout fund for Ireland conditional on the Irish state sticking with this arrangement. Bondholders and European banks were not to be burned by Ireland, if we were to get the money.

The outgoing government, as we know, accepted the deal on this basis.  And so did most people here without thinking about it too much. 

It was humiliating, but we needed the money to avoid slumping to Eastern Europe living standards.  So we swallowed our pride and took the deal. 

That was in December.  Since then, however, particularly in the last two weeks, the severe hike in taxes which is part of the economic plan has made many people here stop and think.