Ireland Calling by John Spain
Irish have no time for Fine Gael annual convention
Posted on Wednesday, April 04, 2012 at 11:08 AM
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|Enda Kenny speaks at the Fine Gael ard fheis last weekend|
The main party in the government here, Fine Gael, had its ard fheis (annual convention) last weekend. It was a jubilant, celebratory affair, as though we were still in the middle of the boom.
Nobody seemed to find it strange that it was being held in our new National Convention Center, built by one of the biggest developers here who is now bust and owes at least a billion. Another monument to the boom now owned by all of us.
It was Enda Kenny's first ard fheis as taoiseach (prime minister). Despite him saying that the convention was not going to be a celebration or a party, the delegates could not help themselves.
They were grinning from ear to ear, cheering every good line in the speeches. There was a lot of self-congratulatory backslapping. The country may be down the toilet, but this is Fine Gael's time to shine and boy, are they enjoying it.
It's hard to blame them. Fine Gael are in power after decades in the wilderness. And thanks to the disintegration of Fianna Fail, they look like being there for a long time to come.
That's what is different this time. Yes, Fine Gael have held power in the past but it always seemed to be a blip, a few odd years here and there which were temporary interruptions of the decades of Fianna Fail rule. The last time Fine Gael was in power was when John Bruton was taoiseach from 1994 to '97.
But now it's their turn to contemplate decades in power. The tables are turned and the roles are reversed.
Fianna Fail, the party that dominated Irish politics for generations, has destroyed itself to such an extent that it could vanish altogether. Fine Gael is the new Fianna Fail.
That's what underlies the supreme confidence that Kenny exudes these days.
The trouble is that it's completely out of sync with the wasteland he is presiding over.
Outside the Convention Center hundreds of angry protestors were venting their rage at the new household charge (the start of a property tax system) that is being imposed on every home here. By the March 31 deadline only half the country had paid up, which shows the level of revolt there is on the issue.
It's not so much the tax itself, because people here recognize that almost all countries have property taxes. It's being started as a flat tax at a low level, applied to all houses, although it will be progressive in future and clearly the rates will go up very rapidly in the coming years.
What's bothering people here is that the money being raised, like so much of the rest of our taxes, is going to pay off the billions in debts of our bust banks.
Of course the government is saying that the money is being ringfenced for local services, but no one believes them. At the end of the day it will go into the same revenue pot, and the payments we have to make on our zombie bank debt and bailout interest come out of that pot, leaving much less for everything else, like local services, schools, hospitals and so on.
The injustice of what is happening to Ireland is the weak underbelly of the Fine Gael position. Kenny's relentless positivity is all very well, but people here are not fools.
They know they are being bled dry to pay for something that was not their fault in the first place. And the resentment on that is growing all the time.
This resentment will not be lessened by strokes like the carefully timed deal on the Anglo Irish Bank promissory note which was announced last week, just before the Fine Gael convention.
It was presented as some kind of breakthrough. In fact it's more of the same, loading more debt on to taxpayers.
The situation is that the former Anglo Irish Bank, now a zombie bank being wound up, owes around €30 billion, which is supposed to be paid off over 10 years in annual payments of over €3 billion euro. The deadline for the first payment was last Saturday, March 31.
The deal the government has done with our European "partners" is a highly complicated one which effectively means we won't have to pay until 2025.
But it does mean that the debt has now been converted into a government bond, which means that the bank debt has been transformed into a state debt which taxpayers here will have to pay back in the future, along with interest charges.
Of course the Anglo debt, like all bank debt here, is state debt, since it was taken on board by the state under the infamous blanket guarantee issued by the last government. So it could be argued that this new deal does not change the playing field.
But it does because it makes it explicit that this is now state debt, and it undermines the argument that much of this debt should have been written off instead of being loaded on to taxpayers.
And the former Anglo Irish bank is only part of the problem. During the boom here Irish banks were unable to raise enough cash from depositors here to fund the lending demand. So they started borrowing from other banks, mostly in Germany and France.
I pointed out the statistics in this column recently. In 2003 foreign borrowing by Irish banks was below €15 billion. By the time the boom peaked in 2007/08 it was €110 billion, most of it used to fund property speculation here.
The Irish economy was the toast of Europe at the time and foreign banks wanted a slice of the action. So they shoveled the money into the Irish banks and, even though some economists were already warning that the boom was a bubble, the European Central Bank (ECB) which was supposed to be regulating banking in Europe did not intervene.
It was a gamble by the foreign banks involved, in search of higher profits. It was incompetence on the part of the ECB.
When the bubble burst and the Irish government stepped in with the state guarantee to stop our banks going bust the Irish taxpayer was saddled with the debt.
As we now know, the Irish banks claimed at the time that it was just a temporary liquidity problem and that they were solvent. To be fair to the last government, no one at the time realized the situation was so disastrous.
No one realized that converting the bank debt into state debt was going to bankrupt the country within a couple of years, drive us into the IMF bailout and rob us of our economic sovereignty. But that is what has happened.
It turned out that the Irish banks were completely insolvent and they owed well over €100 billion which by then had been transferred into a debt carried by the Irish taxpayer.
Under the normal rules of free enterprise, if you make a poor investment you lose some or even all of your money. That's what should have happened to the German and French banks and the other financial institutions who pumped money in here during the boom. But that's not what happened.
To get the bailout money, the IMF and the ECB insisted that Ireland must honor all its debts, including its banking debts. There could be no default, no debt reduction. Everything must be paid back in full.
To get the bailout money, the last government agreed with this -- in fact since the IMF/ECB had them over a barrel they had little choice -- and the present government has continued on the same policy path. Kenny repeated it in his ard fheis address last weekend.
"Let me be clear. I will not throw away the progress we have made in the last year by reneging on our international commitments. Ireland will NOT default."
The progress he was referring to was the interest rate reduction (which we got courtesy of Greece) and the promissory note deal. Neither do anything to reduce the overall debt burden we face. They do not affect the big picture.
The huge debt burden is strangling our national finances because billions have to be diverted every year from services and from productive investment into simply repaying our debt and the interest on it.
That the ordinary Irish taxpayer has to carry this burden is both outrageous and unjust. Most of the foreign banks that speculated on the Irish property boom sold the debt at a discount to hedge funds and speculators some time ago.
These funds and speculators have now made a fortune because the bonds involved have been paid back at full face value by the Irish state. To do so the government here used tens of billions of euro we borrowed from the ECB, via the bailout we got.
And who pays? The Irish taxpayer, of course, the mug at the end of the line with no power and no voice.
Our voice is Kenny, who is still trying to justify this arrangement, still trying to convince us all that there is something noble in paying back every last cent in full.
The reason this has been imposed on us by our European "partners" is that they didn't want to undermine other banks in Europe who lent us the money. That would have destabilized the euro even further.
So Ireland, the willing sacrificial lamb which never protests, was led to the slaughter. For the sake of the euro and EU stability, Ireland (the Irish taxpayer) was nailed to cross and will bleed there for years until all the debt is paid back.
What should be happening, of course, is that the EU and particularly the ECB should be acknowledging that their failure to control bank lending into the Irish boom was a major factor in what went wrong.
They should be acknowledging that they -- and the European financial institutions which poured money into the Irish boom -- should be sharing in the loss.
The only way this can be done is by a serious level of debt forgiveness or write down. Kicking the can down the road, like lengthening the deal on the Anglo money, is not sufficient.
Instead of saying repeatedly that Ireland will never default, what our political leaders should be saying is that Ireland will never default as long as we get a get a debt write down that will ease the huge burden on the Irish taxpayer.
After all, the ordinary Irish taxpayer had very little to do with the massive burden of debt that now hangs around the neck of the Irish state like a millstone.
Nor is it convincing for Kenny to say that because the last government signed the Irish state up to the deal, we have to abide by it now. The last government did so because they did not get the full picture from the Irish banks who either lied about the true position or did not know.
And who was ultimately responsible for regulating the Irish Central Bank and through it the Irish banks? The European Central Bank, that's who.
We may be a Catholic country. But it's time we stopped being martyrs.