The news that Ireland is a step closer to saving €375 million ($483m) a year in interest on our bailout loans is welcome. But it's the kind of good news that leaves this writer feeling a bit sick.
Mind you, that did not stop the government here last weekend presenting the news as a great achievement.
You will remember that when the Irish boom turned into bust in 2008, a huge gap began to open up between state revenue and spending here. Tax revenue fell dramatically. On top of that our banks were on the verge of collapse and needed tens of billions pumped into them.
We were close to national bankruptcy. No one was willing to lend us money to keep the state going while we tried to reduce our deficit.
The result of the crisis was that in 2010 we had to take a bailout from the EU and the IMF to keep the show on the road.
This enormous debt – around €65 billion – was "socialized." In other words, it became the responsibility of the Irish state and the Irish people to pay it back, even though half of it was the result of reckless lending by international banks and funds to the Irish banks that blew it in bad property loans. It had nothing to do with ordinary taxpayers here.
The bailout money did not come cheap. The most expensive money was got was from the IMF, which gave us close to €20 billion carrying an interest rate of over six percent.
You are probably aware that interest rates in Europe and the U.S. are now at historic lows, with base rates below one percent on this side of the Atlantic. Which makes the six percent interest we have to pay on the IMF billions look like something Shylock would have engineered.
So it's not surprising that the Irish government wants to borrow money elsewhere at the current low interest levels now available to the Irish state and pay off the highly expensive loans we have from the IMF. The last time I looked, the Irish 10-year bonds were selling below two percent and our 2-year bonds were virtually zero.
This means the Irish state, thanks to its slowly recovering economy, can now borrow money cheaply on the international markets. We would be mad to go on paying the IMF – which is supposed to be helping us! – over six percent.
There is, however, a problem. (Isn't there always!) Believe it or not, we have to get permission from the other member states of the EU to be allowed to pay back the IMF loans before the EU loans, which carry a much lower rate of interest. Under the terms of our bailout, we are supposed to pay back both sets of loans together, or at the same pace.
Paying off the IMF now with today's cheap money will save us between €375 million and €400 million ($482m-$514m) a year in interest. And with the government desperately trying to soften the impact of next month's budget, that is a very significant saving.
Hence the presentation of the news last weekend as a great breakthrough. Nearly all our EU partners over the past five or six days have given their informal approval for our proposal to pay back the IMF first.
It may take a little time to get it all signed and sealed – some countries may have to put it through parliament and some are busy with other matters – but it seems certain that all the countries will support the deal.
Which is great news for us, yes? Or am I the only one who feels a bit sick about all this?
First of all there is the humiliation of having our finance minister over the past week more or less pleading with his counterparts from the other EU states to agree. Of course the preferred term is negotiating, but it comes to the same thing because we're not giving them anything in return.
The first to give us approval were the Germans, which is the least they could do since a chunk of our bailout money was used to pay back the German banks that loaned our banks money during the boom here. The Germans were the first last week to agree that we could repay the expensive IMF loans before we repay the loans we got from Europe in the bailout.
And given the influence the Germans have, the other EU countries followed suit. But before we propose German Chancellor Angela Merkel for sainthood, we need to consider the wider context.
The issue is not whether we should be allowed to pay back some loans early to avoid high interest rates. The real issue is whether we should be making repayments at all.
This is something that everyone seems to be forgetting. The cost of the bailout has been dumped in its entirety on the Irish state (and therefore on the Irish taxpayer) in a way that was completely unfair. It was unfair at the time and it is even more unfair now.
You are probably aware that the EU has now moved to a position where it believes that banking debt should never again be transformed into sovereign debt. Part of this has been the setting up two years ago of the new European S tability Mechanism (ESM) financial structure and fund so that in future a banking crash like the one we had in Ireland will not become sovereign debt. That is what happened in Ireland, and it brought the country to its knees.
At the insistence of the European Central Bank, all the foreign banks and bondholders who poured money into the Irish banks during the boom were paid back in full. The Irish state (in other words the Irish taxpayer) was left to carry the can.
At the time our banks collapsed, we were blackmailed by the European Central Bank which threatened to cut off support if we burned any of the foreign banks and bondholders who had loaned money to the Irish banks to get a slice of the higher returns available here during our property boom. This was done to prevent contagion, the risk that a failure by Irish banks to pay their debts might prompt a flight of capital out of banks across Europe, destroying financial stability in the euro area.
We were given the bailout strictly on the basis that no one would be burned – no one, that is, except the Irish people. We were sacrificed to protect the wider banking system in Europe.
That was then and this is now. In the future, European banks which get into trouble will be rescued and recapitalized under the ESM. The problem will be treated on a European level.
And part of this new approach will be that other banks and bondholders which loan money to banks that fail will be burned. The cost of a banking collapse in Europe in the future won't be dumped on one country, like happened in Ireland.
As this new policy and structure emerged over the past couple of years Ireland asked that the ESM should also be used to retrospectively recapitalize the Irish banks. That would mean that we could pay back the half of the bailout money that was used to prop up our banks (the other half went to meet our budget deficits in recent years and is our own problem).
We got a kind of half promise on this issue from the EU two years ago. There seemed to be a recognition that what had happened was grossly unfair to Ireland.
However, since then attitudes in Europe have hardened. The position of the EU now appears to be that the ESM cannot be used in a retrospective way like this. Ireland will just have to grin and bear it and keep on paying the mountain of bailout debt that hangs over the Irish taxpayer.
The reason for this shift in attitude is, ironically, the modest recovery now taking hold in the Irish economy. This means our EU partners realize that we are now in a better position to go on paying, even though it will require tough budgets here into the future. The interest alone on our bailout money is currently between €1.5 ($2bn) and €2 billion ($2.5bn) a year.
Making our bailout repayments into the future will continue to suck vast amounts of money out of Ireland, money that is desperately needed here for services and development.
The scale of the injustice of what has happened to us was revealed in Eurostat figures recently published in the Irish Independent by columnist Colette Browne. These statistics show that although Ireland has less than one percent of the population of Europe, we have been made to take on over 40 percent of the cost of the banking crisis in Europe as a whole.
So there is no reason for us to feel grateful for being given permission by the EU to make a saving on our interest payments by switching out of the IMF loan. Instead of continuing to allow them to bleed us dry we should be threatening to stop bailout repayments altogether unless there is progress on our justified request for retrospective recapitalization of Irish banks by the ESM.
Instead of being the good boys of Europe, it's time for us to play nasty.