We're playing a bad game of bluff

By withdrawing from the bond markets, the Government has entered an uneasy truce until it runs of money, writes Bill Hobbs.

Is this Government going to lose sovereign power to make decisions in the national interest? Are we to become second class EU citizens, consigned to debt serfdom for at least the next decade?

By raising a white flag and withdrawing from the bond markets, Government has entered an uneasy truce until it runs out of money sometime next year, by which time it hopes the bond markets will provide funds at affordable prices. Either that or it will be forced to look for EU sovereign bail out assistance at prices far higher than recently demanded by the bond market.

The Government’s sovereignty protection strategy depends on it producing a credible economic recovery plan, one that demonstrates an ability to repay borrowings. Unless bond markets are convinced of a willingness and capacity to deliver on an unprecedented four year draconian austerity programme, the truce will end.

Yet banking parasites continue to suck capital from the real economy. Yesterday’s Central Bank figures, which are no more than credible best estimates, show how national debt is escalating. Must we tax and cut our way to achieve a wholly unrealistic borrowing target of 3% GDP by 2014? Should we protect bank’s senior bond holders from any losses to protect our sovereign funding independence? If the banking parasite is separated from the host, would the host die? Government believes it would, which is why it’s linked bondholder protection to sovereign protection.

We are told there must be a “credible” multi-year plan to hit this target and that while growing national debt may be horrendous but it is “manageable”. But manageability and creditability is not really ours to define. It’s being defined within a set of demands set by bureaucratic proxies of the EU’s major partners and the ECB.
We are being told we must repay in full our international obligations. Unrealistic French demands of Germany ruined its post war economy in the 1920’s. Is ours to be ruined in the same way?

This Government’s agreement to insure bondholder’s investments was blindly entered into by it in September 2008 under its blanket guarantee. Never before has such a decision been made to capitulate before the first shot was fired. Subsequently faced with imploding state revenues and a monumental banking crisis, its strategy was to bluff until a global recovery kicked in, which it didn’t. Thus, we had bluffer-speak of “cheapest banking bailout”, our “banks were resilient”, “Nama will get credit flowing again” and a “remarkable recovery in the economy”. Is it bluffing to maintain “debts are manageable” when the light at the end of the tunnel may be an onrushing train?

Theoretically affordable on paper, based on optimistic assumptions, it seems we could cut and tax our way to paying our debts. But what’s the human cost of a decade of debt serfdom? What is the opportunity cost of using our borrowing capacity to plough €3bn a year for a decade into two dud banks compared to using the money to fund revenue generating job creation?

In reality we are being told to hold the line by others who are not the least concerned about what happens here. They are more concerned of the political fall-out of facing their citizens with the bill for a just and equitable share of losses.

International investors looked to Irish banks as investment vehicles for returns that could not be achieved at home. They were professionals who willingly lent money without undertaking prudent due diligence. Providing the raw material that fuelled a property boom and knowing there is no such thing as a free lunch, they have not been told they too must share in the pain.

We know that having to adjust budget parameters to offer up a free lunch to others is code-speak for more swinging cuts and higher taxation. This is why many believe we are being sacrificed to maintain a status quo that has not learned from the ruination of the Weimar Republic – demanding all your money back, beggars your neighbour.

A version of this article appeared in the Irish Examiner, Analysis Section, Friday 1st October 2010.