Thanks to regular reader and contributor, West Tipp, for sending us over this great post from Stephen Donnelly TD. Scroll down the great infographic at the end of the article.
At Bogpaper Towers we would like to spend more time looking at the situation in Ireland, they seem to have dealt with this crisis with an approach quite different to that of other PIIGS nations and as a consequence, with quite different results. If anyone has anything else they would like to contribute, whether a recommended article, a comment or even their own self-penned piece then please get in touch – email@example.com.
IRELAND has been stitched up more than any other nation since the beginning of the European economic crisis. We have poured €64bn into a failed banking system, so far.
That’s €14,000 for every man, woman and child in Ireland. How does that relate to other European countries struggling with similar financial conditions? Badly.
Let’s take a look at the amount which has been paid per person for bank recapitalisation in Portugal, Italy, Greece, Iceland and Cyprus.
We’ve paid three and a half times more than each person in Iceland, four times more than each Greek, six times more than each Cypriot, 23 times more than every Portuguese, 10 times more than every Spaniard and almost 200 times more than each Italian. So we’re within our rights to feel aggrieved. The burden which has been imposed is, literally, unbearable.
This €64bn flowed from us, through the banks, to the bondholders. It was a gift, surrendered at virtual gunpoint, from the Irish people to professional international investors.
But the damage doesn’t end there. Our budget deficit started in 2009 and is forecast to run to 2015. The total gap between revenue and expenditure for Ireland over these seven years will be about €60bn. But because we had to borrow so much money to pour into the banks, we were not able to borrow the additional €60bn for the budget deficit. The international lenders deemed us to be out of credit. We were maxed out.
Enter the troika, who ‘bailed us out’ by lending us €67.5bn. We are due to pay all of this back, plus around €11bn in interest and charges. The IMF stands to make a tidy €2.5bn in profit from what it loaned us.
So we borrowed to bail out the banks, and now we’re borrowing to cover the budget deficit. Professional lenders wouldn’t lend us the cash for the deficit, because they thought there was a good chance we wouldn’t be able to pay it all back. They’re probably right. Countries with our level of debt do not pay it all back. If they can’t print the money themselves, which we can’t, they default. After the massive reductions in national debt which Greece secured, its debt-to-GDP ratio is close to ours, and they are making no bones about the fact that they’re not going to be able to service it.
For Ireland, ‘unsustainable debt’ means the following: next year our national debt will come close to €200bn. If we assume an average interest rate of 5 per cent, we will be paying €10bn a year in interest. Total Government revenue for 2012 is estimated at €35bn. Let’s assume this rises to €40bn in 2016, when we’re no longer borrowing. A quarter of all taxes collected would go on interest payments.
The money to pay the interest will come mainly from education, health and social welfare, and taxes will continue to rise, pulling more money out of the economy. The result — low job creation, a collapsing education system, hospitals shutting down wards, further emigration and a surge in deprivation and intergenerational poverty.
We are seeing this already. The European Commission’s draft summer report of our ‘Adjustment Programme’ states that ‘there are no low hanging fruit left’. In other words, if you think the previous budgets were painful, you ain’t seen nothing yet.
The draft report is meant to be confidential, but was posted on the internet within two days of being released to the Finance Committee. It makes for very sobering reading. Growth forecasts, already low, are being revised down. It seems to have come as a surprise to the staff at the European Commission that when you suck all the money out of an economy that is trading in a global downturn, economic growth does not occur and jobs do not get created.
Add to that the fact that we have some of the highest levels of private debt on Earth and that one in five mortgages is in trouble, and you don’t set the scene for much growth any time soon. What growth may occur will come from multinationals. Foreigners buying Viagra made in Ireland is great, but this type of growth is not job-rich, and the profits earned leave the country.
The European Commission’s report indicates that the Government is working on selling State assets, reforming housing benefits, changing legislation to allow for an increase in house repossessions, reforming medical card eligibility and introducing water charges. If that wasn’t enough, it also casts doubt on our ability to raise money on the bond markets despite recent bond auctions.
But sometimes help comes from the least expected quarter. The IMF, not known for its cuddly, caring side, has publicly berated the ECB for forcing us to recapitalise the banks. It also recently pointed out that Spain has secured a deal whereby its banks will be recapitalised by a central European fund and not, critically, by the Spanish people. There is much talk in Europe of the need to ‘decouple banking and sovereign debt’. Put another way — let’s not use the Ireland model on anyone else, as it appears to have completely banjaxed them.
We have been stitched up. We have paid several times more per person to bail out failed banks than any other nation. This was not done to save Ireland (how ‘systemically important’ is Anglo feeling to anyone right now?). It was done to avoid panic across Europe. This has gone so badly that future bank recapitalisations will come from a central European fund.
Right now, we are fighting for our survival as a prosperous country. It is imperative that we have the new deal applied retrospectively, and that the €64bn poured into our banks is moved from our national debt to a collective European debt.
The solution to our unbearable debts lies in convincing the ECB and the European Commission that a failed Ireland is bad for everyone, and that that is exactly what will happen if we are asked to pay several times more per person than anyone else.
Could the troika have a heart? Maybe, but my hope is that they have a brain. Over the coming months and years, we’re going to find out.