Greece when they know full well that three-year money as accessed by the Greeks is far cheaper than the longer term funding secured by Ireland.
Eamon Gilmoreâs angry insistence that he will not be bound by the terms of the agreement with the EU/IMF will certainly be a crowd-pleaser. But it is the most pointless piece of political posturing since Fianna Fáilâs opposition to the Anglo-Irish Agreement in the mid-1980s. The government in which he will soon be Tánaiste will have to be bound by it.
In the current climate, there are obvious short-term political benefits to the oppositionâs approach. But Fine Gael and Labour are in serious danger of creating unrealistic expectations that they have no hope of satisfying when they come to power. The reality is that the deal reached with the EU/IMF was as good as could have been achieved. We were all out of options â the whole world knew it. The idea, which has been put forward in recent days, that we should have told the IMF and, more particularly, our European allies, to get stuffed is astonishingly naïve.
The European Central Bank has been propping up the Irish banks for some time now with emergency liquidity to the tune of tens of billions of euro. The merest hint from the ECB that Irelandâs intransigence might cause this to change means our goose was cooked. So letâs get real.
It is understandable that people wanted bondholders â particularly the â¬4 billion worth of unguaranteed senior debt holders in Anglo Irish â to share the pain. But once the ECB vetoed that move, for fear of contagion across the entire euro-region, that was a clear non-runner. But that hasnât stopped the calls for the government to revoke the full guarantee of the banking system, convert bondholders into equity holders and â even more dramatically â restructure the national debt and default.
Nobody can say for definite that matters wonât reach a stage where Ireland â along with a number of other peripheral Euro countries â wonât be forced to default. But to do so now unilaterally would be an extraordinary gamble with limitless potential downsides.
The highly respected Financial Times columnist Wolfgang Munchau made the sovereign default argument in an article in the Irish Times last week. But his forecast as to what would happen once we did that was less than reassuring. âA default would cause havoc, no doubt, and would cut Ireland off from the capital markets for a while. But I would suspect that the shock would only be temporary,â he wrote.
Thatâs great, so. Just as the real economy looks like it has finally stabilised â with exports and manufacturing increasing, unemployment edging down, the exchequer returns stabilised and even consumer confidence no longer dropping â we adopt a policy measure that will create âhavocâ. But donât worry, the suspicion is that being locked out of the capital markets will only be temporary. Munchau went on to argue that âeven Argentina was able to gain funding from investors a few years after its defaultâ.
The reality is that Argentina defaulted in 2001 â setting the terms of its restructuring in 2005 â and nearly a decade on, the only international loan it has received is from Hugo Chavezâs Venezuela at 11 per cent interest. It has relied largely on domestic savings to fund government spending, which is not an option in Ireland.
That hardly sounds like the model we want to follow. If you think the current credit crunch is bad, just imagine what it would be like if the Irish sovereign and our banks are shut out of international finance. Bank loan books would have to be reduced to the size of domestic deposits and thatâs making the very optimistic assumption that there would be no fleeing of depositors in the event of a default and a revoking of our bank guarantee.
In the piece, Munchau argued the government
Eamon Gilmoreâs angry insistence that he will not be bound by the terms of the agreement with the EU/IMF will certainly be a crowd-pleaser. But it is the most pointless piece of political posturing since Fianna Fáilâs opposition to the Anglo-Irish Agreement in the mid-1980s. The government in which he will soon be Tánaiste will have to be bound by it.
In the current climate, there are obvious short-term political benefits to the oppositionâs approach. But Fine Gael and Labour are in serious danger of creating unrealistic expectations that they have no hope of satisfying when they come to power. The reality is that the deal reached with the EU/IMF was as good as could have been achieved. We were all out of options â the whole world knew it. The idea, which has been put forward in recent days, that we should have told the IMF and, more particularly, our European allies, to get stuffed is astonishingly naïve.
The European Central Bank has been propping up the Irish banks for some time now with emergency liquidity to the tune of tens of billions of euro. The merest hint from the ECB that Irelandâs intransigence might cause this to change means our goose was cooked. So letâs get real.
It is understandable that people wanted bondholders â particularly the â¬4 billion worth of unguaranteed senior debt holders in Anglo Irish â to share the pain. But once the ECB vetoed that move, for fear of contagion across the entire euro-region, that was a clear non-runner. But that hasnât stopped the calls for the government to revoke the full guarantee of the banking system, convert bondholders into equity holders and â even more dramatically â restructure the national debt and default.
Nobody can say for definite that matters wonât reach a stage where Ireland â along with a number of other peripheral Euro countries â wonât be forced to default. But to do so now unilaterally would be an extraordinary gamble with limitless potential downsides.
The highly respected Financial Times columnist Wolfgang Munchau made the sovereign default argument in an article in the Irish Times last week. But his forecast as to what would happen once we did that was less than reassuring. âA default would cause havoc, no doubt, and would cut Ireland off from the capital markets for a while. But I would suspect that the shock would only be temporary,â he wrote.
Thatâs great, so. Just as the real economy looks like it has finally stabilised â with exports and manufacturing increasing, unemployment edging down, the exchequer returns stabilised and even consumer confidence no longer dropping â we adopt a policy measure that will create âhavocâ. But donât worry, the suspicion is that being locked out of the capital markets will only be temporary. Munchau went on to argue that âeven Argentina was able to gain funding from investors a few years after its defaultâ.
The reality is that Argentina defaulted in 2001 â setting the terms of its restructuring in 2005 â and nearly a decade on, the only international loan it has received is from Hugo Chavezâs Venezuela at 11 per cent interest. It has relied largely on domestic savings to fund government spending, which is not an option in Ireland.
That hardly sounds like the model we want to follow. If you think the current credit crunch is bad, just imagine what it would be like if the Irish sovereign and our banks are shut out of international finance. Bank loan books would have to be reduced to the size of domestic deposits and thatâs making the very optimistic assumption that there would be no fleeing of depositors in the event of a default and a revoking of our bank guarantee.
In the piece, Munchau argued the government
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