TO UNDERSTAND THE illegitimate nature of Ireland’s debt, a little history lesson is necessary. The central historical fact is that recent Irish economic growth was based largely on a property price bubble. Irish financial institutions increased their lending by 466% between 1998 and 2007 – almost entirely to the real estate and financial sectors rather than to the genuinely productive economy.
Irish people did borrow much of the money, which is why the late Brian Lenihan could make the claim that “we all partied” – but the actual benefit, if any, we accrued from this is unclear. The splurge was facilitated by liberalised lending practices and by poor cross-border regulation of the financial sector across the EU. The Irish authorities also contributed to the property bubble with a range of tax incentives to property development and lax oversight of the financial sector here.
When the global crisis hit, access to credit declined drastically worldwide and asset values tumbled, leaving banks (including the Irish ones) in a parlous position. The Irish government chose to respond to the plight of the banks in an extraordinary manner: on 30th September 2008 all depositors and senior bondholders (creditors to the Irish banks) were guaranteed by the State. The total cost of bailing out the banks is so far estimated to be €70 billion, and rising.
This money is coming (or will come) from ordinary citizens: we have already witnessed more than €20 billion in ‘fiscal adjustment’ (spending cuts and tax increases), what economist Karl Whelan describes as “the equivalent of… €4,600 per person… the largest budgetary adjustments seen anywhere in the advanced economic world in modern times”. 2012 will see further spending cuts and tax hikes of €3.8 billion, with more to come in subsequent years. National income is already down over 15% from its peak level. Unemployment stands at almost 15%, close to half a million people. Emigration is estimated to be running at 40,000 per annum.
So, you might think that if the Irish government had the chance to reduce this crippling burden of debt they would seize it immediately. Not so. On the contrary, today the government is going to hand €1.25 billion of our money to anonymous bondholders who had lent it to Anglo Irish Bank (which we now own). The good news is that the bondholder debts are coming to an end – all but about €5 billion have been paid off. The bad news is that we borrowed the money to pay them off and that debt is still on the books.
‘This would fund the cost of Ireland’s entire primary school system for a year’
The bulk of the repayments falling due in the future are government issued ‘promissory notes’ (IOUs) to Anglo and Irish Nationwide Building Society (INBS). The next such payment – for €3.1 billion – falls due on March 31. €3.1billion would fund the cost of running Ireland’s entire primary school system for a year or could fund the putting in place of a next generation broadband network for the whole country.
And that €3.1 billion payment will be due each year up until 2023 with further IOU payments after that. The Anglo/INBS repayments will have reached €47 billion by 2031. However, as Ireland will have to borrow more to make the payments, this could rise to €85 billion when interest charges are added in. A new network – Debt Justice Action – is calling for an end to this madness with a campaign called Anglo: Not Our Debt. We want the government to suspend Anglo/INBS repayments as a first step towards renegotiation and write down of this debt.
Contrary to the claims that this would have negative consequences for Ireland, suspension of repayments would not spread ‘contagion’ through the European financial system. Most of the money is owed, directly or indirectly, to the ECB and they can offset losses by simply printing more money (which they should be doing anyway to combat deflation).
Nor would the ECB cut off funding to Allied Irish Bank or Bank of Ireland – to do so would cause the very contagion the ECB has been desperately trying to avoid. So the risks of taking action are minimal, while the costs of the status quo are intolerable. Drawing inspiration from countries such as Ecuador, where an audit of the debt allowed the government to write down its debt substantially in 2008, we are asking the Irish government to similarly stand up for the Irish people and take action to free us from the burden of this crushing, unsustainable and unjust debt.
Andy Storey is a spokesperson for Debt Justice Action’s ‘Anglo: Not Our Debt’ campaign (www.notourdebt.ie).