Let's not delay in pouncing on ECB admission

 

Fourteen months ago, Michael Noonan was quoted as saying: “We need your assistance in dealing with the senior bond holders because we don’t think the Irish taxpayer should have to redeem what has become speculative investment.”

 

Within two days a eurozone source was quoted as saying: “The general stance of the ECB is known and is very unlikely to change.”

 

Last Monday, it became clear that it has, in fact, changed utterly. Reports in the Wall Street Journal that the European Central Bank (ECB) advocates imposing losses on senior bondholders in the Spanish banks is a vindication of this Government’s opposition to bailing out the bondholders. Bondholders freely chose to gamble on insolvent banks. They didn’t share their profits with the Irish public during the boom times. It is wrong and patently unjustifiable that the Irish public was dumped with the bill for their losses as a result of the banking collapse.

 

All members of the troika — the IMF, the European Commission and the ECB — are now in agreement that bailing out bondholders is a ridiculous suggestion.

 

The Irish banking crisis has been the most expensive in the world since the Great Depression. It has cost the Irish State €64bn to date by way of bank recapitalisations. To put this into scale, it is the equivalent of a German banking collapse costing Germany more than €1trn.

 

What is really shocking about the €64bn cost is that this figure doesn’t capture the wider costs to the Irish public of the banking collapse. You see, the Irish banks also remain on the hook to repay loans of about €105bn to the ECB and the Central Bank of Ireland. Almost this entire amount was lent by the central banks to the Irish banks to enable them to repay the bondholders. The Irish banks were bust and simply didn’t have the funds to repay the bondholders in full, irrespective of the bank guarantee.

 

It is patently obvious that the banks are repaying these loans by reducing credit to businesses and potential home-buyers, by charging crippling interest rates to their variable rate loan customers and by hiking up banking charges across the board. Looking at the situation every

 

which way, the Irish public will bear the brunt of ensuring the loans to the central banks are repaid. This is unjust.

 

The damage caused by the banks repaying these odious loans is immense. Reduction of credit to businesses prevents businesses from expanding and employing more people. Holding back on mortgage lending keeps the property market in the doldrums for longer than necessary and keeps young couples trapped in negative equity for a generation. Hiking up bank charges forces customers to tighten their belts even further. All of this sucks money away from the productive economy. Financially, this is a recipe for depression economics.

 

Economists have concluded that household debt in excess of 85 per cent of national income damages growth. Household debt in Ireland stands at 147 per cent. Clearly this debt overhang is having a suffocating impact on economic growth. Austerity will only bring us so far. We need debt write-down to put this economic mess behind us.

 

It’s now crystal clear that the Government was forced, under duress from the ECB, to ensure that the banks repaid bondholders. The onus is now on the ECB to alleviate the impact of their unjustified insistence that investors in dead banks had to be repaid by the Irish citizens. The ECB have admitted their mistake. Now they must pay for it by giving the long-suffering Irish public a break. Writing down the amounts that the Irish banks owe the ECB and the Central Bank of Ireland by a total of €64bn, equivalent to the total bank recapitalisation to date, is a justified and reasonable resolution. The write-down can be passed on to Irish businesses and struggling mortgage holders to provide a boost to an economy dead on its feet. Now is the right time to assert ourselves with the ECB and insist on the write-down of the odious bank debt.

 

Peter Mathews is the Fine Gael TD for Dublin South