So, despite the assurances of the government which dominated news headlines last weekend, the European Central Bank, the European Commission and the International Monetary Fund are now in Dublin to discuss the provision of a loan. The governor of the Central Bank, Patrick Honohan, gave an interview with RTÉ’s “Morning Ireland” saying that he expected “a substantial loan” of tens of billions to be provided to the Irish government, with a five per cent interest rate. The Minister for Finance, Brian Lenihan, stated to the Dáil on Thursday that a contingency loan would be a “very desirable outcome”.
There has been a long-held fear about the intervention of these bodies, the IMF in particular, because of the historic ability to dictate draconian terms and conditions on governments looking for funding. Argentina’s economic collapse in 2001 saw demands placed on the Argentinean government to drastically reduce its budget deficit. Unfortunately, tax income plummeted as the crisis worsened, which meant that the government was forced to slash public spending, with cuts of 18% in public expenditure placed in the 2002 budget.
More worryingly, given that reducing budget deficits were aimed to reduce fears among international markets and investors, the Argentinean government announced austerity measures to cut public spending in advance of a sale of government bonds in July 2001; these measures failed to assuage market worries. These bonds could only be sold following a sharp rise in the interest rate the government had to pay, reaching 14% while bond sales the previous month were sold at an interest rate of 9%, a rate which Irish government bond rates are currently hovering around.
The European Commission and the ECB have long been eager to press the point that they do not want to force Ireland to take a loan, but rather it is for the government to ask for assistance. This opinion has not been shared by all, though, with weaker Eurozone economies hoping a loan is given to Dublin, especially Portugal and Spain. With Ireland reluctant to seek assistance, market worries about the ability of weaker European economies to fund their economies have added further pressure on governments looking for funding from the markets. The opinions of Lisbon and Madrid are understandable; the securing of the Irish economy by loans from the IMF and the ECB eases market fears, reducing the interest demands on other Eurozone economies borrowing from the international markets.
The overriding question coming from this situation is: did the government delay in looking for assistance from the ECB and the IMF to maintain a level of independence and dignity, and what happens now following the apparent failure of this course of action? Mr. Lenihan stated in the Dáil that any delay was caused to protect the Irish taxpayer, but from what? If it was to protect from speculation, it failed, because taxpayers and the media here and abroad have spent the last week speculating about if, and when, the IMF would be called. If it was to protect from the grim reality that such a loan would lead to a draconian drive for deficit reduction, it failed, since it merely delayed the inevitable, leading to market uncertainty, an unwise move when the government needs to borrow money with the budget now less than three weeks away.
The Taoiseach has insisted that Irish sovereignty would not be threatened, but this cannot be the case once the IMF and the ECB become involved in supporting the economy. The IMF has a long history of interfering with national governments decisions once it has provided loans to countries, Argentina being one of the most recent examples, while the ECB’s (and the euro’s) very existence is credited to an agreed loss of sovereignty by EU member states. These organisations will not allow the government to do as it wishes with their money, lest the government misspends it and comes back, cap in hand, looking for seconds.
The “Irish Times” editorial on Thursday morning summed up the feeling many have towards the oncoming loss of national sovereignty by asking if the struggles of the last few centuries which secured Ireland’s political freedom from Britain, the fight for self-determination, was worth the effort if our own government helped lead us to this point. The nation was founded to emphasise our difference from the United Kingdom, and that the Irish people would decide the fate of their country. The presence of the IMF and ECB radically changes this dynamic, as they will have the final say in how this country’s economy will be run as long as our debts are outstanding.
The most damning point of this mess is that it was not the IMF, nor the ECB or the single currency, nor the European Union or any other country which caused our once-wonderful economy, formerly the envy of the world, to collapse. It was our government, elected by the people of Ireland, which encouraged the risky practises of banks, the bubble boom of the property market, the “buy now, pay later” culture which allowed personal debt to spiral out of control. These economic moves were strongly supported by the general public, main opposition parties included, during the good times. These economic policies have now come back to haunt us.
For me, the single most upsetting aspect to this sorry state of affairs is not that our economy is nearly bust, or that government bond prices are so high. It’s not that we need help from our neighbours, or from the dreaded IMF. It’s not even about playing the blame game with regard to how we got into this mess in the first place. Rather, it’s that the government hid the facts from us. Last weekend, the cabinet was adamant that Ireland was not about to go looking for assistance but, less than a week later, we have two major organisations in Dublin looking at Ireland’s plans to reduce its budget deficit and how much the government needs to loan.
It’s popular to despise Fianna Fáil, and understandably so, but my complaint to the government is not about their economic policies, or their methods of restoring confidence in “Ireland Inc”. My complaint is about the evident belief held by the government is that we need to be hidden from the harsh realities of the coming weeks and months. It’s a question of trust: if the government cannot trust us, the people responsible enough to put them in office, to be mature enough to handle the pain of the next few years, how can it expect us to trust it to lead us through it?
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