Irish support for Athens?

A piece from Foreign Affairs argues that Ireland should support Greek debt relief. This is at a time when the country has formally exited the troika “bailout” and is among the fastest growing economies in the EU.

The piece opens “After three long weeks of closure, Greece’s banks are beginning to open their doors to an expectant public. Following tense bailout negotiations, Greece received a seven billion euro ($7.6 billion) bridging loan to pay down 6.8 billion euros ($7.4 million) of the debt it owed last week to its official creditors. Essentially, it’s a new loan to pay off the old one. Or more accurately, it’s paying off the old loan plus interest. But the end of the deadlock has at least returned some normalcy to Greece. Checks can now be cashed. Limited transfers are again possible. Withdrawals are no longer limited to 60 euros ($66) per person per day, although capital controls remain in place, and will for some time. For now, the maximum withdrawal is 420 euros ($460) per day, and money cannot yet leave the country without approval from the finance ministry. This comes at the cost of more fiscal discipline for the Greeks, even though on the whole the country has already endured a level of austerity seen only during times of war or depression”.

He writes correctly that “In all this, Ireland, a small and open economy that completed its own bailout program only two years ago, has stood shoulder to shoulder with the creditor nations of Europe in denying Greece any debt forgiveness. That is shameful. Ireland is now recording some of the fastest growth rates in the eurozone. But during its own crisis, it, like Greece, eventually lobbied heavily for debt relief. In late 2010, Ireland received an 85 billion euro ($94 billion) loan package in exchange for austerity, recapitalising and restructuring the banking system, and passing structural reforms. At that time, it did not ask for debt relief, and none was offered. But two years later, in June 2012, Irish Prime Minister Enda Kenny began to push for it. He announced that he had made a promise together with European leaders to “break the toxic link between bank debt and sovereign debt” through a debt restructuring that would involve a combination of decreasing the interest rates charged and lengthening the loan repayment periods on some of the debt, perhaps indefinitely, as well as compensating the Irish state for the cost of recapitalizing Ireland’s banks”.

He writes, somewhat controversially that “in early 2013, Ireland got debt relief in the form of extremely long-term bonds, which replaces the punishing high interest rate “promissory notes” that the Irish government issued in 2010 to prevent the insolvency of its two largest banks. To this day, Ireland maintains a commitment, at least on paper, to a debt restructure that will return to taxpayers the money they pumped into the banks, even though privately, many fear such an arrangement will never take place, at least not this year”.

To call this “debt relief” shows the kind of alternate reality that the EU “leaders” are living in. For their to be any real notion of solidarity there must be debt relief not just for Ireland but Greece, Spain and Italy. Therefore to say that simply extending the length of the bonds (which will mean the Irish taxpayer paying even more money to the EU) qualifies as debt relief is laughable.

He then argues that “If Ireland’s economic openness is one factor that allowed Ireland to recover more quickly than Greece, there is another, more important reason: Greece has suffered more than double the amount of austerity imposed on Ireland. Although Ireland will be intensively monitored by the troika of international lenders (the European Commission, the International Monetary Fund, and the European Central Bank) until at least 2018, it has at least escaped the troika’s direct control. And Ireland has done well since. Unemployment is falling below double digits, asset prices are recovering, and investment is rising again as international investors, hungry for yields in a low inflation, low interest rate environment, gobble up assets. It’s all very 2006: It is impossible to get a restaurant reservation these days and traffic jams are back in style. Even though more than 20 percent of all banks’ loans are nonperforming, they no longer have a question mark over their survival”.

Shamefully this overlooks the sickening social cost of the austerity that has been demanded by the EU of Ireland. Poverty rates, homelessness, drug and alchocol abuse, suicides have all risen since and to then glibly say that all is well because traffic jams are back smacks of a disregard for people over the economic machine, irrespective of the social and moral costs.

He goes on to make the point that Greek banks do have a question over their survival, “Greece’s debt is around 180 percent of its GDP. (For comparison, Ireland’s was 123 percent of its GDP in 2014.) For a sense of scale, Greece owes more than 90 billion euros ($99 billion) to Germany alone. It owes around 70 billion euros ($77 billion) to France, and slightly over 61 billion euros ($67 billion) to Italy. The key reason Greece owes so much to its official creditors is that nine of every ten euros loaned to Greece in 2010 went to pay back private debt that should have been restructured at that time”.

He does note that “Greece faces a medium-term financing problem. As the state reduces in size, more and more austerity is required to balance the books. The result is the kind of downward spiral central banks were created to help stop. But Greece doesn’t have the U.S. Federal Reserve of the 1940s and 1950s, which stabilized the economy by taking an activist approach to monetary policy. It has the European Central Bank, a currency board with aspirations, but little substance. The difference in outcomes in Ireland and Greece is also thanks to structural differences in their economies. The proportion of the economy made up of internationally tradable versus non-tradable goods and services in Ireland is much higher than Greece’s. That means that Irish people can earn euros from the rest of the world, not just from each other. To a much greater extent, Greek people only earn euros from each other. So, when a large shock comes along, Ireland is better equipped to weather it than Greece. If Ireland’s economic openness is one factor that allowed Ireland to recover more quickly than Greece, there is another, more important reason: Greece has suffered more than double the amount of austerity imposed on Ireland”.

He concludes “Right now, the Greek experience has shown the world that the institutions of the European project are not yet up to the task of crisis management. In extremis, it seems, leaders would rather openly discuss kicking a country out of the currency union than provide some sort of relief for its debts. In that case, the EU is not a currency union but a series of bilateral currency pegs. And, as such, a Greek exit in the next five years could still come to pass”.

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