In some real and surreal ways, we do not live in a country. We live in a story. Ireland has always been, not just a place but a narrative, a tale we spin for others. Most recently, we have been telling the story we think Germany wants to hear. It is a success story, a tale of plucky little Ireland, taking the punishment it deserves, suffering in silence and then emerging, lessons learned, into a brighter day. The problem is that we told this tale far too convincingly. We are trapped in a convenient fiction.
Our fate is being determined right now in the negotiations for Angela Merkel's new coalition government. What happens in Berlin in the coming weeks is massively more important to us than our own upcoming budget. Which is why the most chilling words we could read are those of Arthur Beesley and Suzanne Lynch's report in Friday's Irish Times: "In German official circles right now, the clear sense remains that Ireland is not a cause for any concern and that the likely return to private bond markets demonstrates that the State has no need for any more debt relief."
This belief that Ireland does not need debt relief has everything to do with the story we have spun (we're grand) and nothing to do with the reality: that if you put public and private debt together we are the most indebted people in the world. This reality was spelled out by the International Monetary Fund in its eighth report on Ireland. The IMF pointed out that the Government's magic trick on the promissory notes, hailed as a triumph for domestic political consumption, actually does very little to reduce the State's debt mountain, creating "only a marginal improvement in the debt outlook". It described Ireland's unemployment and underemployment rate (which it put at 23 per cent) as "staggering". And it pointed out that without the significant economic growth that is always being promised for "next year", Ireland's debt levels will rise to 134 per cent of GDP in 2018 and 150 per cent in 2021. (We're supposed to be at 60 per cent.)
Ireland, in other words, desperately needs debt relief. We have to get back at least the lion’s share of the €64 billion we put into the banks to save the euro. And that’s not going to happen if the Germans are still hearing the fairy story that “Ireland is not a cause for any concern”. If the negotiations between Merkel’s Christian Democrats and the opposition Social Democrats (SPD) result in a pact that says that no common EU fund will retrospectively recapitalise Irish banks, the fairy tale morphs into a horror story.
But there is one chink of light. The signals coming from the SPD are that it might agree to a debt relief fund – if the money for it comes from a financial transactions tax (FTT). This idea has been around for a long time: the EU Commission has already proposed an FTT in which the sale of shares and bonds would be taxed at a rate of 0.1 per cent and derivative contracts at 0.01 per cent. If an EU-wide FTT were used to fund debt relief, this would be a genuine good news story for Ireland.
Blocking an FTT
But there is a twist in this particular tale: Ireland, along with the UK, Luxembourg and the Netherlands, is one of the countries blocking an EU-wide FTT. This is worth repeating: we are blocking the mechanism through which we might get much of the burden of public debt off our own shoulders. Why? Because the Government does precisely what the financial services industry tells it to do.
The financial services lobby is by far the most powerful in Ireland. It is headed by former taoiseach and Fine Gael grandee John Bruton who, as president of IFSC Ireland, has denounced the FTT as an interference with the free market. An extraordinary body called the Clearing House Group (CHG) is chaired by the Secretary General of the Government and brings together senior civil servants, State agencies and the major players in the IFSC. We know that the FTT was discussed at more than a dozen meetings of the group after October 2011. The minutes of the October 11th, 2011 meeting record the Department of Finance as giving an assurance in relation to EU plans for an FTT that "input from the IFSC sector will be crucial to informing our views on the proposal". In other words, Ireland opposes the FTT because the IFSC lobby opposes it.
We are now at a point of critical decision. On the one hand, it is a vital national interest for the citizens of Ireland that Germany agrees to the establishment of a European fund for the relief of bank-related sovereign debt.
On the other hand, the political and financial establishment is utterly opposed to the only policy that can make that fund politically acceptable in Germany. If the Government does not make it clear that it supports an FTT to fund debt relief, we will know, once and for all, the real story of Ireland.
