Morgan Kelly's article - the digested read
Morgan Kelly's article in the Irish Times on Saturday has had everyone talking. At almost 3000 words, it's a pretty lengthy read - so if you haven't time, here's the bullet-point version, complete with dimwitted rugby players, Northern Rock analogies and a scathing assessment of Central Bank governer Patrick Honohan.
- The bank guarantee of September 2008 was a mistake, but a much bigger one was failing to reverse it when it became clear that the bank losses were insupportable.
- Patrick Honohan gave "an extraordinary interview" to Bloomberg on 28 May last year, giving assurances that “the two big banks, fixed by the end of the year. I think it’s quite good news the banks are floating away from dependence on the State and will be free standing”. Riiiiight...
- Honohan's miscalculation of the bank losses is the costliest mistake ever made by an Irish person.
- With Ireland's reserve fund enough to keep us funded until this summer, Brian Lenihan was in a strong negotiating position when he initially refused to countenance an EU/IMF bail-out last November - but that position was blown out of the water by Honohan's admission on Morning Ireland on 18 November that Ireland would need a bailout of “tens of billions”.
- The IMF proposed reductions of €20bn on unguaranteed bonds totalling €30bn and Lenihan apparently told the IMF team: “You are Ireland’s salvation.”
- However, the pesky Yanks vetoed such reductions - US treasury secretary Timothy Geithner, the man who sanctioned €13bn of payments from State-owned AIG to Goldman Sachs, "believes that bankers take priority over taxpayers".
- The EU/ECB were also insistent on all debts being repaid in full. The IMF wanted major haircuts. The Irish negotiating team sided with the EU/ECB - prompting one IMF staffer to describe the Irish as "displaying strong elements of Stockholm Syndrome".
- The bailout was on a par with the Bank of England insisting that Northern Rock be rescued by Newcastle City Council.
- "The sole purpose of the Irish bailout was to frighten the Spanish into line with a vivid demonstration that EU rescues are not for the faint-hearted ... The ECB is keeping its fingers crossed that Spain pulls through by itself, encouraged by the example made of the Irish."
- "Irish insolvency is now less a matter of economics than of arithmetic ... The predictions for Ireland's debt by 2014 range from €220bn to €250bn, but either way we are talking of a Government debt that is more than €120,000 per worker." (To which we add: So, like, around 27 years of total income tax from someone earning the annual industrial average...)
- Ireland's two main banks were "run by faintly dim former rugby players" - so nobody thought they could run up enough debts to bring down a continent.
- The European Central Bank sees its main task as placating the editors of German tabloids.
- Ireland, and Europe's other small crisis countries, will eventually be forced into some sort of bankruptcy - which would be a disaster for us. Creditors could sell debt to so-called 'vulture funds', which could have "national assets such as aircraft impounded in the hope that they can make a sufficient nuisance of themselves to be bought off".
But does he have any solutions?
1. The problem is so big that it's not our problem any more. This is a good thing, apparently. The ECB must confront the problem - as it's owed around €160bn by Irish banks. "The ECB can then learn the basic economic truth that if you lend €160bn to insolvent banks backed by an insolvent state, you are no longer a creditor: you are the owner," writes Kelly, adding that we can halve our national debt to €110bn at a stroke.
2. The response of Europe would be to cut off funding - so the second solution is to bring our deficit under control by balancing the budget immediately. This "is not painless", he says, with more than a mild whiff of grand understatement.
We know this will never happen, he concludes, writing "Irish politicians are too used to being rewarded by Brussels to start fighting against it, even if it is a matter of national survival". This year's election wiped out Fianna Fáil. The next will wipe out Fine Gael and Labour. And into the abyss we stare...
If you want to read the unabridged version of Morgan Kelly's article, click here.