Cast your mind back four or five years, to when the full extent of our banking collapse became apparent. In particular, look at that fateful night in September 2008, when the two Brians decided to guarantee the entire Irish banking system, including two of the worst banks in the history of finance: Nationwide and Anglo. Nobody knows why they chose to commit an act of such monumental stupidity, but we’ve been living with the consequences ever since.
Barely a month ago, the government was claiming a great victory for renegotiating the repayment schedule of the Anglo promissory notes, and it’s worth pausing here to remind ourselves what exactly that means.
We’re no longer paying the Anglo bondholders. They have all their cash. They’ve already been given their money back, even though the business they lent it to went bust. The Irish State made sure that no bondholder would lose out, even though they had taken a risk in advancing the money to the failed bank. In order to finance this, the government issued promissory notes enabling the Central Bank to print money, and each year the government agreed to pay several billion back until eventually the value of the promissory notes was written down. That’s still the case. We’re still on the hook for thirty-something billion euros which we borrowed to make sure those who gambled on Anglo didn’t suffer.
Enda Kenny’s great victory was nothing more than getting a concession over the length of time we have available to pay back the money. But we still have to pay it.
Contrast this with the Cyprus bailout, which involves burning even the senior bondholders who, in all likelihood, will be lucky to get away with a haircut, and who, more probably, will lose everything.
Why was it impossible to do this in Ireland in 2008, but five years later, perfectly acceptable in Cyprus?
Could it have to do with the fact that the Cypriot politicians were outraged at the injustice being inflicted on their citizens and pushed the ECB to the brink?
Lenihan didn’t do this, and neither did Cowen. When Trichet was making his midnight phone-calls, Lenihan, so proud of his French language skills, didn’t tell him va te faire foutre, as he should have done.. When Kenny and Gilmore took over, they were just as craven, continuing to pay off debts we, the Irish people, did not incur, until every last bondholder was looked after.
Cyprus might be in serious trouble right now, for various reasons, but when they get out of this, they won’t have the legacy of a debt raised to pay off international investors who knew they were taking a risk and factored that into their calculations.
We, on the other hand, will be paying that kind of debt for generations because our politicians didn’t have the guts to say no to the ECB, even when the IMF was saying that bondholders didn’t necessarily need to be paid in full.
It’s true that the Cyprus situation is robbery, but no more so than the robbery that continues in Ireland to ensure that vast hedge-funds are protected from their own mistakes.