For Ireland, the banking war is over and the disappointment is palpable. The result of the long-awaited “stress” test on the Irish banks revealed the cost of their rescue has reached €70 billion. The government and the financial authorities believe that is the “final” figure. They have even suggested this figure may be too pessimistic. The only sane reaction to that is cynicism. Having been told on four previous occasions that no more money would be required for the banks, who could be surprised if we find ourselves being asked to swallow another “final” figure in 12 months’ time?
The most alarming aspect of last week’s events is that they could have been presented by the Fianna Fail-led government that was ousted from power just a few weeks ago. The Fine Gael/Labour coalition was elected with a thumping majority, and on the promise that a new approach would be taken to the banking crisis that has crippled the country for three years. Instead, we got more of the same.
The process of “stress-testing” the banks was put in place by Brian Lenihan. The assurance that holders of senior debt would be made whole was a mantra favoured by the last finance minister. The dangers facing Ireland if we decided to unilaterally default on bank debt was frequently cited. Now it is Michael Noonan delivering the script, and the sense of deja vu was complete when Mr Noonan argued that he would not be thanked for taking any steps that would mean people were unable to withdraw money from ATMs. That, too, was a line used by his predecessor.
Fianna Fail was trounced at the election because it brought the country to its knees, and its electoral drubbing was well earned. Fine Gael and Labour were always going to end up in office, but they now stand accused of overselling themselves to the electorate. The banks, they told us, would not receive “another cent” unless the senior bondholders who helped to fuel the credit fire got burnt too. The voters liked the sound of that.
Mr Lenihan, his credibility in tatters, argued that the European Central Bank (ECB) had been emphatic that bondholders would not be left behind when Ireland was rescued last year. Enda Kenny believed that a new administration had a fresh mandate to insist on a different answer. In Brussels, 10 days ago, he was disabused of that notion. Not only has Ireland been told to lay off those senior bondholders whose rights rank alongside those of ordinary depositors, but it hasn’t received a single concession on the terms of the rescue plan. We cannot even convince the ECB to turn its emergency short-term funding of the banks into something more long-term that would put confidence back into the sector.
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The past week, then, has been a wake-up call: bad things happen to a country when it loses its sovereignty. But the fact remains that the debt being loaded onto the Irish public is unsustainable. This argument is still falling on deaf ears in Brussels, but somebody has to start listening soon. Having refused to use default as a negotiating tactic, Ireland has put the interests of the euro and other eurozone countries ahead of those of its citizens. It makes no sense, therefore, to keep pushing this country into a position where it will, through no fault of its own, be forced into a default if some mechanism cannot be agreed to ease the financial burden.
Mr Kenny and Mr Noonan must put last week’s disappointments behind them and start making the argument that a financially weakened Ireland will eventually threaten Brussels’ beloved euro project.