Ireland Deserves Breathing Room on Debt to Revive Economy - BLOOMBERG



Even by Europe’s standards, the people of Ireland have plenty to complain about. Their economy is in the grinder, and living standards have crashed.

Last week -- talk about piling on -- a long-running official inquiry declared that corruption in Irish political life has been “both systemic and endemic.”

The Irish have every reason to despair of their rulers in Dublin and farther afield, and that’s cause for wider concern. Support from the European Union during their ordeal has been grudging at best. With a population of fewer than 5 million, Ireland is small, but small countries can make a big difference.

In the governance of the European Union, the disproportionate weight of small nations is part of the constitutional formula. On May 31, Ireland will hold a referendum on the EU’s new fiscal compact. A “no” vote won’t stop the agreement from taking effect -- which is a pity, because it’s badly designed -- but it would undermine the pact’s legitimacy. Ireland’s grievances need to be addressed before they become a threat not just to Irish democracy but also to the wider European project.

Item one on the list is Ireland’s effort to amend a government obligation to the Irish Bank Resolution Corp., the entity Dublin built to contain the failed Anglo Irish Bank (and a couple smaller, equally broken institutions). This unusual debt -- called a promissory note -- pays cash to the IBRC, which in turn services a debt to the Irish central bank under an emergency liquidity program. The government wants to defer its next payment of about 3 billion euros (2 percent of national output) which is due March 31, and reschedule the obligation in future years.

Rules Are Rules

The European Commission and European Central Bank are resisting. (Under the terms of the euro system, Ireland’s obligation to its central bank is, at one remove, an obligation to the ECB.) The debt must be serviced as promised, they say. Rules are rules, and they can’t make an exception for Ireland.

This is a mistake. An exception should be made for Ireland because the terms of the Irish bank bailout were themselves both exceptional and unfair.

With the EU’s encouragement, the Irish government burdened its taxpayers with a debt equivalent to 20 percent of gross domestic product so that the failed bank’s unsecured creditors and bondholders could be made whole. Nothing on that scale was done elsewhere. Lately, Ireland has cut its budget deficit sharply.

Unlike Greece, it can’t be accused of backsliding. And it isn’t asking for its obligation to the ECB to be forgiven, merely extended.

As for “rules are rules,” the ECB has lately bent them to the tune of about 1 trillion euros as part of its new liquidity arrangement for euro-area banks. In comparison, flexibility on Ireland’s promissory note is little to ask. In effect, it would merely apply current ECB policy on bank recapitalization to the Irish situation. The March 31 payment should be deferred, and the future schedule of payments restructured.

In turn, the Irish can do something for Europe -- and themselves: Undertake a domestic political cleansing. The report of the Mahon tribunal describes pervasive corruption in the Irish land-zoning system and a culture of impunity that extended to the very top. This week Bertie Ahern, a former prime minister who for two decades was among the most popular politicians in the country, was forced to resign from his party.

The tribunal said it didn’t believe his claims about the provenance of payments he had received.

Morally Bankrupt

The tribunal’s findings didn’t come as a tremendous shock. It has been investigating since 1997 and has issued numerous interim findings. Still, the panel’s 3,270-page final report was depressing enough to convince many Irish that their state was, in the words of an Irish Times headline, “morally as well as economically bankrupt.”

The tribunal makes many recommendations for reform, and these should be vigorously pursued. Ireland needs stiffer punishment for bribe-payers and bribe-takers, and full disclosure of political donations. New laws to this effect are under consideration, which is good, but a fresh zeal in enforcement matters even more.

Most of the misconduct detailed in the report is already illegal and has been previously subject to police investigation, but the inquiries led nowhere. Tackling the problem may be more a matter of cultural reform than of law-making. Irish public figures need to rethink what’s acceptable, and Irish voters need to insist that they do.

Today’s mood of cynicism and despair will be self- fulfilling if voters, thinking their politics beyond repair, simply switch off. They deserve better from their politicians and from Europe -- but they won’t get it unless they make themselves heard.

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