Speculation is growing that the new Dublin government will this week be forced to require that at least some bond-holders ‘share the burden’ of losses in the Irish banking system as tensions mount within the European Union over the cost and scale of the international bailout loan plan for the 26-County State.
A key Euro summit on Thursday will hear it is the policy of the new coalition to force holders of non-guaranteed and late-maturing bank debt to share the losses incurred by corrupt Irish bankers, according to Agriculture Minister Simon Coveney.
Coveney’s statement appears to end months of wavering and confusion by the dominant coalition party, Fine Gael, which attacked the Sinn Fein policy of ‘burning the bondholders’ before the election, before moving towards acceptance of the idea, albeit to a limited degree.
As late as last week, the new Finance Minister Michael Noonan was still prevaricating on a manifesto commitment to ‘burden sharing’.
But new figures have since shown that the Dublin government will have to access up to 35 billion euro more in bail-out funds to recapitalise the banks, on top of 190 billion already owed - a level of debt now accepted as unsustainable.
Fine Gael leader Enda Kenny will reveal the new ‘burden-sharing’ policy on Thursday, when he will also attempt to shave at least a percentage point from the punitive interest rate being charged on the EU bail-out.
He will also reiterate to hostile Euro leaders that Ireland will not consider any increase in the 12.5% corporation tax rate.
The 26-County state’s very financial existence depends on Kenny finding some backbone in dealing with the open enmity of French president Nicolas Sarkozy and the petulant scheming of German premier Angela Merkel.
Kenny and Fine Gael were strong advocates of European integrationism and centralism in the debate on the Lisbon Treaty, but could now be forced to go ‘walkabout’ from Europe, in the words of right-wing TD and political analyst, Shane Ross.
Fine Gael once promised the Lisbon Treaty woud deliver jobs and financial security for Ireland -- but ironically it is French efforts to capture Irish jobs and Germany’s stubbornness over lending financial support which are the main stumbling blocks to Ireland’s economic recovery.
Coveney said Fine Gael and Labour have agreed a plan to make private investors assume a share of the 190 billion euro bank debt. He was at pains to distinguish between the bank debt and sovereign debt.
“People need to separate the two issues. We need to borrow money from the European Stability Fund and the IMF to deal with an ongoing deficit problem in Ireland until we fix that deficit, which we will do in the next three to four years,” he said.
“But bank debt is a completely different matter. There is an assumption abroad that the bank guarantee somehow prevents the Government from forcing private investors to take on the debt.
“But the bank guarantee doesn’t last forever - and there is a significant amount of debt that isn’t covered by the existing guarantee, about 21 billion euro of it...
“This is something that we want to try to renegotiate, in the context of an overall European banking solution.”
New ‘stress test’ figures on the state of the Irish banks show they may soon require a further injection of 35 billion euro to stay in business -- money which the government simply does not have. The new government appears set to resist pressure to fully nationalise the banks, instead taking loans from the EU and the IMF.
However, the state cannot afford the interest rate being imposed by Europe and efforts to negotiate a reduction in line with those of Greece’s bailout failed dismally. French attempts to bully Kenny over the corporation tax rate were blamed for the failure.
Emergency loans to Irish banks rose by as much as 19 billion euro last month as the European Central Bank changed collateral rules, forcing the lenders to borrow more from the Irish Central Bank and putting further strain on the state’s financial system.
On Wednesday last week, IMF chief Ajai Chopra was on Dublin for talks on the financial situation.
Sinn Fein TD Mary Lou McDonald called on the government to show some bottle when it comes to issues that affect ordinary people such as water and property taxes and spending cuts that affect low and average income earners.
“The IMF deal and its cutback agenda will cause untold hardship and must be challenged. Rather than going into today’s meeting to agree a common platform the Ministers must be championing the rights of the ordinary people who voted them into power just a couple of weeks ago.
“Ultimately the deal should be put before the people in a referendum. This would strengthen the hand of the government and would also be the democratic way forward.”
Reflecting the depth of the financial crisis facing the State, Chopra and the infamous IMF are offering lower interest rates, under harsh but relatively straightforward loan terms, in contrast to the coercive demands of the European Union.
Sinn Fein’s Padraig MacLochlainn described the issue of defending the corporation tax against pressure from our Euro neighbours as “a false battle” and a “distraction”.
“The real battle is the challenge to our European partners to do what is right, to do what is fair; to do the decent thing and not force ordinary working families to foot the bill for reckless gamblers in financial institutions,” he said.
Since the election of the new Fine Gael/Labour government, nurses and workers in the fast-food industry have already been forced into protest campaigns against attempts to reduce their wages.
eirigi has said it is ready to engage in street protests against what is said is “the IMF-induced austerity programme and attempts to introduce water charges and a new tax on the family home”.
“Working people in the Twenty-Six Counties have been constantly fed the lie that cuts are ‘necessary’ in order to plug the budget deficit,” said spokesman Daithi Mac an Mhaistir.
“eirigi and our companion organisations in the 1% Network have consistently highlighted the fact that a tiny elite continues to control vast wealth in this state. The Sunday Independent ‘rich list’ demonstrates that the one per cent are now even richer, yet the living standards of working people are declining.
“The previous government introduced a punitive Universal Social Charge, which is having a detrimental impact on the income of working people and the new government will continue to impose this crippling burden.
“However, there is a continued refusal within the political establishment to even contemplate the introduction of a wealth tax aimed at the parasites that comprise the one per cent. It is imperative that we mobilise in our communities and our workplaces to highlight the gross inequality that pertains in this society and to fight the cuts and stealth taxes that will be imposed by the new Fine Gael/Labour coalition.”