Only a miracle can save financial system from complete meltdown...
MICHAEL Noonan talks the talk, but last Wednesday the only walking he did was backwards. It confirms that the EU is running the show. The light we saw flicker at the end of the tunnel has been blown out and is unlikely to be rekindled any time soon.
The new Government had an opportunity to deliver on its election promises. It failed abysmally on one of the key issues. It didn't renegotiate the EU/IMF deal to withhold repayments to the senior bondholders, as promised. It might have been shot down in flames had it persisted with this approach. But it would have preserved its credibility at home. Its proposed bank reorganisation is a whitewash, and only intended to distract us from the cover-up of what is going on at the highest level in Europe.
This is not totally unexpected, but it is very disappointing. Weeks before the general election Pat Rabbitte and Simon Coveney said, on separate occasions, that protecting our banks was of paramount importance. It was clear even then that they had no intention of penalising senior bondholders. That was all election talk. We still have politicians who are not up to the job of reforming our banks and setting us on the path to recovery.
It was a mistake to try to save all the banks. Now we have the same, albeit fewer, contaminated banks. But we owe even more. Independent experts, who should know better, have suggested that there is so little owed now to senior bondholders that we should forget about haircuts. Tell that to the SME sector, in which people can't get an overdraft to sustain their businesses.
Based on recent reports, the €16bn or so that we owe senior bondholders would halve the total indebtedness of the SME sector. It would avoid robbing the National Pension Reserve Fund, which should never have been touched. It even makes the cost of the outgoing TDs (€13m) seem cheap. When that happens, you know it's too much.
And €16bn is a lot of money to forget about. Would the IMF or the ECB lend us €16bn without charging interest? They should do that, and more, to help with what we are doing to solve our economic problems. After all, the financial burden that is being placed on the Irish taxpayer has been created so that our EU partners can offload their own problems.
If we didn't have to pay back this €16bn we could reschedule impaired homeloans and avoid the inevitable defaults coming down the line. Mr Noonan and Mr Kenny need to realise that their plan will not work. They have not solved our problems. They are not even close. In fact, they have created an even bigger problem and, like Nama, once it starts there is no going back.
Mr Noonan has put the cart before the horse. Renegotiating our position with senior bondholders within the EU framework should have been first. There were various options open to us, including deferring any more payments until the bigger picture in Europe is established. Portugal has fallen and Spain is not out of the woods. We have already gone too far, and the EU has done nothing to restore confidence on international markets.
Our new Minister for Finance claims that the EU has been very supportive. He claims that investors and bondholders have already sustained losses of over €70bn. But aren't they mainly our own people who lost their savings and pension funds? That is not new! We were counting on you to rewind the bad deal that was made by Fianna Fail. You have let us down. All the upbeat talk about this new solution will not make it viable. When you've a bad apple in the barrel, get rid of it and save the rest. When they're all bad, it is time for a new barrel.
Maybe it is time to call it a day for more of our contaminated banks. If the EU was more supportive of our radical actions and cut our debts or extended interest-free credit we might succeed in saving all the banks. We cannot afford to service the national debt as it stands. Failing a miracle it is only a matter of time before our entire banking system implodes.
Even though the Government won't admit it, the EU is abandoning us. In the circumstances, we cannot afford to support all of our contaminated banks. If the banking system collapses, we run the risk of having no access to funds. Businesses would collapse, as could our society, unless the EU or the international community stepped in.
Given that they have been abandoned, with the exception of the costly EU/IMF bailout fund, we should reappraise our banks on a break-up basis. The EU wants to avoid bank failure, but it is not willing to pay the price. Is it really only about €16bn? I support a unified Europe, but not at any price.
We don't have the resources to save all our contaminated banks. Therefore, we are left with no choice but to save what we can and leave the rest. We can afford to do that, but we can only afford to prop up all the ailing banks if the EU pays the rest. We need a functioning banking system. Those who are already funding the part of the system that will live will continue to fund it. It is in their interest to do so. Our decisions will guarantee their investment.
What is left is no different to what we have. That is a contaminated banking system for which the clock is ticking. There is no reason why even that cannot repay its investors in an orderly wind-down. We couldn't do any more than we already did in terms of honouring our financial commitments. The EU is not being realistic. But even Michael Noonan has abandoned the national interest and is being led by his EU masters.
A radical restructuring does not mean that the whole system will collapse as we are led to believe. We are not running away, but we should be realistic.
Report by James Fitzsimons - Sunday Independent
(James Fitzsimons is an independent financial adviser specialising in tax and financial planning)