Writer, activist and film-maker Thomas Fazi asks a pertinent question in The Irish Times (November 18th). Why do countries who fundamentally disagree with Germany's austerity approach to managing the euro crisis not step in and put an end to it? Unfortunately, he leaves this question dangling. Perhaps because a pro-active approach would undermine his article's passive, periphery victim narrative. Countries like Ireland are solely victims, not beneficiaries, of the euro area and are now easy prey for the bloc's largest member, Germany, he suggests.
In Fazi’s framing, the last decade of boom, bust and austerity in the euro area are one big “Made in Germany” conspiracy.
The problem at the heart of his argument is how, with a mixture of suggestion and omission, he revives the “German banks shouldn’t have given us so much money” narrative that played out in the Irish media during the bailout years.
Fazi says German banks lent banks in Ireland, Greece, Spain and Portugal and Italy some $720 billion at the end of 2009. He doesn’t say where he got the number, nor does he put it in context. $720 billion is a lot of money but Germany is a big country and the five recipient countries, with a total population of 120 million, were capital-hungry markets before the crash. In hindsight, they were bad investments, but few were listening in 2009.
Is he suggesting German banks deliberately, recklessly, lent into Ireland and other periphery countries?
This suggestion, that German banks had a kamikaze fascination with Ireland, has been doing the rounds for some years now. It touches an Irish victim button but stems from confusion over the German banks with interests in Ireland. Most came to the IFSC to take advantage of Ireland’s negligible banking oversight rules and low corporate tax demands. These banks, though big players, were never part of the domestic Irish economy and were not in the business of lending to Irish banks. Banks with German parents, like Depfa, were lending to into infrastructure projects worldwide, not Ireland’s housing bubble.
So, putting Germany’s internationally-operating banks to one side, what about German lending to Irish banks and their customers? Were German banks lending recklessly into the pre-crisis Irish economy?
I spent quite a lot of time digging up information on whose money was in Irish banks at the time of the bank guarantee and bailout. Data is spotty and incomplete, but I have yet to find any compelling data to suggest that German banks were over-represented in Irish banks just before the bailout. If anything, the data I found suggested they were under-represented.
In 2012, I acquired and reported on previously unpublished data showing that, when the music stopped in 2008, it was banks based in Britain – not Germany – that were by far the biggest source of funding for Irish banks. I have yet to hear a theory that Ireland’s bust was a conspiracy cooked up in the City of London.
And what of our infamous bondholders? Consolidated data sets show that one quarter of bondholders in 2008 were actually Irish and two-thirds were non-euro area. The entire euro area, including Germany, held just 13 per cent of the total. Of course the data available is far from complete or perfect, but it is quite different to what Fazi and other German critics say.
It would be very interesting if Fazi has truly found a smoking gun that proves Ireland’s crisis was bankrolled by Germany.
Finally, Fazi implies that Germany operated in the euro zone with its banks lending to Ireland and other periphery countries to buy German products. It’s true that high-end BMWs and Miele appliances were everywhere in boomtime Ireland. We all remember people announcing proudly – perhaps it was even true – that there were more BMWs on Irish roads per capita than in Germany.
Yes, there is a clear link between German car companies and their affiliated financing banks. In an open market system, capital goes where there is a demand, where people are spending it in a big way. And in Celtic Tiger Ireland, Bertie Ahern told us the boom could only get boomier and the Irish political and financial elite believed they had mastered financial alchemy. Only when their gold turned to lead did the finger-pointing begin.
In 2012, I asked Michael Somers, the former National Treasury Management Agency head, what would have happened to senior officials had they suggested limiting capital inflows to the pre-crisis government – from Germany or elsewhere. His answer: “It’s fair to say they would have been taken out and been shot”.
No data has yet emerged to prove that German banks lent Ireland “so much money”; no one has even defined what “so much money” would have been. And, even if this were the case, anyone who suggested limiting borrowing would have faced a metaphorical Merrion Street firing squad. Celtic Tiger Ireland was a casino table with no limits, and there were more Irish at the table than Germans.
Germany is the principal source of our misery? I guess you can’t keep a good conspiracy theory down.