OPINION:Imagine the following conversation between an Irish and a German taxpayer on a bus . . .
IRISH TAXPAYER (Séan):I am really furious right now, Helmut. You are simply not being fair. Why don't you help us out when we need it?
German Taxpayer (Helmut):Help you out, Seán? I'm not sure I understand. Why should we help you? You got yourselves into this.
Seán:No. You did, Helmut. Your investors – and those from all over Europe – lent to the Irish banks, financing their property market gambling by buying their bonds. The Irish banks are now insolvent, and those investors' bonds should be worthless. But, despite all Angela Merkel's talk about haircuts for bondholders, you won't allow your own investors to take the hit that they should be taking, to get "burned" the way they should! Do you know how much senior bank debt there is in Ireland? €42 billion! Our total national debit is only €90 billion.
Helmut:Wait a minute, Seán. You want me as a German taxpayer to bail out your insolvent State – in exchange for which you will restore budgetary order to Ireland, but inflict losses on German – and other – investors which could trigger pandemonium in the banking sector in Germany and elsewhere across Europe and cause a currency crisis? Well, thanks, but no thanks, Seán. We had enough of currency crises in Germany in the 1920s. Why on earth should we give you our money so that you can use it to present us with another set of gift-wrapped crises?
It is true that Ireland and its banks going bankrupt doesn’t help anyone. So if you want our money to get you out of your problem, it seems fair enough to organise a loan for you. But – let’s be fair – this should not be at our expense. We and our friends will use our good names to get you a loan of, say, €67.5 billion. But you can pay the usual market rate – and throw in €17.5 billion yourselves. Self-preservation dictates we simply have to impose a condition on this help, though, you are not to wreck our banking system by “burning” senior bondholders.
Seán:So, you mean the money the banks owe the senior bondholders to whom our Government issued the guarantee will just have to be paid?
Helmut:No. I mean all the senior bondholders will have to be paid, Seán, even the ones holding the €19 billion worth of senior bank debt you never guaranteed. This is not about guarantees.This is about you not wrecking our banks and investors.
Seán:But that's not fair! Look, €67.5 billion just isn't enough to recapitalise our banks and allow us any spare cash to stimulate economic growth. Plus, you're charging us too high an interest rate. It's not clear we will even be able to pay this. And on top of that you are now making us take on bank debts that our Government never said we'd pay!
Helmut:Calm down. I know it will be tough, but there's at least a reasonable chance you will be able to pay. . Here's a copy of the EU treaties. Show me where it says in there that we would bail you out if you bankrupted your own economy. That's right . . . nowhere. It's maybe not the right moment to say this to you, but the reality is you should actually be grateful that I am giving you any help at all. We don't have to. Look, tell you what, we'll think about keeping low-interest ECB funding for your banks going for just a bit longer, and maybe when things calm down in a few years we might lend you more if you need it.
Like I said, it’s in nobody’s interest to see Ireland bankrupted – although it is fair that you feel quite a bit of economic pain for your really irresponsible behaviour. You can’t seriously expect us to lend you money while you instigate a panic with your “bondholder- burning” that would wreck our banking system and our currency.
Seán:We won't pay this. We can't pay it. It's too much.
Helmut: I am afraid you will have to, Seán. If you don’t accept the terms on offer you have absolutely no way of financing your ongoing budget deficit. Plus your banks will collapse because, well, you’ll have nothing to finance them with.
Seán:We could just refuse the loan and bring you down too.
Helmut:I don't think you would dare. For a start, another major crisis in the euro zone is in nobody's interest – least of all Ireland's. Secondly, Ireland would collapse financially first, not anyone else. Your problem, Seán, is that you are looking at things the wrong way. You are supposing a moral duty on other countries to help Ireland out to an extraordinary degree. I don't accept the existence of any such duty. The reality is that every state in the euro zone, and indeed in the EU, is there, for the most part, for its own benefit: out of enlightened self-interest.
Seán:You have a strange idea of EU these days.
Helmut:Is it so very different from yours? I don't recall too many Irish people on either side of the Lisbon Treaty debate in Ireland ever talking about Europe's interests. On the contrary, that debate was all about Ireland, Ireland, Ireland. It strikes me that people who accuse Germans of not being very good Europeans should look into their own hearts a bit more.
Gavin Barrett is a senior lecturer specialising in EU law in the school of law, University College Dublin