Reality Check: Ireland has a large debt burden but it's better to deal with the facts than recycling myths as Ivan Yates, former Irish government minister, who recently returned to media work in Ireland following a year in the UK going through a bankruptcy process, did last week in the Irish Independent when he wrote on Angela Merkel, German chancellor: "She signed up to an EU deal on June 28 last year, which could permit the European Stability Mechanism to provide capital to any of the 130 large distressed banks in the Eurozone, including retrospective payments."
Last June, Finfacts noted that Ireland is second to Greece in the rankings of the burden of sovereign debt but when household debt is included, we are the biggest debtor of the western world as a ratio of economic output.
As for the year before, there was no EU deal and the relevant paragraph of the communiqué [pdf] of the June 29, 2012 European summit, reads:
There was no commitment about retrospective payments and nor was there a suggestion of an agreement that the European Stability Mechanism (ESM) rescue fund, would in future recapitalize banks. A possibility is not a commitment or agreement.
Enda Kenny, taoiseach/ prime minister, claimed the EU statement was a seismic shift in EU policy.
“What was deemed to be unachievable has now become a reality and that principle has been established and decided and agreed upon by the council, by the heads of government,” he said in a comment to the media in Brussels.
“This is a massive breakthrough for Ireland and it changes the game in terms of our bank debt,” Eamon Gilmore tánaiste / deputy prime minister, told RTÉ radio. “This deal will allow the country to recover much faster,” he said.
Michael Noonan, finance minister, said: “This [deal] takes this further in terms of policy and the intention now is to separate certain bank debt completely from the sovereign balance sheet.”
The Irish ministers, with good experience in spin, appeared to have believed that by claiming that an actual deal had been done, would bring pressure on Germany.
Wonder if anyone of them could name a leader who promised a refund?
Ivan Yates claims that there was an agreement to use the €500 ESM fund to refund all governments the costs of rescuing all banks during the crisis, which would have soon depleted the funds.
We added more dryly last year:
Yates also said in the Irish Independent piece: "German banks created our credit bubble when we entered full membership of the euro in January 2002. Irish taxpayers fully compensated them for their bad lending decisions."
Last month economists at the Central Bank showed that this claim is absolutely false.
In a paper the economists say [pdf]:
Their operations were located at Dublin's offshore financial services centre.
The agreement earlier this year on restructuring of Anglo Irish Bank promissory notes, that had been used to bailout mainly depositors in the nationalised bank, was consistent with the goal of improving Irish debt sustainability.
Yates concluded his piece:
Yes to dealing with the facts and no to allowing tax strategies present a better national economic performance scenario than the reality while at the same time trying to persuade European leaders we really need their help. There is also another reality as Ivan Yates likely discovered when he was trying to rescue his failing business, a debtor nation seeking concessions from others, is not an equal.
It's a safe bet that many of the key European leaders do not appreciate that GDP (gross domestic product) understates Ireland's debt burden compared with GNP (gross national product).
After all, Mario Draghi, ECB president, earlier this year praised Ireland for its double digit improvement in unit labour costs -- thanks to paper/ virtual rises in Ireland's output and exports, led by companies such as Microsoft and Google.
Who's to blame for this costly confusion?
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