China may offer way out of debt stranglehold
Given our access to €67.5bn of IMF and European funding one might have expected the rating agencies to have a bit of heart and allow us to get on with restoring the banking sector to normal trading.
Writing yesterday Dermot O’Leary of Goodbody Stockbrokers pulled no punches about the seriousness of the situation: “With the large contingent liability remaining and further debt simply made available to further recapitalise the system, the underlying issue of the sovereign’s ability to cope with this contingent liability has not been resolved. These downgrades back up this assertion.”
In the final analysis O’Leary said the blame for this latest fiasco is all down to our wonderful banks, some of which are still insisting on paying themselves substantial bonuses, which contributed to the madcap lending that caused the property bubble in the first instance.
Many analysts, both Irish and overseas, believe this to be the case, with some firmly of the view that we will be undone by the mountain of debt that will cause us to default down the line.
One of the country’s significant home builders in the past, Charles Gallagher, chairman of the Abbey Group, expressed a similar view when he said the banks have been neutralised by their excesses.
It means they are incapable of lending for normal trading. The same is true for British banks, which is clear from the huge fall-off in the amount of mortgages being written by lenders.
Gallagher, who did not use the word default, believes the debt burden is so great that it will have to be written off if this country is to stand any chance of getting back on its feet.
Those who have taken an anti-EU stance in all of this suspect, indeed are convinced, the ECB insisted the state kept Anglo open because they feared if it was allowed to go under the impact would have spread to other euro countries such as Portugal and Spain.
It’s been noted too that the IMF was more understanding of the bind we were in than the ECB. They have offered us money at 3.1% against the 5.8% average we have to pay for the €67.5bn we need to draw down to save our skins.
At the EU/IMF press conference the night the bailout was agreed the EU refused to say what it was charging us. It took Ajai Chopra, deputy director of the IMF’s European Department, to confirm the IMF rate was 3.1%. Wherever the truth lies a strong body of objective opinion is convinced that we have lent ourselves out and our debts will have to be written off.
If that is the case the sooner we go down that road the better. It has been suggested, though not confirmed, that the Department of Finance in the run-up to the bailout looked at the possibility of getting China in to underwrite our debt.
It might sound fanciful but China holds trillions of US dollar reserves which, in effect, has allowed the US to continue to print money to keep its economy going.
It is well known that one of China’s leading banks has looked at coming into the IFSC to get a toehold into Europe. We could offer very cheap access to education to young Chinese keen to live here for a few years to learn English.
In fact we could give a few thousand of them citizenship if the Chinese wanted to create a base here from which they could build a strategic presence to gain entry to EU markets.
The bottom line is that if the default issue is the end game then we need to trigger that mechanism as quickly as possible to halt a period of economic decline that could drag for 20 years.
Nobody wants that for us, except perhaps the ECB.
