Burning bondholders would backfire on us
This view that the banks who lent us substantial sums should take a lot of the blame carries a certain appeal. Why should they not suffer the same as we are, given they were prepared to lend liberally to us.
As not a great lover of the bankers who indulged their greed at every opportunity, it is tempting to go along with that view.
To argue in favour of defaulting on the money we borrowed in good faith could be characterised as fundamentally dishonest.
“Pay your lawful debts and give every one his own” was a long held belief in Ireland, even when people were as poor as paupers.
This is a simple kind of uncomplicated moral principle that will not play well with those who have been screaming from the high heavens that those who lent us the money should now suffer along with us.
As a result of the action of Mr Honohan, it has now been established that about €23 billion of the €63bn of bonds are open to negotiation, at least in theory.
The other €40bn come with heavy guarantees and do not enter the realms of negotiation in anyway shape or form.
The subordinated bonds of over €6bn are already being negotiated with some success and if discounted at 80% could add €5bn to the coffers of our struggling banking system.
But the other €16bn brings us into seriously more sensitive territory and it has been generally accepted that any move by us to coerce the bondholders into taking up to a say a 50% discount as has been speculated, would have far bigger long-term implications for us down the line.
Unfortunately, the Germans and the French have their own agenda in that regard. The argument is being made that Angela Merkel is protecting her own banking allies by preventing any move by Ireland against those banks who lent freely to us during the boom.
It would have been beneficial perhaps if the governor in his wisdom had also listed the banks to whom we owe the €23bn that are open to negotiation.
The danger in going after the bondholders is that even if we succeeded in clawing back billions of what we owe, the damage done to our international reputation could be a lot costlier.
In effect, our problems are much bigger than burning bondholders and we need to focus on sorting out the €85bn bailout.
We have to ease the terms of the bailout and the Labour Party is right in insisting that this runs to the end of 2016.
But some in that party were quite hysterical about the bond situation.
The Central Bank has been drip-feeding the fact that with the exception of a relatively small bank in Denmark, there are few examples of bondholders being burned in the way Labour has been suggesting.
It’s time to stop howling at the moon and to seriously address how we can put in place a banking system and a bailout structure that will get this economy out of the black hole.
Hopefully, Enda Kenny’s strong relationship with Angel Merkel will help us negotiate our way out of this mess. If we can make some of the bondholders suffer, great, but with a debt of €85bn to be repaid we need to start giving the impression we will try to honour those debts.
If we fail, our name could be permanently blackened on the money markets.
For an economy in such deep trouble, we can ill afford to be reinforcing the international perception that we are nothing short of a gaggle of cowboys.
