It’s little wonder that the Government has not pressed harder against the ECB’s approach to the banking crisis. Both seem unable to accept that a mistake, once made, should be acknowledged, and that this does not have to represent a humiliating climbdown but rather evidence of a learning organisation.
We saw this again this week in relation to both Irish Water and to the toxic legacy of the banking crisis.
Let’s take the Irish Water shambles first.
It has become clearer that water charges are going to be reduced. It is now unlikely that this 50% threshold will be met, in even the medium term, which leaves the Government in a dilemma. Any borrowings that will be made will be on the State balance sheet. So the Government will have to either continue to allow the water system to limp along, in the mistaken belief that the (non-existent) international bond vigilantes will see investing in essential infrastructure as a bad thing, or bite the bullet and borrow.
But if the State is borrowing the money, why do we need Irish Water? Even if Irish Water were to try and go to the markets, a reduction in its income flow reduces the amount of money that it will be able to borrow, the borrowing being securitised on the income flow.
The result of this, if the State was to push borrowing through Irish Water, would be to reduce the infrastructural investment.
The money issues aside the principle of charging some amount of money for water makes sense if one considers it as an incentive to reduce usage. But the charging structure was likely to be such that as usage fell so the price would rise.
We now see a situation where there is talk of bringing revenue into the collection of charges, attachment of earnings, and a host of other criteria which, no matter how sensible in terms of collecting income, make the charges more and more reminiscent of just another tax.
Something similar is evident with the ECB. The publication this week of the letters from Jean-Claude Trichet shed little light on what happened around the end of 2010, when we were moving towards the bailout. To me, the most interesting issue about the letters is how the ECB, whose mandate is on monetary and price stability, was deeply involved in real, as opposed to monetary, economic crisis management.
Having decided to intervene in the real economy in 2010 it should have had the courage of its convictions and continue to do so with the toolkits that it had.
The ECB has made a mistake. It has not been active or swift enough, nor broad enough in its interpretation of its remit, nor courageous enough in facing down its own hawks. Like the Government it should admit this mistake.
One way in which the ECB could be helped with its learning is the Government to make it very clear that, now the cat is out of the bag in relation to the threatening tone of the ECB over the ultimate destination of the Anglo bailout, it sees no moral obligation to continue the slow extinguishment of the Anglo bonds.
It should suggest that instead, these billions be devoted to essential national infrastructure such as fixing leaky water pipes. It may be too late to do this, but it’s worth a try.
It would save the Government face here, the people who ultimately elected on to it is ultimately responsible, and would allow the ECB to admit that it had made a mistake in how it handled the crisis.
Irish Water, the gift that keeps on giving, if we allow them.
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