Sunday, 15 May 2011

Colm McCarthy in the Sindo

Colm McCarthy’s latest includes a non-responsive response to Morgan Kelly. He says the Kelly proposal is impractical because it is unilateral, then he proposes his preferred just-as-unilateral action:

But Prof Kelly's prescription is less convincing. He wrote: "National survival requires that Ireland walk away from the bailout. This in turn requires the Government to do two things: disengage from the banks, and bring its budget into balance immediately." The budget cannot be balanced overnight, although it should certainly be addressed far more rapidly than the Government intends. This should start with an emergency Budget before the Dail adjourns in July. Nor can we walk away from the sole available lender, but it is surely time to cut out payments to unguaranteed and subordinated bank bondholders.

If the EU and ECB want to pay them the €20bn still outstanding, that is their affair. Our Government needs to explain that Ireland cannot be expected to place its sovereign bondholders in further jeopardy in pursuit of a Band-aid solution to the European banking crisis.

As I understand the situation, if we cut payments to unguaranteed senior bondholders, that is tantamount to walking away from the sole available lender. Michael Noonan can explain until he is blue to the top of his shiny dome. The EU and ECB aren’t listening.

Or am I wrong? Is there some reason to suppose that we can get away with cutting payments as long as we supply an explanation? Believe me I would dearly love to be wrong. But I suspect Daniel Davies is closer to the truth with his pithy statement of the EU's approach to Ireland: It puts the lotion on its skin or it gets the hose again.