Irish government strategy for dealing with Anglo’s promissory notes – thanatosis

“If the Anglo bondholders are paid, they will be paid from their own resources. This will not come from the taxpayer.”  An Taoiseach Enda Kenny replying to a question in the Dail from Sinn Fein leader Gerry Adams, on 28th September, 2011.

“It is a complex and technical issue. There are quite a number of moving parts.” An Taoiseach Enda Kenny speaking in the Dail on 14th March, 2012 justifying his position of “Is binn béal ina thost” in respect of explaining what is happening with the Anglo promissory note negotiations

“Pacta sunt servanda” European Commissioner for Economic and Financial Affairs, Olli Rehn speaking on Tuesday last 13th March, 2012, using the Latin for “agreements must be respected” when referring toIreland’s payment of Anglo’s promissory notes

“It lies on its side, mouth and eyes open, tongue hanging out, emitting a green fluid from its anus whose putrid odour repels predators. The opossum will enter a near coma, which can last up to four hours”  The Virginia opossum playing dead, giving us the expression “playing possum”

Here’s a word that might be new to some of you – “thanatosis” –  though it’s more commonly called “apparent death”. The phenomenon covers two separate behaviours by animals : “playing dead” is where an animal deliberately feigns death, like the possum, but thanatosis also includes an animal involuntarily appearing motionless, like rabbits caught in headlights. So on one hand there’s the Virginia opossum, which pretends to be dead if injured or threatened so as to escape predators which have evolved to sense that dead prey carries more risk of infection. On the other hand, there is the hunting practice of “lamping” foxes or rabbits where a bright light is used to immobilise an animal so that it can be shot or caught – the animal is so surprised and threatened that it thinks remaining immobile will prevent predators seeing it.

What has all of this got to do with our Government? In two weeks time, Ireland is set to pay €3.1bn in cash – and this time, there is no possible way for An Taoiseach to claim that the money is not coming from taxpayers, as he embarrassingly did with Anglo’s bondholders. The cash will be paid by us to Anglo, or IBRC as it is now known. Anglo will then pay it to the Central Bank of Ireland, who will do the electronic equivalent of taking it outside, dousing it in lighter fluid and setting it ablaze. Why? Because on 29th September 2008, the elected parliament of this country gave a guarantee to six Irish financial institutions, and subsequently €30bn in IOUs were given to Anglo and also Irish Nationwide Building Society to make up losses made by those two institutions. Anglo used the IOUs to get money from the Central Bank of Ireland which did the electronic equivalent of starting up the printing press and printing new euros. Not only did we give Anglo these IOUs, but we also gave the Central Bank so-called “letters of comfort” giving a solemn pledge to repay the IOUs. Not only that, last July 2011 when we got the interest rate reduction on the EU portion of our bailout, we gave another commitment – we “solemnly reaffirmed our inflexible determination to honour fully our own individual sovereign signature”. And above we can see the scheduling of the payments with €3.1bn in cash being paid over by this nation each year for the next 12 years and then a further €2.8bn thereafter.

These IOUs comprise nearly half of the €64bn being used to bailout our banks, a bailout that, in total, amounts to 40% of our GDP with the promissory note component alone amounting to 20% of GDP.

By footing the bill for these bailout costs,Irelandis abandoning any notion of safe debt levels and allowing debt to rocket to 120% of GDP. Our debt would have gone from 25% of GDP in 2007 to 80% of GDP anyway to cover borrowing for the deficit, that is, the fact that we collect less in cash than we spend on public services and welfare. And 80% debt is bad enough, but what we have done and what we are doing is piling on more debt so as to bailout the banks. Now AIB, EBS, PTSB and Bank of Ireland still serve this economy, but the €34bn – comprising €4bn of cash and €30bn of promissory notes – that is being shovelled into Anglo/INBS or IBRC, will not serve the economy in any conventional sense.

The ECB is no longer providing Ireland with unprecedented levels of support to our banking system. Yes it is true that a year ago, Irish banks relied on ECB lending on a disproportionately high basis, for example we had €138bn in direct lending to our banks in November 2010 which was reckoned to be one quarter of all ECB lending. But on 25th February, 2012 Irish banks had just €87bn of direct support from the ECB which is just 3% of the €3tn of support overall from the ECB, including over €1tn provided in 3-year lending in December last and in February. With Irish GDP comprising 2% of the EuroZone’s, the level of ECB support is roughly proportional to our economy within the EuroZone and can no longer be considered “unprecedented”.  But what other country inEurope is sticking 20% of its GDP on its national debt to support a completely bust bank?

What the ECB is now concerned about, is the robustness of the IOUs, the promissory notes, and there seems to be a real fear that these notes will be reneged upon, or indeed disowned by a nation that has already shouldered 20% debt to bailout banks, which has consequently maintained the stability of the EuroZone and has seen billions paid back to non-Irish financial institutions which are equally at fault for the crazy lending in the noughties. So the ECB is now sniffing around for Ireland to provide collateral to back up the IOUs.

Against this background, Fine Gael TD Peter Mathews is seemingly villified for tabling a motion which summons the person apparently responsible for leading Ireland’s negotiations with the ECB on the Anglo promissory notes: governor of the Central Bank of Ireland, Professor Patrick Honohan. In the past few days after Wednesday night’s committee drama, Deputy Mathews has been described as “naïve”, “erratic”, “renegade”, “maverick” on a “solo run” who “has opened himself up for a kick in the balls” and there’s an impression that fists are being cupped in anticipation by party colleagues in advance of the next parliamentary party meeting on Tuesday. This is all very amusing because Peter Mathews is one of the most conservative deputies in the 166-member Dail, a man with strong religious beliefs, who treats the business of the Dail with the deepest of respect, and a man who has been absolutely consistent for four years in his warnings about the scale of bank losses. And “naïve” might be a term better applied to those who ignore the colossal damage that the remaining bank bailout cost will do to this society.

Ireland has apparently been trying to reduce the burden of paying the promissory notes since at least last September 2011 – Minister Noonan told an Oireachtas committee on 1st September 2011 “I have not raised the issue [Anglo’s promissory notes] in specific terms with any of the authorities yet but I have raised it in general terms with the troika – pointing out the difficulty of meeting the €3 billion payment every year and what it does to the fiscal figures” Minister Noonan attempted some negotiation with the ECB in mid September 2011 but was apparently rebuked. An Taoiseach keeps saying that it is the Troika’s initiative to progress a deal on the notes but the Troika has been half-hearted in its response. And when asked the status of negotiations, An Taoiseach now says what you might expect an unscrupulous car mechanic to tell a ditzy blonde – “It is a complex and technical issue. There are quite a number of moving parts”

For all intents and purposes, this Government is displaying thanatosis in its supposed attempts to reduce the burden of bailing out two busted banks. On one hand, it is like the rabbit being lamped, accepting without question that the €87bn of “unprecedented” lending to Irish banks will be placed at risk if the promissory notes are not repaid, when the truth is that ECB support to Irish banks is no longer as disproportionate as it was even a few months ago and what other country in Europe would succumb to threats that would see their national debts rocket by 20% of GDP to pay for two bust banks. On the other hand, there is something of the possum in the way arguments about fairness and ethics are suggested, with the hope the ECB will take pity on this nation and forget about the promissory notes. Neither approach has, or will, work. The country needs to adopt the stance of a predator fighting for its very survival and assert its innate sovereignty on Anglo’s promissory notes now.