What happened to all the brave talk of burning bondholders?


IN the days since Michael Noonan announced the latest attempt to revive our moribund banks, we have seen and heard a number of new ministers tell us that there is no change in policy on the bondholders.

Senior unguaranteed bondholders, they tell us sternly, cannot be touched. The seriousness with which they tell us that there is no change in policy belies the simple reality that this line is one of the biggest political jokes of the decade.

There most certainly is a change in policy — and it is a seismic change. It is not a change from the last government to the new Government; it is a change from opposition to government.

We can all remember the grandstanding, blustering and boasting during the general election, that not a red cent more would be given to the banks and that bondholders would have to suffer.

The statements from people now sitting at the cabinet table were unequivocal. It would be Labour’s way, not Frankfurt’s way.

The campaign had barely started and Enda Kenny was dashing to the airport to visit his great friend, the German chancellor Angela Merkel, for discussions.

The optics were clear. Enda Kenny was friends with the big guys in Europe and his big powerful friends would look after us if we would just put our trust in him.

On that basis, many people voted for the present Government parties, particularly for Fine Gael, believing that things would be very different.

But they are not. The very hard and very unpalatable realities that Enda and Eamon wanted to wish away are still there.

Those who were telling us that they would not put a red cent more into the banks are now telling us we must recapitalise the banks and that we cannot touch the senior unguaranteed bondholders.

Why not? Mainly because the European Central Bank (ECB) says so.

It is the political equivalent of saying “a big boy made me do it”. The ECB “big boy” supposedly has a gun to our heads and could pull down the whole system because we are in hock to it to the tune of between €150bn and €160bn.

But just how likely is that to happen? The ECB knows, as well as everyone else, that the Irish banking system is an ailing financial nuclear reactor and if it goes into meltdown the contagion will spread far and wide.

As I have stated here many times, the French president and the German chancellor are still trying to propagate the myth that our problems are our own fault alone and have nothing to do with them.

The truth is that their banks and others aided and abetted our reckless banks and pumped money into them, blithely ignoring all the basic rules of banking and investment.

These banks were regulated under their own domestic schemes in Germany, France, Belgium etc — not in Ireland.

The European Central Bank is not supporting and bolstering our ailing banking sector because it is a branch of St Vincent de Paul. It is doing so as it is vital to stop an Irish banking collapse dragging the entire European banking system down due to the exposure of major European banks to our banks.

Fine Gael’s three-card trick pops up again with their bank restructuring. The plan that the Finance Minister announced is not as new or as radical as he would have us believe.

All Michael Noonan is doing is simply implementing the bailout deal between the previous government and the EU.

Part of the deal involved deleveraging, with non-core loans being transferred to a separate vehicle for gradual disposal. The same applies to the disposal of assets.

The restructuring would have to take place anyway as the logical and necessary follow-on. There is nothing new here.

Nor is there anything new in Fine Gael effectively, and sensibly, dumping the Labour Party’s strategic investment bank.

This bank was supposed to sprout out of the ground and, like the bean stalk in the nursery rhyme, grow to the extent that no man, woman or child, widow or orphan would be denied access to it.

While the idea made it to the Programme for Government, it was smothered in the bank-restructuring plan with talk of medium-term, affordable official financing in about 12 months.

So the first of Fine Gael and Labour’s low-hanging fruit has just been plucked. What — or even who — is next, time will tell.

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