Ireland is holding special elections today. They’re the first since the government collapsed last month under the stress of economic recession. The likely winners have called for changes in economic policy that challenge the way the EU deals with debt.
Fine Gael is the party that presided over Ireland’s current debt crises. They dominated the country’s political scene for over thirty years preceding the crises. Enter government collapse and opposition leader Enda Kenny. On February 15th at a speech in Dublin introducing his party’s manifesto he called for an end to Fine Gael’s rule.
Kenny: Because what Fine Gael have done by abdicating its responsibility, by leaving Ireland at the mercy of the developers, the bankers, and our supposed watch-dogs, is not just immoral. It’s amoral. And with this manifesto, I say, no more.
Kenny is the leader of center-right party Fine Gael. They are the likely winners of today’s election. Fine Gael watched as their rival took Ireland’s economy from boom in 2000 to bust by 2008 in a crisis that largely resembled the U.S.’s housing bubble. Last year, The European Central Bank and the International Monetary Fund agreed on a package of loans and austerity measures to bail Ireland out of its debt crises. Kenny has campaigned on the idea that the package should be revised.
Kenny: I told Chancellor Merkle in Berlin yesterday that the IMF and EU deal, in our view, needs to be renegotiated. It was a bad deal for Ireland, and indeed a bad deal for Europe.
Kenny says that the current repayment plan doesn’t leave enough cash to grow the economy out of recession. So he wants to share the responsibility for payment between Irish tax-payers and the bondholders that invested in the country’s future. Many of those bondholders are large banks and companies outside of Ireland. Kenny wants to make them pay by using a financial tool called a haircut. Mark Weisbrot, co-director of the Center for Economic and Policy Research in D.C. explains.
Weisbrot: Its when creditors take a loss on existing debt whether through a restructuring or default or some kind of renegotiation.
So renegotiation. Imagine that an Irish bond cost five dollars. Giving it a haircut could lower the cost to say, four. So when Ireland made payments, the bondholders would be taking a loss of one dollar per bond. Ideally, it could prevent Ireland from defaulting on high payments. The European Central Bank disagrees. They fear bondholder losses would further weaken a European banking system also in need of cash. And as Jacob Kirkegaard, of the Peterson Center for Economic Research in D.C. points out, the banks can’t afford to scare away investment.
Kirkegaard: If investors all of the sudden fear that they risk having haircuts imposed upon them, raising capital for all European banks will be much more expensive.
But economists like Mark Weisbrot say that the European Central Bank is looking out for creditors at the expense of Ireland’s economy. Now in its 3rd year of recession, Ireland has lost 20% of its income per person. Weisbrot says that Ireland should consider any option available to end its suffering.
Weisbrot: The alternative is to do whatever is necessary to have an expansionary economic policy, if that means renegotiating some of the debt, then that as to be done. And if it means even getting out of the Euro, then that has to be considered as well.
Sinn Fein is a small party with a loud voice in Irish politics. They generally advocate isolationism and have strongly suggested leaving the euro. But Kirkegaard says the Irish economy is too deeply intertwined with the rest of the continent to leave the euro unscathed.
Kirkegaard: The costs of leaving the euro far exceed even the pain that Ireland is going through right now. The Euro is a prison, you really can’t get out.
Perhaps prison is not the right metaphor. Ireland, after all, chose to join the Euro and benefitted greatly from it in the boom years.
Kirkegaard: I mean I like to think of it as Hotel California, you can check in, but you can never leave.
The next meeting of the European Central Bank will be held on Thursday. There, it is likely that Enda Kenny and Fine Gael will find out if Ithe European Central Bank is ready to renegotiate Ireland’s debt. Linette Lopez, Columbia Radio News.