According to economic experts, Ireland does not have to worry about paying back the massive borrowings that were needed to fund the endless lockdowns :
“Government debt does not have to be paid back, particularly the kind that sits minding its own business in the vaults of the ECB” - Chris Johns, Irish Times
The problem with that is Article 123(1) of the Treaty on the Functioning of the EU :
This means that it is illegal for any Member State to use the ECB as a bank overdraft facility. The only reason why we can afford the luxury of endless lockdowns is our access to lots of free money. The Irish government have already borrowed €20 billion interest free this year and they plan to borrow another € 20 billion next year. This is in addition to around €35 billion borrowed at very low interest rates since 2015 from the ECB's PSPP programme, prior to the covid "pandemic". So the free money bonanza that has enveloped the EU is not a new thing as some commentators have argued.
All this free money being created by the ECB has resulted in the ECB becoming the largest single creditor of the member states in recent years. The German Council of Economic Experts have warned that this could present a threat to monetary policy independence in the long term.
In 2008, after the banking crash, the debt laden on to the backs of the Irish was paid back through taxation. This makes the situation at present different as there is no pressure to increase taxes.
The natural effect of all this free money is massive inflation but we have not seen any sign of that yet (it may help to reduce government debt by de-valuing the euro). What is the most likely outcome - my guess is that we will see some inflation next year but more importantly negative interest rates will skyrocket so that most of the extra cash lying around on deposit will be recouped.
There is already a similar precedent for this in the EU banking system, when deposits were confiscated in Cyprus in 2013 in what became known as a bail in.
So as Mr Johns maintains, the ECB may well continue to play ball by printing infinite quantities of free money but the price will be an eradication of savings, either through inflation or negative interest rates or a combination of both. It will also mean that the EU will once again bend and mold its own laws laid down in it's treaties. This further erosion of the rule of law will sow yet more discontent within the union.
With all the lockdowns causing the destruction of small to medium enterprises in Ireland that provide(d) about 90% of the jobs in Ireland and the impoverishment of a nation then where are the taxes to be raised to pay off the mounting debt? To put the COVID borrowings/debt 2020 in Ireland into some kind of perspective, €20Bn divided by a population of 5m is an additional €4000 of debt per head of population. So for a household of let’s say 3 people that’s a debt of €12,000 and now add the same again for 2021 and that amounts to €8000 per head of population or €24,000 per 3 person household. Now add the €35Bn debt plus interest from 2015 onwards and that’s another €7000 per head of population or €21,000 per 3 person household. So that’s a total of €7000+€4000=€11,000 per head of population in 2020 and that will increase by another estimated €4000 per head of population in 2021 to a total €15,000 per head of population or €45,000 per 3 person household. Now how much on average is in personal private savings? From memory in October 2020 it was about €18,000 averaged over a population of 5m. Politicians increasingly seem to count ‘your’ money as ‘their’ money. So one can see where this might be going where politicians/the government may use ‘your’ private savings to pay off the estimated €75Bn of National debt accrued from 2015 to the end of 2021. It is important to remember that former Minister for Finance Michael Noonan introduced the ‘Bail In’ legislation in 2013. And for those were comforted by the €100,000 bank guarantee scheme one should ask where do you think the money is going to come from to protect private savings of up to €100,000?!
ReplyDeleteIn addition, what resources does Ireland have to sell or how much money does Ireland have to borrow in order to pay for signing up, thanks to Taoiseach Micheál Martin, to being a net contributor to the EU COVID-19 fund?!
ReplyDeleteIrish government policy is to sell all existing and future assets out. To sell the present savings and any saving which might be inherited by future generations. It is the same as being left a property by an uncle worth 500,000 Euros. But he had mortgaged it to the tune of 500,000 and interest is accruing making you a debtor rather than a beneficiary. While he was having a good time he enjoyed himself, his will to you was therefore a nasty con trick. At least your uncle is remembered for what he was, in democratic Ireland the politicians are soon forgotten while drawing their pensions.
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