Septic Bank


With the first batch of the controversial Anglo-Irish Bonds now matured and paid, Cormac Duffy argues that it was not so much a necessary evil as a coerced one.

The day that the Irish Government paid out on €700 million worth of five-year bonds originally sold by Anglo-Irish Bank, the Taoiseach published an editorial in The Irish Times that said a lot more than it meant to about the state of the financial crisis. Rather than a strong, defiant defence of the payout, it read like an apology, or a confession of how powerless he was in the whole fiasco.

The bonds were senior bonds, guaranteed by the bank to be prioritised equally with deposits for repayment, but when the bank became insolvent and was bought out by the state, thus existing only as part of the Irish Bank Resolution Corporation, the situation seemed too different for the rules to stay the same. Even though they were covered by the blanket guarantee Fianna Fáil made on bank liabilities, the general feeling seemed to be that they didn’t deserve to be treated the same way as the savings of individuals. This thinking is sensible, for the most part. The instinct that anyone who ever held a bond in Anglo-Irish must be a plutocratic bourgeois one per cent-er gaining from the exchequer’s loss will tragically never be proven. David Norris was silenced when he attempted to read out the supposed list of names in the Seanad last December, but claimed it consisted of large European banks. Some have suggested that they may have been held by pension funds, or other similar middle men investors, but Norris’ claims have been deemed closer to the truth.

Given the uncertainty surrounding their repayment, their price fell to shockingly low levels at intervals during the last few years, down at times to almost half their value at maturity. This meant that many original holders have sold them, and anyone who managed to purchase them at this time is set to make huge profits now that they are being repaid for their full promised value. Guaranteeing individuals’ deposits and savings is just, given the level of misinformation these banks pedalled, but emptying the state’s coffers so that others can profit is most certainly not.

The notion that their payment was an essential part of economic recovery seemed to be undermined by the case studies, particularly coming after the announcement that the ECB/IMF Bailout Troika approved Greek plans to impose losses on their bondholders. State guarantees of liabilities have seen the crisis shift from fear of bank collapses to sovereign default, meaning that any move to cut Greek debt is sound. We should have been supported in doing the same, cutting payment to an amount that removed profit on the bonds rather than defaulting altogether, especially given that we stuck much more stringently to our austerity plan than Greece and are in a safer position than them by far. But our relative ability to pay, it appears, comes with a relative duty. When sovereign debt is the problem, burning bondholders can pay off well. Iceland’s willingness to impose losses on foreign investors and bondholders is one of the reasons that it is now seen as a less risky investment than Ireland. Given that these bonds seem to have been held by those outside Ireland, our state’s duty to repay is effectively none.

It was a point raised by Sinn Fein and ULA TDs as they led a walk out of the Dáil on the day the bonds matured. Yet it seems that for all the political and public opposition, and even discontent within the government (Michael Noonan has long been unhappy with the full payout of the bonds), it still went ahead, for a multitude of increasingly dubious reasons.

In his editorial, and in clashes with Michael Martin on the Dáil floor, Kenny is quick to pass the buck back to the last government, saying that they are stuck with the guarantee Fianna Fáil foolishly issued. He seems content to balance the fact that he successfully managed to renegotiate the interest and payment schedule on our EU/IMF bailout, while paradoxically bemoaning his apparent need to honour terrible legislation passed by a government that has decidedly lost its mandate (not that it actually had one at the time of the guarantee).

While not a declared condition of the EU/IMF plan, the two institutions seem to be pushing for us to pay, as far as we can see from Kenny’s statements. The reason is less one of fiscal sense or political fairness, but more a move to please the all-powerful markets. The consensus excuse is that if bonds are not being repaid by a country that is effectively the EU/IMF’s pet at this point, then investors will demand higher yields to compensate for the increased risk, increasing the cost of funding for EU banks. Much as the case is with Italian bonds over the last week, there is a frustrated intuition that policy is being dictated to parliaments by markets. Whether we can send a message to markets that losses must be accepted for the general good is an unknown, but failing to try with this relatively small and completely unjust pay-out has become a lost opportunity. With another batch maturing soon, there is a still time for another attempt.