The failure of the ECB IMF deal and what they are up to

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If we accept that this deal was never meant to provide justice to the people of Ireland, then we have to judge its success or failure on other grounds, the ones it was designed to fulfill.  From that perspective the willingness of the rulers of the French, Germans, British and others to drive countries like Ireland and Greece and Portugal, each of us less than 2% of the Eurozone economy, into ruination is understandable, albeit unforgiveable. Just as there is no honour amongst theives, so there is no solidarity amongst capitalists.

Smash this failed deal now

At Sunday night's press conference announcing the terms of the ECB/IMF "rescue" deal, Brian Cowan repeatedly told reporters that the deal was "the right thing to do" and showed Ireland as "being responsible". So much criticism has been heaped upon this deal by commentators in newspapers and on TV, it almost seems redundant to repeat that this is a rubbish deal. But still, for the record, let's start by saying this is not a deal, it is a robbery.

Foreign banks, private investors, decided to take the risk of investing money into private banks here in Ireland in order to profit from the property boom from 2000 until 2006. That money was lost when the bubble burst. Caveat emptor - let the buyer beware. Those investors got their risk assessment wrong and they should lose their money. But from the very outset this government and the European authorities have decided that those losses by private companies should be socialised and that the Irish population, as a whole, should be made to pay the losses for other people's gambling. This is not "the right thing to do". Not now, not ever. And any wretched Fianna Fail candidate that might dare to knock on your door in the coming election, needs to be robustly confronted with that fact until they either admit it or flee.

But if we accept that this deal was never meant to provide justice to the people of Ireland, then we have to judge its success or failure on other grounds, the ones it was designed to fulfill.

Reading in between the lines, these appear to be three-fold:

1. Saving the Irish economy from collapse
2. Stop Eurozone bond yield contagion spreading to Portugal and Spain
3. Protect foreign banks investments

In practice the current government have substituted saving the Irish banking system for saving the Irish economy. This on the publically-stated grounds that the economy cannot function without a banking system. While that may be true, within capitalism, that does not necessarily mean the existing Irish banks need to be saved. The globalised world of the 21st century is full of banks happy to move into any gaps that appear in any national market. if Anglo and some of the others had been allowed to go to the wall, so long as ordinary depositors accounts had been guaranteed, that would not have left us without a banking system. In fact it is the attempt to prop up these failed banks that is destroying the economy, not the other way around. Of course the less publically-stated grounds for bailing out local banks was that a good chunk of the local magnates who fund Fianna Fail would have lost out badly.

Of course we cannot expect the Franco-German core of the EU to be concerned about the fate of the Galway tent or our shower of local plutocrats, most of whom they've never heard of. Their big goals for this deal was to stop the contagion of bond markets going sour on Eurozone economies. The first two days of this week have demonstrated clearly that on this level also, the deal is already a failure. Not only are the sovereign CDS and bond yields for Portugal and Spain resumed their relentless upward drive, but so too have, for the first time, previously unaffected countries like Italy and even Belgium. As for how soon the next domino will fall, all we can say is that the spread between Portugal's 10 year bonds and Germany's is now 428 basis points. This is a mere whisker away from the 450 limit that LCH.Clearnet announced last month (Circular No 2692, 5 October) would henceforth be its breakpoint for raising margin calls on sovereign bonds - the same vicious cycle that brought the IMF to Ireland within 2 weeks of the announcement of Lenihan's National Recovery Plan. So soon enough, then.

Which, of course, brings us to the third goal of this bailout, the protection of the so-called core countries' home banks from losses. This, all denials by EU Commissioner Olli Rehn to the contrary, is why the ECB and the EC negotiators steadfastly refused the IMF suggestion that the foreign creditors who take a share of the losses. I'm not saying Rehn is a liar exactly, but his staff would do well to keep flammable items well away from his pants. The fact is that the exposure of "core" banks to us "peripherals" is huge, put at €1.2 trillion by one analyst today. To accept losses of even 20 - 30% on that sum would throw those banks into crisis. From that perspective the willingness of the rulers of the French, Germans, British and others to drive countries like Ireland and Greece and Portugal, each of us less than 2% of the Eurozone economy, into ruination is understandable, albeit unforgiveable. Just as there is no honour amongst theives, so there is no solidarity amongst capitalists.

But this last point appears to be lost on some of our more outraged commentators in the newspapers. David McWilliams in the Sunday Business Post railed "Worries about senior bondholders taking a haircut are more than a little overstated. Yes, they will complain, and yes, the mechanism will probably be challenged in court. Screw them. This is capitalism.". Actually, no David, this is capitalism. The robbery of the many for the benefit of the few is not some scandalous violation of a fair system, but the very essence of how it has always worked and always will work, until we replace it with something better. And in order to put that on the agenda we need to recognise that bankers and politicians are not going to create a Europe based on solidarity, that will be up to us to reach out to workers in Greece, Portugal and Spain and make common cause against the machinations of the capitalist classes of the core. For a start we need to get rid of the spineless union bureacrats who have no vision of building a European opposition, being addicted to a national partnership with incompetent politicians who cannot deliver a way out of this mess. Jack O'Connor needs more than booing, he needs sacking.

WORDS: Paul B.

By the same writer - Why Ireland should default on the loan sharks now

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