Last night I spoke about the Euro Area Loan Facility (Amendment) Bill that reduces the interest rates on Greece’s loans and lengthens the term. You can see the speech below – and also read the full transcript as well.
“The Bill before the House seeks to reduce the interest rate on a portion of Greece’s debt to 0.5% and to lengthen the repayment schedule by up to 15 years. I support the Bill in the hope that it will go some way towards helping the Greek state and people to tackle the painful social and economic crises with which they are dealing.
These changes are the latest in a set of financial supports that have been offered to Greece by Europe and the IMF, including a €110 billion loan in 2010, a €130 billion loan last year and a further €30 billion loan last year, to help Greece with its budget deficit from 2015 to 2017. There have also been several reductions in Greece’s borrowing rate, one of which we benefited from and was claimed by our Government as its greatest success in lowering our debt burden.
In exchange for this Bill, Greece has agreed to three measures. First, it has agreed to an austerity-only approach to correcting its budget deficit. We know what this entails. Second, it has agreed to the large-scale selling off of its public assets. We are all too well aware of some of the pain incurred through such a measure, for example, selling off the national forests. Third, it has agreed to comprehensive structural reforms that, while welcome, are complex and will take time.
Critically and unlike in the Irish case, private investors have played their part. They agreed to a 54% reduction in the face value of the Greek public debt that they held. It was the Greek people and not speculators who benefited.
How is the work going so far? As anyone in the world would, the Greek people are struggling to achieve all of these changes simultaneously. There have been reports of hospitals running out of important drugs. Unemployment was recorded as being 25% last year and youth unemployment is at 50%. Greece is being set up for decades of intergenerational poverty and social problems. Many people’s public and private pensions have been wiped out. The people of Greece are dealing with a level of pain that, thankfully, we have not yet needed to deal with en masse.
There is hope for Greece in the medium to long term. If significant structural reforms can be made, they will drive economic growth and increase living standards and employment levels. In this light, I can understand why the troika might have set an ambitious reform plan for Greece. However, the troika and Europe are making the same mistake in their dealings with Greece that the IMF has made in similar situations for decades. The IMF enters a country that is in considerable trouble and suffering all sorts of social and economic crises and demands that it upgrade its capacity, economy and national institutions to meet levels of international best practice in a few years. As we in Ireland know, it takes decades to do that. We have been at it for decades and still have a long way to go, yet countries like Greece are asked to make these changes and to become Germany in the space of approximately five years. One reason this approach does not work is that it cannot be done.
What will occur during the next few years? A new Greek Government has been elected and a raft of reforms that will be painful for the Greek people have been introduced. Those reforms were only politically possible when the troika threatened to turn off the tap, which would essentially have closed schools and hospitals.
Regardless of Greece’s efforts and successes, it will probably need significant additional support over and above what is contained in this Bill. This year, Greece’s national debt will hit 190% of GDP. Without the haircut taken by private investors, it would have been 220%. In recent years, debt sustainability has been discussed a great deal in the Oireachtas. Debt becomes unsustainable somewhere between 80% and 120%, depending on a country’s tolerance for it. Ireland could probably deal with a higher debt level than Greece could. We are at 120%, which is unsustainable. Greece is at 190%. I can see no situation in which Greece will not need a significant write-down of its debt. However, there is a problem with how the eurozone will deal with the issue. It will give Greece a little bit next year, a little bit the following year and so on and so forth. This sounds familiar. Greece’s debt level will remain unsustainable. It will just about keep the lights on and the schools open, but it is looking at decades of stagnation.
What can the Government and Oireachtas of the Republic of Ireland do? Immediately, we can vote this Bill through, which I imagine we will do. In the coming months, we can promote an understanding across Europe that no country can be expected to reinvent itself in a small number of years, particularly when it is dealing with multiple crises simultaneously and when the model it is being asked to adopt is someone else’s idea of what a modern society and a modern economy should be. We can also argue that Greece’s debt is unsustainable and that it needs one or two serious write-downs. It should not be done in pieces of 5% here and 5% there so that it stays on the never-never for the next few decades. Those write-downs need to be made in tandem with some structural reforms, but we need to be smart, compassionate and understanding about what is asked of Greece in return for a substantial further write-down in its debt to make it sustainable.
While we are doing that, we should be seeking the same for Ireland. Rather than stating that we will repay all moneys owed, we should be insisting on a significant write-down in the total burden of debt that this country has taken on in order to prop up the eurozone’s financial system. Rather than accepting a few more years to pay back money at 3.5%, we should be making the same case as that for Greece. We are about to vote through a package for Greece at 0.5%, yet we are meant to be happy about being allowed to borrow at seven times that rate for another few years. A reduction in our rate to 0.5% or, ideally, to Deputy Mathews’s 0% would constitute real burden sharing. It is important that we not accept the scraps from the table of Europe.
I listened with interest to Deputy Olivia Mitchell’s criticisms of my reaction to the Minister for Finance, Deputy Noonan’s announcement this week that we could still borrow for a few more years at 3.5%. Apparently, I was being churlish and – that old chestnut – talking down the economy. How quickly the new guard takes on the rhetoric of the old. Rather than swallowing the Government’s prozac, as Deputy Mitchell would appear to have done, let us examine the facts attached to this deal about which we are meant to be so happy.
First, there will be no cash benefit for at least three years. Second and on conservative assumptions, it will on average be worth between €50 million and €100 million per year to Ireland for the next decade. This amounts to a fraction of the increase in public sector increments this year alone. It is not to be sneezed at, but it is nothing to be getting excited about either.
The deal allows us to continue borrowing at 3.5% when Greece will get a deal for 0.5% and, lest we forget, the European Central Bank, ECB, is lending long-term money to European banks at 0.75%. Let us be clear, in that we are meant to be happy with a deal that charges us for money at seven times Greece’s rate and at more than four and a half times the rate charged by the ECB.The other aspect announced by the Minister, Deputy Noonan, which was not picked up and did not make the headlines is that we would still bear the risk for the ESM recapitalising the banks. That is significant. In fact, this blows last July’s announcement completely out of the water, and it is a victory for Chancellor Merkel and Germany. What did the German Finance Minister do? The morning after the July announcement at 4 a.m. he said it was nonsense, that every sovereign would still be on the hook for the risk of its banks. In other words, there will not be any burden sharing. The Minister, Deputy Noonan, conceded that on the same day that we were told to be happy about the 3.5%.
I do not like coming to the House and calling the Government out. I would very much like the Government to come to the House with good news, but it is part of my role in opposition to call it out. The facts say that yesterday’s announcement was a victory for spin over substance. If we are to recover we must get a substantial write-down in the total debt burden. I support the Bill because it goes some way to doing that for Greece. It is high time that the Government achieved the same for this country.”