I’ve always wondered why, when Irish banks failed at the beginning of the financial crisis, Ireland decided to make the bond holders whole.
I figured that it was some sort of delusion about being “business friendly.”
Basically, Ireland’s economic strategy at the time was to be an amazingly accommodating 3rd world nation that through an accident of history had access to the European financial system, and that they could not thing beyond this.
I was wrong. The Irish government was blackmailed into accepting a bailout deal that got bond holders 100¢ on the dollar:
Senior European and European Central Bank (ECB) officials agreed to threaten Ireland with national bankruptcy if the government made any attempt to burn bondholders, the Sunday Independent can reveal.
The threat was made at a high-level teleconference meeting, details of which have been revealed for the first time by the Central Bank governor, Dr Patrick Honohan.
Mr Honohan, who famously told the nation Ireland would be entering the Troika bailout programme live on radio as government ministers were publicly denying it, also revealed he was kept out of loop about the meeting.
In a new book about the late Brian Lenihan, Mr Honohan said he only found out about the meeting after the Troika delivered the ultimatum to Mr Lenihan on November 26, 2010.
“The Troika staff told Brian in categorical terms that burning the bondholders would mean no programme and, accordingly, could not be countenanced,” Dr Honohan writes. “For whatever reason, they waited until after this showdown to inform me of this decision, which had apparently been taken at a very high-level teleconference to which no Irish representative was invited.”
I think that it is time for the Irish to push back on this, and declare that the debts from their bailout to be odious debt, and repudiate it:
In international law, odious debt, also known as illegitimate debt, is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.
The Irish government had an obligation to make the depositors whole, up to whatever limit their bank insurance is set, but the bond holders are covered by no such obligation.
When a bank goes under, its bond holders are not supposed to be at the front of the line.
The EU & IMF extorted a bailout to the commercial and investment banks that were born by the Irish citizenry.
This should be repudiated.