The Government has made a strong and convincing case that Ireland’s unsustainable debt burden must be relieved if this State is to emerge successfully from the rescue programme negotiated with the European Commission, the European Central Bank and the International Monetary Fund. It has set a political deadline for the end of March on securing such a deal, but is now encountering resistance from the ECB to the proposals Ireland put forward, particularly those used to repay the creditors of failed banks. This mutual problem urgently requires a shared solution, since both sides’ economic and political credibility is at stake.
The Government is not proposing to write down the huge level of public debt involved in these negotiations, and nor is this officially contemplated for the quite separate and equally burdensome private indebtedness of citizens and companies. It is seeking rather to pay the debt and interest over a longer period, easing cashflow, relieving austerity, stimulating growth and making it easier to achieve a primary budgetary surplus. Of course this State would benefit from any mutualisation of debt within the euro zone, a rational course heralded in last June’s European Council decision to break the “vicious” link between sovereign and bank debt and necessary for a banking union. But creditor states have since resisted applying that policy to legacy debts such as Ireland’s and the same logic is at play in the current negotiations.
These are complex in structure but simpler in purpose. They involve political negotiations with the European Commission and with national leaders on the European Council and more technical ones with the ECB and the IMF. The short and longer term funds set up to deal with the euro zone debt crisis over the last three years are all involved, as is the separate promissory note mechanism used to pay off Irish failed bank creditors. This has been the focus of recent efforts by the Government and provides the deadline they have set. The next payment of €3.1 billion falls due at the end of March, but the ECB fears the solutions proposed would breach its treaty obligation not to finance state debt. That has not stopped the bank finding creative solutions to larger problems and it too must come up with ideas on how to relieve this part of Ireland’s debt.
Political pressure to encourage these talks and to find other ways of elongating debt repayments must be kept up. Ireland’s current EU presidency gives the Government an opportunity to exert it, and Ministers have been hard at work in that respect. Their case that Ireland is not solely responsible for this burden and therefore should not bear all the cost is compelling and systemically relevant. Capital flows into this State from core banks created a mutual problem that now needs joint solutions.