A chara, – The spate of concerns over Ireland’s recent promissory note deal (notably from Germany’s central bank) are well founded (Business, February 19th). Article 123 of the Lisbon Treaty is a simple and unequivocal provision. It is very hard to see how the Irish swap of its promissory note for long-term bonds does not breach that article. Even the assertion by the ECB that it took “note” of Ireland’s action, is a dubious attempt to bypass the applicability to Article 123 to the transaction.
The “advisers” who have assisted in bringing about the legal fiction that the “deal” is compliant with EU rules are, evidently, from the same school of economic hooliganism, which helped create the bank deregulation/growth paradigm that plunged the world’s economies into an abyss. The position that this “deal” is some sort of bona fide resolution to a significant part of our problem is simply untenable.
It is, on the contrary, a stroke: little more than a variant type of credit default swap, which may generate, at best, a short-term political benefit at EU and Irish level by loading unpayable debt further down the track (still on Irish shoulders).
However, there remains a need for a comprehensive resolution to which there are at least two clearly conjoined impediments. The euro area governments have been demonstrably unwilling to treat the euro currency as a collective enterprise requiring a burden-sharing resolution to debt (including legacy debt) and the Irish Government is unwilling to default despite its undisputed and catastrophic debt levels. Both of those positions are unsustainable.
Nobody, it appears, is willing to face up to the reality that this crisis is as close to the “worst case scenario” as it gets before an economic system implodes. The Irish “deal” is another act of denial in that regard, diverting attention away from the systemic deficiencies in the euro currency and the inevitable consequences of unsustainable debt. If policy continues on this trajectory, the prognosis, is most assuredly, not good at all. – Is mise,