Friday, 4 March 2011

Guest post by Andy Storey: Call for debt audit

Dr Andy Storey is a lecturer in the School of Politics & International Relations at UCD. A number of prominent Irish academics, writers and activists have backed a campaign to audit Greece’s public debt, amid suggestions that such an audit might also be required in Ireland. Greek campaigners are calling for an independent and international Audit Commission to find out why the debt was incurred and the uses to which borrowed funds were put. As Costas Lapavitsas, one of the organisers of the petition, puts it:

“Can we be certain that the bulk of Greek public debt is legal, given especially that it has been contracted in direct contravention of EU treaties which state that public debt must not exceed 60% of GDP? The creditors – mostly core European banks – were fully aware of flouting this legal requirement when they lent to the Greek state. Is Irish public debt legitimate, given than much of it is speculative bank lending with a public tag placed on it? Is debt in both countries ethically and morally sustainable if servicing it implies the destruction of normal social life?”

Debt audits have been used across the world to allow civil society to hold to account those responsible for the damage caused by their countries’ indebtedness. An audit in Ecuador in 2008 encouraged President Correa to default on some of Ecuador’s most unjust debt, leading to a write-down by borrowers. Two former Ecuadorian ministers are amongst those who have signed the call to support an audit in Greece.

One of the most alarming aspects of the Irish debt crisis is the lack of transparency or clarity on the numbers involved. For example, the Irish Central Bank says that total Irish bank bonds outstanding amount to €63.4 billion, but Goodbody stockbrokers put the figure at €59.4 billion, while NCB stockbrokers come up with an estimate of €74.8 billion. When we get down to the detail of who this money is owed to, it gets worse. For example, a repayment of €750 million was made by state-owned Anglo Irish Bank in January this year to a creditor who was not covered by the bank guarantee but we do not know who that creditor was and why an unguaranteed debt had to be honoured. An Irish debt audit would allow us answer such questions.

The full list of Irish signatories to the Greek debt audit campaign is:
Professor Sean O’Riain, Head of Department of Sociology, National University of Ireland, Maynooth;
Cathleen O’Neill, Community Activist, Kilbarrack Community Development Programme, Dublin;
Frank Keoghan, General President, Technical, Engineering and Electrical Union (TEEU);
Des Derwin, executive member, Dublin Council of Trade Unions;
Professor Peadar Kirby, Director, Institute for the Study of Knowledge in Society (ISKS); Professor of International Politics and Public Policy, Department of Politics and Public Administration; Member, Governing Authority, University of Limerick;
Professor Cormac O’Grada, School of Economics, University College Dublin;
Dr Iain Atack, International Peace Studies, Irish School of Ecumenics, Trinity College Dublin;
John Baker, Associate Professor of Equality Studies and Head of School of Social Justice, University College Dublin;
Fintan O’Toole, author and journalist;
Kathleen Lynch, Professor of Equality Studies, University College Dublin;
Denis J. Halliday, former United Nations Assistant Secretary-General;
Kevin O'Rourke, Professor of Economics, Trinity College Dublin;
John Maguire, Professor Emeritus of Sociology, National University of Ireland, Cork;
Jimmy Kelly, Irish Regional Secretary, UNITE Trade Union.


Paul Hunt said...

I think we can be confident that senior politicians in the core EZ economies are addressing the implications of the extent to which some of their banks overextended themselves in the peripheral EU economies. I'm not sure what this campaign will achieve except to reinforce a sense of victimhood in the peripherals and a hardening of hearts in the core.

It would be wonderful if these distinguished sgnatories were equally prepared to instigate and back a campaign to require all EU member-states to develop and present proper government accounts (rather than the current 'tennis club' receipts and expenditure versions) that included income statements, funds flow and balance sheets which could be used for auditing and fiscal planning puproses.

It is not clear to what extent the forthcoming report of the Review Group on State Assets and Libailities will address this matter, but it would be in the interests of all EU citizens. And would focus on forging common bonds as opposed to the diviseness of this campaign.

Martin O Dea said...

This seems an excellent concept, but hopefully it will not become a future curiosity as to why it did not progress.
It will be stiffly opposed and would need to have open to it a range of options including legal repurcussions for any who have wrongly accrued state debt. Needless to say this would be more ruthlessly resisted. It would be marvellous if a number of eminent persons like those listed and/or others were to put this challenge down now before we committ more of the countries future earnings; opposed they would be, but they could count on popular support

Martin O Dea said...

lets go to court

Andy Storey said...

Paul Hunt is correct to say that "I think we can be confident that senior politicians in the core EZ economies are addressing the implications of the extent to which some of their banks overextended themselves in the peripheral EU economies". That is precisely what the 'bail out' is about - ensuring those banks get their money back. If it is 'divisive' to object to that, then so be it. Why should I or any other Irish citizen pick up the tab for reckless European (or Irish for that matter) lending to Anglo or any other Irish bank? (The issue of public sector accounts is wholly irrelevant to Ireland, where it is private sector debt that is odious and illegitimate).

Paul Hunt said...

@Andy Storey,

Moral outrage isn't a policy; though it might provide the basis for one - if a rational approach were employed. Although the debt/GDP ratio of the EU as a whole is not excessive, that of some members is and the EU requires the continuing trust of the sovereign bond market. (Some might consider it wonderful if economies could avoid reliance on this market, but it would be neither efficient nor effective).

A combination of difficulty in enhancing economic performance (to bring down the debt/GDP ratio), of demographic trends and the implications of poor design of the institutions and procedures of the EZ means that the sovereign bond market is exposed to considerable uncertainty.

The core EZ countries are determined to create 'fiscal space' to reassure the bond market. Unfortunately, concerns remains unconvinced about the fiscal burden that a proper resolution of the EZ banking system will impose. Core EZ politicians are unwilling to confront this. For reasons of political expediency, cowardice, inertia or what ever they are willing to expose, temporarily, the peripherals to the burden of debt (both public and private) accumulated - and some to the tender mercies of the sovereign bond market.

It is well understood that this is unsustainable in the medium term, but considerable institutional and political effort is required to ameliorate this burden on the peripherals. There is also a sense in the core that the peripherals are in this mess to a greta extent because of woeful misgovernance. A process of more centralised fiscal governance and some evidence of governance reform in the peripherals are required before some resolution will be effected.

While the level of prices for household consumption are 20% above the EZ average, while pay and transfer levels are similarly above the norm (to allow people to pay these prices and while the tax-take is proportionately below the EZ average, Ireland will have great difficulty convincing other member-states that it is deserving of relief which they will have to finance.

Ireland will have to do more to help itself, before it will secure the respect and help of others. Behaving like a teenager and moaning that 'It's sooo unfair' won't cut any ice with core EZ politicians. Particularly when Ireland refuses to pursue menaingful reform of political governance and serious structural reforms - that are in its own interests.

Martin O'Dea said...

Paul, this is all fine if Ireland were running a governmental defifict that required a 'bail-out'; the problem here is that the reason Ireland is in an untenable financial position is because it guaranteed the debts of privately held banks for one of two reasons, either a massive error made by a government in breach of constitutional responsibility; or as seems more likely considering the personalities involved track records - because Europe told them so.
These are not teenage tantrums these are very real potential policies. If an elected government corrutped by power started to hurt its citizens then we would advocate an election, a legal challenge, or whatever it takes for the hurt to cease. Again, I say start talking to China. In the final analysis if we jettison this debt (which I feel is legally dubious as well as morally) and borrow to bridge the fiscal deficit from China or indeed the broader bond markets then we would be a relatviely sound investment pretty mush immediately. The circumstances are not 'normal' to a bailout; and it is very wrong of us to continue in that vein. 6 billion euros were paid in stamp duty and 1/8 people worked in construction before the property bubble - that is the extent of what we whould be 'adjusting' for and even at that the state should be looking for figures to have their day in court - including politicians

Paul Hunt said...


Irish 10 yr sovs are heading well north of 9%, so there is no 'broader bond market' out there. China was more than happy to chip into the fund that financed the EU/IMF 'bail-out'. It's slowly shifting out of the USD (as the Yanks drive it down and the RMB is forced to rise) and quite likes the Euro as an alternative. It also helps when it's buying lots of cars, consumer durables and capital goods from Germany and luxuries from France. It's not going to upset the EU powers by breaking ranks to help lil ole Ireland thumb its nose at them. But, on the other hand, if there are some distressed, potentially strategic assets on offer, that might be another story...

Martin O'Dea said...

The central point is that Ireland and Greece etc have to find an alternative to the E.U. for negotiation, at this moment we are of the collective opinion that all that we can do is pursue what we are currently doing; firstly this seems an awful strategy for peripherals, but secondly it is a stance that is very poor from which to negotiate.
More importantly we are soaring north of 10% while we suggest that we will repay this banking debt. If Fine Gael and Labour decided that they would no longer accept the previous governments bank coverage and bailout agreement, and laid out clearly what they proposed to do it would be interesting to see where the ten year would be pitched. Markets do future prediction, not revenge.
I know that there is a fear that, if we did that what would happen!!
But we should tease this out. Worse case scenario would seem to me that E.U. withdraws support, bond markets indeed, surprisingly, punish us; and we end up requiring the help of the I.M.F. The amazing thing in this worst case scenario is that we would end up paying less interest.
More likely is that the E.U. take our plans (and cooperating other peripherals) seriously and sits down to have a thorough reevaluation and agreement which accommodates all countries first and markets second (appreciating that markets will want clarity for the future and will accept whatever 'haircut' is applied E.U. wide) perhaps something like e.u, bonds would arise

Paul Hunt said...

The sovereign bond market is poised to do its job on behalf of all EU citizens:

Martin O'Dea said...

Not sure what the intro means Paul.
It is worth noting that Greece's 110 billion bailout includes 10 billion for banks and that is only included, in case, their are bad loans due to the austerity that seems due to right the public finances...and greece is angrier than we are

We are a very different case - and should not accept what is occuring. The shocking reality of Ireland is that our economy (all things of sept 2008 aside) is/would be in realtively good condition

SlĂ­ Eile said...

@Andy Debt audit is a good idea as is a referendum I believe. I note that David McWilliams has taken up the issue as well. See
@Martin - good points. But we should be mindful that whoever we are in debt to - China, IMF, EU, UK etc - they call the tune to some extent. Whoever is in debt is not quite free.

Martin O'Dea said...

Sli, my point is more that there is a fear pervading that we cannot jettison the bank debt because the E.U. will not allow us and they are the ones paying 'nurses, teachers etc' but to negotiate at the very least we need to have an option. Minus as much of bank debt as is possible the lender would not be as exposed and should wish no more than the interest.
There is a tendency towards 'well you can only do so much' type thinking and rooting around for reference points to see where the parameters of reasonability lie. This is new, and there is a vast range of degrees of success/failure in front of us.
I think now is possibly the last big opportunity for the country to have a significant political change of approach. The stress test is a very very clear example of buying time. We can assure them now confidently enough that the banks are stressed, we're all a bit stressed