Cassandra 2012 Headline Animator

Friday, 10 February 2012

An Honourable Tradition of which Ireland can be Proud

Yet more opprobrium is heaped on Enda Kenny as a result of his recent statement to Bloomberg TV. And to some extent it is justified for the man often seems to be telling foreigners things that are out of kilter with what, at least until recently, he has been telling his fellow Irish men and women. But in that he is little different from any other politician and if there is one thing that Irish politicians excel at it is the art of political double speak.

But, as usual, a great deal of the criticism aimed at the Taoseach is concerned with the declared intention to pay off our debts in full. Many Irish people see the debts in question as somehow not their responsibility but instead that of faceless investors who bought bonds in failed banks. It seems to me, in my contrarian way, that in order to investigate the veracity of such a notion it is necessary to examine two straight forward questions: what happened to the money and who are the bond holders?

The €300 grand that you paid for a house that is now worth €120 grand was paid to a developer. Whilst it may be true that the developer buried some of that money in a tax haven along with all the other amounts he received from other buyers, most of it will have been paid to the employees and sub-contractors he engaged to build the house. Some will have gone to the original owner of the land on which your house and all the others are built. Some may have gone to a sales agent although many developers handled their own sales.

The point is that all of these people - with one relatively minor exception which I will come to - spent that money in Ireland and paid the taxes that enabled the government of the day to increase the wages of public sector workers and the social welfare benefits paid to claimants. In short, all that money drove the economy throughout those heady tiger years. It is still visible in all those new houses and apartments, all the luxury cars that were purchased in those years and all the gadgets in the houses. As I pointed out back in November, a lot of this ended up in countries like China - who invested it in Africa. As an aside, this latter fact should make one or two Irishmen - I'm thinking of Messrs Geldof and Bono - happy.

The developers, the sub-contractors and the businesses that boomed from all the money that well paid people in all sectors of the economy had to spend, then went to the banks and said, in effect, "look, my business is booming. Lend me the money to expand and I can do even better." It looked like what, in the vernacular is known as a "no brainer". But when everybody has the house of his and her dreams, what is the point of building more?

That is where it all came to grief. Nobody wanted to buy the third or fourth phase of the development. Marks and Spencer and Debenhams had all the retail space they could handle. Materials were bought, tradesmen paid but no-one wanted to buy. So the money suddenly stopped circulating around the system. People were laid off. Instead of paying taxes they were drawing benefits. Businesses started to go bust. With few house sales there were no development levies or stamp duty to support local and national government which ended up paying out far more than it was receiving.

The exception I mentioned earlier? A significant proportion of the incomes paid to foreign nationals working in Ireland was sent home to support family back in Eastern Europe or Africa. (More delight for the ageing rockers!)

Now consider the bond holders that so many people are eager to see "burned". The conventional view is of a Champaign and caviar scoffing bunch of spivs laughing at the gullible Irish. That is certainly a part of the reality and I am as angry as anyone at the inflated salaries and bonuses these people receive. But they are only the middle men and women in a complex web of transactions. Somewhere, way down the ladder, and forgotten equally by the spivs and by those who would seemingly see them starve, are people who placed their life savings in pension funds and trust funds at a time when government bonds were regarded as the safest places to invest. Returns might not be as good as those obtainable from stocks and shares but the risks were far less. Governments don't go bust. Governments honour their debts.

In the face of so much that has been turned on its head by this current crisis, Mr Kenny and Ireland are to be congratulated, not reviled, for holding fast to this honourable tradition.

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