I’m impressed with the economists who are honest enough to say that they simply do not know what would happen if we burnt bondholders. Minister Leo Varadkar is, happily for him, possessed of no such doubt. In short, and I’m not paraphrasing here, he believes the effects of reneging on or restructuring Anglo and INBS bond repayments would be akin to dropping a bomb on Dublin.
This was by far the biggest stick that any government Minister, in any government since 2008, has employed to persuade the public. There are big holes in the logic he employs, though. I stress tested his arguments in a Drivetime report on Monday that is podcast here.
Arising from that report there are two points worth making.
The only member of the Troika that will not give up on the belief that we should pay back every last cent, no matter how unsustainable the burden, is the European Central Bank. The reason that they gave when they first landed here was one that was hard to argue against with absolute certainty. If Ireland turned its back on Senior unsecured debt obligations the whole European market for that kind of debt could collapse. Lord only knows what that would have led to and we would have been the cause of a 1929 scale banking pandemic, was how the argument tended to be made. The argument couldn’t be refuted with confidence so we went on paying out on bonds that the holders presumably had already written off or seriously discounted in their own minds.
But now that market has collapsed anyway on foot of fears of the health of much bigger banks than ours all across Europe. Unfortunately for us the ECB is still wedded to its conviction that we need to keep on paying out on these bonds. And we are doing this in order that confidence in a market in which nobody has any confidence doesn’t collapse. Eat your heart out Joseph Heller, you could never have come up with logic as perverse as that.
Hence Minister Varadkar’s new arguments in support of an old policy. I’m too weary to set them out here again … just listen to them here.
The second point is that very very soon there will be no Anglo or INBS bondholders left to burn. Yesterday in response to a query about what bonds are left to pay out on the people at IRBC sent me this document. IBRC Bond Repayments In short it shows how after the button is pushed on Wednesday transferring €1.25bn to some very lucky bondholders, there is only one payment left to be made to any unsecured senior creditors. That payment falls due later this year. Then there’s one more payment of €750m to senior secured creditors in 2015 … and that’s it. No bondholders left to debate over burning or not burning. They won’t be holding bonds in defunct banks. They’ll be holding taxpayer cash.
That debate will be over. Everything we learnt about the arcane world of the bond markets can be pushed to the recesses of our memories as we re-focus on Promissory Notes. Which we will pay out €3.1bn on this March, and the March after that, and the March after that, and the March after that, and so on until 2031.