Chairman of Goldman Sachs wants Irish Peasants able to pay Goldman Sachs

Peter “The Hutt” Sutherland, chairman of Goldman Sachs International and former director of Royal Bank of Scotland … in a fit of rhetorical noblesse oblige about inter-dependency / inter-co-dependency wants the interest rates / financial rent payable by  Irish citizens / peasants to undergo a “rethink”. Why could this be?

  1. Because our Gimps-in-Government insist on bailing out the financial institutions gambling-debt collectors such as… Goldman Sachs? (Who lent to Anglo)
  2. Because our literally Bank-Owned-State wants to placate their real bosses – Irish Government Bondholders such as… Royal Bank of Scotland? (e.g. Inflated exchequer debt/rates due to Anglo guarantees etc. etc.)

Well, we can’t be too hard on the serfs if we want them to pay up the full 0.45 Kilograms of flesh. The EU must rethink Ireland’s deal

By Peter Sutherland

Published: March 9 2011 22:24 | Last updated: March 9 2011 22:24

The agreement of the new Irish government’s programme is prudent and realistic. It should be acceptable to the European Union and the International Monetary Fund, which jointly provide funding for the Irish economy. It accepts the tough budget targets agreed for 2011 and 2012. While it delays, in principle, the date to bring the deficit down to 3 per cent of gross domestic product by one year to 2015, it will only be in two years that the extension will finally be decided.

So the parties have accepted a difficult “road map” that risks creating deep unpopularity over time. But, while for the moment, there is a hint of greater optimism for the future in Ireland, there is no denying the austerity required. That is more difficult to accept because it follows a period of unprecedented growth. The Irish budget deficit is running at 12 per cent of GDP and the Irish gross debt is 95 per cent of GDP. On the present trajectory it will rise to 113 per cent in 2014 and may ultimately reach 120 per cent or slightly more as it did in the terrible years of the 1980s.

It was under these circumstances that on November 21 last year the outgoing government applied for a loan from the EU and IMF and a €67.5bn external facility was provided. The interest rate payable on the loan is 5.8 per cent although the funding cost is 2.9 per cent. This differential is exorbitant. It is also probably unsustainable having regard to likely growth rates. Far from helping to solve the problem it is therefore likely to exacerbate it. There is talk that it may be reviewed at the EU’s March ministerial meetings, and it certainly should be. It is worth noting in this context that the British and Dutch loans to Iceland in December 2010 have an interest rate of 3.2 per cent and these loans are over a longer period. Also the EU’s balance of payments support to Hungary and Latvia does not have a penalty premium like Ireland.

It is clear that the principle that loans required by states following breaches of the agreed limits on budget deficits must attract some penalty. This is required to limit the problem of “moral hazard” but should not amount to an unduly punitive sanction like it does now. We should also recognise that it is in the interest of all European states, including the UK, that national problems within Europe are common concerns not merely because of the immediate risks of contagion but also because continued economic integration is in everyone’s interest. This has always been recognised not merely through the historically limited interventions of the EU’s regional fund but also in the common response to immediate issues. An example was German reunification when, indirectly, everyone helped to finance the necessary reconstruction.

Another issue is corporation tax. Some governments, such as France, have been advancing the case for corporation tax harmonisation. Ireland has a corporation tax rate of 12.5 per cent, which is a cornerstone of its industrial policy. As has been made clear by the incoming Taoiseach, as with his predecessor, this is not for changing. As Ireland has a right to a veto here, it will not change. During the Lisbon treaty referendum, the European Commission made clear that this was not, and would not be, under threat. Apart from the fact that Ireland’s position is irreversible on this, we should note that in a World Bank-PwC Report it has been established that the actual rate of tax paid, for example, in France is 8.2 per cent and is even lower elsewhere.

The bottom line of the Irish crisis is to emphasise the interdependence that exists in Europe and not just the eurozone. EU institutions need to be redesigned to cope with the implications flowing from monetary union but the reforms necessary for future crises need to be built on the foundations of successfully tackling the current crisis.

The founders of the EU believed its purpose was more than economic advantage and that the project demanded a sense of mutual solidarity. Now is the time to demonstrate that this has not been forgotten.

The writer is chairman of Goldman Sachs International, a former EU commissioner and Ireland’s former attorney-general [what – no love for the Royal Bank of Scotland?!]

This entry was posted in Accountability, Bankers' Bailout, Budget, Debt Default/Restructuring, ECB/IMF, Economy, EU, ireland and tagged , , , , , , . Bookmark the permalink.

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