Wednesday, December 12, 2012

Ireland-Confidence Debate: Sinn Fein's Mary Lou McDonald in Nonsensical Comment on Debt Default

In the course of the Dail debate tonight on the Sinn Fein no confidence motion in the government Mary Lou McDonald chided the government on the issue of default. She ridiculed FG for its opposition to default. Really Mary Lou McDonald is totally confused if she believes that a unilateral default would provide a way forward. She seems blissfully unaware of the likely consequences. The ECB has provided funding to the tune of c130 billion euro for Irish banks. A unilateral default would have major repercussions for those banks. Does she really believe that the ECB would not retaliate? Who would fund the banks in the event of a unilateral default? Who would fund public service salaries and Social Welfare payments? Playing to the gallery is no substitute for a coherent economic policy. Neither is populist play acting. It may win a few cheers from the uninformed but it is not a way forward. Indeed it is the road to ruin. Perhaps Ms. McDonald and Sinn Fein might care to study the impact of a PARTIAL DEFAULT on Greece.

As a quid pro quo for debt restructuring

  • Greece has promised to reduce its 750,000-strong broader public sector by 150,000 by the end of 2015,
  • The minimum wage has been reduced to €2.20 per hour
  • Savage pension cuts have been implemented.
  • Large public sector pay cuts are being enforced.
  • Massive rises in direct, indirect and property taxation have come into effect.

Mary Lou McDonald and Sinn Fein need to go back to the economic drawing board. They have not thought out the likely consequences of default.

Ireland needs concessions on the promissory notes and banking debt. At this juncture jaw-jaw is better than war-war. Hopefully a deal can be reached on the Anglo promissory notes by March. In addition Ireland is hoping that the ESM can be used to retroactively tackle some €30bn of bank debt relating to the recapitalisation of Bank of Ireland, AIB and Permanent TSB. This is a more rational approach than that advocated by Sinn Fein. Populist posturing does not an economic policy make. Sinn Fein is not alone in this. Shane Ross and Stephen Donnelly consistently surf the populist wave. Whilst Donnelly endeavours to come up with solutions, Ross engages in inane criticism devoid of answers.

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