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Play the Bankruptcy Card

Posted on: March 20th, 2011

Sometimes it pays to be bankrupt. Ireland is no longer the darling of Europe’s leaders. Indeed our new masters want to test the mettle of our Taoiseach and his Cabinet.

Portly European Commissioner Jose Emmanuel Barroso took time off to greet Enda Kenny. French President Nicolas Sarkozy gave him a grilling. ECB boss Jean- Claude Trichet made space in his diary for a meeting with Finance Minister Michael Noonan. European Commissioner Olli Rehn made himself available and promptly gave Michael a dressing down. The IMF’s AJ Chopra and his co-lenders from Europe suddenly jetted in to talks with Noonan and his Labour colleague Brendan Howlin.

Quite a flurry, with plenty of unwanted attention for dazzled ministers in their first week.

European leaders are tripping over themselves to meet Irish ministers.

They are not suffering from love at first sight. No, they are terrified that the new government may go walkabout. Enda and Michael could bolt from the fold.

It pays to be bankrupt.

Unfortunately, we are not playing the bankruptcy card.

Secretly European leaders are sweating. They fear that Ireland will formally go bust. If the current debate on default gains momentum, Barroso, Sarkozy, Rehn and Chopra will be in deep doo-doo. Ireland’s default will spread contagion throughout Europe. Even the French banks, more vulnerable than Sarkozy would like to admit, are fragile.

So the oligarchs of Europe have taken the big stick to Enda. If they can make him conform to the crippling deal of last November — negotiated by the old Fianna Fail government — they will crack open the vintage champagne on the Champs Elysees.

So far, their strategy is working.

The choreography is confusing. While Europe is winning on the big picture, Kenny is playing a blinder locally.

The new Taoiseach has enjoyed a couple of magic weeks. He is walking to work. His ministers have seen salaries and cars cut back. He has persuaded US president Barack Obama to visit us before the end of May. The Queen of England is on the way. And in a further boost to the nation’s morale, we have had winners at Cheltenham to beat the band.

Government spinners have painted Enda as eyeballing Sarkozy on corporate tax at the top tables in Europe. Irish negotiators even claim to have secured a change in the terms of the bailout deal with Europe and the IMF. Apparently, AJ Chopra was surprisingly agreeable.

Most of this is pretty lame stuff. The big picture remains catastrophic. The overall debt is unchanged. The nation stays bankrupt.

Our European friends, sensing our desperation, have demanded that we surrender our last route to recovery — Ireland’s low corporate tax rate. Far from helping us, they are pushing us on a course leading to economic oblivion.

Kenny and Noonan have ducked and dived around European demands, dodging the corporate tax missiles, while exaggerating the importance of a puny amendment to the EU/IMF deal.

They are adamant that they will not concede a decimal point on the 12.5 per cent tax rate but seem softer on the Trojan horse of changing the corporate tax base.

The amendments they agreed to the terms of Fianna Fail’s deal are cosmetic. They have tinkered around at the edges. AJ Chopra consented to minor alterations, provided that the overall parameters remained the same. We can die at the gallows or on the electric chair. It is our choice. What a triumph.

The bully-boy tactics from Europe are working.

The Fine Gael pre-election commitment to “burden sharing” has all but disappeared. The bondholders will not be burned. The European bankers who recklessly lent to Anglo and AIB are jumping for joy on the streets of Frankfurt and Paris.

Our new ministers have surprisingly failed to win a reduction in the interest rate on our massive loans, despite Greece’s success in securing a 1 per cent cut.

So far, while diplomatic activity has been frantic, the traffic has been all one-way. Ireland has its back against the wall. We are being threatened with a slow death in the shape of the high interest rate — unless we slit our own throats on corporate tax.

Kenny and Noonan are saying “no”. But “no” is not enough.

“No” is merely retaining the status quo.

We have always been able to use the veto on tax matters.

We need to play the bankruptcy card. Tell them that we alone will not take the hit for Europe’s banking woes. Others behaved recklessly too.

Far from fighting a loser’s long-term battle against bankruptcy, we should do an immediate U-turn. Take the fight to the European mainland.

We should stop pussy-footing around about the interest rate (a 1 per cent reduction will only save us a pittance per annum) and tell Sarkozy and Merkel to stuff their miserly concession. We should openly reveal that our plight is far worse than we ever envisaged and that we will not be able to repay our loans in the long-term. Let our problem become their crisis. We should tell the European leaders that burden-sharing is not just back on the table, it is top of the agenda.

We should tell them that we will be holding a referendum on the deal in May. We will regard the verdict of the Irish people as binding.

In brief, we should put the fear of God into Sarkozy, Merkel, Rehn, Barroso and Chopra. Tell them that we are going to default in the morning. Their banks can keep their loans. We will negotiate with bondholders on a fair settlement. Furthermore, if sovereign debt has to take the same road, so be it.

We should remind Nicolas and Angela that when businesses go bankrupt, creditors take the hit. Ditto nations. Remind them that in the US, bankruptcy is often followed by a quick revival and renewed prosperity.

Remind them that the Taoiseach received a hero’s welcome in the same US last week, that the source of their envy — US multinational investment — will not be lost to Ireland. And perhaps Mr Kenny could reassure US multinational leaders that our corporate tax rate is not set in stone at 12.5 per cent. He should announce that it will be coming down to 9.9 per cent in the near future. That would set the noble Nicolas choking on his foie gras.

We value the long history of US investment flowing into our nation. Come the month of May we would far prefer the spectre of Barack Obama approaching our shores than the menacing prospect of Nicolas paying a repeat visit to the French Embassy in Dublin to tell the Irish people how to vote in another referendum.

The US and Britain remain our largest trading partners. The month of May will see a visit to Ireland from the heads of state of both nations. We should not yet ask them to bring the royal cheque book or the presidential seal — but we should remind our European partners that if they drive us to bankruptcy, we have older friends elsewhere.