Now that the referendum smoke has cleared, we are left with the ESM fog. The signals from Hiding behind a poster and one or two other posters, and echoed in some of our Sunday papers, show the outline of the Government plan. It looks to me to go like this:
Spain's banks are in danger of going down. They are TBTF. The ESM steps in. It lends cheap and long to Spanish banks. Ireland then puts its lámh suas. Ireland asks to be remembered for being good, for taking on bank losses with gusto. We did it for the euro. It's payback time. So please can the ESM take this burden from our back. Refinance the tens of billions of odious debt that is weighing us down.
If that is the Government plan, it faces some obstacles.
- The current ESM treaty says the ESM can only lend to countries, not banks. Treaty change would need German consent.
- The ESM has no money. It does not even have notepaper - the ESM does not exist. It is supposed to exist in four weeks. If and when it comes into existence it needs to move fast, going from Zero to €500 billion in warp speed. To assemble its fund, it needs to first get in money and irrevocable sovereign pledges from member countries totalling €700 billion. €83 billion of that is to come from Spain.
- Having gathered in the cash and pledges, it then has to persuade bodies to lend it six or seven times its cash pile. This is our old friend leveraged borrowing.
- If it pulls that off, it then gives the borrowed money to the bust banks, who promise to pay it back, with interest.
That does not look like a great plan but I am surely missing something. Does anyone think it will work for Ireland, and if so how?
/MOD/ Edit: Sync: Merged with this thread: Enda Kenny and his quest for political justice /MOD/
Edit, in view of merger, to add Enda Kenny's statement:
There is a strong case for political justice to be seen in respect of facilities being given to one country and another.