Peter Mair (December 17, 2010: posted by David Farrell)
One of the issues that is likely to dominate the forthcoming general election is the question of whether Ireland should default on the crippling debt repayments. Reading both on and between the lines in the analyses of a number of economic commentators in recent weeks, I get the impression that there is now growing support for default. If, as seems likely, this is then offered as a serious option by one or more of the (left?) parties in the election, and if Fianna Fáil and Fine Gael policy remains committed to austerity and repayment, then the question of default could even become the decisive issue, with the election itself serving as a referendum on repayment options.
What seems to have been forgotten is that we’ve been here before. Back in 1932, when Fianna Fáil first came to power, one of the dominating issues of the election concerned the repayment of the land annuities. The land annuities were paid by Irish farmers to the Irish Land Commision which then transferred the sums to British National Debt Commissioners. The intention was to repay the loans that had been raised by the British government in order to buy out Irish landlords following the various Land Acts of the late 1890s and early 1900s. These debt payments were always strongly opposed by Fianna Fáil. In his lengthy biography of De Valera, Tim Pat Coogan quotes a speech by the Fianna Fáil leader in Blackrock in 1927 where he proposed a re-opening of the financial settlement, which, he stated, “imposes on the country an annual exportation of income and revenue of over five million pounds a year. The community cannot bear that and prosper.” Coogan goes on to cite Colonel Maurice Moore, a brother of the novelist George Moore, who compared the commitment to debt repayment through the land annuities “to bribing a burglar after being burgled” (Coogan, 410-11).
Eighty years on, the echoes are uncanny, particularly since now, as then, it seems impossible for the country to bear the costs of repayment and to prosper. Today, however, the role of Fianna Fáil has changed. Back in the late 1920s, in opposition, it opposed the debt repayments. Today, in government, it has negotiated their terms. Looking back, it seems ironic that it was a commitment to default which contributed to launching Fianna Fáil into the position of power that it has since rarely vacated.
The collection of the annuities continued under De Valera, of course, but the money was used to bolster social and infrastructural spending in Ireland rather than being repatriated back to Britain. The dispute also led to the so-called ‘economic war’, with the British imposing tariffs on the export of Irish goods. This was to be predicted at the time. What is less easy to predict are the consequences of possible default in 2011. Perhaps it might be negotiated.
3 thoughts on “Land Annuities and the Default Option”
The sovereign Irish government agreed to make certain payments to Britain as part of the post-Treaty settlement on debt. Their agreement to continue to pay the land annuities was politically explosive, more so than if they had agreed to continue paying some other part of the former UK of GB & Ireland debt, such as the debt incurred in World War I.
The Economic War that followed the default cost a lot more than we saved in Land Annuities. It meant a crushing loss of trade, export revenues and jobs.
For today to be similar to the 1930s we would have to default on a *managable* debt (the Land Annuities weren’t crippling and were only paid by the land-owning classes)and we would have to shut down all of our external trade (by, say, taxing Google, MSFT, Intel and Pfizer to the point where they wanted to leave and would charge us extra to buy their software and pharmaceuticals.) Few things are stupider and more self-destructive than our government’s behaviour, but Dev’s Economic War is one example of something that was more stupid and self-destructive.
It is worrying when so much of, let’s call it, ‘respectable’ opinion, if not openly advocating it, at least has a sneaking regard for the default option. It seems to have escaped many people’s attention that Ireland’s de jure and de facto sovereignty has shrunk considerably since de Valera’s time – and even more dramatically recently.
The EU’s Grand Panjandrums are fumbling towards some sort of near-term arrangement to address the combination of sovereign/bank debt in the peripherals that is placing the entire Eurosone financial system at risk – and which bond investors are pushing to see resolved. Any relief for Ireland will be in that context. And any unilateral action by Ireland that invalidates the terms of the current EU/IMF arrangement would be extremely damaging.
The Land issue is different as people actually got to own their farms whereas this current mess occured precisely because Brian Lenihan and Brian Cowen and the heads of AIB, Anglo, and some others made a decision in secret, with no record kept, transferred the debts of the banking system to the Irish state and now the issue of whether the Irish state can transfer that debt back again is the problem.
The ethics of it are that it should do just that because no matter how you do the figures there is simply no way the State can afford the debt – the debt is part of the day to day fundings and part of the moeny poured into the banks.
The banking systems in Ireland or around the world couldn’t believe their luck when Cowen and Lenihan did their bidding.
THe idea that these debts can be repaid in 5 years is ridiculous as well, you wouldn’t pay a mortgage over 5 years unless you are extremely wealthy.
The debt needs to be separated to bank and spending with the banks given back to the banks and if they go bust then so what. The market will find a way to cope because the deposits are already covered by deposit gaurantees, so there was never a reason to take on the entire banking systems debts.
Then if the country had a new government running it properly, instead of Cowen and Lenihan whose idea of running it is to borrow more and more so as to avoid ever having to reform anything, the economy can grow and proper savings can be made, the spending gap can be managed quite easily and the debt built up repaid.
It’s not rocket science, it’s exactly the same as managing a family budget, if you lose your job or have a huge pay cut, you don’t go out and max out your credit cards and then have your entire family transfer all their debts to you, which is what Cowen and Lenihan have done.
How this plays out is that the bank debt is going to be defaulted on and the EU is starting to accept that actually, it is not the end of the world if an EU bank folds, in fact it’s healthy to root out the rot and stop it infecting everything else. Having done that and released the pressure, the market will then react knowing the lance has been boilded and the country is now capable of carrying its load. There’ll be no question of ATM’s not working or salaries not being paid – that is what the EU knows it cannot allow happen.