Arrogance and childish petulance versus chrome-domed reasonableness.
There can only be one winner.
Independent TD Stephen Donnelly (above) and Fine Gael Junior Minister Brian Hayes (top) joined Pat Kenny this morning to talk about reports of a leaked confidential Troika document outlining proposals for a seven-year extension of Ireland and Portugal’s EU/IMF bailout.
Take a seat.
Brian Hayes: “If you can stretch out the payments like you can, if you could for your mortgage or other forms of loans, that would make sense. So the key thing is Ireland and Portugal put this thing on the table last January. The Commission then gave a report. The Troika are now bringing forward the report. I see some of it may or may not have been leaked to the papers from Reuters last evening. That report will be discusses at the ECOFIN meeting in Dublin this weekend, which is an informal meeting. And we’ll see where it goes.”
Pat Kenny: “What will it mean in practical terms. I mean if you do get an average of seven years extension on all these loans. Some of which are due relatively soon. What does it mean in practical terms, in terms of the Budget every year for example?”
Hayes: “It will not make a huge difference to the budget arithmetic but it will help, make a huge difference in respect of our return to the markets because if you owe a €100 and you’ve to pay it back next year and you can then get a term extension over a number of years, say €20 a year, for the next five years, that obviously means that there’s less money to be paid back each year and it gives you more breathing space.”
Kenny: “Is this a process absolutely separate from the legacy debt?”
Hayes: “Yes. It is. Totally separate. That is another issue. It’s an issue that we’re working hard on but it’s a medium-term issue. Where this issue…this is effectively the money that we’ve already drawn down Pat. When we went into the bailout programme and used both of those (EFSF and EFSM) funds from, two-thirds effectively two-thirds of the money involved, it was quite tight in terms of the payback time. Now we’ve been arguing since, if we get a longer maturity, it makes it easier for us to get back to the markets and make things like debt position more sustainable. Ireland becomes more attractive to investors. The key in all this debate, I mean when you talk about debt, and moving on ten year money is, how do you get money back into Ireland? How do you get the private sector investment going? And the key to it is this, if the stake is less, looks less risky, from a sovereign perspective, as we clearly have, because the cost of ten-year money has gone down from 15% to less than 4% last night. You know if you get that perception out there, money is coming back into Ireland.”
Kenny: “What’s the issue? I mean who’s going to suffer if we get this? I mean why is it a, why is it not a no-brainer to say think of Ireland and give Portugal an extension if it makes them more viable?”
Hayes: “I think both Eurozone colleagues and ECOFIN colleagues are mindful of supporting countries who are making a success of their programme and there is no doubt across the EU institutions, Ireland is held up as an example of a country. You know, painful and difficult and all as it is, as sorting out its problems. So the key issue for us would be if we manage to get this agreement and I think it’s not going to happen this weekend but if we manage to get this agreement, it certainly helps our profile of repayments. The other issue is this: Europe needs a success story. Ireland I think is best positioned of all the bailout countries to come back and to get back on a sustainable way to the markets. There’s no point getting back to the markets for one year or six months.We want to get back to the markets on a sustainable basis. And, there are politics in this. The fund that the 27 member states control, a great number of those countries have to go back to their parliaments in order for us to agree this. That is not the case on the 17 member states of the Eurozone. So, in other words, it’s a tricky political issue for member states who’d basically be arguing for better terms and conditions for Portugal and Ireland. They have to get that through their parliaments. So there’s a political issue in those countries.”
Kenny: “Stephen, this process, what does it promise to you? Is it some something that we should celebrate if it comes to pass or does it amount to more than a hill of beans.”
Stephen Donnelly: “Oh, I think it’s worth celebrating. I think Brian is right, in that you know, we do have very serious funding requirements coming up. It’s not going to make any difference to the Budget. It’s not going to make any difference, I think, to economic growth. But I think it increases the probability that we’re not going to have to go back for a second bailout and I think that’s definitely, definitely to be welcomed.”
Kenny: “Explain to me by the way, if you don’t have to save up, if you like, to pay off these debts, why that doesn’t feed into the Budget. I mean if you don’t have to provide say half a billion, in a particular year because you no longer have to service this thing, why does that not immediately feed into the Budget?”
Donnelly: “Well, because you don’t ever actually pay this debt down. Unfortunately, most national debt just gets rolled over. It’s a bit like the promissory notes. It wasn’t a question of not having to borrow the money. The money is borrowed so our national debt is, I think is about €200billion at the moment. The way that your debt-to-GDP ratio goes down is not by paying down the debt, it’s by the GDP going up..”
Kenny: “Yeah, no, no but explain to me, maybe I’m being a bit obtuse about this, but. This has always been compared to the household budget. You restructure your mortgage, that means you pay less per month. You pay what you can afford…”
Donnelly: “You don’t pay less..”
Kenny: “No, no, no, I’m talking about in your restructuring of your mortgage, you know, you kick the can down the road, you have a longer term, so your monthly repayments are less. But of course, in the long term you pay more. But it’s in the long term. And that means that you can now put bread on the table. So why, if you’re always making these comparisons with restructuring of a mortgage and that’s what we’re doing with these loans, why doesn’t it free up cash?”
Donnelly: “Because you’re still paying the same interest rate. So if we got a substantial reduction in the interest rate, let’s say down the rate the ECB is lending to banks at, which is about I think .75%, that would mean that your annual servicing charges change. But in this case, now I don’t know how much we’re spending per year but let’s say it’s a half a billion euro on servicing the Troika money. What this says is: you got to continue paying half a billion euro and you’re going to have to go out to the markets to borrow that money seven years later than you already would have but your interest rate isn’t changing. That’s the only way that you get the..”
Kenny: “So the comparison with the mortgage is not exact because the mortgage is paying off some capital and interest whereas in this case, we’re only paying the interest.”
Donnelly: “Yeah, I guess so. It’s like saying look..”
Hayes: “That’s the interest repayment but the, the big win here is that that could be spread out over a longer period of time. There will be savings in this, Pat.”
Kenny: “I’m just trying to get a handle on it,”
Hayes: “There will be savings, yes, is the answer to the question. As to the scope of those savings, that will not be clear until the negotiations are complete because it depends on the years involved. But it would be wrong to present this that it’s going to dramatically change the budgetary arithmetic.”
Donnelly: “Where? Where are the savings going to be? I’m unclear on that.”
Hayes: “The savings are going to be, in respect of the repayments. If you can stretch out the repayments it makes a big difference in terms of the total amount of debt that you’ve got to pay back and also on the interest rate on the other amounts of debt because those debts have to be rolled over. That’s why. But can I just say one thing.”
Kenny: “Are you saying that.”
Donnelly: “Sorry, no.”
Kenny: “Hang on Stephen..”
Talk over each other.
Kenny: “Just to try and clarify this. If it means that when we go to the markets that the rate at which we have to roll over the borrowings…”
Hayes: “Correct. That’s right.”
Hayes: “That’s right.”
Kenny: “..Because of this deal, then there is a saving.”
Hayes: “That is exactly the saving. But can I say this cause I think Stephen got the wrong end of the stick in January when he came out and lambasted our discussions. He was wrong on three fronts then. And it’s important that when he’s wrong about things, that you know the broadcaster gives an opportunity because often, you know, governments say things that we’re reminded about. At the time in January, Stephen referred to this negotiation being led by Michael Noonan, as a technical default. He admitted he was wrong about that. I welcome that, He secondly said that this would cost us more money in the long run. I think Sean Whelan, on RTE, pointed out to him at the time that he got that wrong too. But then he said bizarrely that the money that we had to draw down from the EFSM and the EFSF was to pay back toxic bank debt. Nothing could be further from the truth. This is money that keeps our guards, our nurses and our teachers in place, in terms of the deficit. So I welcome the fact that Stephen got it wrong in January.”
Donnelly: “According to you. Sorry. According to you. You have just asserted this. And welcomed the fact that you are asserting that I said I’ve got something wrong. That’s an extraordinary piece of rhetoric Brian.”
Hayes: “Is it a technical default Stephen?”
Donnelly: “Yes. It is technical default. If you look at how the rating agencies..”
Hayes: “Well, your tweet to Sean Whelan therefore, on the occasion in January, when you admitted effectively you had it wrong, you’re rewriting history. You see the point I’m making here Pat, is, it’s really important. For people to put themselves forward as economic commentators, who get a free page in the Sunday Independent every week, and elsewhere, and then find out that what they said is utterly not true and actually porky pies are being told all over the place. And they’re also held up to public scrutiny like government ministers.”
Donnelly: Laughed “Ok. Where do we start. Right. Technical default”
Hayes: “Telling the truth would help.”
Donnelly: “The point that I was making. Thank you, Brian. That’s very helpful. The point I was making at the time is that if you look at the rating agencies of how they define default they say ‘if the terms of your borrowing change in any way, including term extensions, then that is a technical default and therefore if we move our Troika borrowing by an additional seven years then, according to the rating agency, we have technically defaulted. That’s point number one. Point number two is that this may end up costing us more money. What’s our borrowing rate, Brian? Our weighted interest rate on our Troika loan at the moment?”
Hayes: “There’s two separate funds.So the blended rate moves somewhere between 3.5 and 4%.”
Donnelly: “Ok. And how much are we borrowing three-year money at the moment at?”
Hayes: “I don’t know. I haven’t got the figures for three years.”
Donnelly: “Do you understand that it’s less than the amount we’re borrowing..”
i>Talk over each other.
Hayes: “So, hang on for a moment, you’re trying to move away from what you said just now because I want to pick you up on that. You said the rating agencies, which is a nice deflection argument there. I think most listeners.”
Talk over each other.
Donnelly: “Do you want me to address them or not?”
strong>Hayes: “You’re wrong actually on the rating agencies. As a result of this agreement, if anything, the rating agencies will show that our debt is more sustainable and consequentially…”
Talk over each other.
Donnelly: ” I said the rating agencies define what we are doing as a default.”
Hayes: “Stephen, let’s keep it simple and I think even you will follow this. When it comes to lenders and borrowers, if lenders and borrowers come to a new agreement on interest rates or when that debt should be paid back, that is an agreement, it is not a technical default.”
Kenny: Here’s a question Stephen, you can have definition and according to a definition, it might be a technical default but will, will they hammer us for that? Or will they say ‘Oh, it’s technical default but you’re in a far better place than you were before this so called technical default so we’re going to improve your rating. Isn’t that the more likely scenario .”
Donnelly: “Yeah, sure, possibly.”
Hayes: “That’s what’s happened. What’s actually happened since we’ve proven to the international community that we are dealing with our problems, that we are lowering the deficit, that we are slowly but surely getting the banking situation right, what’s actually happened is that our cost of borrowing on the international money markets has dramatically gone down. Last evening it was 3.9%. When we came in to government, it was 15%. Other countries are going in the opposite direction. Why is that? That’s because when you take out debt and you say that you’re not going to repay it, which is your, you know, manana solution, Stephen, ‘we default on all our debts’. ”
Talk over each other.
Donnelly: “Now Brian, with respect, you’re shooting your mouth off. You’ve come on here, you’ve called me a liar. You’re now suggesting that we should default on all our debts.
Hayes: “I’m saying you’ve got it wrong. I’ve said you were wrong.”
Donnelly: “With respect, maybe let me answer the question. The first question we’ve addressed. Did I say that it would be a technical default? Yes, I did. Do the rating agencies define it as a technical default? Yes they do. Your second. Hang on. Your second question was on the cost of money and I said this may end up costing us more money. You have just admitted that we are borrowing from the markets at a lower interest rate than we will continue to borrow from the Troika. Now explain to me how that may not end up costing us more money?”
Hayes: “Because every single year that you move to debt payments out, it therefore reduces the cost of that debt and it brings down the cost of..”
Donnelly: “It doesn’t reduce the cost of the debt.”
Hayes: “It does. Because you admitted from day one, on this interview, that the whole nature of this thing is about rolling over debt and I agree with you on that. The way in which the international money markets work on a ten-year basis, as you roll over debt, if the amount comes down, as a consequence, it is saving us money. But can you also clarify one thing? This is important because you did admit to Sean Whelan that night that you got it wrong…”
Donnelly: “On what..?”
Hayes: “On the question of the cost.”
Donnelly: “We’ve just gone through the question of the cost, Brian.”
Hayes: “Well…you can see your tweets. You’ve been caught out Stephen.”
Donnelly: “You’ve come on here, accusing me of lying and then you have just admitted that we’re going to roll over, we’re going to continue to borrow money at a higher interest rate than we can borrow on the markets.”
Dude’s a junior minister.
(Photocall ireland, StephenDonnelly.ie)