“The British Government can rest assured that any just and lawful claims of Great Britain, or of any creditor of the Irish Free State, will be scrupulously honoured by its Government.”
That’s Eamon DeValera, writing as Irish Minister for External Affairs to the British Dominion Affairs Office in 1932.Â DeValera was also leader of the recently elected Fianna Fail government, the party having completed its transition from a “slightly constitutional party” to being in power.Â So let’s look at the ironies presented by the above statement in Ireland’s current context.
First, even as Dev was affirming the state’s commitment to honour all its debts, he had cleverly campaigned on a promise to end the land annuity payments to the UK: these were recurring payments on bonds that had been used to buy out the landlord class in the late 19th century under the Irish land reforms (when it was still part of the UK).Â As the broader correspondence within which the above comment occurred shows, Dev believed that he had a legally sound wheeze to get out of the land annuity payments, essentially on the ground that they were never voted on by the Irish parliament.
Second, the Free State’s subsequent termination of these payments, which was interpreted by the UK as akin to default, set off a costly trade war between the two countries, albeit far more costly for the Free State than for the UK given the country’s heavy dependence on the UK as its main export market.Â Â It’s doubtful that many in his government would have looked back on this a good policy, and it set in train an export orientation of Irish economic policy that has remained in place ever since.
So if the current Irish Fianna Fail government is looking into its own past for the experience with creative readings of debt obligations, it’s not a happy one.Â Indeed, our current prime minister and minister for finance are the classic practical men, who believe themselves to be quite exempt from any intellectual influence, but doubtless are sufficiently steeped in party lore to be affected by this history.
Instead, the energy for creative reading of debt obligations goes into creative accounting.Â See for example the department of finance’s explanation of the “promissory notes” — the IOUs that it has parked in two zombie financial institutions (along with one in long-term intensive care) to keep them from being wound up.Â Â Essentially what is going is that â‚¬31 billion in IOUs will be financed by annual cash flow borrowing of â‚¬3 billion, but the accounting hit from interest on the debt is being postponed for a couple of years.
And it’s not meant to fool the markets or the European Commission, as the shift is within the window of the previous commitments to both that the deficit will come down to 3 percent by 2014. Rather, it’s designed to get a little extra wiggle room in this year’s budget, while leaving the postponed interest headache to what will most likely be an alternative government.
So back to those ironies.Â In the heady days of the Celtic Tiger, the government probably saw itself with a clear path to stay in power all the way to what would be a lavish celebration of the 1916 Easter Rising and their own political ancestry in it.Â But when 2016 rolls around, the government of the day will be only half way through billions of euro in interest payments, mostly due to an entity called Anglo Irish Bank.Â Â In 1932, DeValera was playing the long game and didn’t see the costs of a little debt trickery as the end of the world.Â In fact, it remained politically powerful a year later, as this excellent Time Magazine report from 1933 notes (bonus: you get to see what great writers Time had).Â Now, DeValera”s visage looks on as his political descendants are prisoners of debt.
Maybe the lines of a certain poet had more resonance in 1932: “Too long a sacrifice/can make a stone of the heart.”Â And the economy.
UPDATE 5 FEBRUARY 2011: 3 months after the land annuity analogy was introduced by AFOE, it’s used by the Irish Minister of Finance!