Speaking at Labour’s pre-budget forum in Dublin this morning, Deputy Joan Burton said that “Ongoing crunch talks with the IMF, ECB and EU Commission are the last chance saloon to secure a fair deal for Irish taxpayers.”

The onus is on government to negotiate a settlement that cleans up the banks and puts the public finances on a sustainable trajectory without putting the Irish people in hock for a generation.

A fair settlement is one which disentangles the banking mess from our public finances and which does not impose an interest rate on us that is overly onerous.

From day one of this crisis, the government has prioritised the interests of the banks and their investors over the interests of ordinary people. This has to change.

Suggestions that the IMF-EU negotiating team are open to burden sharing between taxpayers and bank investors are very welcome.

This marks a sharp break with the Fianna Fail mantra that taxpayers should foot the full bill for foolish investments by banks and hedge funds.

The Labour Party has never advocated ‘burning bondholders’ or ‘sovereign default’, but there is room for hard-headed negotiation to ensure appropriate burden sharing. This remains our position.

Every euro that can be saved must be saved. There has been much speculation as to the terms of the IMF bailout.

The headline figure could range from €70b to €100b; some speculate that it could eventually spiral even higher; the government insists that it may not all be used.

The interest rate charged on these sums is crucially important. Speculation has ranged between 4 and 7 per cent.

To put this in context, the average interest rate paid on our national debt last year was 4.7 per cent.

The Greek bailout carried an interest rate of about 5 per cent.

Ireland’s ten year bond rate hit a new high this week of well over 9 per cent.

Based on an €85b bailout, every extra one per cent added to the interest rate adds €850m to the annual interest bill, so the difference between a four per cent and seven per cent rate would come to more than €2.5b every year.

Any interest rate at the higher end of this range could cripple us.

Writing in the New York Times yesterday, Nobel Laureate, Paul Krugman wondered “what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake”.

It would be a mistake because this debt overhang will weigh down recovery, on top of a massive private sector debt burden, and the interest payments on it will make it that much harder to get the public finances under control.

Worse still, unlike those parts of the national debt used to finance investment or to support the economy by keeping people in jobs, taxpayers get nothing in return for all the billions pumped into the banks.

Fianna Fail have no mandate to sign the Irish people up to years of Versailles style reparations to settle the debts run up by delinquent bankers.

The Labour Party is committed to a twin-track strategy – getting the public finances under control while supporting investment in strategic infrastructure and indigenous enterprise.

The cornerstone of this strategy is a Strategic Investment Bank financed through the National Pension Reserve Fund.

This would channel funds to the important infrastructure projects we need to boost competitiveness and to the innovative start-up businesses that will drive recovery but which now struggle to raise finance from our bust banks.

Tags: IMF