WHATEVER happened to the arc of prosperity? There was a time, before the great banking crash, when the exploits of that sweep of small, independent nation states on Europe’s western rim were never far from Alex Salmond’s lips.
As a Heart of Midlothian supporter, our first minister has always recognised the persuasive power of such iconography.
He was but a toddler when his team’s Terrible Trio – Alfie Conn, Willie Bauld and Jimmy Wardhaugh – were banging in the goals and bringing trophy after trophy to Tynecastle. But, to this day, Hearts supporters and their rivals at Easter Road still debate the relative merits of those three club legends against Hibs’ Famous Five – Gordon Smith, Bobby Johnstone, Lawrie Reilly, Eddie Turnbull and Willie Ormond.
The achievements, during the years of plenty, of small economies such as Ireland and Iceland, each with its own hands on the levers of power, each virtually on our doorstep, could only help drive home the case for Scotland to reclaim its independence too, couldn’t it? But when boom turned to bust and prosperity turned into protracted austerity, all talk here of the arc’s allure simply evaporated.
Both Ireland and Iceland – Blair Jenkins, please note – fostered delinquent banking sectors whose ballooning loan books rapidly outstripped the capacities of their governments to underwrite the resultant exposures. The Celtic Tiger, through a toxic combination of banks that couldn’t say no and greedy and corrupt developers who couldn’t pour the cement fast enough, shovelled billion upon billion into the mother and father of all real estate booms.
The Viking Raider swallowed up many of the leading names in British shopping malls and much else besides, its buccaneering entrepreneurs paying for these assets, in part, with the recycled savings of UK citizens and local authorities, attracted by market-leading interest rates on offer from Iceland’s banks through products such as Icesave. Then the music stopped. And a terrible reckoning beckoned.
In the wake of the crash, the Irish government, inside the EU and within the constraints of the eurozone, effectively nationalised all but one of its six biggest crippled banks and building societies. It was decided that the Irish people, already facing years of tax rises and welfare and spending cuts, should shoulder the mountainous and recklessly acquired liabilities of their banks too.
That all changed this week. It’s not just EU leaders who’ve been up all night, thrashing out a cuts package to the community’s budget. The two houses of the Irish parliament, the Dáil and the Seanad, met successively through the wee small hours of Thursday morning to pass legislation to liquidate two of its zombie financial institutions, the infamous Anglo Irish Bank and the Irish Nationwide Building Society, currently rolled together into the innocuously named IBRC, the Irish Bank Resolution Corporation.
The liquidation allows the government in Dublin to restructure the debts it has incurred by rescuing these banks, replacing expensive promissory notes it issued at the height of the crisis with cheaper long-term government bonds, which won’t have to be redeemed for up to 40 years. The notes, paying interest at 8 per cent, were costing €3.1 billion (£2.64bn) a year until 2023, effectively gobbling up all the savings from Dublin’s tough austerity measures.
The Taoiseach, Enda Kenny, claims the deal will save the state some €20bn over the next ten years and should cut a billion euros a year from the spending cuts and tax rises required to get Ireland’s deficit back to 3 per cent of GDP by 2015. Dublin had wanted the European Central Bank (ECB) to sanction its deal. All it got from ECB president Mario Draghi and his colleagues was a unanimous willingness to “take note” of the move. It remains to be seen how the Irish people will see a deal that does not extinguish the burden of bailing out these banks but simply passes it on to those who will be paying their taxes in the middle of this century.
The next annual payment on the hated promissory notes was due at the end of March. Critics, such as the journalist Fintan O’Toole, planned a mass citizens’ petition, saying enough is enough and calling on their government to defy the ECB and stop paying out on the notes. It mirrors a weekly protest by the citizens of Ballyhea in County Cork who have been marching every Sunday for two years now, in all weathers, to demonstrate their simmering anger about how Irish banks and their bondholders were bailed out. Will they see this as a triumph or another fudge?
Of course Iceland, outside the EU and outside the euro, handled its banking crisis more decisively at the outset. After some initial reluctance, it let all its three main banks, with accumulated debts ten times the size of the whole economy, go to the wall, compensating only domestic savers. That left depositors in the UK and the Netherlands at the mercy of their own governments and led to a legal wrangle between Reykjavik, London and the Hague that was only settled last month, in Iceland’s favour.
There are some who would have you believe Iceland has emerged from its crash, as it were, ice free. Certainly, its economy is growing again. Unemployment is falling. It is something of a poster patient for the IMF. But all remedies have some painful consequences. Iceland bounced back, in large measure, because it allowed its currency to devalue by some 50 per cent.
That has made it easier for tourists to return. But it has stoked domestic inflation and the many Icelanders who had taken on index-linked mortgages found their housing costs soaring. Between 2009 and 2012 inflation added some £1.2bn to household debt. In a nation of 320,000 people that’s significant. The excellent Statistics Iceland website reveals one in ten Icelanders in arrears on housing costs, one in eight falling behind on other loans and more than half of them “finding it difficult to make ends meet”.
Emigration, notably to Norway, in search of better-paid work has been on the rise. Not on an Irish scale. But enough to be troubling. This week, the Financial Times quoted an independent member of the Icelandic parliament, whose husband has left for Norway, bemoaning the fact that, at 51, her student debts almost equal her mortgage. “I see just poverty when I retire,” she said. “I have survived for four years. I am thinking about whether I should declare bankruptcy next year. I know a lot of people in my position.”
On Thursday, after Irish parliamentarians had voted to liquidate Anglo Irish, Alex Salmond did have something to say about another member of his once-vaunted arc of prosperity. Asked, at First Minister’s Questions, about the scale of Iceland’s mackerel fishery, he called their declaration of another large unilateral quota “disappointing”. Their behaviour was, he added, “unsustainable and is putting at risk Scotland’s most valuable fishery”. If EU sanctions don’t work, he and his Cabinet secretary for rural affairs want a process of mediation. How times have changed. Post-crash reality can be so very messy.