Just now it is quite fascinating to look at the pronouncements of Irish politicians on issues of personal debt. It is clear that many of them are just now beginning their journey on the ‘personal debt’ learning curve and that few of them, except in any but the most superficial way, have thought through the issues which are now in acute need of resolution. It is encouraging that some of the fast learners – and there are a few among the heavyweights of the political classes – are now beginning to come to grips with and to understand the personal debt crisis which many citizens face and to accept that it is only political will and action that will improve the lot of citizens faced with involuntary insolvency. For years the can has been kicked down the road or as the lack of decision and action was described recently in the Irish Daily Mail, we Irish live in ‘the land of extend and pretend’. Other reasons for inaction are and were that we had to await the final recommendations of one expert group or another. The Irish Government is yet again currently awaiting an urgent report being compiled by civil servants and bankers! They forget that almost a year has passed since The Law Reform Commission of Ireland (LRCI) published its final report on ‘Personal Debt Management and Debt Enforcement’? That report sits on the shelf.
What has happened since? Nothing! Oh, sorry we have had a change of government and the responsible ministers have had to read themselves into their briefs so there was little time to dust off an old report like that!! But did the final report not also incorporate a draft bill on personal insolvency? Oh, did it really? Well, even if it did, the new government would have had to review that report and the draft bill in the light of its own priorities and policies and had to make sure that any proposed legislation was drafted in accordance with its agreed program for government. After all, to accept and press on with legislation that was largely conceived and developed during the administration of the old discredited Fianna Fail government would be irresponsible, even though the LRCI is widely accepted as an independent body. And so it goes on. There are many reasons for inaction.
Some politicians like to jump on the bandwagon of the handy sound bite. For example, they say that we have to distinguish between ‘those who can’t pay and those who won’t pay’. What does that mean? Are such legislators incapable of drafting laws and regulations to target the people who need it and who would benefit from it? Then again, they introduce the idea of ‘moral hazard’ and pontificate at length on how it must be avoided at all costs – a bit like the way the Catholic Church preached about avoiding occasions of sin. But do they have the remotest idea of what ‘moral hazard’ means. Or they come out with statements criticizing the insolvency legislation in other countries. Why did the Minister for Justice, Alan Shatter claim that Britain now regretted reducing the discharge period for bankruptcy from three years to one year?
And what is this current pre-occupation with mortgage debt as if there were no other type of personal debt? How many people have a mortgage, whether sustainable or not, while at the same time having no other type of personal debt such as credit cards, overdrafts, unsecured personal loans or car HP? How can the government focus solely on mortgage debt and expect banks and other mortgage providers to negotiate realistic and attainable repayment options with their clients, without considering the client’s entire debt burden? Surely any approach has to be holistic. Nobody is disputing that the approach to personal debt has to be on a case by case basis but it seems obvious that the totality of the person’s debts must be addressed. That can only be done within a framework such as an Individual Voluntary Arrangement (IVA) as has been successfully implemented in the UK and Northern Ireland for over a quarter of a century now.
So how did we get to this sorry state of affairs? Just five short years ago Ireland was awash with the ‘nouveau riche’ of the Celtic Tiger. Brash young Irish men and women and many not so young Irish citizens were basking in the realization that their time had come. Now they could enjoy the good times as a result of their labours which yielded vast wealth through their exploitation of market opportunity and the encouragement of a seemingly enlightened government. The heavy hand of their colonial masters had long departed and with all the goodies which the European Union had directed Ireland’s way, how could the natural enterprise and ingenuity of the Irish race fail to succeed?
That was then – up to circa 2006 or 2007, the year of the supposed ‘soft landing’ and this is now – 2011. The good times are over. Recession stalks the land and depression stalks the people. If there was only one traumatic event to deal with there would be grounds for optimism. Alas, almost every activity and enterprise is drowning in negativity. The banks are bankrupt; the government is bust; property values have dropped by sixty percent and are still dropping; employment stands at fifteen percent; young educated Irish citizens are emigrating at an estimated rate of a thousand a week; small business is on its knees; credit has dried up even for successful and viable small businesses; evidence of political corruption going back many years is being exposed; Fianna Fail has been destroyed by the people in a democratic revolution; public services are being cut; social welfare payments have been cut including payments to those who care for the old and sick in their homes and for the blind; the bloated and highly paid civil service groans under the weight of its own inefficiency; mortgage interest rates are increasing; negative equity is widespread and growing; the number of people in mortgage arrears is increasing dramatically; homes are being repossessed and not just by sub-prime lenders; mortgage terms are being extended and modified to fit what people can afford to pay and not what was contracted for and government moratoriums have temporarily postponed the tide of repossessions which are expected to start kicking in during the next year or so. And so on and so on.
So is there any good news? Well, the new Fine Gael & Labour coalition government has replaced the disastrous Fianna Fail & Greens coalition and brought energy, enthusiasm and optimism to the leadership of the country. They are also regarded as honest, open and transparent without the stigma of corruption which clings to the last three-in-a-row Fianna Fail led governments. The Irish economy has improved its competitiveness and exports are buoyant. Compared to the other sick economies of Europe such as Greece, Portugal, Italy and Spain it looks that Ireland is performing best of all in sticking to the terms of the bailout from the EU/ECB/IMF troika. The massive Irish Diaspora scattered around the world displays lots of goodwill towards Ireland and the new government has certainly improved relationships and co-operation with its EU partners.
Almost forgotten in the quagmire of sovereign debt and insolvency is the consumer who finds himself or herself insolvent and is unable to repay unsecured debt let alone secured debt such as a mortgage or car HP. The mountain of unsecured debt is like a giant floating iceberg with only the tip of the problem visible. With the arrival of the recession and the credit crunch the size of the problem has begun to emerge. At least 2.5 million credit cards were issued by Irish institutions and prior to the credit crunch, 90% of credit card companies failed to check the income of applicants. Spending in Ireland on credit cards is estimated at Euro12 billion per annum and it is estimated that private sector credit supply is of the order of Euro375 billion. To put this in context, mortgage lending is just Euro150 billion.
An increasing number of Irish consumers now find themselves to be insolvent with quite a diverse range of contributory factors triggering this state: a relationship break-up; unemployment and underemployment due to only part-time work being available; freeze on overtime or on shift working; illness – self, spouse, partner or child; business failure; fall in house prices & therefore insolvent on the basis of asset value; lack of credit such as working capital & therefore insolvent on a cash flow basis. Like the recession itself, these events were unforeseen and not planned for.
Individuals feel the impact of such debt as they suffer from increased stress, aggravated health problems, shame and stigma, loss of profession and even an increased risk of self harm.
Families have to endure the consequent strain with the risk of break-up, separation and divorce.
Society loses out with increases in poverty and crime, reduced productivity and work performance and with inhibitions, obstacles and barriers to the development of an entrepreneurial society.
People look to the government to put in place a framework to enable them to address their unsecured debt problems in a finite period of time which is short enough to give hope and to be meaningful and is not a life sentence as at present. Until appropriate legislation is drafted and enacted, the insolvent consumer can only look with envy at the legislative regimes in the UK and other EU countries where a large number of modern enlightened solutions are available and which do not cost the consumer the earth to avail of. Can the new poor of Ireland survive until the government acts in relation to personal debt or will government inaction give birth to another famine – a financial famine this time – a mere 166 years after the Great Famine of 1845-1847?
Paddy Byrne 06 September 2011