The current controversy with the Anglo tapes is revealing just how much the executives at the bank knew about the true state of affairs within the banking sector at the time the bank guarantee was agreed. These revelations come just as the CSO releases figures showing that the Irish economy is once again officially in recession. By being the good boys of Europe and introducing all of the required austerity measures, Ireland was supposed to return to growth. Instead, there has been near continuous economic stagnation.
In light of these developments, the question might once again be asked whether these deals, made with the banks and with the Troika on behalf of the Irish people, are fair. And if they are not, can the contracts still be held to be legitimate?
Michael Sandel is an American political philosopher from Harvard, and one of my favourite thinkers in the world today. He proposes two criteria by which we may judge the fairness and moral legitimacy of a contract: autonomy and reciprocity. Autonomy asks, was the contract freely and willingly agreed to by all parties? Reciprocity, on the other hand, asks, was the contract of benefit to all parties? It is these two conditions that bring moral weight to a contract.
A contract fails to meet the condition of autonomy when one party is forced, tricked or coerced into agreeing to it. This includes coercion stemming from an inferior bargaining position. A contract fails to meet the condition of reciprocity when, for example, one party has greater knowledge about the the objects involved, and hence makes a deal that is not mutually beneficial.
With these conditions in mind, how does the government's guarantee of the banks fare? First of all, autonomy. The deal was made by the government on behalf of the people, as is fitting in a democratic society. However, the circumstances surrounding the night on which the bank guarantee was agreed are well known. The government acted under threats of bank closures and potential repercussions in the bond markets. As the Anglo tapes reveal, they were also deliberately misled by the bankers, who knowingly understated the true extent of their losses and exposure.
What about reciprocity? The tapes released this week put it beyond any doubt that the bankers did not act in the best interests of the Irish people, and that they used asymmetric information to get a better deal for themselves, at the expense of the people. The bank guarantee clearly didn't fulfil the requirements of autonomy and reciprocity, and was therefore neither a fair nor legitimate contract.
There is of course nothing that can be done to rectify the injustice of the guarantee at this stage, other than perhaps criminal charges against those complicit in it. What about, however, the subsequent bail-out Ireland received from the Troika? Was this contract fair? The need for this bail-out, as we have seen, stemmed from a morally illegitimate agreement. After the bail-out, Ireland instituted the austerity requirements placed on it by the terms of the agreement. The return to growth expected for Ireland, however, has not occurred.
The Irish government, in negotiating the agreement, in many ways had an inferior bargaining position. This position was weakened further by the actions of central bank governor Patrick Honohan, who disclosed the fact that the government was in negotiations about a possible bail-out. This might call into question whether or not the agreement was fully autonomous. It is not enough, however, to show that the agreement was illegitimate.
The central question here is whether the terms of the bail-out were agreed with the best interests of the Irish people in mind, or whether, as has been claimed, they were mainly concerned with saving German banks. Was the austerity program designed to benefit the Irish people? The answer to these questions are unclear at the moment, and the true impact of these policy decisions may not be known for many years down the line. It looks unlikely, however, that the growth at the end of the austerity rainbow is going to come any time soon.