IRISH BONDS | Look Smashing (Updated)

Taoiseach Enda Kenny (L) and British Prime
Minister David Cameron after deadlock.

Irish bonds were issued in the United States by Éire's president in 1919-1920.

Given British Prime Minister David Cameron's hard line on the level of continued aid to Northern Ireland, this idea was recently resurrected.

Cameron is seeking to pressure the Northern Irish Government to make cuts in welfare programs. Taoiseach Enda Kenny and Cameron met to try to resolve their differences and failed to come to an agreement.

Northern Ireland First Minister Peter Robinson and Deputy First Minister Martin McGuinness have criticized the disappointing level of proposed aid from  Britain.

In this environment, one question is: "Are there, realistically, alternative or supplemental sources of funding? What are they?" One idea that worked at the dawn of Éire in 1919-20 is Irish bonds.

1920: Irish Bonds Sold in USA

Éamon de Valera was born October 14, 1882 in New York City and was elected president of the first Dáil from June 1918. He left Ireland from June 1919 to December 1920, leaving behind the leadership of the Irish Republic to Michael Collins. His mission was to sell to Irish-Americans bond certificates in denominations of $10 (nearly $120 in today's dollars) and $25 (nearly $300 in today's dollars).

He was successful, raising $5.5 million ($65 million in 2014 dollars) from American supporters, far more than the Dáil expected.  Of this, $500,000 was reportedly invested in supporting the election of Warren Harding, the winning (Republican) presidential candidate in 1920. Irish Catholics in the United States were still outraged at Democrat Woodrow Wilson's having brought the United States into the Great War on the side of Britain. 

1995: New York City Comptroller Proposes Ireland Peace Bond

Seeking a way to use U.S. economic incentives to bring together Northern Ireland and Éire in peaceful cooperation, Comptroller Hevesi of New York City proposed an Ireland Peace Bond that would gather financing from several governments (U.S., Irish Republic, Northern Ireland and others).

The Peace Bond proposal was put together by a team in the Comptroller's Office. The models for this were both de Valera's 1920 Irish bonds and the successful sale of Israel Bonds to Americans since World War II. The idea behind the Comptroller's Ireland Peace Bond was that it would support an Irish Development Bank to make loans to businesses in Northern Ireland and the border counties in  Éire.

For pension funds to invest in them they would require a U.S. Government guarantee of principal.  The proposal was endorsed by President Bill Clinton but when hostilities resumed in Northern Ireland the idea was scrapped. When hostilities were again ended, the idea for an Ireland Peace Bond was revived by then-Senator Hillary Clinton.

December 2014: The Search for Funding for the Northern Ireland Budget

As mentioned, British Prime Minister Cameron and Taoiseach Kenny left Belfast earlier this month having failed to agree on contentious issues, especially the need for more British support for the Six Counties in the north. Sinn Féin's president Gerry Adams criticized Cameron's financial package, which proposed to replace aid with £1 billion over 5-6 years in the form of 25-year loans with interest, as did SDLP leader Alasdair McDonnell. Northern Ireland's First Minister Robinson and his Deputy McGuinness, speaking at Stormont, were also critical of Cameron's offer.

Irish officials have been looking at options, with their eyes on the success of the Scottish independence movement in promoting devolution. One idea is to imitate de Valera's success a century ago and appeal for funds to Irish Americans.

Comment

I was appointed Chief Economist at the New York City Comptroller's Office under Comptroller Liz Holtzman. When Alan Hevesi was elected I was made part of the team that went to work in 1995 on the Comptroller's plan for an Ireland Peace Bond. Back in 1995, the concept was for a development bank that would invest in business.

In 2014, the concept looks more like a traditional government bond for infrastructure, a "revenue bond" that would build something that would generate rent to pay off the bond. The Northern Ireland budget experts will have to see how this might help their 2015 budget over time. If the bond is not designed and invested well, it will create debt-service obligations that will be hard to keep up with.

What would the advantage of an Irish Peace Bond be over Cameron's 25-year loan proposal? It would depend on the details. The Ireland Peace bond might carry a lower interest rate if Irish Americans viewed buying the bond as an obligation of their heritage. In contemporary terms it could be thought of as crowd-funding for a peaceful and devolving Northern Ireland.

Postscript - Update

Since this was written, the outlines of a package were agreed upon. Britain offered more money, a mix of loans and cash. If the deal stays together, the sale of Irish bonds to Americans would be in addition to, not instead of, financing and aid from London.