Friday, December 30, 2011
THE new year is likely to be horrible for the Government.
It is facing into a potentially dreadful economic environment, both domestically and internationally, and may have to make many decisions that will make it very unpopular with the electorate. Already it has been confirmed that tensions are present at cabinet, with serious disagreements between Fine Gael and Labour as to what can and should be done to deal with the economic crisis affecting the country. Here are 10 major pressure points that the Government will have to cope with in 2012.
1. An end to our part in the euro
This would be the armageddon scenario for this government, the necessity to revert to the punt because either of ejection from the single currency or its overall collapse. If the latter was to happen then the European economy would be thrown into turmoil, causing a collapse in our exports and raising all sorts of questions as to how we would repay our international debts. If the former was to happen then it might be manageable, and indeed desirable, if we were given a major write-off of our debts on our way out of the currency. We could consider hooking up with the dollar or sterling and our export competitiveness would be greatly improved (assuming trade embargoes were not put in our way as revenge for our not repaying existing debts). We would have a major problem financing our banks however and the need to reduce the annual costs of running the country in the absence of borrowing capacity might lead to massive social unrest. No wonder the Government is so keen to allow the status quo to prevail rather than take its chances in such an uncertain, and potentially deadly, situation.
2. An EU referendum
Of course, a departure from the euro might come about because the people of Ireland decide they want out, even if their political masters tell them they should not do so. The Germans and the French do not have a convincing plan to save the currency, but have decided nonetheless that we should amend the Lisbon Treaty. The Government will do all that it can not to have a referendum because it fears losing it. However, it may be that plans for a new treaty do not come to fruition or if they do then we can demand major concessions on our debt as a bribe to persuade us to pass this new treaty.
3. Failure to renegotiate the IMF/EU/ECB deal
This has the potential to undermine confidence in the Government as it continues to make regular repayments to bondholders in our bust banks, using borrowed money to do so. The Government has secured a reduction in the interest rate we are being charged in our loans, largely as a by-product of the Greek crisis, and while this is welcome it does not alter the fundamental fact that our debts are too large to be repaid. Nobody in Europe is interested in helping us by reducing our overall level of debt, especially as they think this is a wealthy society in which people are paid generously. It will have to happen in time though or else the continued austerity being forced upon us in an effort to reduce our debts will destroy our economy and the fabric of society.
4. Failure to return to the markets
The Government has made much of its desire to borrow on normal international markets before the end of the year, albeit "in a limited way". It is hard to see who will lend to us at an affordable rate of interest unless things pick up unexpectedly in the economy. That means a further deal with the IMF/EU/ECB may have to be negotiated. The government would no longer be implementing an old Fianna Fáil handover deal but it’s own.
5. Non-payment of the household charges
The government has set a March 31 deadline for the payment of the €100 household charge. It is facing an opportunist campaign from a group of opposition TDs, some of whom are ideologically motivated and sincere in their opposition to its introduction, some of whom are opportunist. The bet is that most people will wince and sign their cheques. But if the campaign gains traction then it could lead to major unrest. It may seem like a small sum of money to those in power, but it has the potential to be a major stumbling block for the Government.
6. The introduction of a property tax and water rates
These will not happen in 2012 but work will have to be put in place for their introduction the following year, with likely announcements as to the basis of payment. While such charges are taken for granted in other countries as a legitimate means of raising tax revenue and paying for important services, they raise visceral resentment in Ireland. The success or otherwise of the household charge payment collection may determine the levels at which these new taxes are set. The household charges campaigners know this, which is why they will put so much into their early new year opposition to what is a stepping stone charge.
7. The December 2012 budget
After four years of austerity budgets, what more can people be expected to give? A lot more, according to the terms of the IMF/EU/ECB deal (and for a further two budgets at least after that). Further tax increases and more spending cuts have been ordered. While it seems logical that the budget deficit has to be reduced to a more sustainable level it is obvious that austerity is actually making things worse. The government was skilful enough in limiting the downside to it of its €3.8 billion "adjustment" earlier this month but much harder decisions will have to be made next December. And it will have to take the political flak instead of blaming its predecessor for what it left behind.
8. The rise of Sinn Féin and Fianna Fáil in the polls
The comfort of a large majority in the Dáil will last only so long. Labour, in particular, must be stunned to see that Fianna Fáil is so much more popular in recent polls than it. The failure of Martin McGuinness to harvest more votes than he did in the Presidential election race is being taken by some as a sign that Sinn Féin has an electoral ceiling in the Republic that it cannot break. Maybe that is the case when it is northern politicians who are to the fore, but the likes of Pearse Doherty are far more important to the ambitions of Sinn Féin in the Republic than Gerry Adams.
9. Revolt by back bench TDs
Labour has already lost three TDs and Fine Gael one since the election. More will cause unnecessary distraction for their party leaders during 2012, especially those who feel vulnerable about holding their seats in the next general election.
10. The Croke Park Agreement
You’d swear that the current government and not the predecessor negotiated it, such is the devotion that Labour, in particular, is showing to not returning to it for further revision. But this is where the major fault line between the coalition partners may be crack further. Fine Gael is not ideologically committed to maintaining public sector peace (although, pragmatically, it does not want unnecessary trouble in this area). It is true that public servants have shouldered a major burden in recent years but the issue of financing the public sector is likely to be a live one in 2012, especially as it has been avoided largely in 2011. That does not mean it is the correct thing to do or that it is fair to public servants, but such is the reality of our dreadful situation.
The Last Word with Matt Cooper is broadcast on 100-102 Today FM, Monday to Friday, 4.30pm to 7pm.
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