The economy - Credit rating change is a real worry

BY describing the kerfuffle on the prospect of a property tax as “speculation” Taoiseach Brian Cowen, speaking in Davros, is either firmly focussed on the long game or, as his detractors suggest, is once again dodging the hard question; once again freezing in the headlights.

Mr Cowen has said that a decision will be made by the Cabinet on the possibility of such a levy “in due course”. The suggestion was that “in due course” might stretch as far as September when the Commission on Taxation is due to report ahead of the December budget.

Whether this is dangerous indecision, or a determination to take time to reach the right conclusions, remains to be seen, but let us hope that events afford Mr Cowen — and every one of us — such latitude. As we borrow €55 million a week to fund day-to-day spending such a delay cannot be infinite.

Yesterday’s downward revision of the Government’s credit worthiness suggests that influential forces are not so tardy about passing judgement. It is hugely significant that we are now considered the riskiest economy in Europe. Yesterday Ireland Inc was named the poorest bet in Europe, falling below Greece on the ratings table, according to credit-default swap prices.

Contracts on Ireland rose 2 basis points to 262.5, CMA Datavision prices show. Credit-default swaps on Greece’s debt fell to 251 basis points, from 255.

Remember, it’s less than 12 months since we were told that everything was rosy in the garden and that we had nothing to worry about.

Such innocence, such bad advice.

Mr Cowen has already bet his Government’s reputation and the country’s future on reaching an agreement with the social partners on how to resolve the meltdown in public finances.

This has been a long and testing process, but as talks inch towards the “end of the beginning” the hope is that Mr Cowen’s patience may be rewarded.

If he secures a deal with the social partners that reduces public spending by €2 billion this year he will have passed the first major milestone on what will be a long and difficult road.

Convincing public servants they must accept pay cuts however they are dressed up, and getting the rest of us to accept cuts in services and higher taxes, are still huge challenges, but it will be far easier for Mr Cowen to cope with criticism if he can use consensus as a shield.

He, unlike his French counterpart Nicholas Sarkozy, who is facing riots on the streets over imposed measures, is at least seeking a mandate.

And his reward for all this manoeuvring? He gets to remind all involved that these negotiations are just the minor game and that for the next two years we face cuts of at least €4bn each year.

These are exceptional times and there is a growing atmosphere of fear across the country. If that is not to become dangerous anger Mr Cowen needs to share his perspective and assure us that he has a viable plan on a realistic time scale.

Though it might go against the grain it’s time for a little more Cicero and a bit less Biffo.