SPECIAL REPORT DAY 1: Is austerity working? - The political impact

IT is hard to pinpoint precisely when the word austerity stopped being an abstract economic theory, or throwback to the 1980s, and became an everyday reality for this generation.

But Richard Bruton probably best marked it when, in the first week of Sept 2008, the then opposition finance spokesperson said the Cowen government had woken up from its summer slump and saw what was facing the country.

Brian Cowen’s newly formed cabinet, and its cohort of senior civil servants, had just two months earlier clocked out of Government Buildings for the summer, seemingly ignoring the forecasts pointing to the deterioration in the public finances that was creeping up on them.

But their drift over those months was abruptly ended when — at the start of September — exchequer returns showed a €5bn shortfall in tax revenues and burst the myth that a “soft landing” was in store.

Coupled with a huge rise in unemployment figures, and a looming banking crisis, then finance minister Brian Lenihan — just months in the job — raised the red flag announcing the budget would be brought forward to October.

His decision was the first — and probably last — successful effort by Fianna Fáil to assure the public that it was success-fully tackling the economic problem. But behind the positive mood music, senior ministers were quietly comparing the adjustment in store to the cutbacks of 1987 and 1988, when then finance minister RayMacSharry pared back spending.

The political ground rules for the austerity programme that would follow were set that week when Fine Gael leader Enda Kenny ruled out a replay of the 1980s Tallaght Strategy of supporting the Government on economic matters in the national interest.

Instead, he focused on the Fianna Fáil failings that lead to this financial position, the sense of drift and failure to face up to reality earlier — and urged the Government to tackle the “bloated and inefficient public service” — arguments that would find resonance with the electorate in the months ahead.

The Fianna Fáil parliamentary party member — who, at their party think-in two weeks earlier, had united behind their leader on the need to introduce harsh spending cuts, quickly changed their tune when — on Oct 14 — the first austerity budget was introduced with €1bn in cuts and €2bn of tax measures, including a 1% levy on all income.

That night, the parliamentary party met and backbenchers expressed outrage, particularly over the removal of the automatic medical car entitlement to the over 70s. The measure had been announced — uncosted — in the 2001 budget and was widely perceived to have played a significant part in Fianna Fáil s election victory the following year.

But the age of austerity had dawned and the massive grey power protests, the backbench revolt and the eventual reversal of the measure would impose the first cracks in the standing of the party which had for years been a political powerhouse.

Cowen’s authority had been critically undermined. Within weeks, the party plummeted 10 percentage points in the Red C tracking poll to a record low levels of support at 26%. Fine Gael, meanwhile, shot up by seven percentage points to 33% while Labour jumped six points to 15%.

Although sudden and shocking, that was only a taste of the austerity that was to come. The following April, with the deficit the biggest in Europe and economic growth forecast downwards, Brian Lenihan was forced to do what he had dreaded, and introduced an emergency budget. The spending for 2009 would be cut by €1.8bn while further savings of €4.8bn would be required between 2010 and 2011, he said.

In what was described at the time as the most severe budget in the country’s history, the universal social charge levied on all income was introduced and excise on petrol rose by 5%.

By choosing the politically safer route of raising taxes, the Government avoided any explosive cuts that would backfire as had happened months earlier.

But one particular cut sowed the seeds for further political damage to Cowen’s cabinet. The number of junior ministers was reduced and one who got the chop — John McGuinness — decided to focus attention to the weaknesses of leadership. He went on the Late Late Show and said that then enterprise minister Mary Coughlan was not capable of running her department and the taoiseach was paralysed by the scale of the economic collapse.

The idea that the cabinet was incompetent, inexperienced, and out of touch took hold. The next Red C opinion poll showed Fianna Fáil down to 23% — 10% below Fine Gael, and Labour climbing to 19%. A year into his time as taoiseach, Cowen’s reputation was in tatters.

But the lack of true leadership across all parties was highlighted when it emerged that, despite being asked to give up a €6,400 bonus, 24 TDs in Fianna Fáil, 28 in Fine Gael, and 16 in Labour refused to do so. Was any party in touch with how ordinary people were suffering austerity?

That December, Mr Lenihan delivered what was the most austere budget in the history of the State, slashing the pay of more than 300,000 public sector workers, cutting children’s allowance and other social welfare payments and announcing that property and water charges would be introduced down the line to broaden the tax base.

“Borrowing hundreds of millions a week to pay for day-to-day spending is just not on. Stabilising the deficit is the next key milestone in our plan to deliver economic recovery,” he said. “Our plan is working, we have turned the corner.”

But nobody was convinced. And while there was no massive outbursts against austerity on the streets, the Irish people were growing more despondent, disillusioned, and a lingering mood for political change was taking hold.

Fine Gael was undoubtedly the most popular party in the polls. But its leader always came up short. The realisation that Kenny was not cutting it with a large swathe of the electorate, and being overshadowed by Labour leader Eamon Gilmore, resulted in a bitter heave for the party that summer.

Kenny emerged more energised, authoritative and convincing as a potential leader after he managed to see off party rebels and retain his leadership. A rise in the opinion poll — back to 33% after an earlier drop — for Fine Gael after the failed heave, was seen as evidence that Kenny would be taoiseach. With Labour at 27% — overtaking Fianna Fáil at 24% — Fine Gael started to cosy up to its future coalition partner. Phil Hogan said both parties were “very compatible”. The opposition became a government-in-waiting while Fianna Fáil and the Green Party coalition was nothing more than a lame duck.

The Fine Gael leadership battle also gave rise to a political force that would become one of the central players in Ireland’s austerity story and who could yet determine how it ends: Michael Noonan replaced Bruton as finance spokesperson — or minister for finance in waiting.

The months that followed are a part of history that Irish people would rather forget. In Sept 2010, the government disclosed that the cost of bailing out Anglo Irish Bank would be €29bn and could rise to €33bn, bringing the total bank bailout to €50bn. Weeks later, it announced a four-year spending plan to close the deficit by €15bn.

In October, the government announced that a €6bn adjustment would be contained in the Budget — an unprecedented dose of austerity to be inflicted on the suffering Irish people.

In the first half of Nov 2010, ministers were forced into humiliating denials that an IMF bailout was imminent — despite the international body informing the BBC that it was on its way to Ireland. It met Department of Finance officials on Nov 18, the next day Cowen rejected calls for his resignation. Two days later, the cabinet signed off on the request for international assistance, drawing accusations from Eamon Gilmore that they had put the country into receivership.

That weekend, 50,000 people gathered on the streets of Dublin in what was the biggest protest against austerity. However, as the weeks went by, anger turned to resignation. The country by and large sat back and took the punishment in a way that some suggested reflected a collective guilt for excesses of the past.

In order to receive the bailout money, the budget had to be passed. But the Green Party threatened to derail that plan when it announced in January it would pull out of coalition.

“Our patience has reached an end. Because of the continuing doubt and the lack of communication and breakdown of trust we decided that we can no longer continue in government,” said Green Party leader John Gormley.

A deal was reached that the Greens would stay and theopposition would hold off a no-confidence motion in the taoiseach until the Finance Bill, giving effect to budget, was passed through the Dáil.

The first general election of this age of austerity followed, in Feb 2011. The Greens — seen as having propped up Fianna Fáil — were completely wiped out of national politics. But Brian Cowen and his party became the first big politicalcasualty of the debt crisis and austerity programme across the eurozone.

The massive loss for Fianna Fáil, which dropped from 78 to 20 seats, marked the most momentous change in Irish politics since the 1930s. Many ministers, including Cowen himself, did not seek re-election. Most of those who did stand were defeated. It represented a stunning fall from grace for the party that had been so dominant for years. But, it was arguably a fall that might have happened so much sooner.

The failures of Fianna Fáil raised questions about its future political viability. But those questions did not last long when the Fine Gael-Labour coalition’s honeymoon came to a quick end and they realised they too had to deal with the same problems.

Enda Kenny’s coalition had the biggest majority in the history of the State, but not many envied the poisoned chalice he had inherited. While making bold statements on legacy bank debt, neither party had campaigned against the general adjustment needed and the austerity programme that the country had been undergoing. Instead, they campaigned on pledges to re-negotiate the bailout that had been foisted on the people by the EU.

On the overall macro-economic strategy, the new coalition’s policies remained largely the same — except it was being steered by steadier hands. A €3.8bn adjustment brought more austerity for 2012. In a referendum on the EU fiscal treaty that year, the Irish voted to tie the country into European-imposed rules that would impose further austerity, in exchange for access to future access to bailout funds.

Noonan had hoped a deal on the promissory note arrangement to pay back debts arising from Anglo Irish Bank would be reached before the budget of Dec 2012, but he had to wait until last February before it was finally signed off on. It was the first helpful economic news in years.

While it meant that any chance of burning bondholders was gone and pushed out the debt to future generations, it gave some breathing space.

It resulted in savings of €1bn a year, meaning the cuts needed to meet the deficit target would not have to be so severe.

The spotlight continues to shine on that €1bn since the debate moved to whether it should be used to reach the 3% deficit quicker, or to ease up on austerity and not go as far as the €3.1bn adjustment that had been planned for the Oct 15 budget.

In general terms, Labour wants to use the money to ease up on austerity while remaining committed to the deficit reduction target of 3% by 2015, while Fine Gael is more cautiously minded to stick with the €3.1bn, or, use some of the money for a stimulus and job creation.

Austerity, while staying with us for more years to come, is at something of a crossroads.

Unlike the summer of 2008, this coalition’s cabinet ministers will not be able to take their minds off the budget predicament that faces them during the summer months.

Austerity has already brought about the downfall of one Government and is exacerbating difference in the current coalition. But, unlike its effect on society, its effects on the political system are unlikely to be long-lasting or deep.

Those who advocate a different route, including Sinn Féin, Independents, People Before Profit, and the Socialist Party increased their electoral success in the last election, and found their voice in national politics.

But Fianna Fáil is creeping back up and has found itself — for the first time since 2008 — going back ahead of Fine Gael in popularity.

For half a decade now, austerity has tugged at the fabrics of Irish society. But the two political parties which see it as the only way to fix the economy, continue to dominate.

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