We are now accountable to our paymasters
Some dismiss the enormity of this as if paying off such a sum over 10 years is a trivial mater. The point consistently made is we do not have to come up with the total amount overnight, and provided we act now we can live with the enormous cost involved.
To try and stay positive for a minute, the markets have calmed somewhat since Thursday and bond yields have eased a bit. We’re still paying more for our funds, about 4% above the German rate, and in that sense the decision not to go back to the markets until January is probably a good move.
It was hard to figure why the NTMA raised €1.5 billion last week at such high rates of interest given we are fully funded well into next year. Presumably, the logic was that failure to go to the market would have been interpreted as a sign of weakness, which could have added to the market pressure.
In the end it was market pressure that forced the Government to act as resolutely as it has. S&P piled on the pressure when it put the estimated cost of Anglo to the taxpayer at €35bn.
Rumour has it that the ECB had been writing very pointed letters to the Department of Finance about the estimated losses. And a high placed source in the department said it was clear from the line of questioning by the eurocrats they had lost confidence in the Government to put a realistic cost on the bank bailout.
The harsh reality is that irrespective of who is in power, the Government will be dancing to the tune of the ECB and the international markets.
We have edged close to bankruptcy and nothing short of tough action will satisfy those who now control our destiny.
It may not be the International Monetary Fund that’s calling the shots , but by the time the four year budget strategy is published the reality of what we face will start to hit home. With about €7bn of cuts coming, it is increasingly difficult to see how this economy will show any sparkle over the next two years.
Colm McCarthy, chairman of An Bord Snip, believes harsh medicine cannot be avoided.
Long term he believes it will deliver us from the huge mess we have created for ourselves.
He refuses to buy into the growing concern that the slash and burn budgets ahead will bleed the economy dry and could keep us close to recession for the next few years.
Undaunted, McCarthy suggested that large capital projects, such as Metro North, could be deferred as the Government struggles to balance the books.
He warned that if measures are not now taken to reassure international financial markets, the country will pay over the odds for borrowing and could end up getting assistance from the International Monetary Fund or the European Financial Stability Facility.
Dismissing the negative impact of the looming cuts, the economist said ongoing uncertainty would do far greater damage. He said this uncertainty would inhibit business confidence and investment, whereas the cuts would send clear, strong signals to the markets about our intentions. Even before the bond markets turned sour on us economists have allowed that 2010 may see us in recession for the third year running.
In the current climate of falling wages, cutbacks and rising taxes there is every danger that 2011 will fail to deliver any growth worth talking about it.
That said, the undeniable and inescapable fact as the Government faces into preparing a four year plan is that we have become accountable to our paymasters in the EU and in the bond markets.
