Bailout ‘will strip us of any bargaining power’

FRIENDS First chief economist Jim Power has welcomed the possibility of an EU/IMF bailout, but he said the price of the intervention will be high.

If it happens, as he believes it will, he says “we will have no bargaining power” and will have to dance to the tune of our paymasters until the austerity measures come to an end, he said.

Mr Power warned the €15bn cuts will be monitored by the EU who will insist that reforms are pushed through to meet the revenue shortfalls.

Ireland is spending €50bn and bringing in just €32bn in taxes. That yawning gap can only be made up though wage cuts, tax increases and radical reform of the public sector, he said.

Mr Power said his call for public sector reform and wage cuts have elicited a barrage of “hate mail”.

That hostility further reflects the failure of many in the public sector to grasp the seriousness of the situation, he said.

Mr Power said we will do well to get growth of about 2% a year out to 2014. He doubted if the €15bn cuts over the four years will be sufficient and warned that fears about the true extent of bank debts remains a worry for the bond markets. That is reflected by the high cost of borrowing for Ireland.

Due to the strong links between the state and banks, Mr Power ruled out a bailout for the banks that would allow the state to get on with its budgetary reforms.

The reality is that the state nearly owns the entire banking sector at this stage and the two cannot be realistically separated from each other, he said.

On the economic front, he said, due to the impact of savage budgets, growth will be weak and will do well to average 2% a year over the next four years.

The bottom line is we have been subjected to “mismanagement of the worst kind”, he said.

There is “no bargaining power left” and we will be hard-pressed to hold on to the 12.5% corporation profit tax, he said.

Even with a full commitment to the €15bn budget reform, he said we will do well to get the debt/GDP back to 5% by the end of 2014 against the Government’s target of 3%.

Mr Power said we will have to look to the food and other sectors of the economy to deliver growth as well as the US multinationals. To survive into the future “we’ve got to deliver a sustainable economic model”, he said.

If the EU and the IMF come in, “the Croke Park Agreement will have to be torn up”, he said.

“Our political and state structures have failed us, quite simply,” he said.

As a result, a general election will make little difference because the EU and the IMF will call the shots once the bailout is accepted.

Looking ahead, Mr Power said: “The reality is that wages are coming down.

“If wages are coming down in the public and private sector, that has to be accompanied by reductions in social welfare, and by reductions in public sector pensions,” he said.

“We have to go at it and we have no alternative but to take the pain coming down the tracks,” he said.