Greece can’t distract us from cutting the deficit

JUST when we were starting to believe that things couldn’t possibly get any more uncertain, and on the contrary, that the most recent Greek deal and euro rescue plan were starting to throw up some light on the horizon, the whole world has gone crazy once again.

The decision by the Greek prime minister to put the latest Greek rescue plan to the people in a popular referendum — although this may now be in doubt — has certainly thrown the whole EU project into a state of chaos once again.

At one level it is hard to blame George Papandreou for taking such action.

He came back from last week’s EU meeting with a reasonable package. Having 50% of one’s sovereign debt written off is not a bad day’s work and one would have thought that the Greeks would accept the fiscal austerity measures associated with the debt write-down.

After all, the current crisis in Greece is solely down to the Greeks themselves. They have a pretty dysfunctional economy where tax and expenditure fraud are par for the course; they borrowed and spent as if there were no tomorrow; and they lied about the true state of their economy and their public finances. The only outside fault lies with the fools that were so prepared to lend money to such a dysfunctional economy.

The Greeks surely could not have expected to have 50% of their debts written down without having to give a commitment to address the shortcoming in the economy and its public finances? They clearly did.

The gifts Papandreou brought back failed to dampen public protests and the vigorous opposition. He has now called their bluff and they will either have to shut up or put up.

If the deal is rejected, then the future participation of Greece in the euro and the EU would have to be questioned. If Greece were to exit the euro, its economy, its banking system and its social stability would risk going into serious freefall, and the country would be forced into a much more massive debt default. This would do incredible damage to the European banking system and would certainly shake the deeply flawed euro structure to its very core.

A Greek referendum is not a given at this juncture as Papandreou might not survive in power for very long and the political system might just seek to undo the difficulties that he created last weekend. However, the fact remains that the Greeks will either have to accept their fate or walk away from the euro and accept the turmoil that would bring.

From an Irish perspective, this latest twist in the tale is not what we required, but it should not detract from the task of pressing ahead with the fundamental re-organisation of the economy, particularly the public finances.

The gravity of the public finance problem was brought home again on Wednesday with the release of the exchequer returns. In the first 10 months of the year, we ran an exchequer deficit of €22.2 billion, up from €14.4bn in the same period last year.

Just over €10.6bn of this is due to promissory note payments to Anglo Irish Bank, Irish Nationwide Building Society, and EBS, and the once-off payments for the recapitalisation of the banking system in July.

Despite this, the underlying deficit is unsustainably high and needs to be reined in as quickly as possible.

Finance Minister Michael Noonan must come up with at least €3.6bn on December 6. Anything less would be a damaging cop out.

In a week when the public mood was further angered by the redemption of the Anglo bond, it was interesting to note the €3.6bn accounting error in the Department of Finance.

Making an error is acceptable because to err is to be human, but the fact that nothing was done to rectify it when it was originally discovered is beyond belief.

Accountability is indeed a foreign language in Ireland.