Leadership at last but three years too late
Notwithstanding electoral peril, the body politic is shifting towards sanity. It’s official. We are depending on the kindness of strangers. Since the bailout, our external reputation matters most. There are emerging reasons to be hopeful beyond 2011. The causes of our catastrophe, cowardly and incompetent politics, may be receding.
A lot of baloney has appeared about our bailout. Apparently, we should have got a lower rate than 5.83%; have declined the credit; threatened to torpedo the euro, thereby fanning the flames of contagion to other PIIGS states. Allegedly, we bent the knee to bondholders. This analysis is wholly unrealistic. Our negotiating position carried all the threat of a dead sheep. The problems of the euro require a resolution that focuses on rectifying the divergent economic performances between peripheral states and Germany.
The European Central Bank and Regling’s Stabilisation Fund can resolve the immediate sovereign and banking liquidity crisis by quantitative easing. Ben Bernanke took the US economy out of intensive care by creating extra dollars. Consequent inflation and ultimate devaluation are reasonable prices to pay to avoid depression.
The “default bondholders” debate is achievable by EU authorities, rather than by weakened eurozone states. If we can manage the pain in 2011, we can be rewarded with gains of a 30c/€1 multilateral discount in 2013.
The four-year Programme for National Recovery can be reviewed annually by our EU/IMF overlords. Beyond this budget, the intentions of the next government became clearer last week.
Media focus centred on contrasts between Fine Gael and Labour strategies. There are apparent differences in the respective spending cuts/taxation increases ratios of 3:1 and 1:1. The realpolitik of 13 years in opposition means pragmatism will readily overrule party principles. Government realities procure expediency.
My firmest prediction for 2011 is that Pat Rabbitte will be the next minister for finance. Why? The likelihood is that FG’s post-election tally will exceed 58 seats, with Labour registering around 38 TDs. Ergo, Kenny is taoiseach and Labour gets finance. Despite titles Eamon Gilmore’s closest bedfellow is his former Democratic Left colleague. When Pat departed the leadership he facilitated Eamon’s entry to the top job. As evidenced by the Mullingar accord, Kenny and Rabbitte have a good relationship. It’s vital to a cohesive cabinet that these two officeholders gel.
Opinion polls predict that the next Dáil will be unrecognisable from the current crowd. The likeliest scenario? Fianna Fáil’s tally will halve at around 35 seats. FG can gain 10 seats, with Labour perhaps doubling that windfall. This implies up to a 20-seat majority — enough to tolerate sore-head, dissidents being pushed overboard. FF needs time to recuperate, facilitating a tactical, temporary co-operation strategy, with muted opposition, until the local/euro elections. More than 20 TDs will comprise a cohesive chorus of protest politics — through Sinn Féin, other left-wing parties and independents.
Key ingredients to national economic recovery will be the leadership, courage and resolve of Kenny, Gilmore and their leading lieutenants. As they progress their tenure in the asylum (accurately described by John Gormley), they must have the bottle for battles with vested interests. Powerful public sector unions threatening strikes, local communities in mutiny over axed services, student riots, mischievous critical media, dwindling poll ratings and nervous backbenchers must all be faced down. As so often, we mirror the path of British politics. Cameron and Clegg are travelling this journey already.
The outward impact of such developments will provide enormous reassurance to our creditors. Potential inward investment will be enhanced. While living standards will remain lousy and subdued, Ireland Inc. will start to climb league tables of international competitiveness, export market share and inward FDI. The vague, medium-term fiscal intentions of the present government must be solidified. This includes broadening the tax base. Awaiting installation of meters is a cop out from the patent absurdity of free domestic water. The complexity and bureaucracy of a site valuation tax only obscures implementation of residential property taxation. A simple start would be a €200 annual charge on principal domestic residences and €500 on each additional house. Respectively these could yield in excess of €300 million.
OUR banking resolution ultimately must revert to commercial entities. As Patrick Honohan has alluded, all our indigenous financial institutions are for sale. When the toxicity of balance sheets abates there will be viable lending opportunities in our economy. Business, mortgage and personal credit demand is not being serviced. Lending portfolios will contract to sustainable levels. While some foreign banks have fled Ireland, expect others to enter on the basis of less competition and enhanced margins. The domestic NAMA cash-for-thrash assets will be the most difficult residual problem for the next government, as the property prices may be anaemic for two decades.
The budget represents the most odious, heavy lifting of our extended stint of fiscal rectitude. Direct reductions in incomes, be they net take-home pay or welfare, are savage for families with costly children and negative-equity homes. These broad-brush, slide-rule adjustments mirror previous prescriptions of administrative simplicity such as linear pay cuts and pension levies. It’s time to get down and dirty by making public services efficient, productive and cost effective. A department of public sector reform must be the cornerstone of the next government’s programme. Gilmore and Co must bite the union hand that partially feeds it.
The most worrying aspect of FG and Labour’s alternative budget rhetoric is the unceasing claptrap about plans to create jobs. The notion that a new generation of state corporations will create 100,000 jobs in the water, broadband or renewable energy sectors is reminiscent of 1960 policy pamphlets. Committees of politicians and advisers are hopeless at creating and sustaining viable enterprise and attracting market investment. This naivety faces obvious exposure, even ridicule, in the election campaign. These pronouncements are not credible. There is no quick fix to unemployment of more than 10%.
Lenihan’s brutal budget may amount to the last sting of a dying wasp. The net effect may be to decapitate even more government TDs on polling day. Yet, in doing so, they have probably done the state some service. These measures are three years too late and are all the more severe because of undue delays. Cowen’s political epitaph may transpire to be … “having bankrupt the country, it was only decent to bury the party”. At last, belatedly, and perhaps only at the insistence of external creditors, this government has shown effective leadership. As the baton passes to opposition parties, let’s hope they don’t drop it. Otherwise we may never get out of this deepest of mires in the foreseeable future.
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