If Kenny shows hand too early there’s a risk of getting burnt

EVERYBODY will welcome as sensible that the incoming coalition government will have a minister responsible for heading up reform of how they do business.

The remit hopefully will extend to looking at how they do business with our partners in the European Union.

Ireland is currently the victim of other people’s politics in the EU and this should have been more than obvious to Enda Kenny on his first outing as de facto Taoiseach in Helsinki on Friday night.

One wonders if he did not in fact sell the pass by conceding so quickly he would not burn the bondholders, as Europe had feared. One would have thought that when in a negotiation you hold onto whatever it is your opponent most wants until you have secured some of your demands.

But Mr Kenny before the three-hour long meeting had begun announced that he would go back on his election promises and not extract the €20 billion or so from those unsecured bank bondholders.

In return, he said, he hoped to win a longer period in which the country could repay the portion of the EU-IMF loan destined for the banks.

His European People’s Party colleague, Latvian prime minister Valdis Dombrovskis, pointed out that this would extend the length of time the EU-IMF conditions and oversight would prevail.

Mr Kenny, having listened to German Chancellor Angela Merkel in Berlin a few weeks ago, was very mindful of her message that if she was to give anything, she wanted something back in return.

In fact, as senior EU sources have pointed out, Ireland has a strong hand without conceding very much — threaten to veto the huge package of economic governance measures or suggest holding a referendum.

Merkel would also understand the difficulties of keeping a coalition partner happy and on Friday night Eamon Gilmore was hammering out a document with the EU Socialists on how austerity could not be the only element of a recovery strategy.

Most agree it is now too late to burn bondholders since it would damage mostly domestic holders at this stage. But the country is under pressure to do much more than just cut the budget deficit to 3% by 2014, or 2015 as the new coalition has decided.

For instance the ECB is pushing for a NAMA 2 which could bleed the country of much of the domestic money needed to get the national economy going, warns IBEC.

It would be worth fighting to ensure the European Financial Stability Fund, from which Ireland received its loan, could lend to allow us buy back our debt at the much reduced rates it is selling it on the markets.

Instead Mr Kenny appears to be fighting a battle that has been won — take pressure off the country to raise the Corporation Tax rate. Thanks to tensions within Merkel’s coalition this is no longer a demand since her junior partners in government, the FDP, favours tax competition.

Mr Kenny was also beating his chest over the CCCTB — the proposal to come from the Commission later this month offering a way to make a single tax return covering all the countries they operate in. His predecessors gave up this battle and concentrated on figuring how such a return could benefit Ireland best.

It is clear from the comments of Merkel and others that the interest rate will be reduced in time, possibly in line with cuts in the rate due to come from the IMF. But in the end it won’t be worth that big an amount.

Hopefully Mr Kenny was sufficiently shocked by the arrogance of the Finnish finance minister and others towards Ireland at the meeting to understand the only way for a small country to win is to plan carefully, do your homework, make allies, don’t be overwhelmed, remember you have no friends, and use your wit and intelligence when negotiating.