Coalition partners jockey for position in blame game

NOTHING has been more important for the Coalition than getting a satisfactory deal on the promissory note issue.

Easing the bank debt burden was central to the election pledges of both Fine Gael and Labour, helping them sweep into power in early 2011.

Having secured the largest majority in the history of the State, the Coalition set itself the principal task of getting a deal, thus smoothing the exiting from the IMF bailout.

And so, as talks between the Government and the ECB edged closer to agreement last night, the stakes could not have been higher.

The deal will be scrutinised for what it means for the nation’s finances, for future budgets, and whether it will help exit the bailout.

Both parties will be intensely aware of the public reaction and will be anxious to take their share of the praise if it’s satisfactory, and likewise deflect the blame if it’s not.

If it falls short of expectations, Labour will blame Finance Minister Michael Noonan, who they believe kept them out of the loop on negotiations.

In truth, though, Labour has more to lose, because it made the big pre-election promise that it was “Labour’s way or Frankfurt’s way”.

Fine Gael was far less blunt in its pre-election rhetoric on the issue, but it did stake its reputation on putting the country on a sound economic footing and leaving the bailout.

It has been more than 18 months since the Government admitted that losses could not be imposed on senior bondholders, and introduced the prospect of, instead, restructuring the complicated promissory note arrangement.

“I have not raised the issue in specific terms with any of the authorities yet, but I have raised it in general terms with the troika — pointing out the difficulty of meeting the 3bn payment every year and what it does to the fiscal figures,” Mr Noonan told the Oireachtas Finance Committee in early Sept 2011.

Just two weeks later, he travelled to Poland, where he met with the then president of the ECB, Jean-Claude Trichet, and EU economics commissioner Olli Rehn, and asked them to change the terms of the promissory notes by lowering the interest rate or lengthening the repayment period.

After that meeting, he said the ECB was “pretty non-committal” on the issue but had “agreed that we could access some of [its] technical people if we were trying to design something”.

It was Nov 2, 2011, before Mr Noonan told the Dáil that “technical discussions between officials are underway” on the promissory note.

“For these reasons, I have decided not to take unilateral action on burden-sharing,” he said.

Taoiseach Enda Kenny first began talking about promissory notes in Jan 2012 when he told the Dáil serious technical discussions were under way at EU and IMF level. “I will not go beyond that except to say that there is an intense level of discussion about the negotiation of an alternative to the promissory notes,” he said.

As the deadline loomed for the next €3.1bn payment at the end of March, the political pressure increased sharply.

There was confidence at Christmas that a deal would be forthcoming, with Mr Kenny saying at one point that he did not contemplate defeat.

However, this has given way not to just a more pessimistic note from Government, but a growing fear that a satisfactory deal will not be reached.

As the consequences of not getting a deal became more stark, tensions between Coalition partners grew.

The weekend before last, Labour leader Eamon Gilmore addressed an EU/Latin America summit in Santiago, Chile.

Not only did he say that failure to reach a deal would be catastrophic, but he also privately told Angela Merkel in a discussion that was subsequently leaked to a newspaper that failure to reach a deal could bring down the Government.

His comments provoked anger in the Department of Finance, where Mr Noonan felt his negotiators were close to a deal and a softly-softly approach — rather than political pressure — was needed.

Labour had set itself up to claim the credit if a deal was reached and to lay the blame at Mr Noonan’s door if it was not. Fine Gael, on the other hand, thought Labour risked derailing its plan.

The issue reached a climax when a full meeting of the Cabinet was called at 8.45pm last night.

The next 24 hours will be crucial in the future of all who sat around that table. Will a deal be enough to hold them together, or will it be the end of their time together?