IVAN YATES: This stable inter-party Government has increased economic volatility

HULLABALOO over Fine Gael’s aborted PR stunt to mark the anniversary of their year in office was a sideshow.

Good relations between FG and Labour are the main achievement of the Government. Political stability in the form of a mega-majority and inter-party harmony is the basis for a five-year term of office. It’s in stark contrast to the mayhem of the FF/Green disarray. Brian Cowen had lost the confidence of his party and didn’t even contest the election. The remaining ministers, after a botched reshuffle, were testament to the worst government in the history of the State. That disaster sets the bar too low to assess our new masters.

Enda and Eamon claim, on their own self-assessed report card, to have pulled us back from the edge, stabilised the economy and revitalised our international reputation. Facts are less than supportive: over the past year, company insolvencies have risen from four to five per day; unemployment is up from 14.4% to a projected 14.6% in 2012; weekly emigration is beyond 1,000; householders in mortgage arrears over 90 days have increased by 20,000. Domestic demand and GNP are declining (after inflation) for a fifth consecutive year. Repeatedly asserting our image has been transformed doesn’t make it a reality. If the Irish economy’s difficulties could be resolved by spin, they would have been already. It took FF 12 years to be disconnected from reality. This lot are well down that road in 12 months.

The Cabinet must face more critical analysis than they have applied to themselves. Positives exist. Reorganisation of the Department of Finance and establishment of the Department of Public Expenditure and Public Service Reform are key innovations. These focus on modernising the apparatus of state. IDA and Enterprise Ireland have had notable investment successes. Tourism is in a turnaround with extra visitor numbers, enhanced by reduction in the VAT rate to 9%. Visits by US president Barack Obama, the Queen and the Chinese VP went well. The tailwind of Greek debt restructuring provided EFSF modifications to reduce our sovereign debt servicing by €9bn. Promotion of John Moran and Robert Watt as secretary generals is welcome.

These pluses don’t protect both government parties from ubiquitous criticism of their irresponsible and cynical election promises. Remember Fine Gael’s five-point plan? Kenny repeated the mantra often. Three of those pillars now look dodgy. Universal health insurance for all, with free GP care and inpatient hospital waiting times reduced to a year, look extremely remote. 67,000 people have departed from private health insurance due to cost hikes. The ERA (Economic Recovery Authority) promised to spend €7bn of privatisation receipts to create 100,000 jobs in broadband, water utility and renewable energy enterprises. This was always daft. Abolition of the Seanad is a long shot, in the context of defeat for the Oireachtas inquiry referendum. Labour promised free water, no third-level fee increases and a strategic investment bank. All are reneged upon.

The central challenge for the Cabinet is to achieve game changers in relation to Ireland’s debt. Do they get it? Ireland’s collective indebtedness, be it sovereign, corporate, household or personal, exceeds any other OECD state. Cumulative liabilities amount to 6.6 times our GDP. The path to economic recovery can be facilitated by enhanced competitiveness, investment and growth. No matter how successful we are in these pursuits, they won’t resolve the profound debt nonsustainability. Greece has evolved from bailout to bail-in. Default on €100bn of sovereign bonds held by private investors is the first instalment, to be followed by a further round of debt discounts — next time, it’s the ECB. Ireland, Portugal, Spain and Italy will require a write-off of bad debt. Germany, as principal paymaster of the ECB, won’t get back credit they lashed out between 2002 and 2006.

Government’s banking policy isn’t working. NAMA was supposed to free up domestic banks’ lending activity by putting toxic loans into quarantine. It hasn’t worked. The property market has not stabilised. The strategy of two pillar banks is running into the sand. Mortgage credit to credible first-time home-buyers has evaporated. Business loans are only available to blue-chip clients. Corporate refinancing is being downsized, resulting in asset-stripping and sales of subsidiaries at fire-sale prices. Lack of finance pervades every facet of the economy — depressing property values, starving cash flow in enterprise and dampening consumption. The EBS has been shunted into AIB and wiped out of the mortgage market. PTSB is a basket case. No home has been found for this institution, which has endemic losses through an abundant proportion of disastrous tracker mortgages.

Rationalisation of the retail network of financial institutions and several thousand redundancies represent only a small feature of required reorganisation. Cost reductions of €200m in AIB are a drop in the bucket of impairment losses. No indigenous bank has a debt-forgiveness strategy. They are still, three years after clear visibility on the extent of the crisis, in denial about repayment capacity. Their principal shareholder, the Department of Finance, has shown no leadership in sorting out debt delinquency. The result is corporate and personal paralysis. There is no benchmark or coherent programme of debt restructuring. The complexity and pain of these problems have resulted in financial immobility. They won’t go away. No political direction or leadership has been provided to resolve Ireland’s internal credit crunch. Because there are no votes in bankruptcy, it will continue to be neglected.

Insiders inform me of ministerial fatigue. Senior ministers may not seek re-election in 2016, due to understandable disallowance of pension entitlements as a serving TD. Who’s our next EU Commissioner? Lack of enthusiasm from politicos, who’ve been 14 years in the opposition wilderness, was unexpected. Emphasis on survival and not upsetting backbenchers has come too early in this administration. The first year should have contained jaw-dropping tough decisions. Do you recall any? No front-loading of radical expenditure reductions or quango rationalisation — just compliance with the troika. Insistence on accountability has been absent — no banker or regulator has been accosted, just paid off. Great on spin, poor on substance, sums up the initial assessment.

What lies ahead? Miniscule growth means a second bailout. Like Greek default, it’ll be termed something else. The troika will insist on detailed terms and conditions. More than €600m of welfare reductions await implementation. Privatisation of state assets will be pressed to the point of reality. The Constitutional Convention will be an idle talking shop. More backbenchers will jump overboard. Health and education reforms will become mired in the quicksand of cutbacks, inertia and resistance by vested interests. U-turns on DEIS schools, disability payments, septic-tank charges, Vatican embassy, turf cutters, etc, will lead to contagion on big-ticket items. A unique impetus for courageous leadership, created by the election result and the coalition, has been lost. We are set to continue on the happy-clappy road of self-congratulation.


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