I again agree entirely with Stephen Collins.

Coalition must look beyond public relations coups

STEPHEN COLLINS

INSIDE POLITICS: Closing our Embassy to the Holy See or crippling the
potential crown jewel in the banking sector won’t make things better

SINCE IT took office in March the Coalition has shown itself very
adept at the art of gesture politics. The way it played to the gallery
by forcing the banks to pass on the European Central Bank rate cut
displayed the populist touch that has characterised its performance to
date.

Whether the Government has the capacity to take courageous decisions
in the long-term national interest is another question. So far the
omens on that score do not look so good, but a proper judgment will
not become possible until all budget decisions are unveiled.

The grandstanding by Enda Kenny and Eamon Gilmore on the bank rate cut
may have gone down well with the public but the upshot is that AIB, a
big and potentially profitable bank owned almost entirely by the
taxpayer, has been forced to take a decision that will render it
uncompetitive.

The bank executives had a justifiable case for not passing on the rate
cut, as they had chosen not to increase their rates in line with the
last two ECB rate increases. However, the interests of the bank’s
long-term viability, and ultimately of the taxpayer, were sacrificed
to the Coalition’s need for a public relations stroke.

Something similar happened in the case of the closure of the Irish
Embassy to the Vatican. The decision to close one of Ireland’s oldest
mission’s abroad had obvious short-term popular appeal but the
country’s future interests and history were ignored in the process.
What made it even worse was the disingenuous statement from the
Tánaiste that the Embassy to the Holy See yielded no economic return.
The Embassy to the Vatican was never about economic return in the
first place. The decision to close it had nothing to do with economics
and, in any case, if that was the criterion then many other embassies
would be closed along with it.

There is still widespread outrage at the disclosures of clerical
sexual abuse, just as there is about the behaviour of the people who
ran our banks, but closing our Embassy to the Holy See or crippling
the potential crown jewel in the State banking sector won’t make
things better.

The important question is whether the Coalition is capable of matching
its public relations successes with real policy decisions that will
help the country along the road to recovery, assuming the euro zone is
going to survive.

The indications in the early days were good. Michael Noonan’s swift
move to recapitalise the banks restored a great deal of international
confidence in Ireland. That in turn put the country in a good position
to benefit from subsequent jitters in the euro zone with a substantial
cut in the interest rate we are paying on the bailout deal.

All the election rhetoric about “burning bondholders” and telling the
ECB where to get off was quietly forgotten as the Government continued
to implement the banking strategy put in place by the heavily
criticised government led by Brian Cowen. In the process Ireland’s
credibility improved and we are no longer regarded internationally as
a basket case like Greece.

The Coalition would do well to remember, though, that the country has
been down this road before. After the initial economic shock in the
autumn of 2008 Ireland was perceived for a time as the “good boy”
among troubled economies, with a government prepared to take tough
decisions to get the public finances under control.

All that changed because of the Cowen government’s slowness to react
when the Greek crisis took a turn for the worse in the late spring and
early summer of 2010. Ireland spiralled into bailout territory before
the Fianna Fáil/Green Party government knew where it was, and the rest
is history.

The Fine Gael/Labour Coalition could also find its credibility
evaporating if it fails to meet the targets set out in the EU-IMF
programme. The medium-term fiscal statement issued last week recommits
the country to the target of achieving a budget deficit of 8.6 per
cent of gross domestic product next year, through a budget adjustment
of €3.8 billion, but it does not leave a lot of room for manoeuvre if
things go wrong or growth does not reach the target of 1.6 per cent of
GDP. The newly established Fiscal Council urged the Coalition to aim
for a higher adjustment target of €4.4 billion to put the country on a
faster trajectory to healthy public finances, but the Government has
chosen to ignore that advice.

Achieving an adjustment of €4.4 billion is easier said than done and
the short-term social cost cannot be ignored. Still, all experience
shows that the sooner the adjustment is made the better for the
country in the long term.

The cuts in the capital programme published on Thursday indicate a
government willing to make politically safe rather than radical
decisions. Cutting capital spending is so much politically easier than
cutting current spending but there is a real cost in terms of jobs
that will be lost as a result. Kenny and Gilmore spent the election
campaign saying “it’s all about jobs” but when it came to hard
decisions it seems other things are more important.

The protection of the pay, pensions and conditions in the public
service appear to be a bigger priority for this Government than the
job creation potential of the capital programme or the hardship likely
to be inflicted by cuts in the social welfare budget.

Of course the entire budgetary strategy could become academic if the
euro zone collapses. That would present the Government with some
really difficult choices, all of them with appalling consequences.
Ireland as we know it could not survive with a currency of our own, so
the question will be whether we can stick with our link to the German
currency or whether we should swallow our national pride and go back
to sterling.

In the Dáil on Tuesday, Shane Ross forecast that if the euro crisis
continues, “every country will be running for its own lifeboats”. He
asked the Taoiseach what Ireland’s Plan B was. Not surprisingly, Kenny
refused to be drawn on the issue. With luck we will never know what
Plan B might have been. Nonetheless, it is to be hoped that the
Department of Finance is preparing for the worst, just in case.