Forget the false election promises, we’re out of cash and out of choices

By Ivan Yates

Thursday, March 10, 2011

WAKEY, wakey. The alarm clock is set early this morning for our new cabinet.

The traditional inaugural meeting of the new Government last night in Áras an Uachtaráin was followed by dinner with the president. A cold shower awaits this morning. An air of unreality has reigned over Irish politics since budget day. Fine Gael and Labour negotiators in the Sycamore Room forgot there was always going to be, in Princess Diana’s words, “three of us in this marriage” — the missing partner being our creditors.

The first 100 days of office for the new administration will not be dominated by job creation, fairness, constitutional or political reform. Instead, Enda Kenny needs to find out when cash will run out. A liquidity crisis awaits. The Taoiseach resembles Sean Quinn and Quinn Insurance, post administration. The Programme for Government represents a Walt Disney production — fantasy in escapism when a cash flow projection was immediately required. The EU Commission, ECB and IMF are due to return to Dublin in early April. Implementation of their programme is behind schedule.

As the 31st Dáil reassembles on March 23, delusion of many new TDs will be shattered. Flamboyant independents such as Luke ‘Ming’ Flanagan and Mick Wallace, may quickly learn how irrelevant their new roles will be. The Dáil chamber requires a roster of junior ministers to attend government benches. The press gallery usually empties beyond leaders’ item and question time. Unfortunately no one will pay a blind bit of attention to opposition winners of the election audition. It won’t even matter if they don’t turn up for votes, given the Government’s 30-seat majority. Our system doesn’t provide for 166 viable roles in government. The harsh truth is that opposition is a political irrelevance while FG and Labour stay together.

Government benches contain the largest ever numbers of backbenchers. Some 80 deputies have no direct executive role in government policy or public administration. These poor unfortunates face the worst of all political worlds. In a lot of constituencies they comprise 80%-100% of representation. They face the impossible task of complete seat retention. Peter Matthews will learn why George Lee left Leinster House. These disaffected, dispossessed deputies face the bitterest disappointment of all. After 14 years in opposition, they have reaped no ministerial reward. Their consolation is that they have avoided the asylum. They can watch ministerial colleagues visibly age in coming months.

The Programme for Government commences with a statement of common purpose, which speaks of an unprecedented economic national emergency. This tenor quickly dissipates in the document. Unrealistic promises abound, such as free primary GP care for all within this term of office, no cuts in social welfare rates or child benefit and a commitment to pay Oversees Development Aid of 0.7% of GNP by 2015 (approx €1.1bn).

Seeds of false expectations have been sown by a myriad of half promises to various lobby groups and sectional interests. This document is incompatible with achieving fiscal correction to ensure a current budget deficit of 3% in 2015. The absence of arithmetic or appendix of financial tables proves it is a fantasy.

Fine Gael negotiators didn’t delay to ditch their fiscal plan Less waste, Lower taxes, Stronger growth (check the website www.finegael.ie). The cornerstone of FG’s strategy was axing public spending by €6,444 million over three years. Breakdown of this was: €1,200 million in non-pay spending reductions; payroll cuts of €2,466 million to reduce numbers, over time, allowances and expenses and a salary cap; a reduction in welfare budget of €1,960 million. Labour succeeded in diluting this package beyond visibility. No ratio is included of spending cuts to tax hikes, let alone adherence to 73%/27%. In case the Blue Shirts don’t understand what happened, the semi-detached Labour finance minister will control public service reform and crucially annual departmental estimates. This dual CFO role can be labelled Jedward economics — a recipe for paralysis.

Any member of the new Dáil that didn’t understand Ireland’s insolvency is an eejit. The looming problem is not that annual public expenditure of €48 billion vastly exceeds state revenue of €33 billion. That’s old hat. What lies ahead is insufficient credit to keep the show on the road. NTMA was rendered redundant in procuring finance. We seek reductions in the 5.8% cost of the EU/IMF bailout, while real markets price Irish Government 10-year bonds at 9.27%. The ignominy of our first bail out will be compounded by requests for a larger cash influx. Lenders of last resort need to top up our ready to keep going credit. The €67.5 billion of external funds will not be enough to fix financial institutions and maintain Government for three years.

Next Monday, our new Finance Minister Michael Noonan faces a baptism of fire at a two-day Ecofin meeting in advance of the European Council meetings on March 24 and 25. Franco-German governments and ECB focus on anti-inflation measures such as increases in interest rates, further to oil price spikes. Greek, Irish and Portuguese complaints that the ECB failed to control credit bubbles are viewed askance — akin to a barman being blamed for next day hangovers. Concessionary loan terms of cheaper rates and longer maturing repayment dates can be contemplated in the context of a larger architecture of European Financial Stability Fund in 2013. The ultimate end game will be a multilateral buy back of discounted bank bonds. Our immediate crunch issue is adequate funds to maintain stability.

ENDA KENNY must avail of an early television State of the Nation address. While condemning Cowen’s crew and a decade of FF mismanagement, his objective should be to create a public appetite for immediate adjustment. Success or failure of the new government depends on reducing public expenditure quickly. The Croke Park Agreement, which sustains 307,000 public servants, and a Department of Social Protection budget of €20.9 billion are simply unsustainable. War on waste (eg €10 million for art in hospitals) and elimination of quangos is urgently overdue.

Visitations by IMF’s Ajai Chopra and EU’s Olli Rehn should not be wasted. Such deputations to Athens have allowed the Greek government to blame creditors for dosages of austerity.

Kenny and Gilmore have trump cards to play. First is the bulwark of the size of the Government’s majority, resulting in a fragmented diminutive parliamentary opposition. Backbench hostility, which will inevitably fester, can be initially dismissed as sour grapes for lack of career fulfilment.

Any honeymoon will last until the autumn. These factors mean no time to waste with radical reform. Common purpose of Government parties must be to stay together until the Easter of 2016. Forget false promises about phoney jobs. One key promise Kenny made at the weekend was failures of the FG/Labour coalition of the 1980s would not be repeated. Smooth formation of this government since polling day, devoid of unnecessary dramatics, indicates a brusque style of ensuring that meetings end on time. Country and creditors are crying out for firm authority. Our cash crisis means we have run out of choices.

This appeared in the printed version of the Irish Examiner Thursday, March 10, 2011