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  • Ministers bark but ECB leash still holds

    January 28, 2013 @ 9:41 am | by Harry McGee

    Over the weekend we had a pantomime we have seen almost as often as reruns of Mrs Brown on RTE.

    After weeks of Government Ministers hyping up a solution on the promissory note repayments the European Central Bank comes out and says something unhelpful like ‘No’.

    And then Irish Ministers come out with a mixture of threat (Gilmore) and reassurance (Rabbitte and Varadkar). The question is will it get them anywhere this time?

    There are two separate ways of getting relief (or sustainabilitity to use the buzz word) on Ireland’s debt relief: either by getting a deal on the promissory note, or getting some payback for the €64 billion Irish governments have pumped into the performing banks. You always know that talks are failing on one of those solutions when the Government starts talking up the other solution.

    How many times since August of 2011 has this newspaper reported that the Government was on the brink of a breakthrough or a deal on debt relief, only for everything to evaporate?

    This time it’s a little different. There’s a looming deadline on March 31 for the next repayment of €3.1bn. What would be almsost as bad for the Government as no deal would be some kind of three-card-trick on the €3.1bn that would alter the form of repayment but still leave the Government on the hook for it within a relatively short time period.

    And in any instance, the three bodies in the Troika arrive in Dublin today to begin the latest quarterly reviews. Ironically one of their concerns is that the Government has become obsessed with the debt question to the detriment of all the tough fiscal decisions that remain to be taken.

    There are two narratives on Ireland’s performance under the bailout programme. There is the one given by Micheal Noonan and Brendan Howlin at the end of each quarterly review. Invariably, both hand out gold stars to themselves for being the best students in class.

    Then there is the less gilded narrative of IMF and EU Commission staff. It’s slightly harder to decipher, because it’s heavy on jargon and nuanced. But it’s clear that its message is: not paying enough attention in class and must try harder.

    As officials arrive today to begin the ninth review of the programme, it is clear the gap between the Government and the Troika on the expectations for recovery have widened measurably despite the continued success in meeting the programme targets.

    Analysis based on the latest staff reports from the Commission and the IMF, as well as from well-placed sources, shows there is real concern that radical Government reforms have slowed down and may even hit the buffers.

    The first criticism is the Government has portrayed a deal on bank debt and promissory note as some kind of panacea when it’s not. Then there is the recurrent theme that the public sector pay bill has not been tackled sufficiently; that not enough has been done to tackle the growing problem of long-term unemployed people; and measures to address over-runs, especially in health, have been inadequate.

    The net outcome of that is the Government will not be in a position to hit the magical 3 per cent of national debt target by 2015 if it continues to pursue current policies. Its own figures are €1.2 billion more optimistic than that of the Troika.
    In its staff paper, the Commission drily notes that the current plans “may not be sufficient to reach the (3 per cent) deficit target”.

    “We express doubt that Ireland will get to under 3 per cent before 2015 with the triple lock (the Croke Park agreement protecting pay; no cuts in basic social welfare; no increases in income taxes)”.

    “That is why Croke Park Two has to be more ambitious…

    “The political point is it’s very hard to say to other countries you should help Ireland if there is evidence that Ireland is not doing enough,” said one source who spoke on condition of not being identified.”

    While acknowledging programme implementation, the Troika has a sense that the huge emphasis placed on debt sustainability has meant that, as one source puts it “the reform momentum may have slowed a little”.

    A deal on debt sustainability is not the solution to all Ireland’s problems, says the source. The separate fiscal crisis, with the collapse of 30 per cent in tax earnings, posed a huge challenge to public finances. Massive permanent increases in spending were financed by transitory tax revenues.

    “Even if your fairy godmother arrives and in one stroke all the bank debt is gone, there is still a huge amount of austerity to got through [on the fiscal side],” the source said.

    That said, the IMF and Commission staff reports underlined the importance of a deal on bank debt pointing out that otherwise the fall in spreads on Irish debt could be reversed. Both reports suggest that expectations were raised too quickly after the June 2012 summit that a deal could be struck.

    Perhaps that sentiment has been borne out this weekend as Government ministers have tried to ‘spin’ bad news from ECB sources. It happened last autumn too when Enda Kenny had to place a personal phone call to Angela Merkel to get her to contextualise comments she made that there would be no retrospection (ie money paid back to Ireland for propping up its banks) when the new European Stablity Mechanism came into being.

    Troika staff have focused to an inordinate extent on the public sector pay bill in recent months. The core argument is that cutting numbers isn’t enough.

    The Commission noted that Irish medical consultants were the highest paid in the EU for their public work, being paid twice the rate in the UK. The IMF noted: “Public pay is elevated in Ireland especially for teachers and medical professionals.”
    It has honed in on medical consultants in particular. One example is of the consultant who described a proposed public salary (€205,000) as ‘Mickey Mouse money’ [six years ago].

    “Some of these guys don’t realise the party is over,” said the source.

    Other unpublished figures showed that Ireland had the largest increase in public wage bill between numbers and wages since 2000 but that public sector pay cuts since then have been markedly smaller than other programme countries such as Portugal and Spain .

    Its net argument: the Irish public service has suffered less than other programme countries. It accepts that it has brought industrial peace but asks is Ireland paying too high a price for it?

    Troika officials are also cool on universal payments and make the point that they end up going to too many people who don’t need them. The health over-runs, the Commission suggests, reflects the lack of binding targets for departmental spending ceilings. An “escape clause” may be evoked.
    They are also worried about the lack of detail of how the Government will achieve further cuts in 2014 and 2015.

    They want the Coalition it lay its cards on the table now – the IMF suggests reforming tax relief on private pensions; greater use of generic drugs and (controversially) an “affordable loan scheme” for third level students.

    Other criticisms: the slow pace of progress of Irish Water; the scrapping of rent supplement to be replaced by a payment based on level of income rather than employment status. This is designed to incentivise (with a stick rather than a carrot) people to look for employment. With its continuous pressure on the Coalition to improve job activation measures, the Commission has recommended private sector involvement in activation programmes.
    The supposed irreconcilable nature of Ireland’s approach is summed up by an official: “Ireland wants Sweden’s welfare State and an American tax rate.

  • Cabinet Meeting on Jobs

    January 17, 2013 @ 3:33 pm | by Harry McGee

    This is a slightly longer version of the analysis piece I wrote in this morning’s edition of the paper – with some additional commentary – putting the three Government initatives to date on job creation into context: (more…)

  • New Term, new leaf? Hardly

    January 15, 2013 @ 2:21 pm | by Harry McGee

    The Dáil resumes tomorrow for the Spring term and later today the Government will announce its legislative progamme, in other words the Bills it hopes to publish between now and the end of the Easter break. There will be a little less than 30 Bills, I am told, and there are two chances of them all being published: little or none.

    It always happens. Government guillotines debate on legislation in the Dáil and Seanad. Opposition complains bitterly. Says it will bring in reform. Opposition becomes Government and sets about imposing guillotines on debate in legislation in Dáil and Seanad.

    Ditto with legislative programmes. The opposition constantly criticised the fact that so few of the promised Bills each term actually got published. Now the opposition is in Government and it’s going through the same process.

    Ditto Dáil reform. The opposition mocked adjournment debates because they were too late at night and the relevant Minister never showed up but farmed it off to colleagues. Now it’s called topical issues and even though it’s on earlier that day, it’s not a huge improvement on what went before. Certain ministers are seldom there to answer questions relating to their brief.

    Like everything else in Ireland – a small country, a settled democracy, a very oligarchical form of governing, innate conservatism, resistance to change – when they happen occur, changes happen incrementally, a little like the way the days gradually get brighter as the year progresses.

    That’s why the claim by the incoming Government that it had affected a “democratic revolution” was such an assault on the English language. That said, there are a number of important and substantial issues that will dominate this Dáil term.

    The most obvious one is abortion. From a legislative point of view, it’s going to be relatively quiet for a month or so, as the Department of Health prepares draft legislation.

    But that wont’ prevent the intensification or the continuance of the debate and the divisions in the public sphere. The pro-life rally on Saturday will serve as another reminder that this tangled and problematic issue will be a dominant issue in the political year.

    But it seems certain that the legislation and guidelines – including a threat of self-destruction as grounds for lawful abortion – will pass, given the whips being imposed and the huge majority of the Government.

    Even without a whip, the middle ground of Fine Gael will support the Bill. Many who had been veering against the Bill were convinced enough by the medics last week to veer the other way.

    There will be an issue with a minority of Fine Gael TDs who can see no alternative but to vote against the law on grounds of moral conscience. Politically, the most salient aspect will be their number and how the Fine Gael party deals with them from a disciplinary perspective.

    Elsewhere, the promissory note issue will feature prominently in political discourse between now and Easter. There’s a looming deadline waiting at the end of March. Last year, the Government did a bit of a three card trick and ‘magicked’ away the €3 billion due for a year.

    But anything less than a permanent deal to make the €30bn burden (originally to be paid over a shockingly short ten years) sustainable will cause a huge amount of bother for both Coalition parties.

    That is particularly so given the overweening confidence which Ministers have displayed in telling all and sundry that a deal is in the big/imminent/ there for the taking.

    We’ll believe it when we see it. There have been too many false dawns on debt deals with the ECB and others in the short lifetime of the Government. If they pull it off, they will be heroes. If they don’t, they will be hammered. It’s a simple as that.

    A little later in the year, the introduction of the property tax will be the pencilled-in event that should dominate the middle of the year. It’s a big new tax and will rake in €300m in a full year adding hundreds to the annual household tax bill.

    I’m not sure if it’s by happenstance or design but the fact that it is being staggered in will make it seem a little palatable. Householders will pay for six months this year and it will not be until 2014 that the full weight of it will have to be borne.

    The Government’s calculation is that by that stage it will have bedded itself in and people may grumble about it but will generally accept it. I’m not so sure about that. It’s going to be very unpopular, in July this year, in January next year too.

    The other question is: will there be a campaign of disobedience this year and will it have the success of last year’s campaign? Yes, for sure, but I suspect it will not have the traction of last year.

    For one, Revenue is in charge and having studied the mistakes from last year will not repeat them. Also, there won’t be any messing around with those who don’t comply.

    It’s interesting that Sinn Féin today said very firmly that it will confine its opposition to the Bill to parliamentary protest, including drafting its own bills. The fact that the party won’t take to the street, to me, looks like another of those small and deliberative steps towards the mainstream.

    Sure, it didn’t officially protest on the streets last year. But like everybody else in Irish politics, incremental change is the name of the game for Sinn Féin.

  • On Politicians and Abuse

    January 8, 2013 @ 5:46 pm | by Harry McGee

    This is a piece I wrote for the Connacht Tribune  just before Christmas about the extent to which politicians should be fair game for criticism – and when crticism ends and abuse begins. I’ve added it here in the context of a twitter exchange earlier on social media. I think it gives a fuller picture of my views on the issue. In the meantime, I spoke to Paschal Donohoe, the Fine Gael TD, who was a former and avid user of twitter and facebook. He closed both accounts down in the autum because of the volume of abuse he was receiving. (more…)


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