Dealings of with troika developed a give-and-take quality

Three-month reviews of Ireland’s progress gave the troika mission immense power

 Independent technical group TDs Richard Boyd Barrett, Shane Ross, Catherine Murphy, Mattie McGrath, Clare Daly and Mick Wallace after their meeting with Troika representatives at the Department of Finance in Dublin  Photographer: Dara Mac Dónaill

Independent technical group TDs Richard Boyd Barrett, Shane Ross, Catherine Murphy, Mattie McGrath, Clare Daly and Mick Wallace after their meeting with Troika representatives at the Department of Finance in Dublin Photographer: Dara Mac Dónaill

Fri, Dec 13, 2013, 01:00

A ngela Merkel summed up her approach to bailouts as “a sensible mix of self-exertion and solidarity”.

For the troika, this was standard operating procedure. A troika mission would arrive in Dublin every 12 weeks or so. The inspectors would stay in the Merrion Hotel, one of the finer establishments in the city. From there it was but a hop across the road to the Department of Finance and no more than a short walk to the Central Bank on Dame Street.

Instead of Irish leaders deciding on the appropriate degree of self-exertion for the fiscally-constrained State, this became the preserve of international officials.

While there was always plenty of talk from troika types about Irish officials and Ministers taking “ownership” of the plan, it fell to the visitors to declare every three months whether the effort was sufficient.

Any failure to receive the inspectors’ imprimatur would send a negative signal to the outside world. This gave the troika immense power, in keeping with the central objective of putting fiscal manners on a State which had lost the ability to sell sovereign debt to private investors.

For all their visibility around town, the inspectors were markedly reluctant to go on camera or on air. Observers in Dublin and within the troika itself traced their insistent hyper-sensitivity in respect of media relations to a forthright drubbing they received from journalist Vincent Browne at a press conference. They wanted no repeat of that.

Ireland duly passed each one of the troika’s examinations, although the engagement with officials from the European Commission, the European Central Bank and the International Monetary Fund was not entirely without strain. Still, there was never any walk-out by the inspectors. By contrast, the suspension of troika missions to Greece is an all-too familiar feature of its debt saga.

Threat of backsliding
Despite an early succession of positive test results in Dublin, worries soon surfaced on the troika side about the threat of backsliding on the reform effort.

Six months after Enda Kenny took power, the ECB was expressing concern about the potential for reform fatigue. It wanted a greater effort to cut public wages and welfare payments, and a push to overshoot budget deficit targets.

Although top Irish officials always denied it, certain senior figures in the troika were baffled by the Government’s insistence on holding on for so long to the Croke Park deal it inherited from the Cowen administration. The deed was finally done in the Haddington Road pact this year, but troika types would be preferred movement much earlier.

Similarly, the troika had big frustrations as the bailout drew to a close about the Government’s failure to advance a fundamental overhaul of the legal profession.

Further concern centred on the necessity to extract more health service savings, particularly from the drug budget.

In the troika’s view the Government had a mandate to take decisive action and a good deal of political cover in the form of the inspectors’ very presence in Dublin.

The Government, however, was not minded to give any additional ammunition to local critics of the arduous retrenchment drive it had pledged to execute.

An inspector’s “sensible mix” might be the stuff of nightmare for a Minister. It was a question of different priorities.

Troika types saw a big opportunity for fiscal frontloading, speeding up the austerity push to win plaudits on markets and in the euro zone. In the Government the attitude was that the targets were bad enough as they were.

In the comfort of their tower blocks in Brussels, Frankfurt and Washington, the troika did not have to contend with Joe Duffy on the radio or rebellious TDs in the Dáil. Neither, for that matter, must they preoccupy themselves with question of re-election.

While the requirements set for Ireland were and remain especially testing, there still appeared to be an element of give-and-take in the relationship. In troika circles the attitude was that money not found in one place must be found in another; that cuts not made must be made elsewhere.

An early example was the Government’s push to reverse the reduction in the minimum wage, which it succeeded in doing weeks after it took office. The quid pro-quo for employers was a reduction in their pay-related social insurance contributions.

The Coalition, and Labour in particular, saw this as a coup. Before long, however, high-level troika people were saying they wanted “downward wage mobility” in private work contracts. The troika believed this would be good for the economy in general, but the Government saw obvious political difficulties.

A more recent example was Budget 2014 in October, an arrangement which followed months of antagonism between Dublin and the troika over the force of the retrenchment effort. Buoyed by the deal last February to scrap the Anglo Irish Bank promissory note, Labour wanted to use some of the proceeds to ease the retrenchment rate. While Fine Gael was not so keen, the troika was downright opposed.

The attitude among the inspectors was that windfall gains really should be used to pay down debt. Only at the very end was tacit approval given for a €2.5 billion package instead of a €3.1 billion one. In spite of troika concern that the growth targets underpinning the plan were too optimistic, the clincher was the push for a deficit that was a little lower than the original target. A further swathe of once-off savings improved the picture a little.

Then there was the question of corporate tax. It was all very well for euro zone sponsors to seek a higher take from the tax but the regime was central to Irish economic and employment policy – and all the more with unemployment sky high.

The topic dominated exchanges at the outset of the bailout process in 2010. With Ireland’s system already under pressure in the weeks prior to the intervention, the attitude back then in Brussels was that national control over tax policy was not necessarily the end of the story.

Catherine Day, an Irish woman who leads Europe’s civil service, is on record in October 2010 as saying the policy may lead to further “unpalatable” spending cuts as the Government tried to balance the books without increasing the 12.5 per cent rate.

“So if Ireland decides it wants to keep a low corporation tax, it has to deal with the deficit in some other way, and we will be saying: ‘okay, that’s your choice. If you don’t deal with it that way, how are you going to do it’?”

Franco-German attack
In the original memorandum of understanding with the troika there were no corporate tax measures. But that did not halt a ferocious Franco-German attack on the policy when Dublin sought a lower interest rate within weeks. For Kenny’s incoming administration, the defence of the regime consumed enormous political and diplomatic energy.

The interest rate cut was finally granted but only after the Taoiseach committed Ireland to engage constructively in talks on a common consolidated corporate tax base (CCCTB), a move to create a pan-European business tax system.

This position mirrored the Government’s official stance on draft European Commission legislation to establish a CCCTB. Yet Kenny had signalled resistance to that initiative on the basis that it harmonise tax by the “back door”, and that was on his very first visit to Brussels as Taoiseach. An inevitable element of give and take prevailed, although it is as well to note that the CCCTB hasn’t appeared yet.

The view within the troika was that the interest rate cut represented a “fair deal” for Ireland after the imposition of losses on senior Anglo Irish Bank bondholders was ruled out by the ECB.

István Székely, mission chief to Ireland for the commission, told a forum in Brussels that the rate cut might be worth €12 billion while the most to be gained from “burning” bondholders was €3 billion. “There was no such deal really involved, but to me that seems pretty substantial burden-sharing.”

Ireland would have preferred to take the €3 billion on top of the €12 billion.

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