Kenny must move carefully through bailout exit
The Taoiseach’s optimism may be blinding him to the dangers ahead
David McWiliams: predicted that Ireland would renege on its debt and leave the euro.
Enda Kenny and his Cabinet colleagues seem determined to charge through the exit from the EU-IMF bailout on December 15th with or without a precautionary backstop.
The question is whether the Taoiseach’s innate optimism, allied with a natural desire to get some political capital for the real achievements of the past 2½ years, might be blinding him to some of the dangers ahead.
While a range of economic indicators at local level have turned in the right direction over the past few months there is still no knowing what might happen on the international front to derail our fragile recovery.
Political or economic instability in Italy or Spain could cause renewed problems for the euro while another round of confrontation between the political institutions of the United States could do real damage to the world economy.
If everything goes as planned in Budget 2014, growth of 2 per cent next year will finally contain our escalating debt and it should come down gradually over the following few years. However, if for any reason the growth forecast does not come to pass the national debt could quickly become unsustainable and we will need all the help we can get.
The restoration of economic sovereignty has been Kenny’s goal since he took office so it is hardly a surprise that he doesn’t want any new conditions attached to a precautionary programme to detract from it.
Government sources pointed during the week to the fact that in the early days of the Coalition’s life many economic commentators predicted that the country had no chance of exiting the bailout as scheduled at the end of this year.
The Irish Examiner quoted a number of pundits, including David McWilliams, who appeared at the Kilkenomics festival in November 2011 and told the paper that Ireland would default on its debt and leave the euro by now.
Martin Lousteau, a former economic Minister from Argentina, was another festival performer who predicted an Irish default.
The only pundit to take a different view was investment banker Vikas Nath, who accurately forecasted that there would not be an Irish default and that if the euro survived Ireland would be part of it.
“An Argentine or a Russian might have walked away from his obligations, but it is unlikely that someone from Ireland will. You are honourable people,” he said at the time.
In Government, Kenny and Tánaiste Eamon Gilmore have, thankfully for the country’s long-term prospects, lived up to that accolade and stayed the course regardless of immediate political consequences. Both deserve huge credit for doing so. However, the boast about the restoration of sovereignty has more to do with political flag waving than economic reality. One way or another our sovereignty is constrained by EU commitments, global economic forces and the international bond market.
Another set of conditions won’t make a lot of difference one way or another and may well be good for us in the longer term just as most of the troika conditions have been.
Still, symbolism is important in politics. The loss of sovereignty in November 2010 was a killer blow for Fianna Fáil so it is hard to expect Fine Gael and Labour to pass up on an opportunity to claim credit for its restoration. Kenny will address his 10th annual Fine Gael presidential dinner in the Burlington Hotel in Dublin tonight and it is safe to assume that he will be in a confident mood as he looks forward to the bailout exit in a little over a month’s time.
It is equally safe to assume that the critics who lined up to deride him back in November 2004, when he instituted the presidential dinner, won’t have changed their minds despite the fact that he has confounded their predictions for a decade.
The surprising thing about that inaugural dinner in 2004 was that Kenny was so upbeat so soon after Fine Gael had sunk to its lowest ebb at the general election two years earlier when it won just 31 seats.
True there had been a bit of a rebound in the local and European elections of 2004 but it still required an enormous degree of optimism to see how Fine Gael, the perennial loser of Irish politics, could ever manage to wrest power from the all-powerful Fianna Fáil.
That night he insisted: “The Irish people can have every confidence in our ability to manage and steer our vibrant economy. They can have every confidence that with us, the economy is in safe hands, not least because we know the difference between the economy and an electioneering fund.”
While the 1,200 people at the dinner that night applauded Kenny’s speech there were some doubters in the room and many more outside it.
A decade on Kenny has not only brought Fine Gael to power but turned it into the biggest party in the State. More important from a national point of view, just after the halfway point in his term of office, he can point to a solid record of economic achievement. His assertion in 2004 that the economy would be in safe hands with Fine Gael has so far been sustained since the party took office in March, 2011. Luck as well as determination has played a part in that process. Ireland was able to piggyback on the Greek deal to get an early easing of the interest payments on the bailout in 2011 and got the deal on the promissory note on the back of the Spanish rescue package last year.
The signs are that it could be much tougher to get a deal on the banks, the final part of the jigsaw to ease the debt. That is another reason why the Government needs to tread warily towards the bailout exit.