Troika opposes easing next budget with Anglo deal

The Government is facing resistance from the troika against any move to use gains from the Anglo Irish Bank promissory note deal to soften next year’s budget.

The troika has taken a disapproving view of claims on the Labour wing of the Coalition that the Government should ease the deficit-cutting plan.

Many at the top of Fine Gael favour waiting longer, prompting expectations in Government circles that the clamour to allocate gains from the deal will dominate the budget debate in coming months.

However, concern is building within the troika that early moves to relieve pressure on the budget could damage the push to regain access to private debt markets.

There is further concern that talk of extracting early fiscal gains from the deal might hinder the effort to prise longer bailout loan maturities from other euro zone countries. In addition, there is anxiety in the troika – comprising the International Monetary Fund, European Central Bank and the European Commission – that such talk could weaken the Government’s hand in the Croke Park public sector pay talks.

Austerity

The Government is obliged to cut the deficit by €3.1 billion in 2014 and €2 billion in 2015, a total of €5.1 billion. Following the arrangement with the ECB to replace the promissory notes with long-term bonds, the Government believes it has scope to reduce the €5.1 billion by €1 billion in the two years.

Minister for Social Protection Joan Burton made a play in a Dáil debate last week to start using the proceeds from the deal this year, saying there was “a limit beyond which additional austerity becomes counterproductive”. Such remarks were very poorly received in troika circles.

“This doesn’t go down at all well,” said a European source in Brussels familiar with the rescue programme. “It doesn’t send the right signal to the other member states.”

Although Minister for Transport Leo Varadkar took an opposing view to Ms Burton in the Dáil debate, Tánaiste Eamon Gilmore said on Friday the deal will bring “a tangible benefit for people” in the next budget.

However, the European source said Dublin remains within a formal “excessive deficit procedure” with the EU authorities, under which the Government is obliged to use windfall gains to pay down debt.

Deficit-cutting

“The council decision is still binding on Ireland,” the European source said in reference to the deficit-cutting plan agreed with the council of EU finance ministers.

Citing an expression made famous by former finance minister Charlie McCreevy, the source said suggestions that the gains would be used immediately to ease the fiscal adjustment were redolent of the “if I have it, I’ll spend it” mentality.

Such claims could be read as a sign Ireland was not willing to help itself. This was particularly so when the troika was urging other euro zone countries and non-euro EU members to help Ireland further by lengthening the duration of rescue loans from the European Financial Stability Facility and the European Stability Mechanism.

The source said additional measures might be required to ensure a smooth exit from the bailout programme after the summer.

The source also said the troika and market investors saw that Ireland’s primary budget deficit was still very high, and added the pace of fiscal consolidation set out in the current plan was “if anything too gradual”. There was an argument that Ireland “should have done more, earlier” to tackle the deficit.