Hour-by-hour game of wits to stave off bailout
ANALYSIS:Ireland is under intense bailout pressure and Brian Lenihan is about to meet face to face with his EU counterparts, writes ARTHUR BEESLEY
THE ORDEAL continues. Ireland’s prospects of avoiding an EU/IMF bailout hang in the balance, as the Government fights pressure to take aid now to settle the banks and the public finances.
Relative calm on the markets yesterday provides a measure of relief, but the battle is far from won.
Despite loud and forceful denials from Dublin, it is clear that the force of market pressure late last week had potential to push the Government over the edge. That did not happen, although informal talks about a possible rescue unleashed a storm of speculation about the State’s survival prospects.
In public, the very existence of rescue talks is dismissed by the European Commission as media “exaggeration”, and by Government figures as “fiction”. In private, well-placed officials acknowledge intensive contacts about the merits of an immediate intervention to douse the flames. Although some sources suggest it is the most natural thing in the world for certain EU finance ministers to exchange views on the Irish economy on a Sunday afternoon via their BlackBerry devices, it is clear that the present anxiety is pitched at an extraordinarily high level.
That is not to say, however, that a rescue is imminent or inevitable. As high-level contacts continued for several hours on Sunday, senior sources said it was an open question as to whether the Government would be pressed to seek external aid. In the event, however, there was no intervention. The decision to run the gauntlet of markets yesterday morning was vindicated in the absence of an upsurge in much-feared turmoil. After the weekend that was, with the eyes of the world on the Irish firefight, the restoration of relative calm was no small relief.
It is from this position that the Government remains determined to plough on, facing down pressure, as Minister for Finance Brian Lenihan prepares to attend a meeting of his euro zone counterparts in Brussels tonight. If investors remain calm, expectation centres on the likelihood of a strong statement of “solidarity” from the ministers. However, any return of “carnage” on the markets would put a very different complexion on their engagement.
In Brussels yesterday, the commission sought to damp down the pressure even more, the ultra-calm business-as-usual demeanour being at variance with the frenetic atmosphere that had prevailed late last week when Ireland’s troubles overshadowed the G20 summit in Seoul.
The affair is not over yet – far from it. This is an hour-by-hour game of wits right now, fought a day at a time, as the Government tries to cast a difficult budget and four-year plan in the face of extreme hostility. Even if the current tension dims considerably – and there is no guarantee of that – the core test remains to deliver a credible budget that ultimately wins back investor confidence. It’s an exceptionally difficult task, made considerably worse by the Government’s slim Dáil majority.
What is more, there are serious doubts in Brussels about core strands of the budget 2011 proposal and the four-year plan. Such questioning, heard at very high levels in the commission, centres on the growth projections built into Ireland’s forecasts as they currently stand.
In short, certain individuals around the commission table believe Ireland’s growth prospects in the next two years are negligible. This is not the position of the EU executive as a body corporate, or the one publicly adopted by economics commissioner Olli Rehn, but it demonstrates that Lenihan still has a significant job of work on his hands to convince the sceptics.
Then there’s the banks. Even after a pledge of €45 billion in fresh capital, the chief concern for the moment is whether they will need yet more State money. While it is doubtful that the Government could afford that, sources point to concern that the bailout bill as it stands is not “manageable” as the Government claims. Hence a report yesterday that Lenihan might seek to approach the EU/IMF bailout fund for the sole purpose of recapitalising the banks.
The problem with such a strategy is that capital for the banks cannot be tapped directly from the fund. It would fall to the Government in the first instance to draw down aid. To be able to do so without triggering the intrusive policy oversight that is built into the fund seems unlikely, for it is in the nature of bailout aid schemes to penalise the recipient in order to discourage copycat claims. For all that, the very scale of the banking rescue is such that some form of intervention to ease its weight cannot be ruled out.
The situation remains tense, with publication of the four-year plan now brought forward to early next week in an attempt to boost confidence. This also looks like an effort to deflect attention from bailout speculation. In the most brutal fashion, the inherent fragility of Ireland’s position lies exposed.
There are miles and miles yet to go.
Arthur Beesley is Europe Correspondent