Ireland, though cut down to size, still trusted by the French
Anti-Irish tirades were common on Brian Lenihan’s visit, but an ability to cut wages and raise taxes has impressed, writes LARA MARLOWEin Paris
A HALF DOZEN French financial journalists are waiting for Finance Minister Brian Lenihan in the Ambassador’s office. One of them tells a cruel story, to illustrate the turn in Irish fortunes. When President Nicolas Sarkozy and Taoiseach Brian Cowen were both finance ministers in 2004, Sarkozy asked one of his advisors: “Who’s that guy who sleeps through meetings? Why doesn’t he participate?”
“That’s the Irish finance minister,” an aide told Sarkozy. “He’s got 10 per cent economic growth, zero unemployment and huge budget surpluses. He doesn’t need us.”
Another journalist recalls that Xavier Musca, now Sarkozy’s economic advisor, warned Ireland and Spain around 2005: “Your boom economies are going to blow up in your faces.” Musca was head of the EU’s economic and finance committee then. “The Irish didn’t listen,” the journalist adds.
Now, says Alexandrine Bouilhet, international economics editor at Le Figaro, “there’s something ironic about seeing the Irish coming to Paris selling sovereign debt, on their knees. The balance of power has been restored: Ireland is again a little country.”
Tirades like Bouilhet’s are not uncommon among French officials and bankers. “The Irish wanted to have their cake and eat it too,” she says. “Too much property. Too many tax breaks. And you wouldn’t listen. Under Europe’s protection, you attracted US companies with your policy of fiscal dumping. You raked in agricultural aid, and you voted No to the Lisbon Treaty. Then you played the lonely cowboy on the bank guarantee. There’s a feeling that Ireland has been cut down to size.”
Enter Brian Lenihan, cheerful but serious. Aides distribute a booklet entitled Ireland: Adjusting to a More Sustainable Path, filled with graphs and with a harp on every page.
Regarding the Irish banking sector, Lenihan stresses repeatedly to journalists, and later to potential French investors, that “the excessive lending is related to toxic land, not toxic paper. At least land has an underlying value”.
The support of European authorities is another argument. “The approach of the Irish government is very warmly endorsed by the European Commission, [ECB president] Jean-Claude Trichet and the president of the eurogroup, Jean-Claude Juncker,” Lenihan says.
The most important chart in Lenihan’s booklet is the one on unit labour costs, showing Ireland has cut labour costs by 7 per cent compared to the rest of the EU.
No other EU country has reduced salaries and increased taxes. “There’s a lot of comment in the UK that Ireland is a weak member of the euro zone. We repudiate that,” Lenihan says. “We are demonstrating our commitment to the stability of the euro zone by reducing labour costs.”
Lenihan was not unduly concerned about US president Barack Obama’s desire to tax US corporations abroad.
“The Obama initiative may have no effect on Ireland at all,” he said. “We’re not lobbying in Washington because the countries affected are lobbying themselves. There’s a limit to the extent to which the US can go down this road.”
The Minister had come from a meeting with his French counterpart, Christine Lagarde, who was, he said, “very impressed by the extent to which we are adjusting labour costs”.
French sources say Lagarde seeks allies in the looming confrontation with Britain over EU banking regulations. Lenihan yesterday seemed to support the French line. “We believe the whole system for monitoring and regulating banks must be tightened up,” he said.
Whatever resentment the French feel about Irish hubris during the Celtic Tiger, Lenihan’s presentation was well-received. “The French are much more worried about [the economy of] Greece than Ireland,” said Bouilhet from Le Figaro. “I don’t see the Greek finance minister in Paris. We feel confident about the figures the Irish provide. The Irish are credible, like Anglo-Saxons. The yield on Irish bonds is 4.5 per cent over 10 years. You feel no anxiety, because you know you’ll get your money back. It’s a good investment. The Irish are serious people.”
As the journalists file out of the Embassy, 67 luncheon guests from leading French banks are arriving. “They’re very impressed by the building in the Avenue Foch,” says Ciaran O’Hagan, who advises clients of Société Générale on bond purchases. “It cost a lot in the 1950s. Now Ireland is getting a return by showing off the crown jewels. No other small country has the means of doing this in Paris.”
The potential investors were greeted by Ambassador Anne Anderson, “an elegant woman who inspires confidence”, O’Hagan notes. Yesterday’s guests “would see the Irish are not gombeen men. They are trustworthy, and that’s absolutely essential. A bond is an IOU for an amazing amount of money.”
Ireland has already funded half of its €25 billion budgetary shortfall this year through bond issues. A substantial portion were sold in England. “Germany and France will vye for second and third place,” O’Hagan predicts. “I would expect France to buy well over 10 per cent of any new Irish bond issue.”
By nurturing confidence during his visits to key European countries, Lenihan hopes to keep the yield rates on Irish bonds as low as possible, O’Hagan explains. He estimates a 1.5 per cent drop since February has saved Irish taxpayers €2.5 billion.
Questions during the luncheon centred on Europe. Lenihan said he opposed ECB bailouts, because the solution must lie in getting finances under control. The minister said EU members would be reluctant to contemplate further EU enlargement until finances improve.
O’Hagan believes the luncheon was so well-attended because French investors are worried about Europe. “It’s usually difficult to drum up interest,” he said. “In this case, Ireland is seen as important for Europe, because it’s part of the future of Europe.”