IRELAND'S BAILOUT ONE YEAR ON ANALYSIS: ON THE surface, you could be forgiven for thinking things were normal.
The cut and thrust of politics continues, elections have been and gone and a new President has been installed. Sure, there has been some trimming of the sails, but the State’s political apparatus continues to function as it has for almost a century.
Yet appearances are deceptive. Behind the patina of political normality lies a scene of fiscal devastation.
Ireland’s €85 billion bailout by the IMF, ECB and European Commission has given rise to a new reality, one that neither donors nor recipient is over-keen to emphasise.
That reality is defined by the dimensions of the straitjacket imposed by the bailout, most notably the requirement to cut spending by €12.4 billion between now and 2015.
Nothing illustrated the new power relationships better than last week’s embarrassing leak of Irish budget details from a German parliamentary committee. Long before the Oireachtas was to get sight of the information, here were the gory details of tax increases to be levied on Irish citizens being scrutinised by our paymasters on the finance committee of the Bundestag.
The question then arises as to whether Ireland still functions as a sovereign State, and whether the Government actually has any control over its destiny.
Sovereignty is a core shibboleth in the national lexicon; Éamon de Valera, in his inaugural address to Fianna Fáil in 1926, spoke of the “inalienability of national sovereignty”.
Arguably, we ceded large parts of our sovereignty on joining the EU and later the euro zone, but even in the white heat of last year’s crisis the last government tried to pretend nothing had changed.
In November 2010, just a week before the bailout, then minister Batt O’Keeffe proclaimed that the government wasn’t going to “give over” sovereignty to anyone, while the taoiseach Brian Cowen said there was “no question” of loss of sovereignty.
Given that we all know the humiliation that was then heaped on the country, the present Government has sensibly shunned such pretence.
In July, Tánaiste Eamon Gilmore admitted that the State had suffered a “huge loss” of effective sovereignty which would only be restored when Ireland could once again “pay its way in the world”.
The common shorthand of many ministers for our situation is that the country is “in receivership”.
The Coalition has been less transparent in acknowledging the realities of this indebtedness. The quarterly reviews carried out by the troika in Dublin are downplayed to the maximum extent, with the connivance of the visiting officials. Neither side wants to give the impression that this is effectively a vassal state, ruled by foreign masters.
Within the tight parameters of the bailout, the Government has won some concessions and succeeded in tweaking parts of the plan. Its first months were dominated by a protracted bid to obtain a reduction in the interest rate on our rescue loans.
Efforts to advance Ireland’s case unilaterally got nowhere, foundering in particular on France’s insistence that Ireland increase its corporation tax rate as a quid pro quo.
The presentation of a consistent and united front by Irish interests helped neutralise French objections but it wasn’t until the second Greek bailout provided the context in July that the much sought-after interest cut was obtained. This will save the State more than €800 million on the cost of our borrowings, but the lesson was clear – Europe will tweak our programme but only if the wider political and economic situation demands changes.
The Government has had less success in its second key ambition, to impose losses on senior bank bondholders on debt issued before the 2008 State guarantee.
Even after limiting this objective to bondholders with Anglo Irish Bank and Irish Nationwide, Ministers met an implacable wall of opposition.
Minister for Finance Michael Noonan told anyone who would listen that the Government’s plans were limited to the two defunct banks, which owe €3.8 billion on senior unsecured unguaranteed bonds, and promised every “last red cent” of debt on Bank of Ireland and AIB would be repaid. The Tánaiste said the two institutions were “in a different place” to bondholders in these two main banks.
Their arguments got nowhere and earlier this month a €720 million tranche of unguaranteed bonds – the cost of a children’s hospital – had to be repaid. With another €3 billion due to disappear up the Anglo chimney next year, Noonan is seeking to have these promissory notes “re-engineered” to benefit Ireland, either by lengthening their maturity or lowering the interest rate, or both.
A similar pattern, characterised by a distinct lack of wriggle-room, is evident in every area of Government policy. Fine Gael and Labour’s once-ambitious plans for a “jobs budget” were ultimately unveiled as a more modest jobs “initiative” financed by a raid on pension funds because the money wasn’t there.
Ministers’ lack of enthusiasm for water charges and a property tax is palpable but these elements of the memorandum of understanding with the troika are certain to form part of next month’s budget.
Discussions about another core demand in this document, the sale of State assets, are ongoing. One question here is whether the Government will be able to bargain the troika down from an opening demand for the sale of €5 billion in State assets; a figure closer to €2 billion is seen as attainable, given the difficulty there would be in maximising the value of assets sold at this time.
A second question is what to do with the money. The Government would like to invest it in job-creating projects. It will be interesting to see whether the German authorities’ desire for a repayment of their loans trumps this worthy ambition.
The Government’s promises not to increase income tax or cut social welfare payments have given the illusion of control, but only that.
The “adjustments” demanded of us will still have to be made and the shape of next year’s budget (for 2013) have already been outlined in the Bundestag, in the form of a widening of the tax base and changes to motor taxation and excise.
Things could be worse. The economy grew by almost 2 per cent in each of the first two quarters of the year and the multinational sector has performed well.
The Government’s best hopes lie in further European-wide action to tackle the fiscal crisis and more growth in the economy. If that happens – and it is a big if – Ireland might be ready to take its place again among the sovereign nations of the Earth by 2016.
