Troika's public praise is not full story

 

ANALYSIS:Varadkar’s revelation and reading the small print of troika reports paint a darker picture, writes HARRY MCGEE,Political Correspondent

THE “PARADOX of the soccer guv’nor” dictates that a manager knows his sacking is a foregone conclusion when the chairman gives him full backing in public.

So what are we to make of Minister for Transport Leo Varadkar’s dramatic disclosure of the troika’s warning to Government of the consequences of the former Anglo Irish Bank not paying the massive €1.25 billion bond that falls due this week? Speaking on RTÉ’s The Week in Politicson Sunday, Varadkar said: “What the ECB has said to us, and what the troika has said to us is – it’s on your head.

“We don’t want you to default on these payments, it is your decision ultimately. But a bomb will go off, a bomb will go off in Dublin, not in Frankfurt, because of the reasons I’ve outlined.”

That portrayal of the three international bodies issuing such an incendiary warning was hard to square with the sober, low-key, statement they issued on Thursday, essentially giving Ireland top marks for its implementation of the bailout programme to date.

For Varadkar, it was a mighty climbdown for the Fine Gael candidate who promised last February that not a cent more would be put into Anglo.

Was it Varadkar rising to the bait skilfully placed by Sinn Féin’s Mary Lou McDonald? Or was there more afoot? Does the troika’s placid public face mask a hardening of attitude towards the new Government in recent months, in the face of a greater malaise affecting the euro zone.

In other words, did its soothing words last Thursday carry the same doublespeak as a club chairman giving full backing to his manager? It seems a little bit of both. The ECB would never use the “bomb” word but its opposition to burning the bondholders is as implacable now as it was a year ago.

The ECB spokesman yesterday pointed back to the comments of its head of mission Klaus Masuch where he said that such a move would have a spill-over in Ireland and the consequential cost might be much higher than the actual savings achieved by not honouring the bonds.

Michael Noonan has moved to a position which is indistinguishable from that of his Fianna Fáil predecessor Brian Lenihan, namely that it’s not going to happen, that the long-term support (and funding) the Government is receiving from the troika outweighs any short-term gains from not paying the bond.

The most unusual aspect of Varadkar’s comments is that burden-sharing was not discussed at all between the Government and the three bodies during their 10-day mission here. And so his comments have no recent pretext.

That said, it is certain that the troika has doubts and when you read the small print of its longer assessments of Ireland’s performance, you see that terms and conditions apply to all the praise. If you go back three months to the last assessment, there was growing impatience at the Government for dragging its heels over labour activation, over reform of the personal insolvency laws, and competition issues. Surprisingly, too, there was direct criticism of the Coalition’s decision to frontload capital spending cuts and lop €755 million off its budget for 2012.

That, concluded, the EU Commission, was a politically easy option which raised questions about its decision making.

Nested in this positive review are concerns, some specific, and some hints the Government will have to be wary of drift creeping into meeting targets and goals.

The troika used the euphemistic phrase that Ireland would continue to face considerable challenges, and its forecast for growth was only 0.5 per cent, a third of the Government’s own forecast.

Against that, the troika did say, unequivocally, it expected the Government to meet its 8.6 per cent target this year.

We will know in a month’s time when the full analysis of this mission is published, with all the detailed commentary from IMF and EU Commission experts.

Masuch said last Thursday that “markets can only gain strong confidence if Irish Government continues to meet targets”.

And there are growing doubts about whether that’s possible. What happens on a larger stage is, of course, outside the control of the Government. But there is a growing sense this manager’s run of clean sheets is almost over.