Deal on promissory notes is massive boost for down-at-the-polls Coalition


There is no doubt that the promissory notes deal is a massive political positive for the Government.

Not since Albert Reynolds came back from Edinburgh in December 1992 with £8 billion in structural and cohesion funds has an Irish negotiating team achieved so much of economic significance in one outing.

Reynolds’s triumph, two weeks after a disastrous general election, transformed his political fortunes and was a game-changer for his prospects of returning to power.

This week’s deal on the promissory notes also changes the fortunes of the Government, although it will operate as a slow burner in its effect between now and the next general election.

If it can be coupled with achieving real assistance from the European Union on the non-Anglo portion of the bank debt, it will facilitate the economic turnaround necessary for the Government to reclaim the support eroded over two years of implementing austerity.

The extent of that erosion in support for the two Government parties is reflected in today’s Irish Times/Ipsos MRBI poll.

At 25 per cent Fine Gael is down 11 points on where it was in February 2011, while at 10 per cent Labour’s vote has almost halved.

This poll was conducted, however, in the days before the promissory notes deal was announced, so it’s only real value now is as a benchmark against which to measure the impact of that achievement in the next series of polls.

The deal could not have come at a better time politically for Fine Gael or at a worse time for Fianna Fáil. The headlines could have been so different this weekend, what with Fianna Fáil outpolling Fine Gael for the first time in over three years and Enda Kenny’s fumbling the response to the McAleese report on the Magdalene laundries.

The focus could have been on the pace of Fianna Fáil recovery under Micheál Martin, but instead it is on the Enda Kenny-led Government’s finest achievement to date.

It has to be said that the Government made some mistakes this week. We are given to understand that the Department of Finance was well prepared for a scenario where news of a proposed liquidation of the Irish Bank Resolution Corporation might leak.

Michael Noonan told Pat Kenny on RTÉ radio yesterday that he was actually handed a stamped draft of the legislation by the Attorney General several months ago. It is surprising then that the Government had not also prepared a detailed plan for how to communicate the need for such legislation and to politically manage the process of rushing it through.

Noonan gave the order for the liquidation of IBRC at 4pm on Wednesday: better planning might have avoided the chaos that then ensued for 7½ hours until he told the Dáil what was going on at 11.30pm.

It is the deal unveiled on Thursday that will be the focus of future historians, however, not the chaos of Wednesday. There can be no certainty about their assessment but those of most present-day economists, at home and abroad, is that this is a good deal for Ireland and the best that could be achieved from the European Central Bank.

While most ordinary voters may not understand the complexity of the deal they will be able to do the crucial maths involved. The fact that Ireland has to borrow €20 billion less over the next 10 years is a very good thing.

Lower interest rates for overall Government borrowing is also an obvious positive.

Voters also understand that while the repayment on capital in 35 years may be larger – at least in today’s money terms – it will be more manageable. Crippling private debt and very high levels of long-term unemployment still leave Ireland in an economic malaise, but this deal, coming as it does when the euro crisis appears to be easing, gives further hope for recovery.

All of this plays well for the Government in the contest about economic management capacity within which the next general election will be framed.

Before this week’s developments there was much reason for the Government to be wary of the Ides and end of March. Had they not pulled off a deal before the next instalment of €3.1 billion was due on the promissory notes on March 31st or had they managed only some fudge of a deal, the Government would have paid a very high price.

This would have been the case not least because Enda Kenny and his Ministers had publicly staked so much on it. Having staked so much, the political gains are greater.

One complication in political terms arises from the fact that of necessity this achievement is heavily branded Fine Gael. It is fronted in the Dáil and media by a Fine Gael Taoiseach and Fine Gael Minister for Finance.

Eamon Gilmore and the Department of Foreign Affairs are also of course on the stage, and will be more centre stage in any deal with the European Union, while Brendan Howlin has a cameo role.

The challenge for Gilmore and Labour between now and the next election, however, will be to ensure that they are not the ones taking all the blame for cuts while Fine Gael gets all the credit for strong macroeconomic management.

Having done the deal and done it a full seven weeks before the promissory note payment was due, the Government can now focus on negotiations with the European Union on the remainder of the bank debt, and with the trade unions on a successor to the Croke Park deal.

The Government still faces many difficult economic challenges, but it goes into the next round of the political championships with the wind at its back.

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