THE DOCUMENTS issued in the Dáil yesterday by Minister for Finance Brian Lenihan illustrate starkly the extent to which this State has been forced to transfer control over economic and political management to the EU and the IMF in exchange for a loan package. This State, it is now clear, will have to make weekly reports on our cash and loans situation and monthly reports on costs and debt levels. Every three months, our lenders will carry out a detailed review of progress before more funds can be drawn down. It is a humiliating juncture which is without precedent.
Mr Lenihan said in the Dáil that Ireland is entering the external assistance programme “not as a delinquent State that has lost fiscal control”. The Government is still in denial. It is precisely because of the calamitous state of our public finances that we have entered the agreement and we are now unequivocally handing fiscal control outside the State. And it must be remembered that, even if we did not have a banking crisis, we would still have an enormous government deficit brought about by incompetent economic management.
Mr Lenihan also adds that the State “is in the happy position” of being able to raid the pension reserve of €17.5 billion to put towards the rescue. If the Minister is “happy” about taking funds out of the reserve and putting them where, prudentially, they should never be put, he is in an odd political place.
Anybody who had hoped that the senior bondholders might pay a price for their reckless lending would seem to have been deluding themselves. The documents make it quite clear that, while the subordinated bondholders may suffer losses, the Government cannot walk away from guarantees given on the senior bonds. It might (arguably) be in Ireland’s interest to do so but the consequences it could have for the euro zone and European banks convinced the EU-IMF to rule it out.
In fairness, default, while it has its attractions, comes with huge risk, especially to a State heavily dependent on overseas investment. Argentina defaulted on its debts and was consequently bestowed with a pariah status which greatly delayed its recovery.
The documents, however, do make it clear that the Croke Park agreement will have to deliver real savings soon. The action plans put forward by the various departments are vague. The trade unions harp on about time off to cash non-existent pay cheques. The Memorandum of Understanding says the Government within nine months “will consider an appropriate adjustment, including in the overall public service wage bill, to compensate for potential shortfalls in projected savings arising from administrative efficiencies and public service number reductions”. This should not come as a surprise. The conditions given to the Greek government included reform of the public sector. It is clear from recent events that simply culling the numbers in the public sector might put services at risk.
The price of the bailout from the EU-IMF is gradually becoming clear. But the political and economic jigsaw will not be completed until we see next week’s Budget.