Government must not fall until crucial measures implemented

 

Responsible opposition is vital if the State is to be kept out of the IMF’s hands

SO FAR at least, loss of confidence in the Government does not seem to have affected the swing in public opinion in favour of the Lisbon Treaty, which has,

I believe, been a consequence of growing recognition of the importance of Europe to Ireland in our present crisis.

To date, the European Central Bank has provided us with domestic liquidity support estimated at well over €50 billion – having allocated to Ireland, with our 1 per cent share of euro zone population, some 7 per cent of its total crisis assistance.

However, this collapse of public confidence is clearly making it increasingly difficult for us to tackle effectively both our fiscal and banking crises.

It was this Government that destroyed our competitiveness through an irresponsible promotion of public spending, and thus inflation. It then aggravated instead of damping down our housing bubble. So it was never going to be easy for it to win public support for the drastic measures required to resolve the crisis to which it had contributed.

It might have been better if there had been a change of government around or shortly after the time when the crisis declared itself last autumn.

A new government, not inhibited from explaining the origins of a crisis for which it had no direct responsibility, might have been better able to mobilise support for the very tough measures needed to resolve it.

However, that did not happen, and now the Government has the very difficult task of mobilising public and parliamentary support for huge spending cuts and tax increases. And it must also take very unpopular banking measures that are all too easily misrepresented as being designed to bail out developers and bankers who share with the Government responsibility for the crisis.

I have hitherto avoided any comment on the relative merits of Nama vis-a-vis other possible approaches because I have not felt competent to comment on the finer points of what is a highly technical issue.

However, my concern about maintaining our recently improved credibility in international financial markets has persuaded me today to comment.

I am concerned – whether because of loss of nerve or because of failing to secure Dáil support for these two key elements of its programme – that the Government may fail to get through the Dáil by early December either or both its budgetary proposals and its measures to deal with our banking crisis. This could undermine our capacity to borrow the huge sums we need to keep going. After these two measures have been successfully implemented, if the Dáil or the electorate so decided, there could then safely be a change of government. But in my view it would not be helpful for that to happen within the crucial three months ahead.

The Opposition parties should be the first to recognise this. No worse fate could befall an opposition than to precipitate themselves into government by defeating measures, the rejection of which could throw our State into the hands of the IMF.

One can readily imagine the relief many in government might feel at finding themselves freed of their responsibilities in circumstances that could then provide them with an unexpectedly good chance of returning to power if their successors failed to resolve the situation.

Nevertheless, the temptation to reject what is bound to be a very tough budget will be strong.

Moreover, the present populist anti-Nama mood, currently intensified by the manifesto of the 46 economists, could all too easily lead to the Opposition overplaying its hand – and there are signs of this happening.

Fine Gael has said it will vote against the Nama Bill. Labour’s stance seems recently to have hardened on this issue. And the Green Party appears to be prepared to have its Dáil position on this highly technical issue decided by a popular vote of party members.

The article (Opinion and Analysis, August 26th) by 46 economists (from which, however, I note the significant absence of the names of some highly qualified members of that profession) raises three issues.

The first is the issue of transparency and Oireachtas oversight – but they accept that the Minister has stated his willingness to take amendments in this area.

Their second point is that the duration of Nama is “opaque” – but this does not seem to be a key issue, for no one knows how long it may take for these loans to recover their value – so the Government cannot at this stage sensibly fix the duration of Nama.

The economists’ final point, however, is one over which there is widespread and legitimate concern: How far will Nama go in rating above their present value some properties in respect of which major loans have been made – and how will Nama assess “the fair economic value” of such loans?

The economists propose that bank shareholders take some of the “hit” – a view that is widely shared – but also that bondholders do likewise.

However, these economists fail to distinguish between subordinated and senior debt, despite the fact that an attempt to resile from our commitment in respect of the latter could prejudice our capacity to continue to borrow from international markets. Who would want to lend any more to us if we repudiated the senior bonds of our banks?

A similar apparent failure to make this distinction was also a worrying feature of last weekend’s Fine Gael statements on Nama. Fortunately this confusion was clarified by Richard Bruton on this page yesterday. A similar clarification by the 46 economists would be helpful.