John McManus: What Moody’s A rating really tells us about the new politics

Little concern that a resurgent Dáil will be allowed stray too far from the economic status quo


Last Saturday the international credit rating agency Moody’s upped Ireland’s credit rating from Baa1 to A3. Strange thought it may seem, this promotion up the alphabet is considered by many to be a cause for much celebration. Apparently it opens up a whole new avenue of mostly far eastern banks from which we can borrow to add to the €200 billion we currently owe the rest of the world.

Interestingly one of the reason’s advanced by Moody’s for the re-rating was the “recent political agreement between the two largest parties in parliament and the recent election of a minority government led by Fine Gael, which has established a strong track record of fiscal management over the past several years, give comfort that the budget deficit will be reduced further in coming years”.

The first thing that springs to mind on reading this is that the people over at Moody’s in Canary Wharf clearly don’t spend very much time watching Oireachtas Report or they might be a little less sanguine.

It is certainly hard to reconcile Moody’s optimism with the antics in the Dáil this week, particularly Fianna Fáil’s heroic efforts on behalf of variable-rate mortgage holders.

The Minister for Finance was forced into a bit of climbdown over a piece of legislation that could have a dramatic impact on the profitability of Irish banks and by extension their valuations.

This in turn has knock-on effects for the national finances because the assumption is that the Government will shortly look to sell its stakes in AIB and Permanent TSB. If the banks are worth less, the Government gets less money and Ireland repays less of its debt.

Economic sabotage

Fianna Fáil

You could of course argue that putting more money in the pockets of 300,000 householders would give the economy a bigger lift than selling off AIB, but it feels like an insult to try to retrofit an economic rationale to such a textbook example of mindlessly populist politics.

Even if the Fianna Fáil plan makes economic sense it doesn’t matter. Ireland has signed up to a very prescriptive set of economic rules set out by the European Union called the Stability and Growth Pact.

The intention behind it is noble enough: to prevent a repeat of the economic meltdown triggered by the credit crash in 2007.

But the pact is grounded in the prevailing economic orthodoxy we have come to know as austerity. And giving variable-rate mortgage holders a break at the expense of the very bank Brussels made us save does not chime with this thinking.

So, by this yardstick, Fianna Fáil’s latest frolic is a very big deal indeed and could be seen as the beginning of the end of the Irish recovery. Are Moody’s scribes now sharpening their pencils and will our A-credit status be short-lived?

Nope. Fianna Fáil’s mortgage Bill does not matter and Moody’s will probably give us another upgrade within 12 months.

Reducing our debt

The reason is that Fianna Fáil’s B

ill will never make it on to the statute books and even if it did make it, in a year or two, it would never be used. The same fate awaits pretty much any other piece of Opposition legislation that runs contrary to the prevailing economic policy of reducing our debt in both real and relative terms.

They may not know it yet but the would-be practitioners of the “new politics” under which the Dáil is supposed to reassert itself as the source of legislative power face two very formidable opponents and Fine Gael is not one of them.

The first obstacle to a resurgent Dáil is the the Civil Service. Standing behind them is the the second: the European Commission.

The Civil Service likes the status quo, because that is what civil services like. The commission sets the rules for the Irish economy and enforces them.

Anything that disturbs the status quo to a significant degree or breaks the commission’s rules just will not fly. In truth things have been this was for quite a while now – if not forever in terms of the conservatism of the Civil Service – but majority governments hide it from view. The fights and subsequent surrender of ministers to their civil servants and Brussels happen behind closed doors.

But Moody’s knows how things work and knows also that the parties that have experience of government know how things work. In the documents accompanying last week’s credit rating the agency picked the following out of the agreement between Fianna Fáil and Fine Gael: “Commitment to meeting in full the domestic and EU fiscal rules as enshrined in law.”

Business as usual, then. But at least the impotence of our elected representatives will be a little bit more obvious. That is progress of sorts.

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