Archive for October 28th, 2010

Jane Suiter is a former economics journalist at the Irish Times and the Sunday Times and is now lecturing in politics at UCC.

We need an election not a phoney budget consensus among parties. Ever since Irish Green party leader John Gormley called for the opposition parties to be given a full briefing on the truly appalling state of the state’s finances many otherwise sensible commentators have been backing the call.,seeming to believe that the leaders of the various political parties sitting down together to agree on the framework of a four year budgetary plan is a sign of political maturity and the least that is needed to get us out of our economic mess. The public for its part, sick of the sound of politicians bickering, was in broad agreement.

House of Pain

Yet, this is nonsense and anti-democratic nonsense at that. What we need  is an election and a government that has a mandate to deliver a budget and a four year plan that will bring the economy back from the abyss. The figures are as Minister for Finance Brian Lenihan said with some under statement “daunting”. In order for the Irish government to meet EU rules it needs to cut more than €3billion in the budget this year and as much as €12 billion over four years. That means a lot of unhappy citizens but it also means a lot of difficult choices for any incumbent government.

Demanding a consensus is simply a fig leaf for the current government and a barrier to the people holding the politicians to account. It is rubbish and potentially dangerous for a number of reasons, not least that it effectively disenfranchises the people. Second, it negates the reason for an election, if all parties agree why ask the people? The current crisis may be the most serious in the history of this state but it is not akin to the second world war where the British had a clearly defined enemy. It is also nonsensical from the point of view of expecting the opposition parties to come up with detailed plans following a 90 minute briefing from the Department of Finance which cannot realistically be expected to give full information.

Enda Kenny’s demand that the figures be given to a third party may be a stalling tactic but that does not lessen the underlying logic that the Department of Finance has a poor forecasting record at the best of times. Giving the figures to independent academic economists at TCD, UCD or the ESRI surely makes eminent sense in terms of devising a budgetary strategy. The current government’s strategy of relying solely on the mostly “gifted amateurs” in the Department has been shown to be seriously deficient already and is a policy that could be wisely rethought.

When the NTMA left the bond markets last month it created a window of opportunity for us to attempt to put our affairs in order. We need to take advantage of this and have an election within the next or six weeks, emerging at the end of the year with a government which has a mandate to implement a four year plan. Whatever the details of that plan it will be politically unpalatable for the majority of the population as all parties will need to look at cutting wages and social services as well as raising and introducing new taxes. If the people turn out to vote for parties which have such proposals in their manifestos it would go a long way to assuaging the fears of Europe as well as the markets and the rating agencies that we have the means and the determination to get out of this. Simply put, if all the parties set out their economic plans and the public vote on them then the resulting mandate is far more powerful than any photo op with four party leaders on the plinth of Leinster House.

We need to remember that the other side of that coin once  you make the decision to leave the bond markets is that it can be extraordinarily difficult to re-enter. On its own the current government simply may not have enough credibility with the markets to allow the NTMA back in the New Year. A consensus would increase our chances of being able to borrow again and EU Commissioner Oli Rehn cannot of course demand an election. But the truth is that a new government with a fresh mandate from the people can only make the job of selling Irish debt easier.

Our funds run out next spring and thus if we cannot re-enter the markets before that it will mean that we will have to go to the European Stabilisation Fund and the IMF. Of course all parties desperately want to avoid the legacy of being the people who ask the EU and IMF to come in. This is a real dilemma for the Opposition parties.  An election before Christmas means that the danger period when we try to go back in the markets next year likely occurs on their watch.  A spring election on the other hand means the first auctions and the real danger period occurs on the current government’s watch.

Some argue that the intervention of the EU and IMF would be the preferable policy, allowing the hard decisions to be outsourced but the problem is of course that if you lose your sovereignty you cannot make decisions on even the basics such as the balance between tax rises and spending cuts or even the retention of specifics such as the low corporate tax rate which looks to be in the EU’s sights. In addition, there is even doubt that if we were to request funds how much would be available. the Fund is not pre-funded and all involved would be praying that the request would not spark wider bond market contagion.

For now, the detail of the plans to reduce the deficit does not matter to either the Commission or the markets; all they care about is simply that there is a credible plan and a likelihood of success. This is just as well as the prescriptions from Fine Gael and Labour may be radically different. Labour leader Eamonn Gilmore said this week that he would not touch tax for lower and middle income earners or make changes to social welfare or child benefit. Fine Gael, on the other hand, is talking about hard medicine. This is part of the party’s culture which is so intrinsically bound up with saving the institutions of the state and being seen to do the “right thing”, the bottom line though does not differentiate it much from Fianna Fail economically. In addition,  Fine Gael has indicated that it is looking to a balance of 80% spending cuts and 20% tax rises, Labour has not set out its  plans but they are likely to be the reverse of this. Unless Labour takes the decision to stay out of Government, compromise will be inevitable perhaps with an even balance between tax and spending. But for that to have credibility the parties cannot be fully bound in now. Thus the Opposition parties have to argue that they do not get full disclosure on Monday morning allowing them to declare once they reach office that things are in fact much worse than they thought giving leeway to make compromises. They also need to stress the radical change in political and business culture needed where both are singing off a similar hymn sheet. New politics, open government, reform of party financing, an end to crony capitalism which has transferred seamlessly from Taca to the Galway Tent, are all areas where both parties have a lot in common.

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