ANALYSIS:A FOUR-YEAR plan. A budget for 2011. And a detailed document containing the conditions of the bailout (to be known as a Memorandum of Understanding).
These are the three critical documents to be finalised and published in the weeks ahead. The three overlap in many places.
The first two documents are scheduled to be published tomorrow and in 14 days’ time respectively.
The Memorandum of Understanding (MoU) is the most important of the three because it will contain the key measures underpinning the other documents, a schedule for the implementation of these measures (almost certainly on a quarterly basis), and a host of other measures, including a radical restructuring of the banking system and other economic reforms.
There is no date for its publication yet, but discussions on the MoU are expected to take one to two weeks (the word “discussions” is more appropriate than “negotiations” because using the latter word would suggest that Ireland had more bargaining power than it actually has).
As the MoU will contain much of the specific detail of the 2011 budget, it is difficult to see how it could be published in advance of the budget.
As if the challenges of drawing up the three documents were not already great, the eruption of political uncertainty yesterday affects all the documents and the timings of their respective publication in different ways and to different degrees.
Political uncertainty impacts on the four-year plan least. That plan is finalised and has been agreed by the rescuing troika of institutions – the European Commission, the ECB and the IMF.
The teetering of the Government affects budget 2011 most. Given how yesterday’s statements by Government supporting TDs appear to have changed the parliamentary arithmetic, the chances of the Dáil not voting the budget through have risen sharply.
From where things appeared to stand last night, the worst of all worlds for everyone would be for the Government to stumble on for two weeks, fail to enact the 2011 budget and then fall, precipitating an election. That could easily prevent the finalisation of the MoU and would almost certainly mean that 2011 would begin without a budget in place.
If it becomes clear in the days ahead that the Dáil numbers do not stack up, the Taoiseach’s hand will probably be forced. A pre-Christmas election would result.
While hardly ideal from a Europe-wide perspective at a time of such fragility, this outcome would be better than calling an election in two weeks’ time and holding it in early January, at the earliest.
How does all this uncertainty affect the finalisation of the MoU?
Given that the Government is not in urgent need of cash to pay the bills and that the troika now has three reassuring hands on the State’s helm, one could argue that there is no need to rush the drafting of the MoU, as happened in the Greek case.
Given two other factors, it may well be for the best that considerably more time is taken to draw it up.
The first reason is the need to assess the state of the banks before setting out a radical restructuring plan. I cannot see how this can be done in the two-week timeframe if the troika knows as little about the true state of those institutions as some insiders claim.
The second reason for taking more time on the MoU is the need to identify and prioritise the sort of structural reforms that the commission has talked about, and which were included in the Greek bailout conditions.
These include breaking down barriers to competition in sectors that are stitched up by incumbents (some portly wigged and robed fellows in this country may be in for an unsettling new year).
A number of weeks ago a commission source told The Irish Timesthat his institution had done less work on the Irish economy in recent years than on many other economies which were more obviously in need of reform, such as the Mediterranean nations and the former communist states.
Greece’s MoU was put together quickly because the commission had for years been urging successive governments in that country to implement reforms that had long been unavoidable.
While little Ireland was the Continent’s star pupil for more than a decade up to 2008, the eurocrats did not focus much of their analytical energies on its economy.
They will need to do plenty of homework if they are to set out detailed structural reforms in the MoU.