ANALYSIS:Noonan and Howlin wanted to show the new Government has in some way succeeded in recapturing a degree of autonomy
AJAI CHOPRA of the International Monetary Fund showed himself to be a keen student of Irish political history yesterday when he said the €87 billion rescue package represented an “Irish solution to an Irish problem”.
His quoting of Charles J Haughey’s famous remark describing a fudged and vacillating response to the issue of contraception three decades ago sounded great but it was, in fact, the antithesis of what is occurring. The package, in reality, is an international solution to an Irish problem.
Chopra’s preceding remarks were less poetic but more accurate: “This programme is a lifeline for Ireland”.
But regaining sovereignty – making it an Irish solution to an Irish problem – was the key message the two Government Ministers involved in this process were trying to sell yesterday. The overall thrust of what Minister for Finance Michael Noonan and Minister for Public Expenditure and Reform Brendan Howlin were saying was that the new Government has succeeded in recapturing some degree of sovereignty and autonomy.
They argued that what happens over the next four years was no longer completely out of our hands, following the efforts of the Government in negotiations over the preceding week.
This was never going to be a stellar political event but a review covering the first staging post – the first three months of the programme. Achieving the targets was never going to be over-onerous as they were more modest than the ones that will follow later this year, and in 2012 and 2013.
That said, exchequer revenues were behind profile but then Government spending was also down, so they balanced each other out. The downward revision in growth forecast did not have a material impact. In the event, the troika of the EU, IMF and European Central Bank concluded the targets “were met by a comfortable margin”.
While the mood music of the news conference given by the three heads of mission was upbeat, the underlying message was simple – stay with the programme and its conditions.
“The teams’ assessment is that the programme is on track but challenges remain and steadfast policy implementation will be key” was its formal conclusion.
But the political context of the review (the first of at least a dozen over four years) was more important. It was critical for the Coalition to make its imprint. In the five weeks since assuming power, it has taken consistent political flak from Opposition parties over apparent U-turns on promises to impose burden-sharing on bondholders and reduce interest rates.
“The Opposition claimed we could not even change a comma,” Noonan complained this week.
Noonan and Howlin yesterday emphasised the apparent impact the new Government has had, pointing to what they said were four significant alterations to the memorandum, all wrought by the Coalition.
The first of those is tangible and, given that both parties had campaigned so heavily on it during the campaign, could not have been excused away. That is the reverse in the €1 cut in the minimum wage.
To compensate for that, the Government will halve the rate of employers’ PRSI for those earning €356 or less per week.
And like all measures in the programme, any changes will have to be fiscally neutral. So the Government will have to dip into the expenditure of another department to pay for that.
The same will apply to the second item the Coalition succeeded in inserting into the revised memorandum: the jobs initiative. The Government’s most substantial new economic policy, it will be unveiled at the symbolically important milestone around the first 100 days in Government. No longer being called a “jobs budget”, it will nonetheless have a substantial price tag and will have to be financed with new revenue-raising measures, or additional cuts, or the sell-off of assets (or a combination of all three).
Noonan refused yesterday to say how much this would cost or how it would be financed. He did admit it involved a “lot of new conditions” in the revised memorandum. The Government’s hope is that by creating jobs it can provide a fresh stimulus for consumer spending.
Noonan again voiced his concern yesterday about the “historically high” number of people hoarding cash in Ireland and emphasised the need to get them spending again. To that extent – given the big sums required for the jobs initiative – this will be a gamble.
The Ministers suggested there were two other big “gains”. The first of these was the acceptance by the troika of the comprehensive spending review (to be completed by September). If efficiencies can be identified, it may ward off further tax increases or deleterious adjustments to tax credits in December’s budget.
The second was one that seemed practical – an agreement by the troika that there would be no more transferring of loans from banks to the National Asset Management Agency. The next tranche of loans that were to be transferred were those worth less than €20 million. Noonan and his officials argued successfully that these loans were so disparate and so geographically spread that it was better left to the banks to use their own internal process to deleverage them.
To use a boxing analogy, this was the first round of 15 and the Government came out ahead on points. Noonan got his point across that the Government had succeeded in its mission to assert some autonomy: “There were certain aspects of the programme that we disagreed with. We wanted to drop the conditions we disagreed with and replace them with proposals we have in the programme for government. That went very well.”
But bigger battles lie ahead, a lot of them later in 2011. The first will be the attempt to reduce the interest rate of the rescue funds provided by the two European funds at next month’s meeting of EU finance ministers. Then is the ongoing struggle to retain the rate of corporation tax.
Beyond that there is the challenge of getting the Croke Park deal fully implemented by October to prevent further pay cuts for public servants. There will also be the matter of broaching fees being charged by the professions, as well as reducing working and pay arrangements of other sectors such as hospitality, contract cleaning, retail, agriculture, catering and security.
Then there will be the biggest test – the budget – and a further round of austerity measures cannot be avoided.
Whatever the provenance of the solution, it is not going to be easy to overcome the severity of this very Irish problem.
As Chopra commented yesterday: “Ireland is emerging from one of the deepest crises ever and [such crises] take time to resolve”.
