ANALYSIS:Domestic political turmoil is inevitable as the Government faces the challenge of framing a four-year cuts plan, writes ARTHUR BEESLEY
WILL THIS do it? Grinding austerity is the price of guarded approval from Europe’s top finance officials for the new bank rescue scheme. It is a daunting challenge – and political turmoil inevitable.
As EU finance ministers digested yet another dose of dire news from Dublin at a scheduled gathering in Brussels, stern men sat in judgment.
Jean-Claude Trichet and Olli Rehn backed the initiative, but only on the basis that Ireland adopts spending cuts of unparalleled stringency. Years of pain lie ahead.
Trichet and Rehn are habitual attendees at such meetings, as is Euro Group president Jean-Claude Juncker. Beside them at a press conference sat a new man, Klaus Regling, the German official who assessed the causes of Ireland’s banking implosion before he became head of the special rescue net for euro countries.
Regling didn’t take the opportunity to respond to three direct questions about Ireland. But all it took was a glancing reference to underscore the prime issue at stake.
“My central scenario that the European Financial Stability Facility will not need to become financially operational was also confirmed this morning in particular because the relevant countries announced additional consolidation steps,” Regling said in an implicit reference to Ireland and Portugal, which is adopting new budget cuts.
By any standards it was a portentous remark. But with the bank bailout now confirmed to approaching €50 billion – with the budget deficit at 32 per cent and the debt-to-GDP ratio at 98 per cent – the spike in Irish borrowing costs is evidence of grave doubt about Ireland’s ability to keep funding itself into the future.
For 30 minutes yesterday morning, Brian Lenihan briefed the euro finance ministers’ meeting by phone from Dublin. In a frantic day, it was perhaps his most important engagement. If Lenihan’s every public utterance must be crafted with care, it must be assumed that there was straight talking in this forum.
Numerous questions arise, all of them interlinked and each with unavoidable implications for the other.
Can Lenihan mould a four-year plan that can convince the markets of the State’s viability without toppling the Fianna Fáil-led Coalition? Can he bring the Opposition on board? Or will Fine Gael and Labour push for broke, conscious that they would be left with the same unsavoury choices if they prevailed after an election? Will leaders lead? Or will they angle for easy advantage?
If difficult budgetary choices already made won copious praise from Brussels and Frankfurt, home of the European Central Bank, the problem now is that every future manoeuvre comes laden down with potential for strife.
Another question is whether deeper cuts now curtail recovery prospects, an argument rejected by Trichet but certain to be contested as the details are hammered out.
Still, it is widely acknowledged in Brussels that finding the money – be it through new taxes, tax hikes or drastic spending cuts – is going to be fiendishly difficult.
In the opening years of the crisis, Lenihan and Taoiseach Brian Cowen could get away with making promises to cut in future year without specifying actual measures until budget day itself.
Now Europe wants everything set out upfront – sector by sector, subsector by subsector – for years to come. In Irish political life, it is without precedent. Yet in the eyes of the ECB and the European Commission, it is the price of survival.
EU officials are reluctant to set out exactly where the blade should cut, arguing that issues of sovereignty arise.
Thus there is no direct comment on the Croke Park deal, the welfare bill or the size of the public service and public sector wages.
And while the European authorities say they want more cuts next year than the €3 billion already foreseen, they won’t specify exactly how much. The same goes for the €3 billion package already foreseen for 2012.
In the fullness of time, these may look like relatively gentle sums. As the true weight of the Anglo yoke becomes clear – with AIB now close to nationalisation – this looks like the next thing to capitulation.
It goes on and on and the vanishing point of the crisis seems farther away than ever.