Many people seem to believe that a cross party consensuson a four-year economic plan is a good thing. While agreement that the budget needs to brought back towards balance is positive, demanding agreement on the policies necessary to get there is nonsense. 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 public may say they are sick of politicians bickering and that they should work together but a consensus is simply a fig leaf for the current government and a barrier to the people holding the politicians to account. It is nonsense and potentially dangerous for a number of reasons, not least that it would effectively disenfranchise 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.
When the NTMA left the 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 soon, emerging with a government with a powerful mandate to take decisions. Whatever the details of the resulting plan it will be politically unpalatable for the majority of the populationas all parties will need to look at cutting wages as well as raising and introducing new taxes. If the people turn out to vote for such 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 both 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. A new government with a fresh mandate from the people can only make the job of selling Irish debt easier.
The other side of hat coin is that once you make the decision to leave the bond markets it can be extraordinary difficult to re-enter. The Commission knows this and realises that 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.
Indeed the Commission and the markets may be far more central to the whole notion of consensus than John Gormley and the Greens. It is worth noting that when the Taoiseach Brian Cowen did a bad-tempered u-turn on inviting the opposition to talks that senior Commission offices were in situ at Merrion Street and the initial planned briefing of Fine Gael and Labour was put back until Monday morning when the officials had left.
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 legacyof being responsible for asking 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 look 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 stabilisation 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 in 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 changesto 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. 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 in an attempt to boost an emerging left right divide, 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 hope that they do not get full disclosure on Monday morning allowing them to declare one 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 needed in political and business culture where both parties are singing off a similar hymn sheet. New poltics, open government, reform of party financing, an end to crony capitalism which has transferred seamlessly from Taca to the Galway Tent areall areas where both partieshave a lot in common.