WHATEVER about the real weather situation facing the country, last Friday at around about lunchtime, a very dense fog surrounding the country’s economy began to lift when Central Bank Governor Patrick Honohan said three very important things about Ireland’s €85bn bailout by the EU and IMF.
And if my interpretation is correct, his remarks confirm three things: tax hikes and welfare cuts in the recent Budget were unnecessary, a policy of cutting public pay and privatisation was preferable and more desirable but that vested interests conspired to panic the country into accepting the former so they could escape the latter.
Honohan’s first message — that our debt is manageable — suggests that, as argued in this column on several occasions, the panic induced by the Government, panic designed to force us to accept immediate tax hikes, was overdone.
“To use a word whose relevance and appositeness is more evident now than it was six months ago, they do not consider the debt position to be other than manageable,” the learned professor said. In other words, six months ago they (financial markets) considered us a basket case but now they think we are OK.
Honohan’s second point also confirms a prediction made in this column on several occasions in the past few weeks, namely that once taxpayers and welfare dependents had been made to cough up, an “improved” situation would be invoked to let social partners off the hook.
Well, four weeks after the Budget — and, hey presto! None other than Patrick Honohan is telling us that the memorandum of understanding imposed on us by the EU and the IMF is now up for negotiation.
Of course, it was not up for negotiation when we needed to increase taxes and cut welfare. But with an angry nation now demanding that costs be cut in the public sector as well, and with Fine Gael and Labour about to enter coalition, a mechanism has been found to pursue the line of least resistance.
Once again, privileged public sector interests will be protected by a renegotiation of the bailout. But only after, of course, you and I have forked out more taxes to fund overpay and waste in the public sector.
Professor Honohan is not, I hasten to add, the cause of this cynicism. He is a mere professional doing his job, conveying decisions made by others. But it must be said that it’s hard to take the fact that Central Bank staff earn multiples of the amounts earned by people of comparable ability and qualifications in the private sector.
Also hard to take is the fact that, despite their singular failure to guarantee the stability of our financial system (up until 2008 the Central Bank was telling us that everything was hunky dory), there has been a lack of any serious replacement of staff in the institution. Given the financial carnage they inflicted, the turnover in commercial banks has been far less than warranted.
Professor Honohan also said that if a new government wished to substitute alternative measures which were “both economically efficient and of equal fiscal effect”, it would receive a sympathetic hearing.
Now consider one of the key terms of the original bailout. Specifically the one that said that if by the third quarter of 2011 the public pay bill was not being reduced with sufficient speed, that the Croke Park deal would become toast. But do not underestimate the lengths to which the public service will go to defend its own interests.
Once taxpayers were fleeced and welfare dependents attacked, mountains have been moved to ensure that the public sector is let off the hook. There will be no cuts made to reduce what are far and away the highest wage levels in Europe.
Honohan’s professorial academic peers in universities will earn salaries that start at €108,000 a year, nearly twice what their counterparts on mainland Europe earn. And the Taoiseach and ministers will earn more than their counterparts in Britain, Italy and Spain, countries at least 10 times the size of Ireland.
The get-out clause of all get-out clauses has been found and invoked.
The good governor said he did not agree with a decision under the bailout deal to immediately earmark €10bn for the banks. He said that instead of borrowing to shore up bank capital, Ireland should instead have taken out a form of insurance against the banks experiencing any further damaging reductions in their capital. Here, he is absolutely correct. Just like the economy itself, financial regulation in Ireland has gone from one extreme to the other. In good times, the capital ratio — the amount banks had to keep for a rainy day — was too low. Now, at 12 per cent, it is too high. It would have been better to have some system of paying an annual fee to insure against any future bank run or similar event.
In an aside, in telling us why this alternative approach was not possible to implement at the time, Honohan was charmingly academic and innocently, but devastatingly, accurate about how economic policy is now being framed. “In particular, the financing provided is not structured to itself reduce the tail risks — that would have been beyond the current scope of the funds,” he said. Tail risks is right. Once again, the public sector tail is wagging the proverbial dog that is the Irish economy. And with a future centre- left coalition now having been presented with an excuse to let their friends in the public sector off the hook, the situation will only get worse.
Marc Coleman presents “Coleman at Large” each Tuesday and Wednesday on Newstalk 106-108fm from 10pm and is chairperson of the National Forum http://www.nationalforum.ie
source: Sunday Independent