Final legacy after 10 years of misrule, as prevention becomes cure
Published 25/11/2010 | 12:49
THE purpose of the four-year plan announced yesterday was always to avoid a bailout and calm the markets. It has patently failed on the first score and is very likely to fail on the second as well.
Like Greece’s four-year plan unveiled last December, Ireland’s plan was always aimed at the outside world – something that can be seen from the fact that it was first announced in late September in an interview with BBC Radio 4.
“We'll spell out to the people exactly what is involved and what is entailed, and complementing that strategy, we'll have a strategy for growth and jobs,” Mr Lenihan told the British public, before adding once again that he did not expect to have to seek emergency funding from the EU.
Bizarrely, the Irish people and the Dail were only told of the plan later that evening when the Government revealed the true €30bn-plus cost of bailing out Anglo Irish Bank and the cancellation of the two remaining two bond auctions due this year.
Back then, the Government was still sticking to the fairy tale that it would only need to cut €3bn from the economy next year.
The significance of the four-year budget was missed by many here in Ireland as the Government continued to spin the plan as nothing more than a statement of the obvious that would reassure jumpy foreigners.
“It is important that we have a credible path to show how we propose to meet this commitment,” the Finance Minister told the Dail.
“Accordingly, a four-year budgetary plan, incorporating the annual measures, will be published in early November.”
Mr Lenihan’s first mistake was to say that the Government would produce a detailed plan in early November – a deadline that was not met.
News of the plan was welcomed by the markets, used to such innovations in most other developed democracies.
But this welcome appears to have caught the Government by surprise, and the Department of Finance immediately began to back pedal, stating that it would not be as comprehensive as many economists seemed to hope.
As interest in the four-year plan grew, the still proud Department of Finance was at pains to emphasise that the Government was under no obligation to provide any information to the European Commission or the European Central Bank before publishing the plan – another unnecessary and broken promise.
From the beginning, the other finance ministers were interested.
Swedish Finance Minister Anders Borg raised questions about the plan at an informal Ecofin meeting in Brussels last month.
An EU official said later there would be ‘close contacts' between the Commission, the Government and the ECB.
These steps would help the Government show it had a “credible” plan, she added
By the end of October, hopes were fading in the markets that Ireland could master her problems.
Just as the markets called for details of the plan to be brought forward, the publication date was beginning to slip, although nothing was said officially.
Irish bond yields rose to record levels and there were reports that Mr Lenihan had been publicly ridiculed on an investor call intended to calm fear over the country's economic woes.
‘The Daily Telegraph’ said the call with hundreds of investors “rapidly descended into farce”, forcing Citigroup, which staged the event, to pull the plug. The Department of Finance still denies that anything like this happened despite a later statement from Citigroup which admitted “technical” problems.
Later the same month, at the end of a two-day Dail debate, Mr Lenihan repeated that the four-year plan was designed to avoid a bailout.
“The whole purpose, of course, of what we are engaged in here is to ensure that we do not [need a bailout],” Mr Lenihan said in the last stages of a two-day parliamentary debate on Ireland's financial crisis.
But even as he spoke, the Government was briefing that the plan would contain targets and strategies for growth rather than the sort of concrete cost cutting the markets craved.
After two years of inaccurate forecasts, few outsiders had any interest in strategies or more economic forecasts, which were certain to be as inaccurate as all the other optimistic forecasts that have accompanied recent bank bailouts and budgets.
What they wanted was a year-by-year, sector-by-sector fiscal plan approved by the EU Commission, which would explain how we would shave billions from the budget every year for the next four years.
There was some hope that this might happen after Mr Lenihan confirmed the Government was now hoping to save €15bn by 2014 and €6bn next year – targets that were much closer to the Commission’s plan.
As the plan was being drawn up, however, comments from Mr Lenihan led many observers to fear that the Finance Minister was still unable to grasp reality.
He predicted, for example, that the State's takeover of Allied Irish Banks would still make money for taxpayers and the bank could be nursed back to its former “greatness” under new management – two ideas almost nobody in the financial world believes to be possible.
THE mood was not helped by an extraordinary intervention from the governmentfunded Economic and Social Research Institute, which warned that efforts to take €15bn out of the economy over four years could trigger a protracted recession.
In early November, when the plan should have been published, it became clear there were delays, although no explanation was given.
It was also clear the European Commission was intensely interested, with EU Economic and Monetary Affairs Commissioner Olli Rehn saying he looked forward to seeing the plan and calling for better planning in future.
In fact, Mr Rehn appears to have been briefed in detail about the plan during his visit despite his polite expressions of interest and fiction that it was up to the Government here to make the decisions.
As late as last week, confusion remained about when the plan would be published.
Rumours suggested it might be brought forward, delayed or cancelled.
Authoritative reports then suggested it might be published Monday, Tuesday or Wednesday as the Cabinet and civil servants signed off various details.
While the issue of timing may seem irrelevant or childish, it was neither. A plan that was conceived as a mechanism to prevent a bailout and reassure the markets has failed to complete either task.
The delay was a further reminder that the Government could not be trusted on even the most simple things.
The irony for the Government is that, rather than preventing a bailout, yesterday’s plan has become an important pillar of the bailout mechanism and maybe the Government's last legacy to the country after a decade of misrule.