Monday 25 September 2017

Dan White: Austerity - it won't be going away, you know

All the indications are that we will exit the Troika bailout programme at the end of the year, but we need to think very carefully about how our national finances will be managed

Mario Draghi, President of the European Central Bank
Mario Draghi, President of the European Central Bank
Dan White

Dan White

Last week's comments by ECB boss Mario Draghi and the head of the eurozone group of finance ministers Jeroen Dijsselbloem made it clear that our European masters intend to keep us on a very tight economic leash even after the bailout formally ends at the end of this year.

As the phoney war in advance of next month's Budget intensifies, many of those advocating a relaxation of the austerity we have endured for the past five years are looking to the end of the bailout programme as a possible signal for an easing of the Troika-dictated fiscal discipline.

Such hopes will almost certainly be disappointed. While the curtain is officially due to come down on the bailout at the end of the year, anyone who imagines that we will enter the sunlit uplands of economic sovereignty on January 1, 2014 would be well-advised to wake up and smell the coffee.

It simply ain't going to happen.

On the basis of targets already agreed with the Troika, this country will borrow approximately €11.5bn in 2014. The plan is that, with the bailout programme having come to an end, this country will be able to borrow this money from private investors on the international bond markets. However, given the precarious nature of the Irish public finances with end-2013 government debt forecast to hit €203bn, the equivalent of 121pc of GDP, it is clear that there will have to be some sort of emergency funding scheme put in place just in case the markets have a sudden change of heart about Ireland.

Which is where Mr Dijsselbloem comes in. The Dutch finance minister, who is also head of the eurozone group of finance ministers, told the European Parliament on Thursday that: "Ireland has performed very well in its [bailout] programme and will exit the programme, but there will be measures to support its gradual exit." Mr Dijsselbloem went on to say that it was important that Ireland made "a good exit and not a temporary exit" from its bailout programme.

That's the good news.

The bad news is that we can expect to get nothing for nothing from our European "partners". Any backstop will come with strings attached. This was made clear by ECB boss Mario Draghi. Speaking after last Thursday's meeting of the ECB council, Mr Draghi refused to comment on the possibility of a special post-bailout arrangement for Ireland or other peripheral eurozone countries. However, in the official text of his remarks he stated that:

"In order to further reduce imbalances and to foster growth, competitiveness and job creation, euro area countries need to continue with their reform agenda. As regards fiscal policies, governments should not unravel their efforts to reduce deficits and put debt ratios on a downward path".

Reading between the lines of Mr Draghi's remarks, it's not difficult to interpret them as meaning the EU and the ECB are determined to keep our feet to the fire, regardless of whether or not we are officially in or out of a bailout programme.

All of which means that the clamour for an easing of austerity in the Budget on October 15 is likely to go largely unheeded. One possible straw in the wind has been the virtual silence of Labour Party sources in recent weeks on the subject of the €3.1bn target for spending cuts and tax increases agreed with the Troika for the 2014 Budget. Earlier hints that this target might be revised downwards haven't been heard for quite some time. What does the Labour Party know that the rest of us don't?

Quite clearly, with an agreement on a post-bailout backstop arrangement vital if we were to even formally exit the bailout programme, the Government was in no position to defy the Troika on the €3.1bn target for 2014. He who pays the piper ultimately calls the tune, a lesson it would appear that the Labour Party has been forced to re-learn in recent weeks.

This need for a backstop means that there is likely to be far less to our exiting the bailout programme at the end of the year than many of us would have hoped. In practice most of us won't notice the difference. While we will no longer be under the formal control of the Troika from next January, our regained economic sovereignty will be more apparent than real.

Instead, things are likely to continue much as before, with Brussels and Frankfurt dictating a continuation of the current tough fiscal regime as the price of any agreement on emergency support. This country is going to remain under adult supervision for the foreseeable future – which, when one considers the mess we made when we last had sole responsibility for managing our own economic affairs, might be no bad thing.

Sunday Independent

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