independent

Monday 21 April 2014

Daniel McConnell: EU presidency is our best chance of kicking austerity into touch

Fans of the cutting satirical Irish Pictorial Weekly on RTE will recognise their opening credits in which a dim-witted man is seen wandering aimlessly about the place to jocular music with his right arm extended rigidly looking for a hand, any hand to shake.



Then, the sketch cuts to footage of Taoiseach Enda Kenny, who in an identical pose as the previously faceless man, hurriedly walks into a room to greet Jose Manuel Barroso.

The sketch gives the impression that Enda Kenny is an idiotic gombeen, who is ill-equipped to run a country, particularly one that is in as big as crisis as Ireland.

On January 1, 2013, Ireland assumes control of the European presidency for six months, the most important six months in the lifetime of this Government.

As we head into the Christmas break, five years into the most apocalyptic economic correction in the history of the State, this country remains in intensive care and with increasing doubt over its ability to grow at the necessary pace to ensure our survival.

Last week, in its latest report on the state of our affairs, the IMF delivered a sobering and sombre evaluation of Ireland's progress since the crash.

Apart from applauding us for our "steadfast implementation" of the bailout terms, the picture painted by the IMF was appallingly downbeat, and what's worse is that even if we do everything we can, our chances of success are largely dependent on the whims of others.

"Inadequate or delayed delivery on the commitments made [by European leaders on June 29, 2011, to relieve Ireland of its bank debt] poses a significant risk that recently started market access could be curtailed, potentially hindering an exit from official financing at the end of 2013," the IMF said. At home, under practically every heading – unemployment, bank debt, State debt, personal debt, economic growth and credit lending – the prognosis was gloomy leading it to conclude that Ireland's progress remains "very fragile".

For example, had Ireland not had the "relief valve" of young people emigrating, our unemployment rate would now stand at over 20 per cent, the IMF said.

A separate report conducted by the left-wing Nevin Economic Research Institute (NERI) said that the €3.5bn budget for 2013 could cost up to 40,000 jobs.

They also cited the rise in housing mortgage arrears as a risk to our chances of emerging from this quagmire, stating that now almost one in three (29 per cent) investment properties is in trouble.

More worryingly, they sounded an ominous warning in relation to our "pillar banks" – AIB, Bank of Ireland and Permanent TSB – which have "high and rising levels of impaired assets and remain unprofitable, which is eroding their currently strong capital buffers".

In layman terms, that means the busted banks, which were stuffed to the gills with taxpayers' money between 2009 and 2011, are still goosed and if they don't get their act together soon they could need more of our money.

Despite this, our bank bosses still continue to demand excessive salaries, bonuses and pensions.

What's worse, even after Nama has taken their most toxic loans off their hands, the banks are still struggling with almost one loan in four not performing, compared to Spain's nine per cent.

In terms of growth, the IMF again pointed to growth in exports while the home economy continued to fall, but said even the export growth is likely to fall off given weaker foreign demand.

"Growth in real GDP is expected to be low but is still subject to uncertainty given recent mixed signals ... this gradual recovery faces impediments that pose significant risks.

"These risks to growth have profound adverse implications for debt sustainability," the IMF report said.

Taking the IMF report in its totality, the message is perfectly clear. The current course of austerity alone is not working and only if Ireland gets numerous deals on our banking debt will we be capable of survival.

Ultimately, five years on from the crash, there is still more that can sink us than can save us.

Last week Enda Kenny sat down with political correspondents to give his overview of 2012 and his plan for 2013.

He said he expects a restructuring on the promissory note by the end of March, then a signal of intent from his European colleagues by June as to how the taxpayers' cash injection into AIB, Bank of Ireland and Permanent TSB can be paid back.

Such a move won't happen before 2014, but the signal will be sufficient to allow Ireland to return to the markets on schedule, and allow us to say goodbye to the troika.

However, the IMF is doubtful.

"Ireland's market access is fragile, and relies crucially on the strength of program implementation, together with forceful delivery on European commitments ... "

It said hurdles that have to be overcome include Ireland's debt mountain, personal and state debt; the continuation of bank liabilities on the state coffers and the lack of growth.

So with all this fragility across the various sectors of the Irish economy, why does Enda Kenny and his Government continue to paint Ireland as a success story when they should be screaming that we desperately need relief.

Rather than continue to play the role of committed patsy to Angela Merkel's austerity tune, the Government must start pleading inability to pay.

So bad is the threat to Ireland, that the IMF said we should reduce the burden of austerity next year, if growth doesn't materialise rather than sticking to the punishing schedule between now and 2015.

Surely, if one of the troika is saying loudly that austerity isn't working, then why doesn't Enda and his Government demand Europe sit up and listen – Ireland cannot pay.

Amid much talk of Europe needing a win to justify its austerity demands, ironically if Enda doesn't succeed in getting the two or three key deals in terms of our banking debt, then Europe will have allowed Ireland drift toward default.

So, as things stand, by the end of June Ireland's recovery will either be secured or we will be facing into more than a decade of austerity, stagnation and despair.

This is why the EU presidency can be so important to our bid for economic survival.

Our various ministers will be chairing crucial meetings across their respective departments, and that will allow them to put Ireland's case very strongly. It is the best opportunity to press home how important debt relief is to Ireland's chance of recovery.

More importantly, speaking to Michael Noonan this weekend, who himself will assume the chair of the highly influential Ecofin meetings of European Finance Ministers, it is clear how important the next six months are for Ireland.

Noonan does not just hold the economy in his hands. His handling of the banks will have a profound and lasting effect on the public's faith in government and, ultimately, in democracy itself.

A nation fatigued beyond endurance by a political and financial class that has utterly failed them is close to breaking point. So far, civil unrest has all but been avoided.

The hardships can be borne – just – if they are part of a defined path to recovery, but not if they are part of the price of insulating banks and their shareholders from the consequences of their follies.

If Noonan and Kenny champion the taxpayer, no matter what it means for the banks or the ECB, they will start the healing process.

But if they fail, and continue to throw our money into bust banks, then they face ending with the doomed legacies of the two Brians – Cowen and Lenihan – who got us into this mess in the first place.

Sunday Independent

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