Wednesday 23 May 2018

Thomas Molloy: IMF/EU will be far from silent partners in coalition

Thomas Molloy

Thomas Molloy

PICTURES of Enda Kenny and Phil Hogan holding talks with Eamon Gilmore and Joan Burton are reassuringly familiar to anybody who enjoys the traditional foreplay that inevitably leads to the formation of a new Irish government.

We think we know the script at this stage; a few days of serious talks about policy and portfolios followed by a press conference with the two smiling leaders, a Dail vote and a quick trip to the Park.

The optics will probably be much the same this time round so it is easy to forget that the current coalition is unique and involves a third party who has never previously had any influence over the formation of a new Irish government.

While the IMF's Ajai Chopra won't be photographed slipping into the coalition talks or driving to the Phoenix Park flanked by garda outriders, his views and the memorandum which outlines his wishes will be every bit as important as the wishes of the Fine Gael and Labour negotiators in the days ahead.

Our creditors in Brussels and Washington have already made their views very clear indeed. In the words of ECB president Jean-Claude Trichet, we should just "stick to the plan".

Doing that won't be easy for several reasons. Fine Gael and Labour's manifestos share several promises that the plan does not envisage. What happens to those promises will give us an intriguing insight into the relative power of Kenny, Gilmore and Chopra in the years ahead.

One flash point is the minimum wage. Both Kenny and Gilmore have promised to restore it to €8.65. No exceptions, no gimmicks. With both parties agreed on this popular course of action and nothing more than a ministerial order required, it might be assumed that the minimum wage will be restored within weeks.

The snag for Fine Gael and Labour is that the IMF and EU insisted on last month's cut to the minimum wage. What happens next will be a good indication of how powerful the next government believes itself to be.

A decision to restore the old minimum wage will be a direct challenge to the IMF and ECB while failure will mark an early defeat for one of the few economic policies shared by both parties.

Another interesting litmus test will be Fine Gael's promise to cut the lower rate of VAT to 12pc from 13.5pc within 100 days of taking office to boost jobs. This promise, repeated before the world's media in Kenny's last press conference before the election, sets the next government up for another fight and will offer another insight into who is running the country.

The minimum wage and VAT rates are mere bagatelles compared with the Wagnerian struggles that await the incoming government over issues such as recapitalising the banks. Both parties have said again and again that they do not want to put another cent into the country's banks without some form of burden sharing. With broad agreement between FG and Labour, there is no political reason why such a policy should not be included in the next programme for government -- other than the ECB and IMF's fierce objections.

What happens to the minimum wage, VAT, the banks or other issues such as corporation tax will give us a very clear picture of who FG and Labour believe is really running the country. What happens to these campaign pledges in the next few months will give us a good idea.

The IMF and ECB's demands can be politically expedient in a crisis. They allowed Green Party leader John Gormley to wash his hands when his government cut the minimum wage and the IMF and ECB may act as lightening conductor for equally unpopular decisions in future.

But right now, as Labour and Fine Gael prepare to bed down together, they may find that there is a lot of truth in the old saying that two's company and three's a crowd.

Irish Independent

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