Last Tuesday night, Brendan Keenan and I paid tribute to Brian Lenihan on Newstalk. In the course of the discussion, we touched on the bank bailout. Both of us agreed that despite the awfulness of its cost, it is a one-off cost when compared to the ongoing crisis in our public finances.
We also agreed that if we don't solve the latter problem, bondholder haircuts will be meaningless. Last week, though, the prospect of a one-off clawback tantalised the media. Back from a trip to the US, a happy Michael Noonan told us that the IMF had agreed to the idea of getting some of the €3.8bn back from unsecured senior bondholders in Anglo Irish Bank and Irish Nationwide. But since March, the new Government has spent €8bn more than it received in taxation.
Assume the ECB agrees to a haircut -- say half of their face value -- the amount saved would still be less than the average monthly exchequer deficit run since this Government took over the reins of office early in March.
Last Thursday, EU Commissioner Olli Rehn issued a heartfelt press release. At a time when every EU government wants to use EU institutions such as the ECB as a scapegoat for their domestic electorates, Rehn pointed out that the real problem is that none of them wants to tackle its own gross irresponsible spending.
"I call on all EU decision-makers," said Rehn, "and more particularly the finance ministers of the euro area next Sunday,[they are due to meet today] to overcome the remaining differences and come to a responsible agreement at this critical juncture."
Simply put, Europe is a house divided. France and Germany pander to domestic electorates about our corporation tax rate while Greece, Spain, Portugal and Ireland are, with varying degrees of culpability, failing to tackle runaway public spending. The delinquency of the Greek government is particularly spectacular.
But I'll confine myself to looking at Ireland's problem.
From €10.7bn in the first five months of 2009, Lenihan's brave Budget of December 2009 brought the exchequer deficit for the same period of 2010 to €7.9bn by cutting waste and pay, and by not increasing taxes. But early last year vested interests took
back control of policy-making and the last Budget shifted the focus back to tax increases and welfare cuts while doing nothing about overpayment and waste in the public sector.
The result is clear: Not only have prospects of a domestic recovery vanished, but exchequer figures for the first five months of this year show the deficit for that period at €10.2bn, or almost back to the level seen for the same period of 2009.
In other words, the gains made in the December 2009 Budget have been wiped out.
The reason is clear to see: an hour before Rehn issued his press release, the CSO released its figures on Earnings and Labour Cost. They show that public pay remains, on average, 44 per cent higher than private sector pay.
Last week, the Minister for Public Service Reform Brendan Howlin spoke of further job cuts in the public sector. But at 17 per cent, the share of public servants in the workforce in Ireland is not high by EU standards. It is pay that is way out of line.
As TK Whitaker advised governments to do back in 2008, every effort should be made to preserve employment. A well-designed benchmarking of all public pay and pensions exceeding the average industrial wage down to EU levels (plus a reasonable cost of living differential) would bring public pay levels back into line with private sector pay. And this would achieve not once-off savings, but savings of the regular kind.
The unemployment figures released last Thursday for the January to March period also deserve a mention. They remind us that the unemployment total is not 442,000 as on the Live Register, but 295,000.
Mercifully, the unemployment rate is down from 14.8 to 14.0 per cent in seasonally adjusted terms. But the current Government deserves no credit for this, as the fall reflects a combination of factors beyond its control.
Nonetheless, it is a welcome sign that the labour market is stabilising. The crucial task now is to focus on the smaller and more urgent number -- about 129,000 -- who have been out of work for over a year.
A word about the ECB's opposition to burning bondholders is also needed. Total opposition to the concept is unreasonable. A co-ordinated, well-planned restructuring of debt should occur in the eurozone. But this cannot be done in an ad hoc way by member governments.
Our Government is right to seek haircuts on the €3.2bn of senior unsecured debt and €600m of senior debt held in Anglo Irish Bank and Irish Nationwide. But Europe's banking system is highly exposed, and even the smallest of dominoes could start a chain reaction that will brings down banks across Europe, including the ECB, to which €340bn is owed by Spain, Portugal, Greece and Ireland.
If the ECB goes down, so does the support for our banking system, and with it our economy and any hope for the future. A consistent, well-organised restructuring, driven by the ECB, would be a different affair.
Finally, much has been said about the Government's "First 100 Days". Drawing attention to the first 100 or 200 days in office is artificial PR nonsense. The Government should stop insulting our intelligence with this guff and get on with the job of finally tackling public spending.
Marc Coleman presents 'Coleman at Large' each Tuesday and Wednesday from 9pm on Newstalk 106-108fm.