Emmet Oliver: New Coalition may not like NAMA, but it's with us for now
BEFORE it even takes power, the new administration is showing little apparent fear of our new paymasters in Brussels and Washington.
In several key areas the Government-in-waiting has shifted away from key commitments given by the previous Government to the IMF and EU.
The minimum wage cut is to be reversed, the banks will not be re-capitalised until stress tests are published and now NAMA transfers due to be completed by the end of March simply won't be happening.
All of this constitutes what the IMF quaintly describes as "slippage''.
In other words, targets as set down in the €85bn programme aren't being met. This is not fatal and money from the various programmes will not be cut off, but the new Government may still be playing a dangerous game.
Effectively before either the EU or IMF do a full-scale review of the €85bn package, the Irish Government-in-waiting is unilaterally amending the terms of the agreement.
Of course, there are lots of solid arguments for making some of the amendments, but nevertheless the new Government may find itself explaining at a later stage why it is taking these steps.
Goodwill towards Ireland, already in short supply in Brussels (whatever about Washington), is unlikely to flourish if the Government here keeps missing targets and re-drawing a programme that was pieced together under great pressure last November.
Yesterday, the Government-in-waiting seemed almost nonchalant when it announced in several radio interviews that NAMA was effectively being halted in its tracks.
While the agency is not exactly disappearing, managing at it does billions of euro in loans, its role as a vehicle for solving the banking crisis seems to be at an end.
The authors of the bailout programme, including IMF economist Ajai Chopra, saw NAMA, with all its imperfections and lack of resources, as the key vehicle for shrinking the banks down to a manageable size.
NAMA would take smaller land and development loans, it could even take SME, mortgage and commercial loans at some point in the future, was the thinking late last year.
Not only was there talk of NAMA I, but also NAMA II and even NAMA III. But now the new Government appears to be calling a halt to what is sees as fanciful and expensive asset management vehicles.
There is a lot to be said for its logic. NAMA's key disadvantage is that it forces losses upon the banks upfront and at the wrong time in the economic and property cycle. Many bankers in Dublin still curse the agency for the first round of NAMA transfers and the damage they did to bank balance sheets.
It seems that Fine Gael and Labour have bought into these sentiments. They believe banks should effectively be able to nurse these smaller property loans themselves over an extended period, rather than having to transfer them into NAMA at a huge discount, which leaves an expensive capital hole behind for the taxpayer to fill.
There is some merit in this type of thinking.
However, the loans in question, mainly land and development, are highly risky and often non-performing in terms of interest. While these loans can, of course, be left with the banks to manage, they will still fail to perform and banks will still have to come up billions of euro in capital to mop up the losses they produce.
As one banker said yesterday: "The bill for extra capital still must land on somebody's desk."
Just because NAMA does not take the assets away does not mean they cannot do damage in the wider banking system, most particularly to AIB and Bank of Ireland.
The new Government's decision on NAMA also poses a second dilemma. If NAMA is not the vehicle to be used to reduce the size of Ireland's banks, what vehicle will the new Government use?
That question has not been answered yet. There has been talk of "warehousing'' even more loans in some kind of alternative structure to NAMA, but so far there has not been a jot of information from the banks, the National Treasury Management Agency or the IMF on how this will be done. To call it a work in progress is to be generous.
It appears that the new Government's dislike for NAMA is not just about its usefulness or lack thereof.
Fine Gael and Labour have always opposed the agency and it was seen very much as a Brian Lenihan/Department of Finance response to the financial crisis. The secrecy of the agency is also something both parties take exception to and there is little doubt this part of NAMA's operations is going to be reformed. The annual advisory fees and expenses paid by the agency have always irritated these parties, too.
However, despite the animus of Fine Gael and Labour toward the agency, both parties have little choice but to let the agency get on with its job. It is already managing an astonishing amount of assets and the earlier transfers cannot be unwound. Even the incoming parties have a vested interest in seeing the agency at least break even, whatever about making a profit.
In some ways the agency is akin to the IMF/EU programme itself. The new Government may not like that it is there, but they cannot wish it away.