The Government has secured fiscal stabilisation, only by creating our longest line of credit ever
HOW is it in your household? We reared four youngsters to the age of majority – well actually it would be more accurate to say my long-suffering wife has raised them to this stage. Despite various threats, they still don't put dirty dishes in the dishwasher, hang up wet towels or clean their rooms.
We're left to tidy up their mess. We constantly make smart sarcastic remarks about the 'washing-up fairy', 'laundry fairy' and 'hoover fairy'.
The narrative from our government leaders reminded me of two similar non-existent entities that we are being asked to believe in.
Namely the 'growth' fairy and the 'debt' fairy. We are told that we can transcend our grim economic realities once we reach a primary or structural budgetary surplus of balancing the State's revenue and expenditure.
Apparently, forecasts of more than 2pc per annum growth will put us on a virtuous circle towards prosperity. By the time we get to the next election in 2016, we won't know ourselves.
This myth can be exploded when we read from the preparatory documents (White Paper) for the 2014 Budget. Costs of servicing the national debt in 2013 are €7914m, while in 2014 this will rise to €8940m. More than the entire amount of extra taxation raised this week, or education expenditure, will be required to repay our sovereign debts.
The national debt stands in excess of €200bn. This Government has increased our indebtedness and extended it over a longer period, towards 2031, more than any of its predecessors. They have secured fiscal stabilisation, only by creating our longest line of credit ever. Is this debt burden sustainable? I fear not.
Over the next decade, we not only have to repay this sovereign debt, but also deleverage €140bn of mortgage loans. Eddie Hobbs estimates that the total liabilities of the Irish people are around €1trn when you include the unfunded State pension and social insurance fund liabilities.
If we radically discount for Hobbs' hyperbole and assume he's even half right, at €500bn it's equivalent to three times our national output – greater overall indebtedness than that of Greeks. This Government's singular top line initial objective has been to exit the bailout programme. Expect plenty of celebratory bells and whistles on December 15 from our political masters.
They have obediently ticked all troika boxes meticulously. They accepted the terms and conditions they inherited, but failed to burn bondholders, as promised.
A much more imaginative political blueprint will be required for the post-bailout period to secure genuine economic independence and freedom.
Our ultimate creditor is the ECB and German Chancellor Angela Merkel. She signed up to an EU deal on June 28 last year, which could permit the European Stability Mechanism to provide capital to any of the 130 large distressed banks in the eurozone, including retrospective payments.
Our case remains for €30bn of bank recapitalisation to be restructured. Progress has been painfully slow to date, with only a modest firewall of €60bn in place to meet the banking stress tests of next spring.
In current coalition negotiations, she may jettison Irish promises. Any suggestion of bartering our 12.5pc rate of corporation tax is off-limits, through our legal EU treaty rights of independent taxation sovereignty. Let's not forget circumstances of our bank bailout. An identical scenario is currently playing out amongst credit unions. Newbridge credit union is said to have a black hole on their balance sheet of more than €50m. It is neither too big to fail, or of systemic importance. If any credit union was placed into administration, who would lose? Not debtors. They face the same fate of a long-term work out/repayment schedule or insolvency.
IT'S the shareholders/depositors who require to be saved from partial refund of residual cents in the euro. Our bank nationalisations didn't alter debtors' situations; it saved depositors/bondholders. Shareholders were wiped out. German banks created our credit bubble when we entered full membership of the euro in January 2002. Irish taxpayers fully compensated them for their bad lending decisions.
Ireland is not alone. The eurozone club of nations that owe in excess of 100pc of GDP are: Italy, with over €1trn of sovereign debt; Portugal, teetering on the edge of a second bailout; Spain, predicted by the IMF to have 25pc unemployment up to 2018; Greece and Cyprus, requiring further debt write-downs.
These PIGS states and now France, with a rising 90pc debt, all have debt sustainability problems. Kenny and Gilmore need to reassess their common bedfellows. Instead of expecting crumbs from Merkel's table, we should be part of a group of EU states with a common diplomatic agenda. Debtor states must unite. We have little prospect of debt restructuring if we are isolated.
At a macro level, our optimal growth scenario depends on continuing low interest rates and a competitive currency value for exports. Both are dictated by the ECB; we've no control of these fundamentals. Germany's interests will be inimical to ours. On the ground, two-thirds of all new jobs to be created will come from indigenous enterprises. A lending survey of credit to small firms across Europe, reveal Irish SMEs pay 4pc higher rates forlending and capital availability has contracted more sharply here than anywhere else.
Peripheral states face permanently playing in the second division of Europe economically, whilst remaining in a sovereign debt straitjacket.
George Orwell's satirical novel 'Animal Farm' involved a fairy story about PIGS, like domestic admonitions to our kids in relation to household duties.
To achieve economic recovery, Government needs to drop self-congratulatory rhetoric and deploy our best civil servants to secure a game-changing strategy towards a Europe of equals.