Wednesday 29 January 2020

James Fitzsimons: No more acting like infants with the ECB

There are no stars for obedience: it's time to grow up and prove that we can govern ourselve

OUR overpaid bureaucrats have let us down again. The EU is bankrolling our budget deficit of €18bn a year, so that pay in the public sector can be twice what it should be. Jorg Asmussen, who's on the executive board of the ECB, said that pay in the Irish public sector rose by 90 per cent in the 10 years to 2010. This happened nowhere else in Europe, bar Greece.

According to Mr Asmussen, we created our own problems. We overindulged, and now we alone will pay the price. Of course, he ignored that European banks grew fat on our so-called overindulgence, and the ECB failed to stop them.

What was the ECB doing when banks across Europe funded the American sub-prime mortgage crisis? That is what destroyed the world economy, and that is what has us where we are today. We made mistakes, and we were naive. Not only must we pay back our own debts, but we must cover theirs too. If we were such fools, the European banks took advantage of us. But who will fight for us now?

The Government lost its bargaining power through the bungling incompetence of its senior civil servants, who mismanaged the country. Now our paymasters in the EU refuse to negotiate with those who let it happen. It's their way or no way! There are no gold stars being awarded for our obedience. The Government acted like children, and that's how they are being treated. They looked up to the EU for leadership and they found it, even if it is not what they expected. Our Government is made up of teachers who are very bad students. They've won the EU merit award, but they got nothing for achievement. It's high time to step out of the classroom and get into the ring. They must fight for achievement awards. School's out and it's time for action.

The troika demanded that we deal with our overpaid judges and hospital consultants. But we have achieved nothing, and in return we will get nothing back. The private sector will get even leaner if the public sector stays fat. That is the clear message from the latest addition to the board of the ECB. This is not what the country needs, but it might make us wake up. We are one of the most indebted countries in the EU, but our public sector is amongst the best paid. It doesn't matter whether it is overstaffed, or overpaid. The message it sends out is that we cannot be trusted to handle our own affairs. We can remain part of the EU so long as we give up our sovereignty to those who know what they are doing.

There would have been no shame in defaulting on Brian Lenihan's bank guarantee. It was ill-conceived. The extent of the bank debt was covered up by the banks themselves and the foreign banks knew it. What should worry us is that our leaders are relying on the generosity of strangers to solve our economic woes because they don't know what else to do. We are destined for financial ruin while this continues.

While the elite few keep what they have, no help will be given to the rest. The budget deficit would be half of what it is if public spending was brought under control. We overpay hospital consultants and other professionals, because they are in control.

Public spending will be more than €50bn this year and we would be lucky to collect €35bn in tax. Social Protection, Health and Education account for more than 80 per cent of public spending. We are expected to believe that our colossal national debt has grown to protect frontline services. If the ECB's Mr Asmussen is to be believed, we are overspending; possibly by as much as 50 per cent.

Hospital consultants claim that they would be paid much more if they abandoned Ireland and went to work abroad. Maybe they would. The problem is that they beggar the rest with their demands. Our tax revenue has fallen by 30 per cent. Until we can find the extra income to bring it up again, we must cut spending. Since the crisis began, those hardest hit have been forced to carry the can for the rest. It's time that those who have the most, contribute more to help recovery.

We've waited long enough and there is still no sign of recovery. The Government's tactics for dealing with the EU have failed. Even if we relinquish our fiscal powers, it will make no difference. The Government has achieved nothing in its first year in office. The ECB might refinance the Anglo promissory notes, but Mr Asmussen said it would not contemplate medium-term arrangements. While the Government is weak, it has no prospect of influencing our fate. It clearly lacks the experience and commercial know-how to get results. And its advisers are no better.

In spite of the EU's lack of faith in us, it still bankrolls our wasteful spending of which it is so critical. This is not because it thinks it is best for us, but because it needs us. There is too much to lose if we are not kept on side. It's up to the Government to regain control and get a better deal. It needs to slash public spending and cut the waste. The first three departments where the cuts need to happen are Health, Education and Social Protection. There is enough fat to cut so that the vulnerable are not affected.

Most important of all, it needs to renegotiate our debts and how they are to be repaid. It's time to make decisions based on what we can pay, rather than what the EU is willing to finance. The European banks are calling the shots now.

When property prices soared, foreign banks benefited from funding development. Now that they have collapsed they must share the pain for their own losses. It might take €50bn to alleviate the strain that will restore consumer confidence and growth. The EIB should fund it as an investment in Ireland's future. Then businesses and consumers can see positive cash flows again.

We need to break our dependence on EU money by cutting back spending to what we can afford. The ECB is only generous with empty promises. We pay for everything else.

James Fitzsimons is an independent financial adviser specialising in tax and financial planning

Sunday Independent

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