| 4.4°C Dublin

The truth hurts -- but lying comes at high cost

Denying a second bailout is dangerously misleading and will come back to haunt, says Daniel McConnell

When is it OK to tell a lie? Think back 14 months. Brian Cowen, Brian Lenihan and the previous government got into major trouble by trying to maintain a lie that we weren't in talks to bring the IMF into the country.

They said we were fully funded for months ahead and we didn't need it.

They felt that if they admitted what they were doing it would be bad for the country, so they tried to deny it and were caught out massively, and lost all of their dwindling credibility.

They attempted to keep up the pretence in the face of overwhelming global scepticism, and they got caught out in their honest lie, which was trying to maintain some confidence in Ireland at a time of great crisis.

Fast forward to now and it seems the Government is at the business of telling the same sort of delusionary tales.

Last Thursday, Taoiseach Enda Kenny was in London categorically denying Ireland would need a second bailout. This is not the first time he or his government have had to make such a statement.

They had to do it last summer in the wake of an interview Transport Minister Leo Varadkar did, in which he said the likelihood of a second bailout was high. The young minister suffered the age-old fate of getting in trouble for telling the truth.

In London, as he met his British counterpart David Cameron, Mr Kenny absolutely ruled out a second bailout for the country, saying the Government was aiming for a tentative return to international bond markets within a year.

"I don't share that view at all," he said. "We are fully funded until 2013," he said in a remarkable similarity to those who previously occupied cabinet posts.

The day before, Finance Minister Michael Noonan dismissed such talk of a second bailout as ludicrous, and merely speculative.

Mr Kenny and Mr Noonan were responding to the comments made by Willem Buiter, the chief economist of CitiGroup, who was in Dublin.

Coinciding with the troika's return, Mr Buiter sensibly said that given the fears about the seemingly never-ending euro crisis and its likely impact on Ireland's ability to grow, and therefore its ability to meet its various debt-reduction targets, the Government should have a plan B if we can't go back to the markets.

But the truth is, neither Mr Kenny or Mr Noonan can be categorical in their denials that we won't need a second bailout.

Mr Noonan's dismissal of Mr Buiter was more surprising, as he has regularly said since taking office that things in Europe were so volatile that he couldn't foresee six weeks ahead, let alone six months.

That has been a perfectly reasonable position to maintain, so, why the sudden change of heart from the old pragmatist? How can Mr Noonan afford to be so absolute when Europe is sliding back into recession, Ireland's debt levels are still too high and we look set to miss our growth targets once again?

He can't, and such unconditional or unqualified denials from Mr Noonan and Mr Kenny could very well come back to haunt them.

Nothing Mr Buiter said was outlandish or beyond the pale.

He correctly said Ireland needed its European partners to restructure part of the country's bank bailout bill or it may have to follow Greece's lead in making investors take losses on its sovereign debt.

"There clearly will be a need for either some form of official concessions on the terms and conditions of its financing, or private sector involvement," he said, referring to private-sector losses on bonds. "Ireland's deficit position is bad," he added.

But apart from his headline-grabbing comments, Mr Buiter actually provided significant comfort for Mr Noonan, Mr Kenny and the Government.

He said Ireland had made extraordinary efforts to tackle its woeful budgetary position, and this now should be recognised at European level by a further reduction in our debt.

"It would also politically show recognition of Ireland's extraordinary efforts to get its fiscal house in order," he said.

He also stressed that Ireland was not like Portugal or Greece, but said it was the burden of the banking crisis which was preventing us from progressing. Again, he appears to be ad idem with the government's position.

"Ireland is not Portugal, nor is it Greece, but it is, because of the bank debts from September 2008, in very bad fiscal shape," said Mr Buiter. "I think the politicians and European partners will pursue the option of more generous funding terms before they get to sovereign-debt restructuring."

But rather than focus and draw attention to the comments that support their quest to reduce Ireland's debt, Mr Noonan, always good for a sound bite, couldn't resist ridiculing Mr Buiter and dismissing him as a trouble-making economist.

"It's ludicrous to be talking about a second bailout," he said. "We're a year into the rescue programme, which was negotiated by the previous government, and we're fully funded until the back end of 2013. So it's really speculation by economists, who, at the start of the year speculate on these matters," he added.

Mr Kenny, in London, insisted Ireland was still hoping to return to the markets by the end of this year, in some limited form.

"We would like to see a tentative return to markets, within a year," Mr Kenny said, adding that imposing losses on holders of Irish bonds would be self-defeating for the country. "Why would investors want to invest in a country if there were write-downs?"

To believe such comments from Mr Kenny is to suspend reality, because the chances of us getting back into the markets in any real way in that timeframe are totally unrealistic. Even the NTMA said on Friday that any return to the markets this year would be token at best.

That we are the good boys in the class, we have stuck to our programme and we have done all that has been asked of us, and our 10-year bond rates are still above the rate that forced us into the bailout, highlights the government's delusion.

At the heart of Mr Buiter's thesis was the notion that Ireland's debt was not sustainable. He is 100 per cent correct. Even many within FG, including maverick Peter Mathews, say so.

The time has come for Mr Kenny, Mr Noonan and the Government collectively to say to our friends in Europe and to our visiting troika overlords, that unless we get that reduction, we won't only need a second bailout -- but the very fundamentals of Ireland's economy will be in question.

With interest payments on our public debt now costing taxpayers over €5bn a year and only going higher, we are out of time.

What is wrong with using this troika visit to make the point strongly that we need a debt writedown, not in a year, not six months, but now.

There is nothing wrong with saying we can't pay that debt and the time has come to tell our overlords that.

That is what Mr Buiter was recommending.

But by dismissing sensible and credible comments from people like Mr Buiter, Mr Noonan and Mr Kenny damage their own credibility. They also damage the credibility of Ireland.

Sunday Independent