Wednesday 17 July 2019

Thomas Molloy: Time to face home truths as Leo states the obvious

Thomas Molloy

ARE we beginning to see the first tiny cracks within Fine Gael as the party's right wing bristles at the Coalition's leisurely approach to solving our economic woes?

Last week, we saw Enterprise Minister Richard Bruton breaking ranks by making it clear that he favours unpopular cuts to the salaries of hundreds of thousands of low-paid workers. Yesterday, Transport Minister Leo Varadkar became the first cabinet minister to admit that we won't be returning to the bond markets anytime soon.

Both men were involved in the botched coup to remove Enda Kenny from the leadership of Fine Gael last year and it is tempting to believe that there is something going on once again. Tempting but unlikely. Like Tigger in Winnie the Pooh, Varadkar is one of those bouncy personalities who just can't help saying what he thinks. He is smoother than he used to be but he is still a man in a hurry and impatient with cant. His latest comments appear to betray that intolerance for guff rather than form part of a conspiracy.

Leaving politics aside, it is difficult to quibble with Varadkar's analysis. It is almost impossible to imagine a situation where the National Treasury Management Agency could return to the markets next year to borrow money on our behalf. The problem is that we must either borrow money from the markets or from Europe because the present bailout fund will run out in 2013 at the latest and we still show no great appetite for changing our lifestyle to live within our means.

Optimists inside government note that we may not need to return to the markets next year even if we are committed to doing so. They believe the banks won't require all of the €35bn that has been set aside to bulletproof their balance sheets under the bailout deal. This could leave the Government with as much as €11bn to shell out on the day-to-day expenses linked with running the country. Even accepting that the nasty surprises from the banks are a thing of the past, such a scenario only brings us sometime into 2013 before the cash runs dry.

Running out of money in late 2013 will force us to borrow from Europe and the International Monetary Fund once again but under very different political and financial circumstances. French President Nicolas Sarkozy and German Chancellor Angela Merkel will probably both have been kicked out of office, victims of the general dissatisfaction with politicians throughout Europe and their own voters' worries about the bailout of Greece, Portugal and ourselves. Anybody who believes their socialist successors will be any more flexible than Sarkozy or Merkel lives in cloud-cuckoo land. A far harsher tone, like the one coming from Finland these days, is much more probable.

By 2013, we will also be living under different financial rules. Assuming there is not a complete meltdown in the system, the Government will be seeking to borrow from the European Union's permanent rescue fund which might well require some restructuring of privately held sovereign debt. This would be a de facto (and probably de jure) default and the consequences would be long-lasting and difficult to predict. This is why cabinet ministers have refused to publicly discuss the possibility until yesterday's intervention from Varadkar.

Some investors overseas will inevitably take fright today when they read that a senior minister has publicly questioned such a basic tenet of government policy. Those investors may well be surprised that one of the cabinet's most senior members did not publicly slap down Varadkar yesterday in the same way that the Taoiseach was quick to slap down Bruton last week when he also dared to state the obvious.

There is no doubt that discussing matters such as missed financial targets is a delicate affair. There will always be a good argument for not washing dirty linen in public especially when a verbal slip could literally cost us millions of euros but it is worth taking that risk. The markets sometimes impose a super-injunction of sorts on senior politicians in all countries, threatening calamity if they voice concerns or doubts. It can be foolish to ignore this danger but it can be equally foolish to become a timid slave of the perceived consensus. Brian Cowen and Brian Lenihan's constant kowtowing to the markets appears to have elicited a degree of contempt by the end of their government.

One lesson from the horrible crisis which has engulfed our country is that our political and financial elite is captive to a primitive type of groupthink which precludes almost any rational discussion of our economic prospects. When the two largest political parties in the State are in coalition and the largest opposition party has lost most of its talent and all of its confidence, deputies and even cabinet ministers must sometimes play the role of loyal opposition.

Varadkar has done nothing more than tell us all a few home truths by telling the public what the markets have been saying for months. The Government should now follow suit by planning for the challenges posed by the situation in Greece and the likelihood that we will continue to be excluded from the debt markets for years to come.

Irish Independent

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