Friday 13 December 2019

Timorous Cowen must be ousted . . . and fast

The Taoiseach is worse than hapless, he is wilfully blind to what is happening in his Government and to the country, says Alan Ruddock

It is hard to pick a low point in last week's news, but Thursday's economic statistics came closest. While the media focused its fire on Brian Cowen's minimalist reshuffle and the simmering discontent on his Fianna Fail backbenches, the release of the Quarterly National Accounts confirmed what many had feared: far from bottoming out, or even turning a corner, Ireland's economy plunged deeper into recession in the last three months of 2009.

The worst is not over, no matter what the Government wants us to believe. Beneath the headline figures the news was even more depressing. The slim recovery last autumn, which saw the economy edge back into growth by the slenderest of margins, has been revised downwards: the recession did not end, not even temporarily, not even technically: Ireland's relentless decline slowed for a few months, but then gathered pace again as the year drew to a close.

Even worse, the figures for the domestic economy, excluding the profits earned by the big multi-nations, showed a staggering 11.3 per cent collapse in the year and more than 20 per cent from its peak. No matter how this tale of economic woe is spun, this can no longer be referred to as a simple recession: Ireland is in the grip of a depression.

The figures, though, have no meaning for Cowen or for the public sector unions. Both seem to believe that it is business as usual. Cowen shuns an opportunity to make fundamental changes in his Cabinet and in the way the country is governed, proving beyond any reasonable doubt that he has no concept of what is happening and not the faintest idea of what he should do. He is worse than hapless: he is wilfully blind to what is happening to the country and clearly believes that if he can just sit tight, keep the Green Party happy and bludgeon his own TDs into line, he can survive until the next General Election.

By then, sure, the global economy will have recovered and the rising tide will lift his boat. If this were a real war, rather than 'just' an economic one, he would be taken out and shot for cowardice.

The unions, too, continued to inhabit their own parallel universe, aided and abetted by Cowen's feeble Government. Their motto seems to be clinically selfish: ignore the reality of depression, pretend that public sector pay cuts can be rescinded, hold the Government to ransom over reform and let the rest of the country go hang.

The scenes at the passport office revealed their true colours, and the self- justifications offered by the CPSU, the union responsible for the action, showed how disinterested they are in the common good. They and their members are engaged in economic terrorism, their targets the ordinary people of this country who just want a service that they have paid for. If Cowen continues to indulge them -- why talk to unions while they engage in these tactics? -- the CPSU will be followed by the rest of the public sector unions and we will move ever closer to the Greeks.

Today's poll gives a flavour of the public's disenchantment and scepticism: 65 per cent believe that the Government should stand firm against the unions, but 75 per cent believe that the Government will not have the bottle for it. The public smells a compromise, a murky surrender by Cowen that will unravel the public sector pay cuts in return for empty promises on reform.

That cannot be allowed to happen. The cuts in public sector pay were a simple recognition of an even simpler fact: the country can no longer afford the public sector bill. It has to fall, and the numbers employed in the public sector have to fall. Reform is no longer a luxury item that can be offered as a bargaining chip in pay negotiations: it is an essential component in our slow climb back from the depths of depression to economic recovery.

Thursday's figures, obscured by the game of politics that Cowen played with his Cabinet, underlined the seriousness of Ireland's predicament. The economy has shrunk back to 2003 levels, there is no prospect of a strong recovery, unemployment is forbiddingly high at more than 13 per cent and our national debt rises by the day. The only positive that Cowen can cling to is the decisiveness of last December's Budget, which told the world that we were prepared to deal with our own problems.

That Budget was meant to show that Ireland had the inner strength to control its own finances: a fiscal plank on our route to safety. The second plank of that recovery strategy, championed by Brian Lenihan, the Minister for Finance, is a resolution of the banking crisis that has hung like a noose around the country for the past 18 months.

On Tuesday, in what is promised to be a 'big bang' approach, Lenihan will tell the Dail how he plans to solve the crisis. Before he addresses the house, the National Asset Management Agency (Nama) will have announced details of its first purchases of loans from Ireland's banks. Lenihan will be able to reveal the scale of the discount that Nama has applied and from that he will be able to estimate the losses that all the banks will have to take when their loans are transferred. He will also be armed with a new set of rules from Matthew Elderfield, the Financial Regulator, on the amount of capital he will expect each bank to hold against future losses.

Lenihan and Elderfield both expect the main banks to suffer further heavy losses from mortgage lending and want to prepare for the worst. The result will be quite shocking: a massive requirement for state funds to shore up the banks, pushing AIB close to full nationalisation and Bank of Ireland close to majority state ownership. On top of that comes the dreaded Anglo Irish Bank, whose losses are expected to top €12bn. It has already said that it requires a further €9bn of our money to stay alive, and more than twice that if we kill it.

Lenihan's objective is to clear out all the bad news, draw a firm line under crisis and give the markets confidence that Ireland's second plank is in place. It is a bold move, but far better than drip feeding bad news over the coming months, or putting money into the banks and then having to put in more when mortgage losses start to mount. The initial shock will come from the vastness of the numbers: the scale of the banks' losses, the amount of public money required and, for the banks' shareholders at least, the size of the discount that Nama has decided to apply.

But it will all count for little if, just as Lenihan lays down the second plank, Cowen starts to pull away the first, fiscal, plank. The two will only work together and there can be no rewriting of December's core budget strategy to buy off the public sector unions. Lenihan's bank resolution will also count for little if it is seen as an end in itself. Imposing order on the public finances and stabilising the banking sector are just the first steps, nothing more.

No matter how hard or how painful, Ireland's competitiveness has to be restored and the cost and size of government have to be reduced. Reform, privatisation, downsizing of government departments, political regeneration and a determination to tackle costs and inefficiencies throughout the sheltered areas of the economy are absolutely essential.

Recovery requires imagination and hard work, and Cowen seems incapable of either. His reshuffle was an insult to a people desperate for leadership: it was devoid of wit or bravery and only added to the sense of despair that grips the country. He is so far out of his depth, so unsuited to the challenges he faces, so trapped in the past that his very presence in government acts as a brake on recovery.

Yet his own backbenchers only agitate against him when they are snubbed for promotion to the junior ranks of the cabinet, or when a Green TD gets to ride a government hybrid in their constituency, and the Greens cling to him like a limpet because he offers safe haven from the electorate.

Cowen is central to our depression, figuratively and literally. He is the weak link in a pathetically weak Cabinet, the man whose timidity could unravel the one solid plank that his Government has managed to put in place since the economy collapsed.

Last Thursday we saw the true extent of that collapse, from recession through to depression, with no end in sight. Yet the unions pretend that wage cuts can be reversed, Cowen encourages them by not disillusioning them and avoids taking the necessary steps towards recovery. He must be ousted, and fast.

Sunday Independent

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