| 17.5°C Dublin

Willie Kealy: A new era dawns - if we don't reject it

Are you scared? Did Michael Noonan frighten you when he said the next budget would be "dramatically more difficult" if there is a 'No' vote? If he did, then good.

Because he was telling the truth. Without access to further bailout funds we won't be just trying to reduce our deficit -- we will have to obliterate it! The truth hurts. And the truth is scary. The problem is he didn't tell you the half of it. He didn't scare you enough.

Right now there is a good chance that the referendum will be defeated with too many voters prepared to act in ignorance -- because it has not been explained properly or has been misrepresented -- or in anger, because they just want a chance to kick the Government over stealth taxes and arrogant and incompetent ministers.

The only argument put forward by the Government so far for a 'Yes' vote is that we might need a second bailout, and if we vote 'No', we cut ourselves off from the sole source of funds. That message needs to be sharpened up. So it is time the Taoiseach and his ministers abandoned the mantra that we will return to the markets next year and there will be no need for a second bailout. There is no evidence we will have achieved anything by next year to persuade international lenders that we are a safe bet for long-term lending.

It's difficult to know if the Government just can't see this, or they can, but don't want to admit it and would rather lie in the interests of bluffing a market we have little prospect of being in for the foreseeable future. Either way they are wrong. We will need a second bailout. If we don't get it, we will have nowhere else to turn to fund the day-to-day spending on our public services and welfare payments. And if we vote 'No' we will not get it from the EFSF or its planned successor, the ESM.

But even if we vote 'Yes' and we get our second bailout, it is not just a matter of carrying on with austerity until we hit the target by increasing taxes and cutting services. That austerity programme is simply unbearable. It militates against any chance of growth and makes inevitable greater unemployment, more business closures and home evictions. The goal of reducing the budget deficit is a laudable one. In fact we should aim to reduce it to zero and we should have started on that path when we had the money. But there is a structural defect in the way the Government is going about achieving a sensible objective. Public service pay is off limits. Public service pay scales, especially at the top, are so far out of line, not just with comparable figures abroad, but more importantly, with what we can afford, that it is a national scandal.

The Government has tried to reduce the overall cost of public services, but through an expensive voluntary redundancy programme. In a time of crisis it is better to keep people in employment, paying taxes and spending in the economy, rather than claiming from the public purse and retrenching on day-to-day spending. So pay cuts are the

only realistic alternative. Brian Cowen chose this dangerous policy of making public pay sacrosanct when he insisted, against advice, on negotiating the Croke Park agreement. As with much else, this Government has become a prisoner of the policies of its governmental predecessor.

Our sovereign debt is another matter. This is so huge that we cannot realistically ever hope to pay it off. There have been demands that a 'Yes' vote should be conditional on getting help from Europe with this debt. But our threat to scupper the treaty is such a weak one that it probably wouldn't have happened anyway. Europe does not need us to pass the treaty.

The only strategy the Government has to deal with sovereign debt is to keep making huge payments we cannot afford to people who are neither legally nor morally entitled to be paid, while simultaneously engaging with the troika. This "engagement" consists of begging, pleading for help, but actually getting nowhere. Something a bit more muscular is needed. We must repeat the just nature of our cause again and again. Yes, Brian Lenihan caved in to the fear that letting Anglo Irish Bank go to the wall would have caused a run on AIB and Bank of Ireland and the dreaded scenario of empty ATM machines. But the clincher for Lenihan, it seems, was being told by the then head of the ECB, Jean Claude Trichet, that he must do it to prevent a similar outcome throughout Europe. Lenihan's big mistake, and the mistake made by Brian Cowen and the rest of the Cabinet that night, was not to insist on ECB backing for the guarantee once Trichet made it clear that he was as concerned as the Irish Government. European banks dodged a bullet there and we have been carrying the wound since. We can not keep trying to service unserviceable (for us) loans. It is not that we don't want to. God know we have more than demonstrated our willingness to endure. It is simply that we cannot.

Once the treaty is passed, we will come to a time when the climate for making such a case will have improved -- not because of the treaty, but because of the changing of the guard in Europe. We need stimulus, we need debt forgiveness in whatever form -- and a eurobonds scheme seems the nearest to that suggested so far. In the era of Merkozy, this was met with a deaf ear. Without the support of Sarkozy, Merkel may find this harder to resist and if returned in her own elections next year, may feel more free to play the part of a European stateswoman than she has so far. The man who looks set to replace Sarkozy tonight, Francois Hollande, should help her on that journey. He wants Europe to aid struggling members like ourselves with cash and to place growth at "the heart of the European agenda." Hope too comes from the recent utterances of the present ECB chief, Mario Draghi who wants to see a eurozone "growth pact".

The same Mr Draghi spelled out his vision for Europe last week. He wants fiscal union within 10 years. That is a challenge for us, but also an opportunity. Unlike the stability treaty, this is a process in which we will be

essential because it means the survival and endurance of the euro, not a two-tier system favouring the survivors of a purge of weaker member states. But is will also mean sacrifices. There will be a requirement for all member states to surrender fiscal sovereignty -- permanently. Given the opposition to our temporary loss of sovereignty, this will inevitably cause great turmoil here, but it will also give us bargaining power.

Of course we cannot wait 10 years for relief. We must insist on some meaningful debt relief now otherwise niormal banking, from which all else flows, cannot be restored . If not when the time comes to negotiate away our fiscal sovereignty, we do will do so from our knees.

Against that background we must decide how to vote in this referendum. It is true that a 'Yes' vote will not make a bit of difference to our present situation. But that is not to say that a 'Yes' vote is not vital. Because the odds are that a 'No' vote will certainly do harm to our prospects for recovery. And wasn't it chasing the odds that got us into this mess in the first place. The Government has a very small four-week window in which to get that message across.

Sunday Independent