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Brendan Keenan: Forget the election, we know who will really be in charge

JUST when the election was warming up, with the heated debate between Eamon Gilmore and Micheal Martin, along comes a dose of cold water in the shape of the first "report card" from the International Monetary Fund.

There was nothing much to get excited about in the report itself. That is hardly surprising since it is the first in the four-year agreement with the EU and IMF on fixing the public finances and the banks.

There will be many more such reports, since they come every three months.

Sooner or later some of them will spell trouble. The significance of this one is as a reminder of what an unprecedented, bizarre (some might say, grotesque) election this is, and how hard the politicians have tried to disguise that fact.

The new reality is that, not only has the Government agreed to the terms of the EU/IMF programme, but that it will be monitored to a degree previously unknown in Irish public life.

The Irish administrative system is not very good at monitoring. A special unit has been set up in the Department of Finance to keep an eye on what is going on and try to co-ordinate the work -- another past failing.

One little nugget in the short report is that IMF staff are providing "feedback" on the draft legislation for dealing with troubled banks in future.

The European Central Bank was taken aback by some of the terms in the new legislation used to start winding up Anglo Irish and Irish Nationwide on Tuesday. Our emergency lenders clearly want no more surprises.

This is the context in which the new government will operate. The targets for the public finances will be monitored every quarter and progress on structural reforms will be monitored through detailed benchmarks with a precise timeframe for their implementation.

One of these "structural benchmarks" made the news yesterday, with the postponement of the injection of €7bn of fresh capital into three of the four surviving banks. The deadline for this was the end of the month but Finance Minister Brian Lenihan thinks the minority government does not have a "mandate" to do that.

Fine Gael's Michael Noonan could not stop grinning at this suggestion, but more to the point is that Mr Lenihan had to get the agreement of the Commission/IMF to do so. It was a little unclear whether the ECB agreed, but it is not technically a bailout lender.

Brussels and Washington are sensitive to the fact that an election is under way, and even more sensitive to the fact that it could undermine the negotiated deal.

"The fragile political environment could cause unwarranted delays," the IMF analysts say.

They also observe that the public response to the programme "has remained favourable".

That may sound surprising, but compared with the IMF's experience in many other countries, it is probably true.

The Irish attitude has often been put down to Irish servility. But ever since the 1980s, the evidence has been that the Irish electorate wants sound public finance -- which is not the case everywhere. It is just that their politicians, trade unions, employers, civil servants and central bank keep letting them down.

Despite this perceived public support, the IMF team do say that a "lingering domestic perception of inequitable burden-sharing persists".

Indeed, but only time will tell if this might translate into a perception in the EU/IMF that burdens will have to be re-distributed.

Not everything is set in stone. The new government may actually have some room to negotiate on the capital to go into the banks, and the timing of it. But the terms of the major bank re-structuring now under way have been set as much abroad as at home -- if not more -- and one can expect little change to those terms.

The election continues to confuse. Fine Gael's Leo Varadkar said not a cent more for Anglo, until there were losses for the senior lenders (bondholders) to the bank. Hours later, Michael Noonan said there could not be unilateral action on bondholders.

MR Varadkar may be placing a little wager. Anglo may not need any more money, although goodness knows, €35bn is enough. The fears now are over mortgages and small corporate loans, which are a problem for the other banks. They will require many cents, and presumably will get them.

A bigger wager could be placed on the banks rapidly becoming a secondary issue for the next government, as the core task of fixing the public finances looms.

There is a hint of what may be to come in the report, with the observation that revenue at the end of the year was better than expected, but job reductions in the health service were less than expected, as were savings on social welfare and capital spending.

It is relatively easy to construct a tax package, however unpopular its implementation.

The bet is that finding €10bn in spending cuts, which the EU/IMF deal demands, will be the issue which haunts the next government for most of its term.

Irish Independent