Monday 21 October 2019

At least we know the grim reality

ALMOST all the main lines of Ireland's financial bailout had been well publicised before last night's endorsement of the €85bn agreement by the European Union Council of Economic and Finance Ministers. But the details are still of the highest importance.

They start with the breakdown of the €85bn. Of this, €10bn will go to those voracious consumers of public money, our banks. After that comes €25bn for "contingencies", of which half will be found from the National Pension Reserve Fund. Given the banks' record, the word contingencies does not ring pleasantly.

The remaining €50bn will cover, quite simply, Government deficits. The average interest rate on the loans advanced by the EU, the ECB -- and the other partners in the deal, Britain, Denmark and Sweden -- will be 5.8pc. Such a high rate is disappointing, but better than the previously rumoured 6.7pc.

It is fairly clear from the contents of the agreement that the negotiations were tough. The Irish team faced formidable, well-informed negotiators. They have some reasons for satisfaction. But not all the conditions are as palatable as others.

Our 12.5pc corporation tax rate remains untouched. By common consent, this is absolutely essential. The continuing rise in exports is one of the few lights shining through the darkness of our economic woes. We need the low tax rate to have any hope of achieving growth, and without growth we would be in far worse straits.

The four-year period during which we are supposed to reduce the Government deficit to 3pc is to be extended by one year. This is not necessarily something to be applauded.

It means that after 2011 the harsh provisions of the four-year austerity plan will be eased a little. But where did the proposal for an extension arise? It amounts to a U-turn by the Government, which had previously insisted that the plan must be completed in four years and set its face against numerous calls for a change to five or six years.

The same Government once promised us the cheapest bank guarantee in the world. Since August 2008, the costs to the taxpayer have constantly mounted, to an intolerable level.

This time, the news of yet another tranche of recapitalisation will be somewhat more bearable. It goes along with a decision to restructure the banks. They must become smaller, more efficient, and far better capitalised. This should have happened at least two years ago. Likewise, we should not have had to wait until now to hear about proposals to reform the labour market. Our European partners are horrified by the level of waste and inefficiency in our public sector.

Will it work? Can we afford it? The answer is simple. It must work, and somehow we must find the means to pay.

Last night, Taoiseach Brian Cowen talked of considering all options, but then said that the bailout was the only realistic option available. He was right. To default on our debts would be to plunge ourselves into the "nightmare scenario" and hammer the last nail into the coffin of our reputation. These issues are also of deep concern to our partners. If Ireland went to the wall, Portugal would likely follow. Then the "contagion" could spread to Spain and even Italy. The common currency, the unity of the EU itself, would be endangered.

It is extraordinary that in the weeks leading up to the bailout the Government appeared unable to grasp either these well-publicised facts or the reality of the domestic crisis. The Taoiseach and several ministers actually attempted, until the eleventh hour and beyond, to deny that a bailout was necessary. That was a remarkable exercise in self-delusion.

But in our present situation, there is scarcely time to glance at the faults of the Government. We have more pressing matters.

On December 7, the Dail must pass the Budget. Then the Finance Bill should go through with unprecedented speed, to clear the way for the General Election.

After that, we will face years of hardship. But it is well to know the worst, and now we have reason to believe that we know it. Armed at last with some certainty, and calling on our reserves of courage and resilience, we can win through.

Irish Independent

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