THE BIG PICTURE AND THE SMALL 1109 XXXI

THE BIG PICTURE … AND THE SMALL

A silly season story to make you weep. Retiring employees of FAS, the already discredited Irish  state training agency, receive up to seven weeks extra paid holidays during each of their final two years, to help them prepare for retirement (!) No wonder Ireland’s economic situation is sometimes characterised as critical but not serious.

The Big Picture is now with us. In the context of the tremors coursing through the world economy, Ireland’s economic problems, real or otherwise, represent small beer indeed.  Who can tell what will be the outcome of the current world wide economic upheaval? Will the international economy stutter on? Will the euro survive? Politicaly, what will happen in the Middle East? Will democracy prevail – eventually  – in Libya and Syria? What then? Will the Arab Spring spread to the Gulf, to Saudi Arabia? Will the pundit who forecast that in a year or two the southern rim of the Mediterranean would be one Islamic state be proved correct? And what about the price of oil?

Thus far the big picture has helped . The need for Europe’s big states to focus on protecting the Euro has subsumed Ireland’s problems into the bigger euro whole ( w optional!). The immediate interim solutions, a second bailout for Greece and moves towards new fiscal mechanisms, have, as a by-product, lowered the interest rate payable by Ireland  on monies borrowed. The government has been handed, on a plate, one of it’s chief election commitments. The net effect will be a saving of $1 billion plus annually on interest payable, giving slightly more wiggle room  on the financial bind. (The saving does not mean more money; merely that the cost of our ongoing borrowing  simply to run the country will be slightly less.)

It must be comforting for the Government, just six months in, to have this international economic background as a fallback. There is still mileage out of blaming Fianna Fail for the domestic situation and the harsh measures pending, but there is now the added comfort of external economic factors. Should the Irish economy continue to stagnate, and unemployment persist at current levels, the international economic uncertainty can be cited as hindering recovery. Moreover, the praise and plaudits we are receiving internationally for policies pursued are encouraging. If we could only factor out thecost of the bank  bailout, we would be well on the way to recovery. If only!

The saving on interest will not go amiss. For even if so far Enda Kenny seems blessed with Napoleon’s sine qua non for a general – Luck – the third hundred days of the coalition promises to be interesting. At the very least the government has to find $4.5 billion in extra savings in the December budget and who knows what else may be lying in the economic long grass out there (last year $5 billion morphed to $7 billion after September, which proved the tipping point necessitating IMF intervention). A formidable enough target in itself but made more complicated by a mystifying commitment, celebrating 100 days in office, by Kenny and his deputy and Labour leader Gilmore, not to raise income tax or cut welfare levels to achieve the target.

Given this commitment, just how the target – an IMF one –  will be met is unclear. Perhaps the Government  believes its luck (and public support) will hold. This is a dangerous strategy. The money has got to come from somewhere. Presumably some form of semantics will be employed , changing tax bands, changing age or income levels for benefits, a slew of stealth taxes, but the net effect will be to damage seriously the government’s reputation for transparency. This has already taken one blow over Roscommon Hospital, where a needless pre- election commitment was given.  The strategy should surely have been to take the harsh measures every one knew were necessary early on in the government’s term and blame it all on Fianna Fail.

The fallback strategy, to blame the IMF, already used to excuse the new property levy, cuts less ice and is less effective politically. There is every danger that the brief opportunity for the new government to dent decisively the  public sense of entitlement and regenerate the political system and culture will be lost. Already voices can be heard complaining that they “voted for change” and asking where is it, as if the economic mess could be banished by simply casting a vote.While most people recognise the seriousnes of the situation and the need for firm and painful action, the danger in delay is that impetus will be lost. As time passes, and as further harsh measures are introduced piecemeal, the fickle finger of blame could quickly redirect  at the government.

There is no doubt that Fine Gael feels it has to tread with care lest it frighten the Labour horses. Labour for its part has its own frightened horses to worry about. The unprecedented number of new Labour backbenchers is both a blessing and a curse; great to have the numbers but a slight loss of support could lose those seats next time round. The new backbenchers are very much aware of this, and of the radical left snapping at Labour’s heels. The recent election showed the punishment that an angry and disillusioned electorate can hand out.

While all this is true (and also applies, mutatis mutandis, to the Fine Gael backbenchers), there is surely a stronger case to be made in the current situation for the tactics of Machiavelli rather than Fabian the Delayer, i.e. get the harsh measures over quickly.  Whatever the outcome on the world macro- stage, the problem of the budget deficit on the Irish micro-stage will remain and this cannot be solved without pain.

The first strains on inter-coalition relations  should come later this month when the comprehensive review of government expenditure is due. Granted that the Minister in charge is a Labour Minister, nevertheless any proposed cutbacks in spending, to help meet the IMF target, are likely to impact more on Labour supporters and support and lead to some soul-searching in the ranks. A toe to toe battle between the two parties in the October Presidential election would also not improve matters, though as I write it is not clear what the final line-up of candidates will be.

The mood of the electorate should also be watched.While there has been a healthy dose of realism up to now, as evidenced by the muted reaction to the medicine the public has had to swallow (unlike Greece, there has been no rioting in the streets), this was accompanied by a grim resolve to punish those deemed responsible, as Fianna Fail found out. However, into Year Four, with more screw-tightening in prospect, the cumulative effect is mounting,  with many hitherto unscathed (including sections of the middle class) now being hit.

The potential for grievance developing is rising. Revelations such as the FAS one do not help, nor the fact, underscored daily, that everyone will hang on doggedly to what they have. Ultimately so much depends on international developments that  the Government should be careful lest what it does, or doesn’t do, makes matters worse.

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