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More from the economic front… September 29, 2010

Posted by WorldbyStorm in Economy, Irish Politics.

It’s a bit annoying to be presenting what may seem like my single-transferable post on Sunday Business Post editorials, but really, reading the latest one the sense of deja vu is unmistakable. Isn’t this what they said last week?

With the publication of this weekend’s opinion polls and the fear of a general election asserting itself among the Fianna Fáil party, the immediate threat to Brian Cowen’s leadership appears to have passed.

However, his jaded government is showing few outward signs of getting to grips in a constant and coherent way with the crisis we face.

Well yes, but in different words.

Anyhow, you’d think the SBP would be contented with a government that has largely done the markets and the private sector’s bidding. You’d think that, but you’d be wrong.

The Taoiseach, together with his Minister for Finance, have a decision to make.

Either they can push through the kind of decisions which are needed – including a brave and reforming budget package – or they can’t. If they can’t, then they should call an election.

The time for muddling through and hoping things will get better is over.

The situation on the financial markets threatens our very economic sovereignty.

The government has been lax in the extreme in letting this crisis build during the summer period, when nothing seems to happen in the closeted world of the government and the public sector.

But hold on. Surely the Government, by its own lights, has done precisely what was demanded of it, as David McWilliams helpfully points out in a column in the same edition:

We in Ireland were told that, if we knuckled under and slashed our budget deficit and kept our banks afloat by giving the innocent the bill for the guilty, we would be rewarded by the financial markets with lower interest rates.

This was never right. It was always wrong because that is not how the world works.

The markets want growth and anything that strangles growth scares them.

Those of us who argued that the government’s policy would fail were ridiculed.

Yet again, official Ireland has been proved to be wrong, criminally wrong. But these spats really don’t matter; what matters is how we are going to get out of this.

Now, I may have missed things, but it seems to me that what McWilliams argues is right. The Government has initiated a plan and stuck to it. It brought the unions onside, it has agreements about the Public Sector. Indeed difficult to know precisely what the SBP editorial’s problem with the PS is, other than it simply existing – given how quiescent PS workers have been in the main in accepting all that has been thrown at them. The further complaints of the SBP on that matter are most odd, really, when you think about it.

The Croke Park agreement was negotiated in April and passed by the unions in June.

Yet it is only now that talks are starting on actually implementing it.

How many more months will it be before the ‘flexibilities’ promised in the deal are delivered? Or will they be delivered at all?

While companies in the private sector are forced to go through wrenching and sudden adjustments, this is a clear signal that those managing the public sector are still not responding to the urgency of the situation we face.

It seems to ignore the fact that there have already been wrenching and sudden adjustments in the PS long before April or June, or indeed September. Moreover, does it seriously believe that any changes – which by the way I think are welcome – are going to make a blind bit of difference this fiscal year?

But for the SBP it is the former rather than the latter which always, always grabs its attention:

The fiscal crisis – a greater threat than the horrendous hole the banks have got us into – will not be solved unless the cost of the public sector is reduced.

Now note how the ‘cost’ of the public sector is elided with public expenditure. But…

Does it genuinely believe that the markets are spooked by the PS? Unlikely, given that the analysis provided elsewhere concentrates not so much on the cost of public expenditures (seen as largely manageable) as on the cost of recapitalising the banking sector. And consequently the tears it sheds seem, well, to be honest, a little offensive…

This change (in the PS) can be achieved with a limited effect on public services – and on the people who depend on them – or it can be achieved after huge disruption, division and suffering by some of the most vulnerable people in society.

That is up to the public sector employees and the unions which represent them.

But it must and will be achieved.

No amount of wailing about the cost of Anglo Irish Bank will change that.

Hmmmm… ‘wailing’? Is that what the anger is? And are we all missing something when we read week after week from commentators as diverse as Kiberd and Cooper in the Sunday Times and McWilliams in the SBP that it is Anglo that is the problem? Are they wailing? Wailing in the very pages of the SBP. Or what of Cliff Taylor’s piece in the same edition which goes through the problems relating to the banks and discusses the market responses without once mentioning the public sector? Odd. Indeed odder still the problems articulated yesterday in relation to bonds which seem to be driven almost entirely by the banking situation, or more precisely by the Anglo-Irish bailout and the figure now looming out of the financial mists.

And consider this:

There is no point pretending that there are easy answers to the banking crisis by suddenly shifting the losses elsewhere.

Which is rich considering that the losses were suddenly shifted onto the public, a public which overwhelmingly had no hand or part in generating them.

Nor is there any point in pretending that there is some quick fix to our budget deficit.

Woolly talk about finding efficiencies means little at a time when we are having to pay more than 6 per cent to borrow funds on the markets.

And so we’re getting there. Because after all, isn’t it all a little woolly the talk about changes under Croke Park? I’m all for a single employment ‘market’ in the PS, I’m absolutely for rationalisation of various oddities of employment there (although I’m also aware of the fact that the PS isn’t an entirely undifferentiated area and that different employments within it have distinctly different aspects to them). But if that’s the case, then… ah, but read on…

Unfortunately, the nature of Irish politics is to avoid any radical solutions. Is there a politician brave enough to stand up and admit that we will need a property tax and water charges, because otherwise the income tax bill will suffocate the economy?

Is there one who will say straight out that pensions must be cut – including the vastly generous arrangements for public sector pension holders?

Except of course, it doesn’t really mean that pensions should be cut, only public and state ones. No word about private pensions, or God forbid, even the hesitant rhetoric from one E. Milliband about imposing some sort of restrictions on higher wages in the private sector. not a bit of chat about how private sector employers eschew provision for most of their staff across that sector?

And entertaining to see how a property and water taxes, unimplementable we are told in the short term in any even half way egalitarian fashion (and probably in the long term), are top of the SBP’s list. What they’re talking about is a flat tax initially – and who does that affect most? So much for the ‘most vulnerable’ in society.

And then we get to the heart of it. Because the truth is the SBP doesn’t really believe in the very policies it championed in editorials calling on – for example – the unions to be responsible:

Is there a politician brave enough to say to public sector unions that they must deliver by Christmas, or the Croke Park deal will be torn up? Indeed, if growth does not recover, it may need to be torn up anyway.

The irony is that, if the public were given a clear road-map, rather than undermining confidence it might actually rebuild it.

Really? With who? The Irish people? The unions? Anglo bondholders?

I’ve mentioned before, I’m an unlikely defender of the Irish PS in some respects. But to blame the PS for things it can’t be responsible for, or either hasn’t done yet (or not done, if you see what I mean) or alternatively to pretend that it is either desirable or feasible to move yet again against it is the optimal route forward seems curious, to put it mildly.

When we come down to it the economic policies adopted by the government are faltering and badly. But the SBP is now convinced that it’s not NAMA and Anglo-Irish that are sinking the economy, but a largely beaten public sector and public expenditure.

That level of self-deception is remarkable. It truly is.


1. Pope Epopt - September 29, 2010

It’s more than self-deception, it’s magical thinking. The idea is that if ‘we’ perform the scapegoating and significant sacrifice (usually other people’s) correctly, the gods will smile and heap bounties upon us, or at least not strike us with a thunderbolt.

Since 80% of neo-classical economists act as high-priests to this cult, there is little wonder that the incurious media follow suit.


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