Irish are still stressed out

It has been a stressful week here in Ireland, and no one was feeling it more than the former minister Michael Lowry. 

Back in the mid-1990s he was the minister for communications when Ireland's second national cell phone license was awarded to a company led by the businessman Denis O'Brien. 

O'Brien subsequently sold the business and made over €200 million, which became the basis for the billion dollar fortune he has made from phone businesses in the meantime.  But there were allegations right from the beginning that Lowry had influenced the selection process which gave the license to O'Brien's company rather than other applicants. 

A Tribunal of Inquiry was set up by the Dail (Parliament) to examine corrupt payments to politicians, and after running for an incredible 14 years, making millionaires out of the lawyers involved and racking up costs which are likely to exceed €100 million, it's second and final report was published last week.   (Its first report was the one which exposed Charlie Haughey.)

This second report by the Moriarty Tribunal (Michael Moriarty is the judge who ran it) is probably the most costly 2,000-page document ever written.  And to no one's surprise, it found that the awarding of the cell phone license had been corrupt. 

It described Lowry's actions at the time as “disgraceful” and detailed various covert ways it believed O'Brien had paid him off.  The report said that O'Brien gave Lowry the equivalent of around $1 million, either by way of direct payment or facilitated loans, in the years after he was given the cell phone license. 

Of course both Lowry and O'Brien flatly denied the findings, pointing out that the report is “just the opinion of one man,” Judge Moriarty.  They said it was all circumstantial and supposition and that there is no hard evidence of anything illegal.  They challenged the state to bring them to court, to put up or shut up. 
The government has sent the report to the Gardai (police) and the Director of Public Prosecutions to see if there is enough hard evidence in it to bring a case. 

But that is doubtful. There's a big difference between Moriarty deciding that he knows something and the police being able to prove it in court. 

Much more worrying for Lowry is the announcement on Tuesday that the Criminal Assets Bureau is going to examine the case.  This is the body that has the power to take assets from someone who cannot explain how they financed them. 

It has been used against major drug dealers and other criminal bosses here.  But there is no reason why it can't be used against anyone else, including a politician.

This week there is a two-day debate in the Dail about the Moriarty Tribunal report and its implications.  All of which is highly embarrassing for Fine Gael because Lowry used to be a big wheel in the party and played a leading role in raising funds for the party to pay off its large debt at the time.  That's what the opposition will want to focus on, not Lowry's murky personal finances.

And it's important that this matter is pursued to the bitter end, partly because foreign companies bidding for licenses and contracts here (there were several foreign consortia in for the cell phone license that O'Brien got) must be reassured that our processes are fair and independent.

But the real tragedy about all this is that it is taking attention away from where the spotlight should be this week, the publication of the all-important stress tests of the Irish banks.

On Thursday, the results of the latest stress tests of the Irish banking system by teams of outside experts will be given to the new government.  Finally, after weeks of waiting, the awful truth about our banks will be revealed.  

As if we didn't know already.  We all know it will be bad. The only thing we don't know is exactly how very bad the very bad news is going to be.   

There is already an extra €10 billion in fresh capital funding agreed for our banks under the EU/IMF deal for Ireland, which included €35 billion for the banks.  The last government delayed putting it into the banks as the election approached, deciding they might as well let the new government take the blame for putting even more money into our zombie banks. 

The new government has continued that delay, insisting that they need the stress test reports to tell them just how deep the black hole is before they fling any more money down it. 

Rumors here in the past few weeks have suggested that the extra amount needed to recapitalize our banks to the minimum level now required by EU rules -- on top of all that has been put in already -- could be at least double the €10 billion which had been planned.  Some people are predicting that even €20 billion won't be enough. 

The government is saying that no matter how bad it turns out to be, knowing is better than being in the dark.  At least we will then be able to see where the bottom is and we can draw a line under the situation. If we can quantify the full extent of the problem, we can start to tackle it.  

Certainly the government is right that the present uncertainty is killing us.  It has meant that the Irish banks have been unable to borrow funds at any price on the international money markets for months now, and have had to depend on the Irish Central Bank and the European Central Bank to keep them going.
Nobody else will trust them because they lied about the size of the black hole to the last government, and they are still minimizing the problem rather than facing up to it. 

So yes, we do need to know the truth.  But the government's view that these stress test reports will at last uncover the very bottom of the black hole may be a bit optimistic. 

The truth is that no one knows where the bottom is, and that includes the very experienced international experts who have been trawling through the books of the Irish banks for weeks now (and charging a fortune in fees for doing so). 

The problem is that stress testing banks is not an exact science.  It all depends on models used and the assumptions the testers make. 

As we all know, a huge part of the bad debt problem in the Irish banks is the result of the property crash. In the last week I have heard expert estimates of how much property values here have fallen that have varied between 35% and 60%. 

Even the experts can't agree on it, and to be fair to them it's very difficult because every house, every site, every half built office block or housing estate is different. 

Another problem is trying to assess whether we have hit the bottom, and again the experts don't agree.  So have we another 10% or 15% to fall, or are prices about to stabilize?

My own gut instinct is that we still have some way to go down because prices of ordinary houses are still far higher than someone on the average pay level can cope with on a 20-year mortgage. 

And, of course, these calculations and considerations are critical if you are trying to stress test Irish banks which are up to their necks in property. Every percentage point one way or the other costs them billions.  
Stress testing the banks means trying to predict the future of the property market.  And we all know how difficult that is.  

And it's not just about the big developers who borrowed hundreds of millions.  Many people are out of work here now, and many of them bought property during the boom at inflated prices when they were earning a lot of money. 

Now their pay has been cut or they have lost their jobs and they can't make their mortgage payments. Tens of thousands of bank customers are expected to default on their mortgage payments in the coming year.  And again getting a handle on this is difficult. 

The banks are also dependent on the wider economy, not just on a property recovery.  The dramatic slowdown in many sectors of the Irish economy has implications for repayments of business loans. There are all kinds of loans out there apart from the billions tied up in property.  

Putting all this together in a stress test model and hoping the right answer comes out the other end has to be problematic.  Also worrying is the fact that this is not the first time the Irish banks have been stress tested, and the experts were wrong before. 

But at least the figures we will get this week for the black hole in the banks will be an indication of the perceived size of the problem we face.  Then it's going to get really interesting.  

Already this week the state has said it is taking over another Irish bank, Irish Life and Permanent, which includes the biggest life assurance company in the country.  It has to inject massive funds to stop it collapsing, which means taking it into state ownership. 

And don't forget the state already owns Anglo Irish and Irish Nationwide, and it has a big majority stake in Allied Irish Banks.  In fact the only one it doesn't own is Bank of Ireland, but it has one third of that and rising. 

The Irish banks are basket cases and the entire system could end up in state ownership.  This is the huge problem the government faces, on top of the budget deficit problem. 

There is no sign of any give by the EU on the proposal for burden sharing which the new government has been pushing hard.  But something has to give if Ireland is to avoid a sovereign default.

Smiles as bail out crunch approaches Ireland

Prime Minister Kenny's St. Patrick's Day trip to the White House went very well, judging by the reaction in the American press and the way it looked on Irish TV, showing the instant easy rapport he had with President Obama.

Kenny is good in that kind of situation ...he's personable, relaxed, good company, he can tell a joke and deliver a speech. So back here we're not surprised that he carried it off so well and so effortlessly.

That kind of intimate, friendly setting is where he shines. His speech was poetic, moving and inspired (take a bow whoever wrote it), cleverly linking the experience of the slaves from Africa and the destitute Irish immigrants after the Famine and their joint role in building America.

Given Obama's Irish and African roots it was the perfect note to strike in advance of the president's visit here in May. And Kenny delivered the speech well.

In return, Obama said some positive things about our future ... and Lord knows we need to hear the positives because confidence here is at a very low ebb.

Equally, Bill Clinton's Irish America magazine address last week (and there's a guy who can really deliver a great off the cuff speech) was a boost, a reminder that all is not lost, that we still have the talents that make us unique and that, in time, we can rebuild our prosperity.

So yes, the uplifting words from our American friends were very welcome here last week. Boosting confidence in Ireland is important.

But unfortunately the economic problems we face are on such a scale that kind and inspiring words, no matter how well meant, cannot do much to help.

Equally, although Kenny did us proud in the White House last week, the fact that he is a socially engaging guy who has an easy rapport with other leaders and can deliver a prepared speech effectively does not mean that he can handle the biggest economic crisis to hit this country since the foundation of the state. The jury will be out on that one for a while.

As you may know, we are now reaching crunch point with our EU partners on whether they are going to relax the terms of the bailout that is keeping Ireland afloat. Our new Minister for Finance Michael Noonan, a famously tough nut, has spelled it out for Europe and the International Monetary Fund (IMF) in stark terms.

If it was just our budget deficit, then we could sort that out in a few years, painful though it's going to be, he told them. But when you add on the enormous bank debt on top of that, the situation becomes untenable.

There has to be some kind of shift, not just on the interest rate we are being charged, but on the extent of the debt itself. Or to put it another way, it has to be accepted that we are never going to be able to pay all the money back.

You can call it debt forgiveness or burden sharing or debt restructuring or whatever you like. But it comes down to the same thing. Europe better wise up to the fact that they're not getting all their money back.

Noonan may not have phrased it as baldly as that (even if he is known as Baldy Noonan), but he has put this to the EU leaders much more directly than Brian Lenihan would ever have dared. Famous for his blunt turn of phrase, Noonan has given them the message.

He has also made it clear that loading all this debt on the Irish taxpayer (thanks to the state guarantee that turned bank debt into state debt) is inequitable as well as untenable. The ordinary Irish taxpayer did not make this problem.

It was the German and French banks (mainly) who were out to make a killing in the Irish property market who recklessly lent all those billions to the Irish banks to lend on to our developers. And it was the European Central Bank whose job it is to regulate the national Central Banks in European countries which stood idly by while all this was going on.

It did nothing about it, even as the Irish property market expanded into a dangerous bubble and blew up.

These guys at the top of the French and German banks and at the top of the European financial food chain are the ones who took the risk, not the ordinary Irish taxpayer. Yet they want the Irish taxpayer to pay the price, to carry the entire debt burden, a burden so great that it will eat up a huge proportion of our tax revenues here and leave little to be spent on getting the Irish economy back in shape again.

It's true that the Irish banks behaved recklessly during the boom here and that financial regulation here was a joke. But the Irish banks were not printing the money -- they were borrowing it. The people who lent us the billions took a risk and when the property bubble in Ireland burst they lost.

Now they must take the consequences of that lost gamble. They must accept that they have to share in the pain. But instead of that the French and German bondholders and banks want all their money back.

The reason these banks want it all back is that they are protecting their shareholders and protecting their solvency. This thing is so big it has the potential to destabilize some of the French and German banks that gambled most heavily on the Irish market.

That's why French President Nicolas Sarkozy and German Chancellor Angela Merkel are being bullish on this. They are protecting their political backs and protecting the wobbling European financial market and screwing the unfortunate Irish taxpayer to do so.

They're bad, but even more nauseating in the past few days has been the president of the European Central Bank Jean-Claude Trichet. Even for a
Frenchman his hubris is a wonder, particularly for one who sits atop the organization which was asleep at the wheel when this huge financial pile-up across Europe was happening.

And boy is he patronizing. Responding last weekend to the signals coming from the Irish government that the bank debt on top of the deficit debt will be too much to handle, he said he did not agree.

He said he has confidence in our ability to take the difficult measures needed so that we can pay our debts.

Well thanks for nothing, Jean-Claude.

Quite by coincidence, as I was writing this column, an electrician arrived at my house this morning to fix the outside lights that did not survive the winter and are now blowing our fuses. The guy is middle-aged like myself with a teenage family and I've known him for a while. We sat down for a cup of tea in the kitchen before he started and shot the breeze about how tough the times are.

He said that in spite of the construction collapse he was surviving on "bits and pieces" of work because he has a lot of domestic customers like me who still call him to get small jobs done.

“So you'll be okay,” I said. “That's good to hear when so many of our plumbers, electricians, block layers and so on are emigrating.”

“Oh no,” he said. “I'm off as well at the end of the summer. We're all going to Australia. It's not that I can't survive here. It's just that I'm determined not to pay my taxes here and then see them being used to pay off all those greedy bastards who caused this in the first place.”

My electrician friend is not alone. In fact there are thousands, probably tens of thousands, who feel just like him.

They feel there is no future here either for themselves or their teenage kids who will be coming out of college in the next few years. So even if they can get by at whatever they do, it's not enough. They're out of here. Why should they put German banks before their kids?

We only get one life. And many people here don't want to spend it paying back the banks and bondholders who gambled their billions on Ireland and lost.

It's not the fault of the ordinary Irish taxpayer. And the sooner the EU, the IMF, the German banks and the European Central Bank wise up to this, the better for us all.

Irish Government suffers a shaky start as Europe says no

The new Irish government is off to a somewhat shaky start. You could almost feel sorry for them.

The customary thing here is for the media to give an incoming administration a honeymoon of a week or two to give them a chance to settle in. But this time it’s different. This time there can be no honeymoon.

Like many newly married couples in Ireland these days, the new coalition partners did not really expect to get one. Given the crisis we face, the country cannot afford the time.

The government has had to hit the ground running. As the new Taoiseach (Prime Minister) Enda Kenny said before the election, there is not a moment to lose. And the pace of events since he took power last Wednesday shows that he was right.

Last Thursday, the day after he became taoiseach, Kenny was on the plane to Brussels for a meeting with Jose Manuel Barroso, president of the European Commission. The next day he was in the thick of a full EU summit rubbing shoulders with the other prime ministers in Europe.

The emergency EU summit had been called to discuss Libya, but Kenny was also pressing Ireland's case for a better deal on the bailout. He got absolutely nowhere, and if he had any illusions about how tough it's going to be he won't have any left now.

All his illusions were shattered, and he looked pretty shattered himself when he got back home, saying that this was just round one.

Some of the simple things he has done in his first few days have been encouraging and good for the optics, as they say in political circles these days. The new taoiseach arrived on foot at Government Buildings for his first day at work, walking up the footpath through the waiting cameras and reporters who are more accustomed to seeing a taoiseach sweeping through the gates of the Dail (Parliament) in a chauffeur driven Mercedes.

His driver probably had dropped him off around the corner from Government Buildings, but somehow it didn’t matter. It looked good.

It was the same on Wednesday when Kenny appointed his new Cabinet. The practice in the past has been for the new ministers to go up to the president's residence in the Phoenix Park in a convoy of black limos to get their seals of office.

This time they left their ministerial Mercedes behind them and they all went up together in a mini-bus. It was an effective visual signal that we are entering a very different era in Ireland.

At the first meeting of the new Cabinet a further cut in pay for the taoiseach and his ministers was agreed. Again, a good way of sending out the message that everyone here will be affected by the cuts that have to be made (even if our ministers are still paid far more than their counterparts elsewhere!)

But as well as these positives, there were worrying signs as well. As we pointed out in this column last week, all the heady election rhetoric about radical change and new beginnings is being quietly shelved.

There are two excuses -- first, the financial crisis means reforms must wait, and second, the agreed program for government does not include many of the specific reforms that were in the individual Fine Gael and Labor election manifestos.

Let’s take a simple example, one that raised great hopes among the teenagers in our house. Before the election Fine Gael promised that the compulsory teaching of Irish in schools would be ended.

Now they are saying they will look at it, but not before a complete reassessment of how Irish is taught has been completed. Which could take years.

On a more serious note (although nothing is more serious in our house than the hated system that force feeds Irish to kids) there was Kenny’s promise to reduce the size of government. He still went ahead and appointed 15 ministers, as before, plus he even squeezed in an extra seat at the Cabinet table for a super junior minister, who will be able to speak at Cabinet meetings but not vote.

Of particular concern is the fact that Kenny ignored the promise he made before the election to reduce the number of junior ministers from 15 to 12. He went ahead and appointed a full team of 15, all of whom will have ministerial salaries and all the perks that go with being a minister. In a country this size it’s ridiculous even when we can afford it -- and absolutely crazy now when we can’t.

Also on the Fine Gael hit list as part of the drive to smaller government were the hundreds of so-called quangos, all those organizations funded by the state with offices and staff who never seem to do much except make red tape, spend tax money and produce mountains of paper.

We were told that Fine Gael would be swinging the axe on a hundred or more of these bodies without delay. But there is nothing happening so far on that, and instead the program for government and the plans of the two parties actually envisages the creation of about 30 new quangos. Of course these ones will be useful!

Before the election Fine Gael published a list of 28 major changes they would make in their first 100 days in office. Labor, of course, had its own list.

The problem for those trying to monitor whether they both keep their word is that the agreed coalition program has fudged many of the promises from both parties. Nice trick that.

One of the main planks in the Fine Gael election document was the undertaking to cut public sector numbers by 30,000. Getting down the numbers on the state payroll is essential if we are to get our deficit under control.
But Labor, which is backed by the public sector unions, wanted the lower figure of 18,000 jobs to go on a voluntary basis. The compromise in the program is that the number of public sector workers is to be cut by up to 25,000 by 2015, which is a less watertight commitment and a longer timeframe than before.
And it will be mainly voluntary. So don’t hold your breath on that one.

There are various other promises in the program aimed at stimulating the economy and increasing jobs. There is to be a slight cut in sales tax to encourage consumers to spend, and a small cut in tax for employers who take on extra workers.

There is also a plan to provide an extra 15,000 training places for people out of work (although the much criticized FAS national training agency is to be wound down). Plus there is a so-called NewERA construction project to build even more infrastructure which is to be funded by billions taken out of the National Pension Reserve Fund.

Nobody seems worried that we have been down this construction route before and that although it gives a quick boost on jobs it’s no substitute for permanent jobs in manufacturing industry or services. And not everyone seems to realize that using the pension reserve like this is really just another form of borrowing.

A quick read of the program for government reveals that it is very short on specifics, and that the clear plan for cuts that Fine Gael had proposed has now been fudged. Instead of reducing state spending and raising taxes in a significant way, it trims a little here and adds a little there but not enough to make much difference.
It completely ducks the issue of reducing state benefits to make savings. And with Labor on board this is going to be much more difficult.

One paper here last week highlighted the case of an employer who wanted to hire two or three workers and had found people qualified to do the particular jobs servicing vending machines. He was offering €28,000 a year. But he could not get anyone to take the job because those he interviewed said they could get more on welfare.

The paper then did an analysis and found that at present an unemployed couple with three children would need to be paid more than €50,000 a year before it would make sense for one of them to come off welfare (and rent allowance, fuel allowance, clothes allowance, free health care and the other benefits that you only get if you're on welfare). Reform of this system is essential if we are going to get anywhere reducing the budget deficit.

All the news here over the past week has been about Kenny squaring to the EU to get a better bailout deal. But the biggest challenge the new government faces is here at home.

It's how to get spending down to bring it into line with tax revenue. We can only keep spending at the rate we are because we have been given the bailout fund by the International Monetary Fund (IMF) and the EU.

That deal requires us to get the deficit down to 3% over the next few years. The target was the end of 2014 and it's now the end of 2015 -- and even meeting that is going to be very tough. It will require much more cuts and tax hikes than anything in the program for government. This feeling in the air here at the moment that we can carry on as before is very misguided.

On the bailout, the EU (mainly Nicolas Sarkozy and Angela Merkel) have made it clear to Kenny that it's too early to contemplate any change in the terms, since we've only just got the deal ... unless of course we want to raise our 12.5% corporation tax rate a bit in return.

That would seriously impact on Ireland's attractiveness as a base for multi-national companies, so we don't want to go there. But it irritates the hell out of the French and Germans since it undermines their moves towards a common tax system for the EU as a whole.

The Greeks have already got a lower interest rate on their bailout deal, but we are still being told that we have to wait. So far there is no give on the idea of restructuring our overall debt so that we have to pay back less. That is what we really need.

That is the elephant in the room at these EU summits because it is now clear that unless we are given a degree of debt forgiveness then the possibility of sovereign default (Ireland saying it can't pay back the money) becomes a very real one.

It's that serious -- and the chances of and implications of a sovereign default by Ireland is something we will be looking at in this column in the coming weeks.

Ireland's new Government established - What's the plan to save the country?

I had a teacher many years ago who was forever using the French phrase “plus ca change, plus c'est la meme chose.” In Ireland's second official language, it means the more things change, the more they stay the same.

My old teacher and his catchphrase kept coming to mind over the past week as the dust settled after the election and it became clear how desperately eager Fine Gael and the Labor Party are to grasp the reins of power.

They're so eager they could not even put on a show of disagreement and brinkmanship as they held talks to hammer out an agreed program for governing the country over the next five years.

Given the wide differences between the policy platforms they campaigned on during the election, you would have thought that the negotiations between them would have been extremely difficult. But not a bit of it.

Their negotiating teams wrapped the talks up in a couple of days and the agreed program was approved by the two parties last weekend, in plenty of time for the first meeting of the new Dail (Parliament) this Wednesday.

After so many long years in the wilderness, nothing was going to stop these guys. This is their chance.

Most of the senior figures in both Fine Gael and Labor are on the wrong side of 50, or even 60, so this may well be their last chance. And they are grasping it with unseemly haste.

All that talk of reforming politics and doing things differently, and all those radical proposals for saving the economy and the country and standing up to the EU and the International Monetary Fund (IMF), you can forget all that right now.

That stuff was good for the election campaign and it worked. But the election is over and it's back to reality now.

And the reality is that things are going to carry on much as before, except that it's a different team of middle aged men (and it's almost all men) in suits who will be running the show.

Radical? Original? Different? Don't make me laugh.

More competent, more effective, more honest? Time will tell.

The only thing that has become clear over the past few days is that the Fine Gael and Labor guys can't wait to get their bums on the ministerial seats. And they intend to stay there for the long haul.

That's why Fine Gael did not even bother to talk to the independents who could have supported a minority Fine Gael government. They wanted the massive majority that a Fine Gael-Labor deal provides so they can be sure of staying in power even when the going gets tough.

All the promises of radical change that Fine Gael and Labor made during the election, well, that's all vanishing like the proverbial puff of smoke.

In fact the election was barely over when the Taoiseach (Prime Minister) in waiting Enda Kenny was moderating the Fine Gael rhetoric about forcing the bondholders to share Ireland's pain, whether the EU liked it or not.

Ditto with Labor. The bould Eamon Gilmore, who made election headlines with his hard-hitting speech that it would be Labor's way, not Frankfurt's way (code for burning the bondholders) has gone all coy and quiet.

Suddenly, the threat is gone.

Now they are talking about "putting our case to our EU partners," about convincing the EU that there should be "burden sharing" and an EU wide solution to the problems of the weaker countries like Ireland, Greece and Portugal.

In other words, they have shifted to the position where they are no longer advocating a revolt by Ireland, but are now saying there must be an EU-wide change in the bailout mechanism. And that's a very different approach.

On the brink of power, Kenny and Gilmore are now confronted with the reality that the real power here is no longer in the Dail, but in the offices of the EU and the IMF.

They are confronted with the appalling vista of the Irish banks and the Irish economy and the fact that there is virtually no money to change anything unless it comes from the EU and the IMF.

They now have to face up to the fact that rhetoric does not put bread on the table, and that our very survival as a financially sovereign state depends on the support of the EU/IMF.

So after all the talk about a major renegotiation of the bailout deal secured from the EU/IMF by the Fianna Fail led government, it turns out that Fine Gael and Labor are going to continue with the deal after all.
It should not be a surprise because there is no alternative, but the realization has still come as a huge shock to many voters who believed what they were being told during the election.

There will be some finessing around the edges of the deal, of course, to make it look better, but the truth is that the incoming Fine Gael-Labor government will be continuing with Fianna Fail's four year plan of cutbacks and tax hikes to close the budget deficit.

They are sticking with the target of reaching a 3% deficit, although now that is to be achieved by 2015 rather than 2014. The only problem with this is that the 2014 target was part of the bailout agreement with the EU, and so far we don't know whether "our EU partners" will agree with the extension.

The signs from the EU heads are that they probably will, and also that they will give us a slight reduction in the interest rate on the bailout cash. But these new terms will also be available to any other country which needs EU support, and they will be the result of an EU reappraisal of how the euro zone can best be supported rather than of any special pleading by Ireland's new leaders.

My guess is that the new government will continue to front load most of cutbacks that have to be made to keep our EU/IMF "partners" happy, and that the change in target date won't really make much difference to the pain to be borne by the Irish people.

It's also a fact that a small interest rate reduction and a one-year extension of the time given to us to get our deficit down to 3% will result in much the same level of cutbacks that will be necessary here over the period.

Plus the EU chiefs have also hinted that for us to get new terms for our deal may require us to give something in return -- maybe like an increase in our very low corporation tax level, which Germany and other EU countries do not like.

So it's business as usual on the main challenge facing us. It's also business as usual on many of the other issues facing us.

A look through the 64-page program for government agreed by Fine Gael and Labor (it's on the RTE website) makes that clear. It reveals that most of the promises that Fine Gael and Labor made during the election have been fudged or long-fingered.

But of course they have a ready-made excuse --the financial situation is even worse than Fianna Fail had been saying. Plus we have to await the new assessment of the banks due in a few weeks to see how deep that black hole really is.

It's worth reading the program for government to see for yourself just how vague it actually is. Previous radical policy proposals have now been fudged, and the absence of a time frame for many of the changes is striking.
The most worrying thing is that the program lacks the coherence that a single party government could have offered at a time when the country desperately needs absolute clarity about where we are heading.

Instead we have bits of Fine Gael and Labor policy lumped in together and the big decisions on the three Bs (bailout, banks and bondholders) have been kicked down the road.

One indication of how Fine Gael and Labor have put their parties before the country is the decision to split the minister for finance role into two jobs. At any time finance is a key ministry, and at present it is critical.

But to avoid a dispute about who was to get finance, Fine Gael and Labor have divided it up between them. Fine Gael will keep the main role with control of the budget and economic policy. But control of the public sector, which eats up so much of state spending, is to go to a Labor minister.

And who are the main supporters of Labor? The public sector unions -- they will now have a stranglehold on the attempt to reduce the number of state sector workers and the huge state sector wage bill which is essential to get the deficit under control.

Even the Fine Gael proposal to cut the size of the Dail is now being hedged, just one example of what is going on. Fine Gael had promised to cut the number of Dail deputies by 20. But there is no number mentioned in the program, just a commitment to look at it after the results of the 2011 census are published.

Kenny said he would abolish the Senate, which got him huge publicity. Now it seems that this may take a very long time because there has to be a referendum.

It's the same compromise stuff throughout the program, whether it's on the proposed cuts in welfare or the increases in tax. We needed a clear vision.

What we've got is a contradictory plan so vague it leaves us in a fog of uncertainty.

Following General Election Ireland's problems are far from over

The Irish general election last Friday was as apocalyptic as expected, with the once almighty Fianna Fail party decimated and the Fine Gael party taking its place as the biggest party by far in the state.  

Journalists are fond of throwing around the word historic, but really there is no other word to describe what has happened.  Ninety years of Civil War politics has come to an end.

Fine Gael, the party which grew out of the side that won the Civil War and established the Irish Free State, only to be dumped a few years later, has regained its rightful place as the dominant force in Irish political life.
  
For decades Fine Gael has been the weaker twin of the pair of parties that emerged from the ashes of the Civil War.  Fianna Fail, with its anti-Treaty "republican" ethos and its core demand for the immediate reunification of Ireland, has been a cancer in the Irish body politic ever since de Valera led it to victory in 1932.   
Since then it has been the dominant political party in Ireland, in power for most of the time.  It positioned itself as the only party that was "sound" on the national question. 

It seduced a large section of a gullible electorate with a mixture of republican rhetoric and economic opportunism. It tightened its grip on power with favoritism and patronage and became the party of the new rich as well as the small farmer. 

Over its long years in government it proved the old maxim that power corrupts.  It was that corruption and the greed and laziness bred by its years in power that got us into the economic mess we are in.  

Truly Fianna Fail was a cancer, and now it has been cut out by the electorate. 

In fact Fianna Fail has been so devastated in this election that it may never recover.  We are entering a new era in Ireland.  But unfortunately it is going to be an era which will be the most difficult since the foundation of the state. 

When the counting is finished -- and it is still going on as this column is being written on Monday night -- Fine Gael looks like ending up with 76 or 77 seats in the Dail (Parliament).   It is an extraordinary achievement, but it is at least six seats short of an overall majority.  

Half of the 13 or 14 independents that have been elected are of the extreme left variety and would not support a Fine Gael single party government.  The rest of the independents would be more realistic about the drastic economic measures that have to be taken and might support a Fine Gael government. 

But that government would have a wafer thin majority in the Dail and would be difficult to hold together as we face into the severe cutbacks that need to be implemented.

Fine Gael have ruled out any deals with Sinn Fein (13 or 14 seats) and a deal with the remnants of Fianna Fail (around  20 seats) will not happen either, even if that would make the most sense since they agree on the economic issues. 

That leaves the Labor Party, Fine Gael's traditional coalition party.   Labor (with around 38 seats) will be the second largest party in the Dail, and with Fine Gael it would form a government with a huge majority.

But whether that government could be a stable one is also in doubt because of the wide divergence on policy between the two parties.  Despite that, Fine Gael and Labor began negotiations on Monday about forming a government. 

Fine Gael has not ruled out the option of doing a deal with independents, but it seems virtually certain that the next government will be a Fine Gael-Labor coalition. 

The biggest issue between them is the approach to tackling our deficit, which means huge cutbacks in state spending and extra taxes.  The problem is the ratio between the two. 

Fine Gael says that for every extra euro raised in tax there must be a three euro cut in spending.  Labor says it should be a one to one adjustment, which would mean a huge jump in our already high taxation levels. 

Property and water are two areas where the two strongly disagree.  Fine Gael says that there must be water charges, but not a major property tax. 

Labor wants heavy taxes on property, but no water charges.  The International Monetary Fund (IMF) says we must have both! 

A major concern is the difference over the deficit reduction timetable.  Fine Gael accepts the EU deadline that we must get the deficit down to 3% by the end of 2014. But Labor wants the deadline pushed out to 2016, which will mean a lot of extra borrowing and a face-off with our EU partners.  

Both Fine Gael and Labor want a renegotiation of the EU/IMF bailout deal for Ireland, although Fine Gael is starting to soften the rhetoric and fudge its position as it gets closer to the reality of sitting down with the EU and the IMF for discussions. Labor is still adopting a more threatening stance, but we can expect that to soften in the coming days. 

The reality is there will be no substantial change in the bailout, and whatever change there is will have to win the approval of the other EU countries.  A slight reduction in the interest rate we are paying has already been signaled by the EU, but that's all we will get.

We like to forget now that when Ireland joined with other EU countries in lending bailout money to Greece we didn't complain about the high interest charges the poor Greeks were having to pay for the funds.  Of course that was before we realized we were in an even bigger mess than Greece!

The bottom line is that a Fine Gael-Labor coalition government would mean major compromises on policy, which is the last thing we need right now.  What we need is a coherent strategy for getting us through this crisis, not a lot of trade-offs.  

For example, a core part of the Fine Gael approach on the deficit is to cut 30,000 state paid jobs, but the state worker unions are the main supporters of the Labor Party.   Of course a fudge can be hammered out -- but tough action is what we need, not fudge. 

Another example is the Labor Party position on monthly child allowances and free university education, both of which cost us billions and are universal benefits.  They are given to everyone, not just to poor families, and we just can't afford that anymore. 

Labor also wants to put our minimum wage back up to E8.65 an hour, a level which is 25% higher than in the U.K.  Even the present rate, after the recent cut, is 10% higher than the U.K.  Again we can't afford this, and it's destroying small businesses here and affecting our ability to compete. 

Fine Gael wants immediate and drastic action on these issues and a host of other issues, but Labor has grandiose notions about major investment to expand our way out of the crisis, and that means even more spending.  The result will be a cobbled together program for the next government which will be about compromise rather than clear action.  

Despite all this, a Fine Gael-Labor coalition government is almost certain to be the next administration here.  It will mean a major shift by Labor to accept the cuts in state spending on services, and in particular the cuts in numbers and pay for the vast army of state workers we have who we just can't afford anymore.

One welcome aspect to the end of the campaign is that we won't have to listen anymore to the promises by the parties to create thousands of new jobs here.  Fine Gael has been promising to create 100,000 new jobs in the next few years; Labor even more. 

I've got news for them. No politician ever created a job unless it was paid for with taxpayers' money.  
Private businesses create jobs.  Even the multinational companies here that the unions criticize create jobs. 
An enterprise culture creates jobs, not a culture in which politicians pretend that the state has the answer to everything, including job creation.

It would be great to have a few weeks to work all this out.  But the Fine Gael and Labor negotiators have days, not weeks.

There are three critical meetings in Europe in the next few weeks, including an EU summit.  That means that the program for the next government must be worked out when the Dail reconvenes on Wednesday of next week, so that a new government can be put in place and can begin work without delay. 

Because of their rules, the Labor Party must hold a convention to approve a deal, and that is set for this coming weekend.  So as I said, the negotiators have just a few days to hammer out a compromise program that is supposed to save us all.  It's not ideal. 

Meanwhile, doubts continue about whether Fine Gael leader Enda Kenny is up to the job of being taoiseach (prime minister).

In comparison with Brian Cowen or Michael Martin or Richard Bruton or Michael Noonan, he is uncomfortable in any kind of intense interview in which he has to think on his feet rather than just spout a few prepared soundbites.  This is particularly true on the economy, and as a result he is still being kept under wraps.

But an indication of how shaky he is came when he was asked in the wake of his victory about telling people the full extent of the economic mess we are in, and how rough the road ahead is going to be. 

The taoiseach-elect said that he would not be pulling the wool over anybody's eyes.   “The incoming government is not going to leave our people in the dark. Paddy likes to know what the story is,” he said. 

That's what he said.  If he was New York City Mayor Michael Bloomberg we would be calling for his head. 

It's only a small thing, but it's an indication of how clumsy he is under questioning.  He struggles for his words and you can see the brain trying to assemble an answer, a bit like George W. Bush.  

Of course you don't have to be as articulate as Barack Obama to succeed.  But Kenny’s incoherence does not inspire confidence. 

He has yet to give an off the cuff explanation of the economic and banking challenges we face and how he intends to meet them.  He's not in the same league at all as Cowen or Brian Lenihan -- and look at the mess they got us in!

Hold on.  It's going to be a bumpy ride. 

Ireland's General Election - maybe, just maybe, change is coming

Just a couple of days now to the vote in what is likely to be an election that changes the face of Irish politics forever.

Fianna Fail, the party which has dominated politics in Ireland for so long, could be consigned to the garbage can of history. If they come in fourth place behind Fine Gael, Labor and even Sinn Fein in terms of the number of Dail (Parliament) seats they win, it will be a disaster for the party.

It seems incredible -- it's just a few years since Fianna Fail totally dominated the Irish political landscape -- but the level of anger in the country at the extent of the economic disaster means that the party is facing a political blood bath in the vote on Friday.

Despite the change in leader and the number of senior party figures retiring, the voters have not been deflected from their determination to punish Fianna Fail for the mess we are in. And rightly so.

No matter how they try to explain, excuse or even apologize for the wrecking of the Irish economy, Fianna Fail are at least 90% to blame for the mess as far as most people here are concerned.

The result is that the party could come close to being wiped out in this election. If they get less seats than Sinn Fein they won't even be the main opposition party.

That would mark a huge shift in Irish politics. Since they first came to power in 1932, Fianna Fail has been the natural party of government here.

For all of my lifetime Fianna Fail has been in government almost non-stop, apart from a few brief periods when they were replaced by a Fine Gael led coalition, usually with Labor. Even when they were out of power and in opposition, Fianna Fail was still the largest party.

They always knew that before too long they would be back in government again so they never lost that sense of entitlement, that belief that only Fianna Fail truly represented the Irish nation. (It was the founding father Eamon de Valera who said that when he wanted to know what the Irish people were thinking, he only had to look into his own heart.)

The glory years when Fianna Fail dominated Irish politics went on for decades. But that was then and this is now.

Now Fianna Fail may be reduced to a rump, a fringe party, and that beggars belief. Yet it is a real possibility.
If that were to happen, it could mean the end of Civil War politics in Ireland at last. And there are a lot of people who think that would make a lot of sense.

Explaining to an outsider the difference between Fianna Fail and Fine Gael has never been easy. The fact is that the two main parties only came into being because of the split on the national question when the state came into being.

On economic and social policy -- indeed on almost everything -- the difference between them has been marginal, more imaginary than real.

Fianna Fail came from the anti-treaty side, Fine Gael from the pro-treaty side. Apart from their different stances on the North and partition, very little has divided them in policy terms over the decades, since both are essentially centrist parties.

Even the North has not been an issue since the Haughey era, with both parties supporting a policy of non-violence and unification by consent.

In the last few years, with peace in the North, the division is even more absurd and the original reason for the existence of Fianna Fail has been undermined.

So if Fianna Fail implodes at this election there will be a historical inevitably to it. Certainly the Labor Party and others on the left feel that Fianna Fail and Fine Gael should have merged years ago, allowing Irish politics to develop along left and right lines, like in most countries.

Logically, what's left of Fianna Fail after this election should fold itself into Fine Gael. But although there is no policy difference between them of any significance, that's not going to happen. They -- and us -- are still prisoners of our history.

Pick up an Irish newspaper these days and you will see Fianna Fail being written off. But I'm not so sure.
They are definitely going to take a hammering. But the division in Irish politics between Fianna Fail and Fine Gael is tribal. It's in the blood.

My instinct is that Fianna Fail will survive and will get third place ahead of Sinn Fein. It is still too early to write the party's obituary. Voters have short memories, and a few years of cutbacks and misery under Fine Gael could see Fianna Fail return again like a Republican Lazarus.

The other big question in this election is whether Fine Gael can get enough seats to form a single party government (perhaps with the support of a few independents) without needing the Labor Party. It's close, according to the polls, and there is also the factor that our voting system usually gives the biggest party a seat bonus.

There are two ways of looking at this. Firstly it is possible that the seat bonus may not happen this time and that Fine Gael may not do quite as well as everyone expects.

If that happens the most likely outcome will be a Fine Gael/Labor Party coalition, with all the compromises on policy that means. But decisive, coherent leadership is what we desperately need right now, not fudged policy resulting from confused compromises.

Secondly, it is possible that the electorate will see this and that more of them will go for Fine Gael in the interests of getting a strong single party government to sort out the unprecedented mess we are in.

The Labor Party's flip-flopping on taxation and their posturing on a renegotiation of the bailout deal have not been convincing for a lot of the middle-class voters who are swinging away from Fianna Fail. It is these voters who will decide this election, not the core Fianna Fail vote which is likely to stay with the party in spite of everything.

The very latest polls have differed slightly in their figures but not in the overall trend. That trend shows Fine Gael gaining momentum and tantalizingly close to an overall majority.

And it shows Labor slipping, despite all the talk a few weeks ago about Labor ending up as the biggest single party and Eamon Gilmore being a possible taoiseach.

In fact Labor is so desperate now that they have switched their message. Now their message is that an overall majority for Fine Gael would unleash the right wing streak in that party, and having Labor in a coalition is essential to protect ordinary people from extreme cutbacks.

Fianna Fail is way down in the polls, at around 16%, but at least that is up on where they were, a pitiful 12%. Which shows, as I was saying, that their core vote is not going anywhere.

It's possible that by election day on Friday, Fianna Fail will have crept up another point or two, which will get them well ahead of Sinn Fein.

Another factor in this election which is visible in the latest polls is the changed public perception of the Fine Gael leader Enda Kenny. By limiting his media exposure and making him look presidential, Fine Gael have managed to up his ratings in the polls to the point where he is now seen as a credible
taoiseach.
Given his weakness in debate, his reliance on prepared sound bites and the impression he gives of not being fully on top of the complex economic problems facing the country, that is quite an achievement.

One thing that appears to be working in Fine Gael's favor is its refusal to minimize the problems we face, or to pretend that there is some soft option we can take to avoid or lessen the huge economic adjustment that must be made here over the next few years. Fine Gael has not tried to sweeten the medicine, and it has not made promises that cannot be kept.

It has also shown that it is willing to make radical changes to the political system that has failed us so badly. The Fianna Fail leader Micheal Martin is talking a lot these days about the need for political reform, but this is very much an eleventh hour conversion.

Kenny, on the other hand, announced over a year ago that he will shut down the Seanad (the upper tier of the Irish Parliament) as part of a complete overhaul of our political system.

Fine Gael has also been brave enough to tackle one of the great sacred cows of Irish politics, the Irish language, promising to end the compulsory teaching of Irish in our schools. And if they are prepared to do that, then maybe there is hope that an era of real change is ahead of us, free of the can’t and hypocrisy that has bedeviled this country since the foundation of the state.

Fine Gael on the path to victory in Irish General Election

Two weeks into the election campaign here and things are as clear as mud. The politicians of all parties continue to rush around announcing policies they promise will lead us safely out of the economic crisis and back to the promised land of jobs, growth and prosperity.

But no one believes them.

Everyone knows there's no money. So all the talk about spending hundreds of millions on this new program and a billion or two on that new program has zero credibility.

Then there's the problem that the parties don't agree with each other. They are all attacking each other, claiming that the policies of everyone else are wrong and their figures don't add up. Billions are being thrown around like confetti at a wedding or, given the state the country is in, like snuff at a wake.

Most ordinary people here don't understand what the politicians are talking about. And there's a strong suspicion that most of the politicians don't know what they are talking about either.

What everyone does understand is that we can't do anything without the nod of approval from the International Monetary Fund (IMF) and the EU. So all the arguing about policies and billions and all the bickering between the parties as they try to gain traction in the election is largely irrelevant.

The die is cast. Yes, there are some things that the next government will be able to do differently. But the changes will be small and they won't affect the big picture of massive cutbacks ahead.

There's been a lot of overly assertive talk about a new government renegotiating the bailout terms and burning bondholders. There's an implicit suggestion in most of this inflated rhetoric that a new government has the right to throw out the overall game plan even though the match is already underway.

The reality is, however, that the IMF/EU bailout deal negotiated by the outgoing Fianna Fail led government was signed on behalf of the Irish state. It's not something that a new government can walk away from.

The next government can't ditch the deal because, were it to do so, the IMF/EU could turn off the tap and leave us starved of the funds we desperately need to keep going in the short term. The reality is that the four-year plan and the target at the end of it are set.

What an incoming government can do is make some changes in the way we achieve the target. But it cannot change the target.

What that means is that a very small amount of tinkering may be possible. The IMF/EU will probably agree to some minor adjustments in the deal for the political optics, to make the incoming government look good.
But, they will not tolerate anything that undermines the overall four-year plan and the target of a more balanced Irish budget that lies at the end of it.

That means massive cutbacks, whatever new government is in power. The bailout deal for Ireland is tied to our agreement to reduce our budget deficit to an acceptable level over the four years from 2011 to 2014, and that means huge cuts in day to day spending by the government in that period.

At present our spending is one and a half times what we raise in tax, a level that is completely unsustainable and is pushing us towards bankruptcy.

The four-year plan began with the December budget for 2011, which is taking  €6 billion off state spending here this year, a huge adjustment which has now begun to hit people with extra tax and lower state services. And there's another three years of huge cutbacks on the way.

The interest payments on the vast amounts we have to pump into the rescue of our banks is a mounting annual burden which will make it even more difficult to keep our annual budgets on track. Just this past week some EU experts claim to have found a  €5 billion black hole in our figures, which will mean even higher adjustments will be necessary to achieve our deficit target by 2014.

That's the context in which this election is being held, and it explains why the public is so skeptical of our politicians right now, no matter what party they are from. Most people listen to the speeches and look at the party press conferences announcing yet more new policies with disbelief bordering on disdain.

The most interesting thing in the past week or so has been the weakening of support for the Labor Party and the strengthening of support for Fine Gael, to the point where Fine Gael forming a single party government is now a possibility.

However, that could change again in the coming week and the two main opposition parties might still be forming the next government together in a coalition administration. But even though they may end up having to work together, they have spent most of the past week bitterly criticizing each other’s economic policies, which is confusing voters even more.

The immediate reason for this is the battle for votes. But the root cause is the different approaches they have to dealing with the four-year plan for deficit reductions.

There are two ways of reducing a deficit -- you can raise taxes or you can cut spending. All the parties want to do both at the same time, and it is the proportion of spending cuts to higher taxes that divides them.

In round figures, Fine Gael want to make three quarters of the savings necessary from spending cuts, with one quarter coming from higher taxation. Labor wants a half and half approach, which would mean much softer cuts in state spending but a jump in tax. (Fianna Fail are somewhere between the two, but they hardly matter anymore since they have no chance of getting back into government.)

Fine Gael have been pushing the idea of Labor as a “seriously high-tax party” last week, and this has resulted in the slide in Labor's popularity. The posters around the country suggesting that Labor leader Eamon Gilmore could be the next Taoiseach (Prime Minister) are now embarrassing, and there has been near panic in Labor over the past few days as they try to reverse their downward trend.

Gilmore's posturing as a potential taoiseach and his failure to convince people that he can deliver on his assertion that the bailout can be renegotiated have been very damaging for Labor. He's too long on grandiose rhetoric and too short on specifics for middle class voters who are struggling to get by already and are afraid of extra tax.

The panic in Labor led to a lot of backtracking over the last few days, with the party now saying it will not impose further increases in income tax for individuals earning under  €100,000 a year. Which means that in a well-off home where a couple earns  €100,000 each, they would not be asked to pay any extra taxes to solve the deficit problem.

And that means, of course, that there will have to be even more severe cuts in state spending, which will have the most impact on the poorer parts of the community that Labor traditionally protects.

Labor are being squeezed from both sides, with Fine Gael taking its liberal middle class voters and Sinn Fein and the left alliance candidates nibbling away at its support from the working class and the unemployed.
This was shown in the most recent opinion poll published on Sunday. The Sunday Business Post /Red C poll put Fine Gael support up three points to 38%, nearing the 40% mark it would need to pass to get an overall majority.

Support for the Labor Party fell back to 20%, while Fianna Fail fell to 15%. Support for independent (non-party) candidates rose three points to 14%, Sinn Fein was down three points at 10%, and the Greens were up one point to 3%.

The possibility of Fine Gael getting enough votes to form a government on its own, or with the support of a few independents instead of the Labor Party with all its baggage, is now a real one.
Certainly the momentum is with Fine Gael and if they were to pull it off it would be historic, both for the party and for the country. But it's too early to call just yet.

And doubts still persist about Enda Kenny's ability to perform as taoiseach, particularly at such a critical and complex time for the country. These doubts seem to be shared by his own party strategists who have been carefully controlling his exposure to the media.

He dodged the first TV debate last week, because it was to be a three way debate with Fianna Fail's Micheal Martin and Labor's Gilmore. This Monday his handlers let him take part in a TV debate on RTE because it included the five party leaders (with John Gormley of the Green Party and Gerry Adams of Sinn Fein added in). With five leaders arguing with each other his weakness in debate and his uncertain grasp of economics was not so noticeable.

He survived and did not do himself or Fine Gael any damage. So in spite of that rather bewildered look he gets when he's asked a financial question to which he does not have a prepared answer, Kenny looks like being our next taoiseach.

And he's already trying to play the role. Last week he had a meeting with the EU president and on Monday he had a meeting with the German Chancellor Angela Merkel before flying back to take part in the TV debate.
These meetings are really just publicity grabbers. They mean nothing because he is not in power yet. They look presumptuous, even a bit silly.

But as far as Fine Gael is concerned it's safer than answering questions from journalists trying to trip him up. All he has to do is get through the next week without messing up and he will be home and dry.

What will happen then, especially if Fine Gael need only a few of the more conservative independents to have an overall majority in the Dail (Parliament), is that we will have the most right wing government this country has ever seen.

And maybe that's what we need right now. Left or center left governments tend to be big spenders as they try to rebalance society by throwing money at it. Right wing governments cut spending and encourage citizens to fend for themselves.

And that's what people here are going to have to learn to do more of over the next few years ... whether they like it or not.