Market memo to Lenihan: if you’ve got to go, go now
The by-elections will be the death knell for the Irish government, one newspaper said last week. It is hard to disagree. In which case, the sooner the knell is rung, the better.
Not to get the Government out of office — which is the stuff of political comment and therefore not suitable for this column — but because a general election will take time and time is dangerously short.
It goes without saying that it will be an election of an unprecedented kind. Developments last week make that even more the case. The government is soon to publish a detailed budgetary programme covering the next four years — the sort of taxes it will introduce or increase, and where the spending axe will fall.
There has been growing clamour for this for some time. Some of the strongest calls have come from international analysts one would regard as friends of Ireland. One might also include the EU Commission in that category, and one or two of the hated ratings agencies may be well disposed at heart. Others, less well disposed, have taken bets that Ireland will fail in its attempt to overcome these gigantic problems and will be unable to service its ballooning debts in the end, so that is where their interests lie.
Then there are those who believe the Republic deserves to fail. Some take that view because they have always been dubious about Ireland's abilities to manage its own affairs. A larger number would like to see an Irish default because they think it an inevitable consequence of the creation of the euro and want to be proved right. Such opinions, while not necessarily wrong, should be viewed with a little scepticism. More weight should perhaps be given to the fact that those who want us to succeed think detailed budgetary projections may represent our last chance.
They do so for two reasons. The first is that the budgetary targets are so ambitious that it is difficult to see how they can be achieved. Current spending has to be held at €55bn a year for five years. An extra €9bn in tax revenues has to be found.
The second reason is the doubt about whether, even if technically possible, such measures will be politically possible. Everyone is mad as hell, but only about what has happened so far. They have no idea of what is going to happen next. What would be the political reaction if they could see, for instance, that property tax or water charges would be introduced — what would happen to income tax; what would be the cuts in the health, education and social welfare budgets?
If the government does produce a detailed budgetary programme, one can expect the election to be fought on it. It's a depressing prospect. The opposition parties will be ‘agin it'. government politicians will |say: “What would you do?” Privately, though, both sides will be terrified about what they may have to do. Lenders will watch the inevitable campaign promises to ease up on the fiscal pain. It is not impossible — although it seems unlikely — that the December Budget will be softened with electoral prospects in mind.
In any event, the markets will also wait to see how the new government shapes up, and for early signs as to what it is actually going to do in practice. That is why time is short. It would be better all round if there were no election until 2012, by which time, for better or worse, the course of the fiscal crisis will have become clear.
That no longer seems likely. As Shakespeare said: “If it were done when 'tis done, then 'twere well it were done quickly.”