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View from Dublin: Tolerance of loose public finances gone

By Brendan Keenan

No political risk. Back in the days of the two-and-a-half-party system, that was a big selling point for the Treasury Management Agency when flogging government bonds. No matter how our elections went, there was nothing for our creditors to worry about.

It could be a difficult sell at times, especially for new lenders. There was always high-flown rhetoric about grand new policies from the opposition benches, and at least one newcomer, whose knowledge was based just on the Irish media, concluded the country was on the verge of revolution.

But ideology and sweeping promises disappeared once seated on the government benches. It turned out, of course, that there was more than one kind of political risk than dramatic shifts in policy, and the country did come close enough to revolution.

Bank bondholders famously were rescued but the owners of government bonds were all but wiped on paper at the depths of the crisis. They had to be very brave, or very passive, to hang on for the recovery and the vultures grew fat on the losses of those who were not. The losers must have felt foolish since, after the events of 1982 a collapse of the public finances clearly was the main Irish political risk but they were not complete fools. The strange truth is that the political risk manifested in the 1970s really had gone.

There is no appetite among the Irish electorate for loose public finances, which is why almost no one openly challenges the government's budgetary fundamentals.

The fundamentals were on display again last week with the 'Stability Update' from the Department of Finance. This part of the eurozone regime for the public finances, is designed to remove the political risk of irresponsible government policies in member states. Whether it can or not, it is certainly an improvement in terms of information.

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