Nice little Easter nest-egg still left in treasury kitty
If winter comes, can spring be far behind? A long way behind, if you ask me. An awful lot is going to happen between now and Easter. But at least the skies will be clearer by then. That would be something.
The more poor Brian Lenihan tries to inject some certainty into the proceedings, the more confused everything gets. Almost simultaneously with the announcement of the Budget target for this year and the medium-term growth assumptions, the political situation suffered a kind of nervous breakdown.
This more or less destroyed the value of the announcement, at least for some time to come. Attention switched to whether the €6bn Budget would actually be passed. Under the constitutional rule that a government must win votes on confidence and “supply” (ie money), a failed Budget means a General Election.
It has been suggested that the opposition parties, having agreed to the fiscal parameters, should allow the Budget to go through, in the interests of the nation as a whole, and wait for their time to come.
When is that time to be, though? An election next spring might be even worse. Yet the by-elections may make such an election inevitable. Allowing for the time it would take for markets to assess the solidarity and policies of the new government, it could be well into 2011 before there was any chance of a favourable reaction from the lending markets.
And, as everyone now knows, we do not have that amount of time. The government piggy bank will be empty by March.
Well, sort of. The National Treasury Management Agency (NTMA) would still have some €20bn in cash reserves. That could get us through most of next year but, naturally enough, the NTMA does not want the Exchequer to be left completely skint.
Even so, the NTMA is only the minister's agent and he (or maybe she) could decide to use these reserves. Alternatively, she (let's call her “she”) could borrow, say, enough to do for six months on the market, even if it cost more than 7%.
That would add to the overall cost of servicing the national debt, but not by an inordinate amount. There is only one thing she would be waiting for — growth.
Megan Greene, the Ireland analyst with the Economist Intelligence Unit in London, brought a further chill to the air with her matter-of-fact assessment of the situation last Thursday.
Ms Greene pointed to the critical fact that many, if not most, foreign analysts believe the Irish economy will not grow in 2011. Maybe not in 2012 either. If they are right, the efforts of any Irish government will be in vain.
There is an iron formula which relates the growth rate and the size of the debt to the deficit.
Below a certain growth rate, existing debt will swallow any budget reductions. There would then be no alternative to reducing the size of the debt by refusing to pay it all back.
While the NTMA can wait for spring, it may be more difficult for the banks. They could yet prove a more pressing problem. That would be a great pity — to put it mildly — because it is worth trying to brazen it out until early next year.
Thursday's €6bn Budget announcement markedly reduced the original growth forecasts — as it had to if it were to have any credibility. But it still had to assume a growth rate which makes the €15bn adjustment workable, which worked out at a cumulative 11% by 2014.
Most analysts regard this as optimistic, which may have added to the fraying of nerves visible on Friday, but it is not a completely open and shut case. There was quite a lot of positive economic data at home and abroad last week.
US surveys of manufacturing and services were surprisingly good, even as the US Federal Reserve prepares to print €600bn to prime the economy.
Some American analysts fear the economy could actually take off in an inflationary spurt. No doubt that would be most unfortunate in the wider scheme of things, but it would suit us just fine.
It is a tight timetable, but it is possible that, by the second quarter of 2011, one might begin to see whether the Government's forecast of 1.75% growth might be achieved.
If it were, it could start a little hedging of bets in the markets.
That in turn might allow Ireland to borrow enough for another six months, to see if the 2012 forecast of more than 3% is remotely realistic.
It is a long shot for sure, but worth hanging in for. If we can.