BUSINESS OPINION:MICHAEL NOONAN'S blithe dismissal two weeks ago of any talk of a second Irish bailout as ludicrous seemed at the time far more ludicrous than the issue on which he was opining.
What was troubling about it was that it could not be dismissed as a gaffe in the way his off-the-cuff remarks on emigration last week could be. Indeed his view was endorsed by the Taoiseach.
A second bailout is not inevitable, but the chances of Ireland needing one are far from trivial. Several things pretty much beyond our control will have to go Ireland’s way to allow the State return to the debt market in any scale by 2013.
A far more sensible response would have been to say that Ireland would do all in its power to avoid looking for another bailout, but was facing up to the reality that it might need one. Such realism is far more likely to engender credibility with the bond market than empty bravado.
By coming out against even the notion of a second bailout in such an unequivocal fashion the two men have set themselves up for the same sort of fall that Brian Cowen and Brian Lenihan took in 2008 and 2009 with their increasingly implausible claims about the strength of the economy.
There is really only one explanation – other than that they have lost touch with reality – and it started to look a lot more plausible as events unfolded last week.
A significant development in this regard was the leaking last Thursday of the latest draft of the “fiscal compact” to bring into being the permanent European rescue fund later this year.
The draft, which is to be discussed at today’s meeting of euro zone finance ministers, is reported to contain a provision to the effect that the European Stability Mechanism cannot give loans to any country that has not signed up to a separate deal to impose stronger fiscal controls across Europe.
This agreement is also up for discussion today and the two will presumably go forward to the European leader’s summit set for next Monday.
The ESM, of course, will be the source of funds for any second bailout of Ireland post-2013 should one be required. The linking of the two issues – apparently at German insistence – appears to be a pretty heavy-handed attempt to scare the Irish electorate into voting yes in any referendum on the treaty. It also stymies Ireland’s ability to engage in some horse trading around issues such as the cost of bailing out the Irish banks. The Germans have in effect called Ireland’s bluff; sign on the dotted line or you won’t get any more money when your current bailout is up.
Faced with this proposition the Irish Government has little choice but to say it won’t need a second bailout. Otherwise it will just have to roll over and go along with what the French and Germans decide without engaging in the sort of jostling for advantage that normally happens when big deals are done in Europe.
There is far too much at stake for that. Getting some help towards the cost of bailing out Anglo Irish Bank is the most obvious issue in play, but on Friday the whole issue of corporation tax once again raised its ugly head when Algirdas Semeta, the European Union tax commissioner, said he would push for agreement by June on a common base for calculating corporate tax.
It remains to be seen whether Mr Semeta’s initiative will be any more successful than any of the ones that have gone before. But given the importance that the Government attaches to our low corporation tax as the cornerstone of foreign direct investment policy we can be expected to use whatever leverage we have to ensure that the latest initiative goes nowhere fast.
And it looks like whatever leverage we have is in inverse proportion to the chances that we will need another bailout. It is not a great place to be, but at least it provides a rational explanation for why Michael Noonan and Enda Kenny are whistling in the dark so determinedly.
