ANALYSIS:Parts of the programme contravene the terms of the EU-IMF bailout
IT AUGURS well for the new coalition that its constituent parties were able to publish a substantial programme for government within a week of starting talks.
Yesterday’s programme is a mix of the two parties’ manifestos. Many of the reforming measures of the Fine Gael and Labour manifestos are included. If all are implemented, real change in how this State is governed is possible. That, in turn, would do much to increase the chances of restoring economic stability and boosting growth potential.
But there are reasons to reserve judgment about the programme. Some important but contentious issues were ignored, fudged or papered over, and a number of the commitments made yesterday contravene the terms of the EU-IMF bailout. The coalition will have its first contact with the bailout institutions today, and it will become clearer over the course of the week just how much scope exists for the terms of the bailout to be changed.
Throughout the document there are references to doing sensible things, such as evaluating spending programmes seriously, shutting down those that don’t measure up, cutting waste and duplication, and measuring costs of new regulation so businesses are not excessively burdened.
There is reason to be optimistic if these aspirations will be realised. The parties are eager to get stuck in, having been out of power for so long.
Central to the new government’s chances of making a difference will be who does which job. Although that cannot be formally revealed until Enda Kenny is elected taoiseach, there was no good reason why details of the new coalition’s plan for departmental reconfiguration were not included in the programme.
From interviews members of the incoming government gave yesterday, it is clear the Department of Finance is to be radically restructured. How that is done will be vitally important.
On one of the most controversial aspects of the election campaign – the weighting of spending cuts to new taxes in closing the budget deficit – yesterday’s programme was silent. Economically, this can only increase uncertainty for households as they consider future income levels. Politically, not tying it down once and for all may widen the scope for disagreement over the lifetime of the administration.
The side-stepping of another big issue was presented as a compromise. Under Fine Gael’s manifesto plan, the budget deficit was to be cut to below 3 per cent of gross domestic product (GDP) by 2014. Labour wanted that timeframe pushed out to 2016. Yesterday, they split the difference and settled on 2015.
This in reality is a retreat by Labour, and the budget adjustments in 2012 and 2013 will be as already set out.
During the campaign, Labour had said it wanted to reduce the size of the budget adjustments from €9 billion over the next three years, to €7 billion. There is no mention of the €9 billion or €7 billion figures in yesterday’s programme. And it is the money amounts that matter much more because only they are mentioned in the terms of the EU-IMF bailout. The deficit:GDP ratio is not set out as a metric.
If the new government has not declared war on Frankfurt on that issue, there are a number of commitments in the programme that clearly contravene the terms of the bailout, among them aspects of the new government’s banking plans.
In direct contravention of the bailout terms, the programme says the government will not transfer any more assets to Nama. The programme also hints at legislating to allow the burning of those senior bank bonds which are neither guaranteed by the State nor secured against specific assets. As of last week, according to the Central Bank, the face value of outstanding bonds of this kind stood at €16.4 billion, less than one third of the total value of senior bank bonds. The Europeans have made their views on this matter very clear.
Less clear will be the EU-IMF reaction to the new government’s confirmation yesterday that it will raise the minimum wage.
This was set out as one of the earliest conditions of the bailout to be implemented. However, given that it has no direct impact on resolving the budgetary or banking crises, it may well be that the EU and IMF don’t make the matter a sticking point.
But reversing the minimum wage cut is not the only unilateral labour market change the programme proposes to make to the EU-IMF memorandum of understanding (MoU).
Under the bailout terms, a mechanism must be put in place to impose sanctions on those in receipt of unemployment benefits who cannot show they are actively searching for work. Yesterday’s programme for government makes no mention of having recipients of benefits subject to such conditionality.
Another commitment relating to the functioning of the jobs markets was on reform of the Joint Labour Committee structures.
Independent chairpersons are to be appointed and a review of the structures will include pay rates. The MoU sets as a condition the setting up of a review of the JLCs by the end of this month, and that its terms of reference be agreed with the European Commission. There was no mention of commission involvement in the programme.
“Learn from yesterday, live for today, hope for tomorrow” was the Albert Einstein quote included in the programme preamble.
Living for today sounds very laid back, given the scale of the challenges to be faced by the incoming administration. Surviving each day in the current circumstances may be a more realistic ambition. It is to be hoped that those about to take office are better at the business of government than they are at choosing inspirational quotes.