The Bigger Picture
Published on October 8th in Metro Éireann By Charles Laffiteau
Congratulations Ireland! You have at long last taken a big step forward as both a nation and as a people by finally approving the Lisbon Treaty (and by a resounding 2 to 1 margin at that). As we say in the states; “Better late than never.” But this is still only the first of 3 steps Ireland must take to move back from the brink of economic disaster
Now as most of my readers are no doubt aware, I rarely offer any opinions about Irish politicians or Irish political issues in my columns. I figure the last thing you want or need to hear is the opinions of some American interloper regarding such matters. Still and all, I have been living here on the “Emerald Isle” for over three years, so I am not exactly a disinterested observer when it comes to such issues. Since it now looks like I’m going to be here for at least another three years, if not longer, I figure its time for me to stick my neck out a bit and discuss my views about some other pending political decisions.
While I agree with Taoiseach Brian Cowen’s statement that approval of the Lisbon Treaty means “It is a good day for Ireland, it is a good day for Europe”, it is still only one step in the right direction for Ireland. But I also believe two additional, and arguably more politically difficult, steps must still be taken in the coming months. If Ireland doesn’t move forward on both of them, then I fear this country and all of its residents will be paying the price for not doing so for many years to come.
While maintaining its membership in the EU provides Ireland with some noteworthy economic benefits, Ireland is still a sovereign nation and its government’s debts are still treated as such by other countries and private investors. The current yields on Irish government bonds, and thus the interest rates Ireland and its taxpayers will have to pay to finance its budget deficits, are the highest of all the Euro zone nations. This is a reflection of the credit market’s assessment that Ireland is still on shaky financial ground even though it is also a member of the more financially stable EU.
Approving the Lisbon Treaty was great for the EU because, despite the Treaty’s shortcomings, attempting to maintain the status quo of the current governance structure in the enlarged 27 nation EU was no longer a viable option. I think changing the EU’s governance structure will in time provide more economic and social stability for the EU as a whole as well as for all of its individual member states, including Ireland
On the other hand a second rejection of the Lisbon Treaty would have postponed the needed governance reforms for at least several more years. This would have not only had a negative impact on other EU nations, but it would have also called into question Ireland’s membership in the EU. The credit markets would have also responded very negatively to a rejection as they are prone to do whenever they sense political instability. The yields on Ireland’s sovereign debt would have soared even higher and eventually infected Ireland with the disease of bankruptcy and economic stagflation Iceland is suffering from.
So although Ireland took an important step back from the brink of financial disaster, make no mistake, this country is still teetering on the edge in my humble opinion. I’m sure there are many people here who would disagree with me, but I strongly believe that Ireland’s politicians must also pass the legislation to create NAMA, the National Asset Management Agency, and approve an austerity budget in the coming months if Ireland is to avoid an even worse economic disease than it currently faces.
I realize that many Irish citizens and politicians have strong misgivings about taking either or both of these remaining steps towards putting Ireland’s public and private finances in order. Unfortunately, there are no other alternatives to these two additional steps that the global credit markets will consider economically viable and appropriate. And if the credit markets aren’t happy with what Ireland is doing then trust me, no one here in Ireland will be happy with the consequences of the credit market’s displeasure.
Is NAMA a government sponsored taxpayer bailout of private banks and some of their irresponsible executives, shareholders and wealthy investors? Absolutely! Is the Irish government paying too much for the toxic property and development assets it’s taking off these banks’ books? Probably! But the issue isn’t what those assets would fetch in today’s market, because if the government paid that price it would be far too low to help the banks attract the private investments they will need to start lending money again.
Like it or not, while you can quibble about whether the government should pay 30% or 40% less than face value for those toxic assets, it will still have to pay more than they are worth now or will be for the next several years. Is that fair? No, but who ever said life was going to be fair?
The austerity budget that lawmakers must also approve in the coming months will also be one that will inflict pain on many Irish residents, both in terms of higher taxes and spending cuts. In an ideal world worthwhile social programs wouldn’t see their funding cut and hardworking residents wouldn’t have to pay higher taxes to help balance the government’s budget. The government would also cut the jobs and salaries of employees who don’t do any meaningful work instead of cutting the wages of public sector workers that are truly necessary and provide essential services to Irish residents.
But we don’t live in an ideal world. And because we don’t we are all going to have to swallow some bitter medicine in the months ahead. Why? Because the disease of economic stagflation and bankruptcy is so much worse than the cure for it.