Wednesday, March 2, 2011

02/03/2011: Irish Mail article - February 23

Here is an unedited version of my Irish Daily Mail article from February 23, 2011.

With the new Government standing to inherit a ca 10% deficit this year and a prospect of the sovereign debt in excess of €240 billion by the end of 2013, Friday elections will deliver only one certain outcome – our next Toiseach will most likely enjoy the shortest honeymoon with the voters in the history of the state. Given all the opinion polls, Enda Kenny will be redecorating the offices occupied previously by Brian Cowen. Fresh ‘IOU’ forms with Fine Gael’s insignia and new Taoiseach name will be gracing the desk. The change, alas, risks stopping there.

On a serious note, given the gravity of our economic and financial situation, it is virtually certain that the new Government will have to abandon, at least for the next 24 months, all of its 5-point plans. Fighting forest fires sweeping across our banking landscape will, once again take priority. No matter who wins in these elections, our State Guaranteed (and mostly State-owned) banks will continue to print own bonds (also State-Guaranteed) to roll over €9.7 billion of the older paper maturing this year. No matter what parties will end up forming the Government, deposits flight will go on, powered over, under the un-blinking eyes of the Financial Regulator and the Central Bank, by more borrowing. In the mean time, state finances will continue flopping along the ‘road to recovery’ like a deflated tyre.

By the end of 2013, the state will run out of the EU/IMF funds and own cash (aka NPRF), so forget whatever promises you heard throughout the current campaign about ‘stimulating growth’ and ‘improving competitiveness’. In the mean time, with the blessing of the Croke Park agreement, the public sector reforms will continue in the pages of newspapers, but not on the ground. All signs suggest that by the end of this year, the EU will face a severe banking crisis of its own, which will further exacerbate our local problems and will risk derailing our exports – the only bright spot on otherwise leaden horizon.

All of this suggests that the new Government will have to go into yet another crisis management exercise and this time around possibly without a safety cushion of the EU. The radical, unthinkable today, solutions will have to be considered. This is why the current elections are unlikely to give us much of a relief from the disasters of the last three years.

The only real uncertainty worth considering in the context of the Friday vote, therefore, is that of the new emerging power of the independents. Should the outcome of the vote this week return, as forecast, some 20 independent TDs, Ireland will be on a road to formation of at least two new parties, each with popular votes close to the combined votes of PDs and Greens, averaged over the last 4 elections. A combination of such robust support for independent alternatives to the 4 main parties and continued and amplifying economic crisis will then set the stage for a watershed change in the next elections. That date, in my estimates, is now no more than 18-21 months away.
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