29/2/16: GE 2016 - Ireland's Answers to No Questions Asked

The election 2016 is a catalyst-free contest that has been shaped by the political parties attempts to understand the mind of the electorate, while the electorate has been struggling to make up its mind about what the pivotal issues of the election should be. Compounded by the  epic gaffes of the reality-skipping life-time politicos (take that Enda Kenny pill, ye old comedian) and we had an election devoid of real ideas and ideals as far as the mainstream parties go.

Harder Left and genuine Centre-Left (e.g. Social Democrats and majority of the independents) have attempted to focus the elections on the issues relating to the lagging nature of economic recovery in the domestic sectors - an issue that, traditionally, has been the core breadwinner for the Labour. However, having completely abandoned any pretence at ideals-based, principles-rich politics, the Labour has thrown its weight behind the FG-led attempt to steer plebiscite into a debate about a general (and to majority of us abstract) notion of policy continuity and stability of governance as the panacea for the ‘continued recovery’. Topical issues and specific policies aimed at actually producing a real recovery that is not stuck in the canyons of tax arbitrage by the MNCs became the victims of this absurd departure from the world of the living into the world of FG/LP.

Even shielded from competition by being effectively the only Right-of-Centre (in the Politics of Boggerville 101-style of Enda Kenny and Michael Noonan) party, FG has managed to squander the election by such a massive margin, one has to wonder how on earth can the party continue to pretend to represent anyone other than a handful of clientilist farmers, rent-seeking businessmen and a bunch of conservative civil servants. 

Not surprisingly, the key battles of the GE2016 have been waged in the contestable space created by Labour’s departure from its social and electoral core. 

Failure of Labour and FG to consolidate Centre-Left and Centre has meant that the FF was left significant room to recover some of its electoral fortunes. In a typically FF fashion, the ‘new party of the Centre-Left’ has managed to deliver very few tangible new ideas, but provided plenty oppositional rhetoric and old-fashioned pork barrel promises.

All in, Election 2016 was dominated by the lack of big thinking, shortage of specific ideas, and a large doses of surrealism. Neither global, nor European context entered the mainstream debates; economics swung from ‘tax and don’t spend’ to ‘don’t tax and do spend’ heralding the arrival of the Celtic Tiger 3.0. The entire circus of the ‘fiscal space’ debates was yet another opportunity for Enda Kenny to play the role of a cross between the U.S. Republican contestants Ben Carson and Jeb Bush - a dynamic combo of a man who can’t run for the office and a man who doesn’t know he wants to run for the office. Money, advisers, analysts, party machines and even track record - all squandered on disconnecting from the voters.

In contrast, three smaller political groupings / parties: Renua from the Right and Social Democrats from the Centre Left and the Independent Alliance have mangled to produce far reaching, ambitious, even if, at times, poorly structured policies proposals. The Independent Alliance and Soc Dems have fielded some really strong, highly impactful candidates with ideals and occasionally ideas of their own. These three forces, relatively weak and surrounded by a sprinkling of other independents and political groupings brought into Election 2016 something missing in Irish politics - integrity, honesty, openness and debates. No matter how strong their showing in the current Election has been, they provided a crucially important alternative to the stale politics of Irish elites: the Axis of FG, FF and Labour.

The most surprising aspect of the Election 2016 is the complete and total disregard by the core political parties for the voter perception of Irish politics as a palace of parochialism, corruption and cronyism. After 5 years of the current Coalition effectively replaying old FF book on cronyism and favouritism, while droning on about the ‘New Era in Politics’, the litmus test of this electoral cycle should have been a focus on political system renewal and reforms. This simple was a task too difficult for the political system to handle and even contemplate. Which, sadly, means that our Permanent Government - the cabal of unelected advisers and senior civil servants - remain in place, aided and abetted by the school of hungry and agile piranhas from the private sector always ready to issue a research note or two about the need for continuity, the necessity of predictability, the value of stability and the fabled markets’ longing for conformity with the status quo.

All hail Tipperary North constituency for delivering much of it in a concentrated form once again… 

Which brings us around to 'predicting the future'. It will be the same as the past.  

Any coalition involving FG will be a poison chalice to either FF or FG or both precisely because although FF lacks ideas, at least it is based on the ideal of a pub-pump-politics that connects with wider ranging population. FG can't even muster as much. Despite the fact that the latter has a better pool of younger cadre than the former, in my opinion, and has been better in governance too (although here we really are setting the bar low to begin with). FG will continue to play the 'extend and pretend' card in any power deal, hoping the miracle of recovery (sooner or later, it is bound to happen in a meaningful way, or so the theory goes) will sustain them into the next election. Which means their track record will be woeful - no reforms, no change, just throwing pennies and dimes at problems as soon as Michael Noonan can rake them in. 

For FF, such a scenario won't be good enough because the party needs desperately to rebuild and re-energise its base (which it started doing in the GE 2016, but is yet to complete).

Any other coalition (involving Independents) will not be stable, as FG seniors clamour for top brass positions, while the Independents largely want the same. Competition is an unbearable condition for Irish elites that prefer to play a 'spread others' butter on your spuds' game.

Alternatively, the whole circus tent might come down and we might go to the polls once again, comes late 2016 - early 2017, especially if the 'fiscal space' gets shocked a tad.

I'd put 30-35% chance on the GE2016.2.0, an a balance on the FF/FG shotgun marriage, and a 40% change on GE2017. Though, of course, miracles of the parish priest and the publican agreeing with the AIB branch manager down at the pub on where to put that new Centra in town do happen, still... Harmony might be attained.

02/03/2011: Irish Daily Mail - February 28

Here is an unedited version of my article for Irish Daily Mail for February 28, 2011.

The hardest thing in the General Election 2011 for Fine Gael and Labor is yet to come. After Sunday rest and celebrations this week will start for both parties with a political wrangle over positions of power. This too will be the easy part.

However, comes the week of March 7^th, the entire weight of the ongoing crisis will fall on the shoulders of Mr Kenny and his colleagues. There is no rulebook the new Government can consult in these times of need. Old policies, having comprehensively failed to stabilize our banking system, will be of no use. In fact, some – like Nama and the extended guarantee – will have to be unwound or scrapped altogether and fast. New policies touched upon during the campaign – like ‘renegotiation’ of the EU/IMF loans – will be just a side-show to the escalating crisis.

The problem is that, largely unseen by us, the banking crisis continues to rage. We’ve heard about the perils of ATMs running out of cash should we ‘unilaterally burn the banks bondholders’. Alas, our banks are now running ATMs on the back of IOUs they issue to themselves. In other words, every time we dine out or buy a newspaper, we are spending cash that Irish banks have borrowed from the ECB or the Central Bank of Ireland against the collateral that is only worth anything because the taxpayers promised to repay the loans. You might think that your Laser card is a debit card – taking money you own from your account. Courtesy of our bust banking system, it really is a credit card with the debt being spread across the entire economy.

Tens of billions of new debt have been created over the last few months through this ‘backdoor’ borrowing. And the new Government will have to stop this merry-go-round before the taxpayers, and with them the entire economy, collapse under the weight of this debt.

On top of this, there is a new instalment in the series of horror shows looming on the horizon, as AIB is set to report its 2010 results in days to come. For AIB is most likely to reveal this time around that it is not that much better off, when it comes to lending and investment books quality, than Anglo and INBS. AIB spent last three years in active denial of the extent of its impairments. Now, it will have to start airing its dirty laundry. Again, the Government will have to react to put some active policy buffers between the markets – easily spooked by the zombie giant rearing its head – and the bank.

Add to that much anticipated Prudential Capital Assessment Review (PCAR) – the new set of ‘stress tests’ on Irish banks balancesheets – and you have some seriously disastrous newsflow that the Government is heading into. To be credible, the PCAR will have to be really honest. We already had a number of previous reviews that spectacularly failed to reveal the truth about banks, including the ones carried out by the EU which gave AIB and Bank of Ireland their clean bills of health just before AIB was nationalized and Bank of Ireland required new financial wizardry from the Government to avoid the same fate. An honest PCAR expected next month will most likely send AIB into a tailspin.

Last, but not least, the Government will be facing the EU negotiations relating to the Franco-German push to ‘reform’ EU-wide macroeconomic stability rules. During these talks, our fiscal position will come under renewed scrutiny by the very same EU Commission and ECB who have already voiced concerns that the Government 4 year plan for restoring order to our public finances is a castle built of sand. Should the EU take a keen interest in our economic assumptions and forecasts, the Government might be forced to either increase the ‘savings’ planned for 2011-2014 by, possibly, as much as €5-6 billion, or sacrifice something else in return. No prizes if you guessed that it will be our corporate tax rates.

Here is an example. We all heard about unrealistically high assumptions on economic growth that underlie our recovery plans. Over the last couple of weeks, things have gone from bad to worse. For example, Government plan, supported in principle by Fine Gael, assumed oil price inflation of just 10.4% in 2011. Alas, since plan’s publication, oil prices have risen on average by over 20% already. Every 10% increase in oil price in Ireland translates into roughly 0.5% cut in our GDP growth. So if the Budget 2011 projected expected growth of 1.75% in GDP over this year, all signs to-date suggest that in reality we will be lucky if we can get 0.5% (0.1% for larger and less oil-dependent economies, like Germany). And this means that in year 2011 alone, to keep up with the 4 year plan, the Government might need to find additional ‘savings’ of some €200 million net.

So forget the 5 points plans. The new Government will have to get off to a fast start on drawing up the realistic plans for dealing with the crises we faced. Comes Monday week, the honeymoon will be over for Fine Gael and Labor.

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.