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Bailout boys from Europe are back in Ireland

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A group of economists from the IMF and the European Union leave the Merrion Hotel in Dublin last week.

Our bailout lords and masters from Europe and the IMF were back in town last week to examine the state's financial books.

One newspaper here had great fun pointing out that although their job is to impose austerity on us poor paupers, they were staying in the most expensive place in Dublin -- the five-star Merrion Hotel.

The excuse is that it is directly across the street from the Department of Finance which means that they are literally a 30-second walk away from work.  But even so, it's a bit nauseating that the Counts of the Cutbacks are enjoying such luxury -- rooms in the Merrion run from around €200 a night to the penthouse at well over €2,000, and the full Irish breakfast delivered to your room costs a trifling €40 -- while us poor Paddies are being fleeced.

The IMF's Ajai Chopra, who has become the congenial face of the Irish bailout team, wasn't here last week.  Instead we had about six unfamiliar and unnervingly young-looking financial experts, including a Hungarian economist (given the economic mess in Hungary now was there not enough to keep him busy at home?)

The team was being led by Craig Beaumont, who is the IMF's mission chief for Ireland, and is from New Zealand.  He was still doing his degree in the London School of Economics (the famous LSE) in the early 1990s.

In fact the whole bailout team looked young enough to be our Minister for Finance Michael Noonan's grown-up children.  But these are the new masters of the universe, from the IMF, the EU and the European Central Bank.

They spent several days going over the books and quizzing ministers and officials, not just in the Department of Finance but in the Central Bank, the NTMA (the National Treasury Management Agency), Nama (our new national bad bank for bust property portfolios) and even the ESRI, the official economic think tank here.

We won't know their verdict for another two weeks  -- they're going back this week to start writing their report -- but they were smiling while they were crossing the street here.  Mind you, I would be all smiles too if I was staying in the Merrion and tucking into  €40 breakfasts.

Their job is to monitor how well we are sticking to the terms under which we agreed our  €85 billion bailout from the IMF and the EU. That is being drawn down in tranches to pay back bondholders and to keep the state going until we sort out our overspending.

To keep getting the money, we have to submit to these examinations every three months.  The one last week was the fifth since we got the bailout, and it will be interesting to see what our masters will say about us in two weeks in their report.

The word here last week was that they were very unhappy about the government's lack of progress in selling off state-owned assets to pay down some of our debt.  The government has already agreed to do this, but they're being so slow about getting started that the bailout team were pushing for a deadline.

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The state asset sale could include major entities like the national electricity company (the ESB), the Gas Board and Aer Lingus.

There are about 20 semi-state commercial companies here, and the government has drawn up a secret list of the ones that could be sold, as well as other assets like surplus state property (anyone out there want to buy an old army barracks or two?).

But the bailout team now wants the government and the NTMA -- which is supposed to be handling the sale of the assets -- to produce a detailed time frame and get on with it.

Various estimates of value have been put on what these assets are worth.  Even if you never went to the LSE (like Mr. Beaumont) you probably know that now is not a great time to be selling.

But the bailout boys won't wait and they want sales worth €5 billion, which will be an awful lot of the family silver. The government's present position is that they do not want to sell unless about half of that can be ring-fenced for job creation programs here.

What this would mean is that half of the money would be invested here, instead of vanishing overseas into the coffers of the French and German banks that speculated on our property boom and now want all the billions they lent to the Irish banks back.

I have to say that I, like most Irish people, find this situation both irritating and humiliating.  To see our ministers and officials being told what to do by a team of financial whizz kids from the EU and the IMF (several of whom began their careers in banking) is hard to stomach.    

But that's the way it is.  Despite the air of normality here, despite the pretence that we're still in charge, the underlying truth is very different.

We get occasional glimpses of the hidden reality, like the details of our last budget being discussed in the Bundestag before it had been revealed to the Dail (Irish Parliament).

The truth is we're on a financial lifeline. The truth is we've shown ourselves unable to manage our own economic affairs.  The truth is that Taoiseach (Prime Minister) Enda Kenny can puff up his chest all he likes, but the big decisions on our future are being taken by the countries that give us the funds.

They don't make it too explicit, of course.  There's no point in rubbing our noses in it because humiliating our politicians might spark a major public reaction here and they don't want that.

So German Chancellor Angela Merkel still meets Kenny like any head of government.  But if you look closely, there's something perfunctory about the handshake and her smile is barely there.

No wonder the bailout boys looked quietly superior as they crossed the street from their five star hotel in Dublin last week.  Behind the politeness and the pretence of normality here, do they see us as being all that different from some failing banana republic in South America or some insolvent and corrupt African state?   Probably not.  

Mind you, with the mess the euro is in right now, they have little to be superior about.  Nor, if they think about it, should they feel that their ideas on how to fix Ireland, never mind the rest of Europe, are superior to the strongly held views of so many Irish people, most of whom had nothing to do with the Celtic Tiger fiasco.

The fact is that the medicine they are prescribing for Ireland is killing the patient.  Even the IMF itself said a week ago that they were revising downwards their already feeble estimates of growth in the Irish economy for this year and next.  They said that whether we would be able to come out the other end of this bailout program as planned remains in question because the success of the program depends heavily on growth in our economy.

Growth is built into the bailout figures.  But the IMF said last week that the Irish economy is "fragile" and that the government should not make any extra cutbacks this year that would reduce consumer spending further, even if we fail to meet this year's budget deficit target.

That's quite extraordinary, coming from the IMF. It shows they believe that if consumer spending here goes down even more, the economy will get worse not better.  And behind that fear is the pressure to get us to sell assets sooner rather than cut spending more this year.

_______________________
Read More:
Irish government warned recession will deepen on back of property woes

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Ireland's Eye: What's going on in the old sod this week
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In this situation the idea that we might be able to return to the money markets next year to raise funds is laughable.  And if we can't stick with the present bailout plan and can't get money from the markets that can only mean one thing -- a second bailout.

In this column last week we thought we were pushing the boat out in suggesting that Ireland was probably going to need a second bailout to keep going.  Since then, of course, various financial experts have said the same thing.  Kenny insists that it's not going to be necessary, but one of his ministers let the cat out of the bag last week by refusing to rule it out.

The problem is that the repayments we have to make on our bailout and borrowings are so vast that they are killing our economy.  For the next 10 years or so we have to suck around ***3 billion a year out of the economy to keep our banks going and repay bondholders and meet bailout repayments.

And we have to cut spending (or raise taxes) by about the same amount each year for between five and 10 years to wipe out our annual deficit and balance the books again.

Now everyone here knows we can't do that.   The IMF has more or less said it.   If we try to do it we will destroy the economy in the process and still fail.

And if we go the route of a second bailout and put off the day when we have to face the full scale of our economic disaster, we will be paying back billions every year for the next 30 or 40 years.

In the meantime, the government stumbles on with the faint hope that everything will be all right eventually.  Well it won't.

The IMF knows it.  The EU must know it too.  The only thing that will work is debt forgiveness.   And if the bondholders and the European Central Bank don't want to give it to us, we have to take it.
And selling our best state assets for a paltry €5 billion is no solution.  That only scratches the surface.

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