Growth through Austerity – An Irish update

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By David Malone 
 
Last week on the Vincent Browne Show on Irish Television I was told by , Mr Brian  Hayes the Minister of State for public works and Public Sector Reform that  things were  improving for Ireland. Austerity was working.
 
Towards the end of the show the host, Vincent Browne, challenged the Minister to say how exactly they were improving. Mr Browne suggested they compare Ireland with Iceland and asked the Minister if he knew what the rate of unemployment was in Iceland.  The Minister said he didn’t know. Mr Browne enlightened him. Unemployment in Iceland is 7% while in Ireland it is about 14%.  The Minister folded.

By David Malone 
 
Last week on the Vincent Browne Show on Irish Television I was told by Mr Brian Hayes, the Minister of State for public works and Public Sector Reform that, things were improving for Ireland.  Austerity was working.
 
Towards the end of the show the host, Vincent Browne, challenged the Minister to say how exactly they were improving.  Mr Browne suggested they compare Ireland with Iceland and asked the Minister if he knew what the rate of unemployment was in Iceland.  The Minister said he didn’t know.  Mr Browne enlightened him.  Unemployment in Iceland is 7% while in Ireland it is about 14%.  The Minister folded.

I had also been told, though not by the minister, but by a banker, that the Irish government’s plan, as various Ministers had explained it to him, was, and I quote, “To prove to the markets that Ireland is the Best of the Worst.” And having reached those dizzy heights he said, “Their plan is then to become the Worst of the Best.”  All I could think of when he was telling me, was the ‘Best of the Best of the Best’ scene from Men in Black.

So how is the growth through austerity plan going for Ireland, who is after all the poster boy for the policy?

The problem is, it is often difficult to make any comment as an outsider because we rarely have the figures the government has and so are always told we are uninformed or misinformed … Then I was given an interesting document.

Last week the IMF, along with people from ECFIN (the European Directorate for Economic Affairs), was back in Dublin staying at its usual luxury hotel.  Why those who are advocating austerity need to stay and dine in a hotel where the wine list is fatter than the bible and contains bottles of wine that cost 1790 euros, is beyond me.  But apparently they feel they deserve it. Towards the back of the hotel is a small unremarkable room that requires a key pass to open.  Inside are a couple of computer terminals.  It is a ‘secure’ office space.  Above one computer is a framed municipal Bond for the Ville de Kazar with two coupons missing.  I mention these details so that those concerned with the document I received will recognise them.

The document is ECFIN’s Cash Balance Assesment for Ireland over the next months.  I am not sure who in the Irish parliament has seen the document.  The headline is stark – at the beginning of March 2012 the Irish government will NOT have enough money to meet its gross financing needs.  In March 2012 Ireland will require €10.3 billion in financing but only actually have €9.5 Billion in Treasury cash balance.  The document makes it clear that despite all the austerity and all the ‘improvements’ the Minister was convinced the policy had delivered to a grateful/ungrateful people, Ireland was bankrupt unless it got the 10 billion Euros it was due in the 5th installment of the IMF/EU bail out.

As the document says,

This means that a timely provision of the Q1-2012 EU-IMF instalment is of particular importance.

The rest of the document then worries about what would happen if the 5th review did not approve the funding on time.  Further on the document has a section entitled,

What could be done in case the EU and IMF cannot disburse by the end of March?

and says,

In this scenario, and without further measures, there is a risk that the Irish sovereign runs out of cash.

That they should worry that this might be a possibility, is either simply prudent or an indication that they think it is distinct possibility.  I leave you to decide.  The document then looks at what assets Ireland has that the government could use in an emergency.  It looks at raiding the pension fund again and at “Liquidation of further assets”.

Finally the document says that the Irish figures are, it feels, robust having been made on what it calls “prudent assumptions”.  But I don’t think these assumptions include what is currently unfolding in Europe. 

A significant Europe-wide downturn, tightening of credit to banks and to Sovereigns, the growing possibility of Greece defaulting, Berlusconi losing his grip on power and therefore his ability to keep the lies going, the truth buried and Italy as one country, and the unravelling of the entire bail out fiasco.

 

Courtesy of David Malone – http://www.golemxiv.co.uk

David Malone is the author of the book Debt Generation. You can read and listen to excerpts from his book here: http://www.debtgeneration.org/index.php