All eyes must now be on the new deal for Ireland
A combination of Labour and Fine Gael gives the right hand of cards for us to play with at the table. But it will remain to be seen if the people who play the hand have the talent and experience to win the pot for Ireland.
With the excitement and drama of the Irish General Election drawing to a close, the reporters and pundits are now busy whipping up the excitement and drama of the coalition negotiations between the Fine Gael and Labour parties. But the focus needs to stay on the immediate prize – a new deal on the EMU/IMF bailout terms and a cutting of the cord between Irish sovereign debt and the bondholders of Irish banks.
That is the ballgame folks – make a radical change to this arrangement and Ireland has a shot of avoiding a long-lasting economic catastrophe that will make current conditions appear very benign.
If we we fail to amend the deal, the country is sunk and a default is inevitable. It will not be enough to simply re-jig future bank and sovereign debt obligations. The new government will HAVE to get a result on the existing monies already lent to Ireland to shore up the banks. And the solution will need to deal with both the loan amounts themselves as well as the interest rates.
Even if we get the best result possible on the loan terms, Ireland will still see economic convulsions caused by its soveriegn debt alone. Despite a good bailout deal, it is still possible that the country could still default if we don’t make the right choices. David McWilliams’ recent article (http://www.davidmcwilliams.ie/2011/02/23/bit-of-something-is-better-than-all-of-nothing-for-ecb) puts the mathematics in very sharp perspective.
Apart from the seats that went to some really talented newcomers like Stephen Donnelly in Wicklow, the good news about the result of the General Election is two-fold.
Firstly, we can and should portray the result as a de-facto referendum on the bailout terms. We may need to revert to a real referendum if we can’t get the deal we need. But in every conversation with the EU and IMF it needs to be made clear that Ireland had its referendum on the bailout and our prior leadership and the result was overwhelming. That is what savvy negotiators and leaders will do – starting with the EPP meeting in Finland this Friday.
Secondly, the strange centre-right and centre-left bedfellows that will likely form the new coallition government could be the right temprement to get us past this next difficult hurdle. Labour were much more bullish in their approach to the reshaping of the bailout terms. We need them to hold their nerve, because nothing we see from Fine Gael suggests that they are adopting the correct approach unilateraly.
(It may be that Enda Kenny is going to do a great job quietly cracking this new deal in private, but too much of what he says in public sound almost apologetic – in fact he said after his Merkel meeting that we Irish had to remember that we got ourselves into this mess. One can argue about how true that is, but it is not the move of a master tactician preparing for this hugely significant negotiation.)
So, for this phase of the slow crawl out of the economic chasm, we find some very strange bedfellows.
Those on the far right of Ireland’s economic spectrum must be glad that the backbone coming from Labour’s camp may ensure a deal that looks more like capitalism.
Those on the far left will want to see that a good part of the price of our recovery is being paid for by the high-finance community and the elites of banking.
This all assumes that they have the political maturity to get together – and it is not too late for them to bring in some of Ireland’s best for the EU/IMF talks – people who have been in this movie before.
And Act II of this drama, with the new bailout deal in place and real tough economic choices to be made, will pit left against right in a more traditional fashion that could expose faultlines in the government.
But, for now, a combination of Labour and Fine Gael gives the right hand of cards for us to play with at the table. It will remain to be seen if the people who play the hand have the talent and experience to win the pot for Ireland.