Ireland’s bill for decade-long boom

As I arrived at the Office of the Taoiseach for the launch of Ireland’s 4 year austerity plan, news of the student civil disobedience in London was breaking.

In London I was struck by how little protesters cared about being identified. In Ireland I have been struck by the eloquent sense of mutiny articulated by ordinary citizens at every corner. I would sum up the common thread of these two observations in two words: social contract.

I fear that in the British Isles at least the social contract is being stretched to its limits, for the same reason in both nations. Those bearing the brunt of cuts are utterly unconvinced that those ultimately responsible for the financial crisis have really paid any price at all. It is particularly egregious in Ireland. Both in terms of those in private sector and the politics who were responsibe for the Celtic calamity economy. The latent anger is very strong.

So today the detailed bill for a decade long property and banking boom arrived with VAT up, incomes taxes up, a new poll tax on property, a cut in the minimum wage, and the sharpest ever public spending cuts in Irish history. The details await in an upcoming Budget, but this will prove vastly more regressive than the cuts in the UK.

“Staggering austerity” said one City analyst. In Dublin, some locals gathered around televisions in disbelief. It didn’t feel like a bailout.

And yet there was little on the banks. Just across the road from Brian Lenihan’s office RaboDirect has put up an advertising hoarding, crowing: “Hands up if you feel safe: Ireland’s only AAA-rated bank”. Bank safety is a live issue.

Irish bank shares are plunging in value. Ryanair’s market capitalization is nearly three times the entire Irish banking system. This is partly down to nationalization rumours. RBS (and they should know) calculate that all of Ireland’s banks will be 90 per cent plus state-owned as a result of the EU-IMF recapitalisations. There will be mergers, and sell-offs. Paddy Power is tonight the most valuable financial institution in Ireland.

The ludicrous property gambles of Ireland’s banking sector are no laughing matter. People are furious. No one has been brought to book. The populist economists are developing a constituency for Ireland to default on its debts. If David McWilliams stood for office…

That is why there is still “execution risk” on Cowen’s 4 year plan. The numbers add up. It was designed to calm markets, and it should have. The shuddering reality that Irish borrowing costs have increased since the announcement of the rescue, and surged back up to records as the 4 year plan was being released. In Dublin the Merrion Street bubble assures that the Budget will pass. Yet one of the first things announced by Opposition politicians is that they will renegotiate it.

This is dark stuff. But it is the consequence of understandably fractious politics. At a time of profound public anger. And today did nothing to soothe that.