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Troika is Caught on a Hook

Posted on: January 22nd, 2012

Did the troika get it hopelessly wrong? Perhaps our less than welcome visitors have gone native.

A delicious thought occurs — that our persecutors will soon have egg all over their faces. All we now need is icing on the cake. What a bonus it would be to see Sarkozy bite the dust in the French presidential elections in May, and for Angela Merkel to be similarly humbled next year.

Keep your fingers crossed.

Last week the technical group of independent TDs were invited to meet the troika. Presumably our persecutors had been warned to expect a motley crew of headbangers, to be polite to them, to answer their questions and flee across the road from their current workplace in the Department of Finance to their five-star hotel for a well-earned stiffener.

Mick Wallace, Catherine Murphy, Clare Daly, Mattie McGrath, Stephen Donnelly, Richard Boyd Barrett and I trooped into the Department of Finance to meet the troika.

Eight troika members eyeballed us across the table.

The encounter was practical and professional. None of our delegation had backed the troika’s deal with the Irish Government. None welcomes their presence, camped as they are in control of the Merrion Street fortress.

The questions were direct, the replies polite. Challenges were put to the troika about growth rates, privatisation, austerity, promissory notes and exports.

The troika team was impeccably polite. But a message emerged. The troika was as wed to the deal as the Irish Government. Pride was at stake. The IMF, European Central Bank and European Commission gurus echoed the heady optimism of Michael Noonan and Brendan Howlin. When asked about the supersonic growth rate (1.3 per cent) projected by the Department of Finance — whose hospitality they were enjoying — they began to purr.

They protested that our exports were resilient, pointing out that we were big into drugs and IT services. When challenged with the far lower Davy growth estimate (0.4 per cent) or Goodbody’s (0.7 per cent), they would only go so far as to admit that the higher ones were “optimistic”.

They were true to their word. Two days later the troika slashed its own growth projections down from 1 per cent to 0.5 per cent, leaving the Irish Government marooned on 1.3 per cent. The visitors were scuttling away from embarrassing in-house forecasts. They should have tipped off Taoiseach Enda Kenny, who only a day earlier in the Dail had pinned his colours to the Department of Finance’s over-the-top 1.3 per cent figure.

By Friday, most predictions for 2012 growth were looking similar. The troika now came in at 0.5 per cent, Davy at 0.4 per cent, the Central Bank at 0.5 per cent, Goodbody at 0.7 per cent and the ESRI at O.9 per cent. Out on a limb stood the mandarins, predicting 1.3 per cent growth this year.

Let us wait for the climbdown. They will call it a “revision” when it comes. Expect a footnote on a press release on Easter Sunday.

The troika was bullish. They talked of net export figures being good, of 2011 being better than expected, and of the great capacity Ireland has shown to find new markets. Claiming that foreign direct investment was strong, they anticipated a rebound in exports in 2013. They sounded like spokesmen for the Government. Borrower and lender spoke with one voice. Both are puffing up the prospects of success for the package.

Ireland is top of the troika’s class. It seemed that the visitors have spent too long bedded down in the Department of Finance, where misplaced optimism is endemic and infectious.

Questions about awkward independent forecasts that we would not meet key GDP targets in 2015 were parried as being premature. There was no need for what they euphemistically called “re-engineering”. Decoded, they were signalling that they would not tolerate loose talk of a “second bailout”. No one mentioned this monster that dare not speak its name, but the same monster was hovering over all 90 minutes of our talks.

The penny suddenly dropped. The troika, far from being our tormentors, are joint-champions of the deal. But have they goofed? Are they suddenly afraid that they may have backed a loser? They are like bankers who have made a doubtful loan. So they are busy talking up their book, hoping that the world and the European economies will recover in time to rescue them.

The troika, and not Ireland, is on the hook. Less growth means less taxes. Less taxes means higher deficits. Higher deficits means targets missed. Down that road lie second bailouts, even default.

The tell-tale signs of self-doubt were visible at their press conference. The troika has suddenly organised an escape hatch. The IMF suggested that Ireland should avoid carrying out more “fiscal adjustments” if it suffers an economic shock this year, but any slippage should be made up later. The scene is set for possible failure. Then, like Mr McCawber, the troika will have to depend on something turning up.

At the press conference the troika publically patted the Government on the head for meeting the agreed targets — in the first year. The dark reality is that they were congratulating themselves. Brendan Howlin, the Labour minister for hardship, responded in kind to their plaudits by talking about our “good allies in the troika”. Both debtor and creditor were struggling to impress the global markets with their well-orchestrated love-in.

The tic-tacking between the two interested parties has been masterful. When we met the troika on Tuesday, hard questions about privatisation and taxes from Clare Daly and Mick Wallace elicited surprise responses that would have pleased their “ally” Brendan Howlin.

The troika delegates insisted that they had not prescribed any privatisations. They wanted to see certain semi-states “restructured” and competition in the market. Contrary to media perceptions, they were not pressing the Government to raise any specific amount from the sale of State assets. The figures in the public arena of between €2bn and €6bn did not come from them.

Manna from heaven for Brendan, giving him the opening — at his own press gig — to reveal that the proceeds of privatisations could now be used to create jobs.

He had won this concession from the troika. The money raised was not exclusively to pay off the debt. Prepare for job-friendly privatisations courtesy of the Labour Party. A nice one-two.

Both sides are spinning with gusto. Indeed, each has developed a brilliant technique of passing the parcel to each other. The leader of the European Commission delegation, Istvan Szekely, told us that they had merely prescribed the basic framework, but the Government must select the areas to cut.

He pointed out that the measures had been chosen by a democratically elected government and passed by the Dail. Both parties shared a common interest in seeing Ireland returning to global markets as soon as possible.

What a neat fit with the government line. Ministers in turn duck every penal measure by pointing the finger at the troika. Each party conveniently diverts the flak towards the other.

That would be fine if the final pipedream that saw us paying back our debts, returning to global markets and achieving the Department of Finance’s fantasy growth rates, was a reality.

Instead, there are now two fingers not one, in the dyke. Unfortunately, we are still likely to drown along with our new “allies”. Despite the rhetoric, the dyke remains in serious danger.