Created on Sunday, 11 September 2011 11:46 Written by Tony Healy
According to press reports the Fine Gael and Labour parliamentary “think ins” this week were upbeat and confident. Although the Irish Times reports that both parties were warned “to brace themselves for the bumpy ride ahead”. There has been talk about Enda’s “honeymoon period” over the last few months. Although in large measure the new coalition is benefitting from not being Fianna Fáil or the Green Party, while Enda Kenny is doing well in the polls for being neither Brian Cowen nor Brian Lenihan.
In a similar vein the pressure on the Irish economy from the international bond markets seems to have settled a bit – for now. But, while the bailout has reduced the immediate pressure on the state finances the major reason for the apparent “calm” is the fact that other countries, for example Greece and Spain are in the firing line.
The political relationship of forces is reflected in this excerpt from an article in the Sunday Business Post on 4thSeptember:
“By virtue of its newness and its massive majority, the coalition government remains firmly in control of the political agenda. Kenny is still master of all he surveys. There have been a few hiccups, but pre-summer polling showed that the public was still favourably disposed to the new government and its leader.
But ultimately political fortunes are determined by substance as well as political management, and the time for real action is coming. Privately, government insiders agree that they haven’t had to do the tough stuff yet.
The coalition now begins the real everyday process of adapting to life as a government implementing a harsh regime of austerity on public spending.”
The price for Enda’s honeymoon period is going to be heavy. The EU/IMF bailout imposed serious penalties on the state in the event that targets aren’t hit for cuts in the public sector. While the Croke Park agreement has meant no further attacks on wages – for now, the flipside is that the “reform” of the public sector that was threatened in the Croke Park deal is now on the agenda.
But the problem for the coalition is that to implement the so called “reforms” they will have to take on the workers in the public sector. It is possible that they will seek a way around taking the unions on directly – at this stage. This article from yesterday’s Irish Times makes interesting reading:
“One of the problems is that it is going to be hard, if not impossible, for Kenny and Gilmore to live up to the pledges they have made about not increasing tax rates or bands or not cutting welfare rates. Brendan Howlin’s comprehensive spending review is unlikely to prove the magic wand some of his colleagues hoped for at the beginning and there is no avoiding the twin imperatives of cutting spending and raising revenue.
The sale of State assets, to which the Government is committed in the EU-IMF bailout programme, would normally be expected to generate considerable friction between Fine Gael and Labour, but that does not appear to have happened, although final decisions are yet to be made. Ironically the easiest way for the Government to meet its fiscal targets would be to ratchet up income taxes rather than widen the tax base or cut spending. Many of those who are railing against the modest €100 property charge would probably make far less fuss if €1,000 a year was loaded on to their income tax bill and simply deducted at source.
The income tax option was taken during the 1980s and it prolonged the recession and stifled growth. An over-reliance on further increases in income tax to solve the deficit would be both bad for the economy and in breach of the terms of the EU-IMF bailout. The problem is spending cuts and a widening of the tax base are harder to sell to voters.
Whatever the formula adopted in the budget further pain is in store for large swathes of the electorate, but there is no way around it. The store of political capital built up by the Coalition since it took office in March should be enough to see it through the budget and out the other side.”
In other words the coalition are likely to try to open up a number of options for their austerity programme; specifically privatisations, tax increases, welfare cuts and “extending the tax base” as well as severe cuts in public spending. They have been advised that they are more or less “on course” and that they will come out “the other side”.. However, it cannot be ruled out that sooner or later they will be confronted with a financial crisis in the eurozone; as the Irish Times goes on to say:
“The Fine Gael parliamentary party heard a relatively optimistic message from ESRI economist John FitzGerald, who expressed confidence that a continuation on the current course would see the country meet its targets and be free of the bailout on time. That assumes the international situation stabilises and the euro survives, but there is very little the Government can do about that.
In terms of international reputation Ireland is beginning to put clear water between itself and Greece, as a range of international bodies accepted during the week. There is no choice but to continue with the EU-IMF programme so that we can survive the backwash if and when Greece ultimately goes under.
One of the things that damaged the Fianna Fáil-Green government was the perception internationally in the summer of 2010 that it was slipping behind target as a result of the banking crisis. That precipitated the EU-IMF bailout in November. This Government appears to have learned the lesson and that means the budget adjustment will have to be at least €3.6 billion as promised and probably a bit more, just to be on the safe side.
The pessimists argue the euro is going to collapse and that will make it all irrelevant, but these are the same people, from far right and far left, who urged burning bondholders, collapsing the banking system and refusing to accept the terms of the bailout.”
For sure, the stabilisation of the euro and the “international situation” is a bit of a risky assumption to make. Yes, Ireland is not doing as badly as Greece, but that is hardly grounds for optimism. Finally spreading the austerity burden onto the entire working class through increased taxes and cuts in welfare as well as attacks on the public sector means upping the ante politically. In politics after all, it is inadvisable to attack all of your opponents and potential opponents at the same time.
The Irish Times seems to think, however, that Enda will muddle through. However, inevitably the austerity will result in pressure from the working class, first on the trade unions and then at a certain stage on the Labour leaders. In practice it’s likely that the trade union leaders will be drawn into more “social partnership” negotiations. But the scale of the €3.6 billion cuts that are mooted in the Irish Times article together with the extent of “reform” in the public sector means that the trade union leaders will come under significant pressure to defend workers conditions and jobs. There is no easy way out for Enda Kenny and Eamon Gilmore without attacking the working class.
Under these conditions the active layers of the trade union movement need to prepare for the prospect of more battles ahead. We need to oppose every cut and question every review or restructure in the public sector. Eamon Gilmore argues that he joined the coalition to defend working people, over the next period that statement is going to be put to the test. One thing is for sure, Labour needs a fighting Socialist Programme and a clean break with capitalist policies.