Fine Gael better brace itself for bumpy ride

Despite what it says in its manifesto, Fine Gael in government will not have the power to defy the ECB, writes Vincent Browne.

Fine Gael has been serious about policy over the last several years because there are several people in Fine Gael serious about policy. People such as Richard Bruton, Leo Varadkar, Phil Hogan, Simon Coveney, Brian Hayes and others.

It is not the crack-pot outfit it was in 2002 when Michael Noonan was leader and when promises were made to compensate taxi drivers and people who lost money on Eircom shares. Enda Kenny deserves credit for bringing seriousness to Fine Gael's policy formation and that seriousness is evident from the party manifesto published yesterday. But seriousness does not mean fairness or thoroughness and, in my opinion, the manifesto is deficient on both counts, in ways that will have bad consequences for this country.

The bit about the renegotiation of the EU-IMF deal is not credible at all and it is clear that a Fine Gael government or a Fine Gael-led government will fail to get any significant alteration to that package and will do so essentially because of deference, the same malaise that afflicted Fianna Fáil. Deference to the high priests of the financial world, including the ECB and the EU Commission itself.

For instance, on page 16 of the manifesto Fine Gael states: "Fine Gael in government will force certain classes of bondholders to share the cost of recapitalising troubled financial institutions. This will be done unilaterally for the most of the junior bondholders...but could be extended – as part of a European-wide framework – for senior debt, focusing on insolvent institutions like Anglo Irish and Irish Nationwide that have no systemic importance."

Fine Gael will not force certain classes of bondholders to share the cost of anything. And it won't do so because the ECB will instruct them not to do so, as it recently instructed Brian Lenihan to pay almost €800 million to Anglo Irish bondholders who were not covered by the bank guarantee.

The ECB won't countenance any default because of the knock-on effects that would have on the European banking system and Fine Gael in government will not defy the ECB and certainly won't do so unilaterally, as the manifesto threatens.

After the defiant but worthless pledge about unilaterally forcing junior bondholders to share the cost of recapitalising troubled financial institutions, there is the suggestion that maybe Ireland would be allowed to default on some of the debts of the senior bondholders, with EU concurrence. I obtained an insight into the thinking of relevant EU people on this issue from a reliable source recently and this person said there was no way anything such as this would be countenanced at EU level because of the knock-on effects it would have in the euro zone.

The only way we can escape from the calamitous consequences of the bank guarantee is to threaten to disown the debt unilaterally, if there is not agreement to do it in agreement with the EU Commission and the ECB. Fine Gael will not do that. Incidentally, every party, Sinn Féin included, supported the guarantee in the Dáil on September 30th, 2008, and although Labour voted against, it was clear Labour supported the principle of the guarantee but disagreed on technicalities.

So on the big issue, the massive bank debt of €100 billion or, depending on how one calculates it, a multiple of that, Fine Gael will not achieve any significant reduction. Yes, perhaps, after a while a reduction in the interest rate but that is of little consequence in the overall calculation. Perhaps there will be a crisis in the euro zone caused by us or by some other factors, and that might cause a restructuring, but the cure for that crisis might be worse than the disease.

The proposals on political reform are good in so far as they go. But having identified the main problem: the "over-powerful executive" which has "turned the Dáil into an observer of the political process, rather than a central player", it proposes changes that don't deal with the central issue: the subservience of the Dáil to the government of the day because of the whips system.

There is the usual stuff about protecting the vulnerable followed by proposals that will do the opposite: no change proposed to the universal social charge and more cuts in social welfare. Only the briefest acknowledgement of inequality as it affects women and no acknowledgement at all that inequality is even an issue. Which is odd since repeated favourable reference is made to the Swedish model which involves high taxes, high public expenditure and much more equality.

Fine Gael is now certain to be in government; whether on its own or with Labour is yet to be determined. Enda Kenny is certain to be Taoiseach. But what is also certain is that this next government will run into crisis after crisis over the next year and, by then, most people will have forgotten that it was Fianna Fáil who brought all this about.

It also seems certain there will be more hardship, more unemployment, more emigration and more inequality, while those at the privileged end of the social spectrum will suffer merely annoying changes to their lifestyles and expectations.

It's the way of the world, or at least our version of the world.