02/02/2011 - Analysis
On 1st February Taoiseach (Prime Minister) Brian Cowen (Fianna Fail, FF) asked the President of the Republic Mary McAleese to dissolve the Oireachtas (the two chambers of parliament) and convened early general elections (slightly over one year early) on 25th February next. Initially planned for 11th March the election has been brought forward by two weeks under the pressure of the opposition forces which threatened to deliver a motion of censure if the Taoiseach did not grant their wish and organise elections at the end of February. The opposition parties promised to approve the finance law 2011 which was done on 27th and 29th January – a vote that was vital for the implementation of Ireland's rescue plan. "It is total insanity. We are now the laughing stock of Europe, we have a party and no leader (after Brian Cowen's resignation as head of his party) and a Prime Minister with no power," declared Fine Gael leader, Enda Kenny.
On 22nd January last outgoing Prime Minister Brian Cowen, who beat all of the country's record popularity lows, was indeed forced to quit as head of his party, Fianna Fail (FF), which he had led since May 2008 when he took over from former Prime Minister (1997-2008), Bertie Ahern. On 18th January however he had won a confidence vote within the FF with a majority of 71 votes and obtained the guarantee that he could stay as the party's chairman. He said that by doing this he wanted to foster the party's unity for the election campaign. "By taking this initiative I think I am serving the party's best interests," he declared.
The rebellion against maintaining Brian Cowen as head of Fianna Fail was led by Micheal Martin, Foreign Minister who resigned on 16th January followed by Brian Lenihan, Finance Minister, Dermot Ahern, Justice Minister, Noel Dempsey Transport Minister, Tony Killeen Defence Minister and Mary Harney, the Minister for Health and Children who all quit their posts in the week of 17th January. Mary Hanafin, Tourism, Trade and Innovation Minister followed suit a few days later.
On 26th January Micheal Martin was sworn in as the new Fianna Fail leader easily beating his rivals. It is now his responsibility to lead FF's campaign in the general elections. Fianna Fail is forecast to lose in these elections by all the polls.
On 23rd January the Greens announced their withdrawal from the government coalition. "Our patience has run out. We have decided that we cannot stay in government any longer," declared the Green leader, John Gormley, speaking of "a lack of communication and the collapse of confidence." The departure of the Green Party led to that of two ministers: Eamon Ryan, Communications Minister and John Gormley, the Environment Minister. The government now only comprises seven members, which is the minimum set by the Constitution.
Outgoing Prime Minister Brian Cowen has just been accused of colluding with the former head of the Anglo-Irish Bank, Sean Fitzpatrick who revealed in a book that he had played golf and dined with the head of government when he was Finance Minister and just before the establishment of the bank's rescue plan. "I am not guilty of any kind of economic treason," says Brian Cowen to his critics.
Just one month before the general elections ruling Fianna Fail and head of government Brian Cowen, who stands accused of having managed the economic crisis badly and of having allowed a real estate bubble to develop when he was in charge of the country's finances, are guaranteed defeat. The main opposition party, Fine Gael (FG) led by Enda Kenny will very probably govern Ireland after 25th February next.
The Irish Crisis
For a long time Ireland was at the top of the European class: a virtuous country from a budgetary point of view the island experienced exceptional growth, notably thanks to the low business tax rate. The Celtic Republic whose growth mainly relied on the financial industry was greatly affected by the international economic crisis. As of 2008 the GDP contracted by 3% and by 7% in 2009), the unemployment rate exploded rising from 4.6% at the end of 2007 to 9.2% at the beginning of 2009 and to 13% in March 2010 (and to 25% amongst the 20-24 year olds). The collapse of international companies' profits (mostly American companies) that had set up en masse in Ireland and the ruin of the real estate market plunged the country into a deep crisis.
Ireland's problem is very different from that of Greece. In Athens the bankruptcy of the State and of public finances brought down the banks; in Ireland it was the banks and the private sector that brought down public finance. The bursting of the real-estate bubble which had developed during the growth years because of the widespread establishment of foreign companies which took advantage of the low company tax rates (12.5%) together with the excesses of a banking sector that was inordinately large in comparison with the real size of the economy were the two main factors that led to the Irish crisis. The collapse of the real estate bubble in turn caused the collapse of assets prices – the size of the losses then truly became apparent. The government had no other choice but to guarantee and refloat the banks. Ireland's recovery implies a total restructuring of its banking sector. At the end of 2010 42% of Irish borrowers on the housing market were still in negative equity i.e. the value of their house was still inferior to the capital they had to reimburse the bank.
On 23rd December 2010, the Allied Irish Bank (AIB) was the fourth major banking establishment (after the Anglo-Irish Bank, INBS and the EBS AIB) to be nationalised since the beginning of the economic crisis that took the country to the brink of bankruptcy. The bank was refloated with 3.6 billion € by the State. The latter also increased the share it held in the Bank of Ireland thereby becoming its major shareholder. The refloating of the banking establishments placed under the control of the state has cost Irish taxpayers between 70 and 80 billion €.
The Fitch ratings agency downgraded the country from A to BBB. This is now the lowest rating ever attributed to Ireland on the part of the main ratings agencies; Fitch has said that the country will have to wait several years (between three and five) before it can recover its "A". On 17th December Standard & Poor's also downgraded Dublin's rating. Finally Moody's downgraded the country from Aaa2 to Baa1. The downgrading of ratings delivered by these agencies immediately affected the cost of the country's funding (a rise in interest rates) and made the government's work more difficult.
According to socio-economic forecasts Ireland's GDP was due to decline by 0.2% in 2010 and to grow by 0.9% in 2012. Unemployment now affects around 13% of the working population and the number of people living below the poverty line has increased over the last two years. Finally the Irish public debt reached 95% of the national GDP in 2010; it is due to peak at 102% in 2013 before dropping back down to 100% the following year. The outgoing government is forecasting growth of 2.75% of the GDP per year on average and a decrease in the number of unemployed below the 10% mark in four years time thanks to the net creation of 90,000 jobs.
The discontent of the Irish population due to the terrible economic difficulties that it has to face is coupled with the humiliation of having to ask for foreign aid to settle its debt problems. "Those who have the most will contribute the most, those with less will retain their guarantees; the size of the crisis is such that no one will be able to avoid paying the contributions that are necessary for our country to recover all of its vitality," Brian Cowen tried to say reassuringly after the approval of the severest austerity plan in the country's history. Although the budgetary cuts do indeed affect all of society the burden is extremely heavy for the poorest.
There is one indicator which shows how serious the crisis in Ireland has been: in the past it was traditionally a land of emigration but during the final years of the 20th century it became a land of immigration - and now it is turning back to its tradition of emigration. For the first time since the exceptional growth of the 1990's the number of emigrants has risen past that of immigrants. According to the Economic and Social Research Institute (ESRI) around 1000 people leave the country every week. The island's migratory balance dropped from + 67,300 (between April 2006 and April 2007) to – 34,500 (between April 2009 and April 2010), the biggest negative balance since 1989 according to the Central Statistics Office.
Resorting to International Aid
On 30th September last Ireland's public deficit, initially estimated at 11.6% of the GDP was announced at 32%. At the beginning of November the Irish State's bonds soared on the markets which showed increasing concern. On 21st November the International Monetary Fund (IMF) and the European Union accepted Ireland's request for aid. On 23rd November Brian Cowen, who was struggling within his party, announced that there would be a snap election after the vote on the austerity budget (the third in two years for Ireland) and the adoption of the rescue plan both set for the beginning of 2011. The austerity plan was unveiled on 24th November. It plans to save 15 billion € (i.e. 10% of the GDP) over four years, via cuts in social spending (around 2.8 billion €) that are due to be brought back down to their 2007 level and via tax hikes. The government decided to maintain the business tax at 12.5% thereby rejecting the request made by French President Nicolas Sarkozy and German Chancellor Angela Merkel to raise it.
The main goal of the rescue plan is to bring the public deficit down – at present it lies at 32% of the GDP – to 3% in 2014. The 2011 clampdown should make it possible to complete 40% of the austerity programme. Some say that the public deficit will drop to 9.4% of the GDP by the end of the year. Drastic savings will mean cuts in civil servants' jobs (24,750 in all, which will bring staff numbers down to 2005 levels), a decrease in civil servants' retirement pensions, a reduction in family allowances (-10 € per month per child); cuts in healthcare spending and investments in all ministries, an increase in university fees and a drop in the minimum hourly wage (from 8.65 € to 7.65 €). Paid to 50,000 people in Ireland it is still one of the highest minimum wages in the EU. Government salaries will also be reduced (214,000€/year for the Taoiseach and 181, 000 €/year for a minister).
As for tax increases VAT is planned to rise by one point in 2013 and then again in 2014 bringing it up to 23%. This measure is due to bring in 620 million €. Income tax will be raised (planned entry of 1.9 billion €), tax on retirement pensions will be modified (700 million € expected). Finally a new local tax that is meant to fund local public services will be created and is due to generate revenues of 530 million €.
On 28th November the IMF, the EU and Ireland came to agreement on an aid plan of 85 billion €: 35 will be devoted to the recovery of the banking system (10 will be injected immediately into the banks and 25 will complete the rescue fund for requirements in liquidities) and 50 will cover borrowing requirements for the next three years. In exchange for this aid Ireland must commit to a rapid stabilisation of its public finances and to the re-organisation of its banking system.
The IMF is participating to a total of 22.5 billion € in the aid plan. At the end of December it announced that 5.8 billion were already available. The EU is also due to pay 22.5 billion € 11.7 of which in the first quarter of 2011. The sum comes from the Euro Area's Stability Fund but also from bilateral loans on the part of the UK, Sweden and Denmark.
Ireland will also contribute to the aid plan to a total of 17.5 billion € which will be taken from the national pension fund.
Every payment of international aid is conditioned by an examination of the progress made by Ireland. The rescue plan is a loan that has to be reimbursed by the recipient country within one decade.
The Irish Political System
The Oireachtas (Parliament) is bicameral.
The first is the Dail Eireann (the Chamber of Representatives) which comprises 166 members elected for a five year period maximum within 43 constituencies. MPs are appointed by proportional voting according to a single transferable voting system. The voter appoints the person or people he wishes to vote for in order of preference from a list of candidates. He writes the figure 1 in front of the candidate who would be his first choice and then if he wants to 2, 3, 4 etc ... in front of the names of the other candidates on the list. The first counting operation involves the calculation of the electoral quotient, i.e. the minimum number of votes that a candidate must win in order to be elected. This quotient corresponds to the number of all of the votes cast divided by the number of seats available (three, four or five depending on the constituency) plus one. The surplus votes won are then divided up between the second choice candidates.
The Irish are very much attached to this complicated system of voting that they share with two other countries (Malta and Australia) to the point of refusing its modification on two separate occasions. Since the single transferable vote was written into the Irish Constitution in 1937 its modification or abolition can only be accomplished by referendum. In 1959 the Irish chose by a narrow majority and then more widely nine years later not to change anything about the way they chose their representatives. The two referenda organised on the initiative of Fianna Fail, who were then in power, suggested the Irish adopt the majority system as in the UK. Although the single transferable voting system enables a faithful representation of the political parties it is sometimes criticised due to the immense competition it creates between candidates in the same party. Hence MPs sometimes complain that this voting method forces them to dedicate a great amount of time to individual requests on the part of their fellow countrymen and prevents them from focusing on political issues of national interest.
The Seanad Eireann (the Upper House) has 60 members.
43 are elected by proportional vote according to a single voting system, by five main bodies comprising members of parliament (outgoing senators and the newly elected MPs) and local councillors (county councillors and town councillors) representing the various sectors of society (Culture and Education, Agriculture, Employment, Industry, Trade and finally the Civil Service).
11 are appointed by the Prime Minister and six by graduates (any citizen aged 18 and over who is registered on the electoral rolls and who has a degree) of the National University of Ireland or the University of Dublin (Trinity College).
The Seanad Eireann is traditionally elected 90 days after the Dail Eireann at the latest.
The government may comprise up to 15 members. Two of them can be members of the Seanad Eireann (the Upper House); everyone else must be member of the Dail Eireann.
Five political parties are represented in the Dail Eireann at present:
- Fianna Fail (FF) (Soldiers of Destiny in Gaelic) led by outgoing Prime Minister Brian Cowen; it has 77 MPs;
- Fine Gael (FG) (Family of the Irish in Gaelic) is the main opposition party lying to the centre-right of the political scale. Led by Enda Kenny has 51 MPs;
- the Labour Party (Lab) led by Eamon Gilmire has 20 MPs;
- The Green Party (GP), member of the outgoing government is led by John Gormley and has 6 MPs;
- Sinn Fein (SF) (Ourselves in Gaelic) is specific in that it exists (and takes part in elections) in two States of the European Union: Ireland and the UK. It is led by Gerry Adams with 4 MPs.
Two MPs of the Progressive Democrats (PD) a party created in 1985 by members of Fianna Fial who were then opposed to the leadership of Charles Haughey were elected in the last elections on 24th May 2007. However the Progressive Democrat Party was dissolved on 20th November 2009. Its two MPs – the Ministers for Health and Children, Mary Harney and Noel Grealish – now sit on the independent bench.
The Head of State, who only has representative power, is elected by universal suffrage for a term of 7 years that can only be renewed once. The present President of the Republic, Mary McAleese, in office since 30th October 1997, and the only candidate standing for the position as Head of State when the deadline for appointments closed during the last presidential election was re-elected without a ballot on 1st October 2004.
The Electoral Campaign
"We were too optimistic about our recent economic success that in appearance was quite spectacular," declared the outgoing Prime Minister who added, "the development of a real estate bubble which when it burst caused the crisis was due rather more to having had easy credit and the ferocious competition for market shares than with tax incentives." "The biggest mistake that we made with regard to public finance was having spent too much and reducing taxes to an excess,"says outgoing Foreign Minister Micheal Martin.
The opposition forces are campaigning on the challenge made to the IMF and EU's rescue plan and on criticism of the way the government negotiated the aid. They are criticising the conditions that were set by the international sponsors, notably those that focus on interest rates. Fine Gael and the Labour Party want to renegotiate the agreement that was made with the IMF.
Labour believes it imperative to take another look at how the debt of the Irish banks is to be restructured and to review (downwards) the interest rate of 5.8% which the country has to pay its international creditors. "The agreement was negotiated by a desperate government. Tax payers have to pay for the banks. We cannot accept this slavery," declared Eamon Gilmore of the Labour Party.
Fine Gael shares these views and is asking voters to allow it to take the country back to the negotiating table over the international aid plan. "Ireland's 2011 budget is that of a puppet government controlled by the IMF and the EU," says Michael Noonan, FG's spokesperson. "The winners are the banks which have stolen our money and the losers are the families with three children," accuses the Labour spokesperson Joan Burton.
Sinn Fein, which hopes to quadruple its number of MPs, denounces the rescue plan which it considers as an "attack on the country's sovereignty". Although some political analysts have forecast that there might be a government coalition between Fianna Fail and Sinn Fein Gerry Adams has said that he would negotiate his entry into government on condition that Ireland withdraws from the EU.
All of the opposition parties say they will re-negotiate the conditions set by Ireland's creditors – for which they will have to win the approval of the IMF, the EU and the European Central Bank. Moreover all of the parties are tied hand and foot by the state of the Irish economy and have very little room to manoeuvre. "The idea that the opposition might be able to re-negotiate a better interest rate from the IMF unilaterally is ridiculous," declared the outgoing Finance Minister Brian Lenihan. "The only re-negotiation possible would focus on the conditions associated with the rescue plan but not on interest rates," he said. "Any aspects linked to the plan's conditions can be re-negotiated but not the plan in itself. People can make pre-electoral promises but once in government there will be no room to manœuvre," stresses Micheal Martin.
The Irish government is the first in the EU (and in the Euro Area) to fall because of the debt crisis that is severely affecting Europe as a whole. According to all of the polls Fianna Fail which has dominated political life since the country's independence in 1922 and has governed 55 of the last 74 years is due to be wiped out in this ballot. The most recent polls credit it with 14% of the vote. The Irish hold it responsible for the catastrophic situation in which their country finds itself. They accuse it of having a specific kind of relationship with the business world, of having prolonged the economic boom of the 1990's artificially to the point of creating a financial and real estate bubble, of having made tax payers pay for the rescue of the banks and finally for having turned to the IMF and the EU for aid. The latest polls declare that Fine Gael will win 35% of the vote, Labour 21%, Sinn Fein 14% and the Green Party 4%. Around 12% of the electorate are due to vote for independent candidates.
The question of sharing the burden, implied in saving Ireland, will undoubtedly be the focus of the short electoral campaign.
Source : Irish Electoral Commission