Today’s banking announcements were marketed as bring finality to the banking crisis but that was always unlikely. The final costs and implications of the crisis still depend on stuff that happens in the future which, word has it, can be tricky to predict. Jagdip has an as-always excellent discussion of the various loose ends here. I think the point that AIB and BoI’s non-NAMA loan books have not been subjected to the same stress tests as Anglo’s is an important point and one that could come back to haunt us again.
On the fiscal front, Minister Lenihan’s announcement of a new four year plan is welcome. Though the official statement didn’t say this, the Minister’s said during his press conference this morning that the plan would detail both expenditure cutting and revenue raising measures which would make it a more credible plan.
That said, the effect of multi-year plan in convincing the bond markets that we are on the road to sustainability will be severely limited by the fact that the government will have at most two budgets, and far more likely one, before the next election.
With the government having taken the decision to stay away from the sovereign bond market until January, there is a strong argument in favour of calling an election to take place in November. Each of the political parties could be given 3 weeks to prepare their own multi-year budget proposals, followed by a 3 week election campaign, giving a new government another four weeks to negotiate a program for government and introduce a December budget.
This course of action would have the following advantages.
1. Because we are on a temporary break from the bond market, the movements in bond spreads that would take place during the campaign would be essentially irrelevant. All that would matter at the end of the day would be the budget and multi-year plan implemented by the new government.
2. The multi-year plan would be seen by the outside world as having political legitimacy. The question of whether the government had a mandate to introduce unpopular measures would disappear. And despite regular claims from journalists that the opposition are irresponsible and have no policies, both Fine Gael and Labour did produce plans last year detailing how they would implement a €4 billion adjustment. Likewise, I would have little doubt that they would be forced to provide multi-year plans to match the government’s and that the election debate would be dominated by the comparison of these plans.
3. The difficult decisions in the upcoming budget would be taken by a new government, most likely with a large majority and not worrying about elections for another five years. Difficult decisions like the introduction of a property tax could be taken without concerns about discontented backbenchers and with the knowledge that the economic situation will look better in 2015.
I’m sure in writing this I’ll get the usual flak from the usual sources, claiming I’m putting this argument purely because I’m a Labour supporter or a Blueshirt or something or other. In truth, I have no affiliations or loyalty to any political party. I just think that there are a number of objective arguments for calling an election now. If the government puts together a concrete multi-year fiscal plan and runs an election campaign on the basis of it, they will have done a considerable service to the country.