Argument for an Election Growing?

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.

NAMA Presentations

The presentations at the Cantillon School by NAMA CEO Brendan McDonagh and at the Fianna Fail think-in in Galway by NAMA Chairman Frank Daly are available online.

I don’t have time to discuss these presentations today but I would refer anyone interested in NAMA to the always excellent NAMA Wine Lake blog. How our friend Mr. Singh finds the time to keep on top of it all is a mystery but, however he does it, we are very lucky to have him.

Lex on Nama

The FT’s Lex column gives its pithy assessment of Nama.

A flavour:

Nama is an odd creature: part debt collection agency, part property developer. As well as toxic loans, it may end up with a portfolio of property which was collateral for the banks’ lending binge. It was meant to fix the broken banks, convince taxpayers they might be repaid and reassure the markets the banks’ liabilities would be met in full. Facing in three directions, it has not appeared convincing in any: slow, bureaucratic, initially indecisive, almost excessively transparent (every toxic loan is assessed individually).

It concludes a bit more hopefully.

More Comments on AIB’s Half-Yearly Report

I surely have better things to do with my time but, yes, I spent the evening reading AIB’s half year report (with the Airtricity boys doing us proud in the background.) As John already noted, the report has a lot of pretty bad news in it, so I thought I’d point out some sort of positive news (before getting back to the bad stuff).

Liquidity Situation

The good news? Despite concerns that have been expressed about a looming “wall of cash” moment, AIB looks as though it’s in a position to get through to the end of the year paying back all its debts, though this may require ECB assistance.

No Frank, NAMA is Not Being Funded by the ECB

On RTE radio this morning (on Today with Pat Kenny with, em, Myles Dungan) Fianna Fail TD Frank Fahey said:

I stand by what I said about NAMA from the very beginning. NAMA is being funded … the bonds are being funded by the European Central Bank.

Now I know that language is a flexible thing and perhaps philosophy graduates could spend all night debating what the meaning of “being funded” is. But, I would suggest that the only reasonable interpretation of this statement is that it implies NAMA are receiving funds from the ECB.

This is not at all true. The ECB has no direct relationship with NAMA at all. NAMA bonds can be used by the banks that have received them as collateral for loans from the ECB but that’s it, that’s the full extent of the ECB’s involvement in relation to NAMA. Furthermore, AIB and BoI executives told the Oireachtas last year that they had no particular plans to use the bonds in this fashion.

The NAMA bonds are fully backed by the Irish government. They are a liability of the Irish state, albeit one entered into at the same time that it acquired some property assets that may or may not yield enough to pay off the bonds.

It is long past time for government politicians to stop misleading the Irish public that NAMA somehow involves the state getting money from the ECB. I would plead with any journalist interviewing Deputy Fahey or any other commentator making this claim in the future to point out to them that it has no grounding in fact.