A better alternative?

Richard Bruton tells John Walsh what Fine Gael would do if it forms the next government.

The 2007 general election was fought on the basis of which party the electorate trusted most to keep the good times rolling. Fianna Fáil had become synonymous with the Celtic Tiger by then, which ensured that the party returned enough deputies to form a coalition Government with the Greens. Fine Gael fared much better than in 2002 but it still could not make up the arithmetic. The next election is still theoretically two years away.

If the economy was one of the key battlegrounds in 2007, it is likely to be the only thing the electorate will be worried about in 2012. Conventional wisdom would have it that Fine Gael should romp home to a decisive victory. After all, just as Fianna Fáil received the plaudits for the good times, they were blamed for the spectacular collapse of the economy.

But nothing is ever straightforward in politics. From a disastrous all-time low in the opinion polls six months ago, Fianna Fail’s ratings have been creeping back up on the basis that even though it got the economy into a mess, it is making a decent enough attempt at plotting a recovery. If the recovery gains traction in the next two years, then it could well be all to play for.

The prospects for Fine Gael’s success hinge on the performance of Richard Bruton probably moreso than any other party member, and that includes the party leader Enda Kenny, according to the latest opinion polls.

But elections are also about horsetrading and appealing to as many constituencies (in all senses of the word) as possible. But that is where the danger lies for the economy. The international credit markets were taking the view in 2009 that this country was sailing headlong into a fiscal crisis similar to what Greece is going through at the moment. What saved Ireland from that fate was a series of austere Budgets which stemmed the ballooning fiscal deficit and restored confidence. For now anyway. If that discipline was seen to be dissolving, the punishment would be harsh and unrelenting.

Bruton manages a very rare feat in politics these days. He commends the Government for the course of action taken but obviously not unconditionally. “I will give them their dues that after October 2008, which was a hopelessly inadequate budget, they moved twice in the following months to make amends – in February and April – when they recognised that the runaway train had to be halted. The last Cowen Budget was delusional, so to come from self-delusion to denial to reality is a turnaround – I will give them that much.”

That is where any common ground with his party’s implacable foe ends. He argues that after cutbacks that include hits to social welfare payments, €2bn in cuts to the public-sector bill, €6bn in new tax and €4bn from the capital spending programme, borrowing has been stabilised at 12.5% of GDP.

Fine Gael will continue to make the savings needed to keep the economy afloat, but it will also embrace a transformation agenda, and that is what will separate the two main parties in the next election, argues Bruton. He says the Government has not introduced any policies that would stoke economic activity. Fine Gael proposes to set up a utilities holding company that would attract €11bn in private investment which would then be used to invest in the infrastructure needed for a recovery: smart grid, broadband, water system and renewable energy among other sectors.

The second part of Bruton’s three-prong approach to transforming the economy is the highly contentious area of public-sector reform. “That means closing down unnecessary agencies, reforming the way we spend money, devolved power and accountability with consequences. It means implementing the McCarthy agenda of change in the public-sector structures.”

The Government commissioned the economist Colm McCarthy to come up with a plan on how to shave €5bn from State spending. Bruton charges that even though the Government commissioned the report, it has so far shied away from implementing any of the radical recommendations that would transform the way public services are delivered. “You have to have the balls to go and reform the way the system has been run and that is what has been missing.”

He says he would streamline the back office functions of the estimated 850 State agencies, which would free up resources for frontline services. “There has to be redundancies in the back office to improve frontline delivery.”

The third part of Bruton’s transformation strategy is likely to form a very heated backdrop to the next election: fairness. He acknowledges that cuts had to be made but he argues that the Government targeted 25% of the population – social welfare recipients and public-sector workers – to bear the brunt of the remedial action. He says that Fine Gael would spread the burden of adjustment more evenly.

So far so good, but Opposition politics offers a luxury that doesn’t exist in Government which is much more about decision-making and the art of compromise. Many of Fine Gael’s proposals, particularly in the area of public-sector reform, would most likely need a single party government to introduce. On the basis of current polls, the configuration of the next government will be a Fine Gael/Labour coalition. Labour has a different approach to the public sector and a much closer relationship with the trade unions, the most important constituent in attempting public-sector reform.

There is a view that the two parties could end with a much diluted and ineffective administration. Bruton is adamant that Fine Gael will not stray from its commitment to transformation. “Irish politics has got it wrong and needs to be changed. We are looking for a mandate for exciting agenda reform. We might not get a majority but we will sit down with like minded partners and seek to persuade them about the validity of our case.”

He says he plans to get the unions onside by outlining a strategy for growth and employment. “Something they can sell to their members.”

Nama or otherwise

The National Asset Management Agency (Nama) was established by this Government to separate the banks from the property loans threatening to collapse the whole system. Bruton was one of the most implacable critics of the proposal. His opposition to Nama has not abated. He cites comments made by the former chief executive of AIB, Eugene Sheehy, and the IMF to support his argument that the creation of Nama will not lead to an increased flow of credit throughout the economy.

He still maintains that his good bank/bad bank approach was the best way of tackling the banking crisis. But that is not without criticism. In the case of the French bank Credit Lyonnais, which was turned into a good bank along the lines of the Fine Gael proposal, because it was State controlled it was used to back politically desirable projects that were not necessarily economically viable which increased the cycle of bad debts. Moreover, where the bad-bank concept has been used, it led to zombie institutions with the management trying to keep the banks a going concern for as long as possible.

Bruton says that there are risks with a State-run bank but these can be safeguarded against. “There are mechanisms that would prevent it becoming a bureaucratic operation and you would not be looking at it becoming a permanent feature of the banking scene. We have operated quite successfully ICC and ACC in the past and they were not seen as basket cases backing politically favoured projects. I think it is not beyond our bounds of imagination to establish a strong board, with a strong mandate and a clear exit strategy.”

Neither does Bruton believe that the bad-bank solution is doomed to failure. “They are not bad banks at all, they are private-sector Namas. The taxpayer will still be on the hook because of the guarantee but they will be run on a very tough commercial basis.”

Bruton says that the Government went too far when it introduced the bank guarantee in September 2008. Fine Gael would not have included subordinated bondholders in the scheme. He says the cost of Government funding would not have increased by this move, although he hasn’t done any specific research into this area.

“They [subordinated bonds] have been bought back at more than the risk they faced. The guarantee increased their value. The subordinated bondholders were in line to take a very severe hit and they are now in a position to recoup a significant proportion of investment.”

And if he was in power this September when the rollover of the guarantee is up for renewal? “We would be doing the same as the Government, we would be taking advice on how to extend the guarantee. What you want to see is long-term liquidity coming in on a permanent basis. But we would not be extending the guarantee to subordinated bondholders.”

Anglo Irish Bank

Bruton says that Anglo Irish Bank was at the heart of the banking problem and that it is a model that is fundamentally broken. “It hasn’t lent a red cent to any bankable enterprise and I don’t see it in that space. The only argument the Minister has advanced as to why it is being kept open is that it will be harder to secure liquidity in the longer term if it is in an orderly wind down.”

Fine Gael has proposed to close down the bank, although the Minister for Finance Brian Lenihan says that he has seen no evidence that suggests the party has a credible plan to do this. “For the Minister to pretend that the Opposition is in a position to negotiate with the EU Commission and the ECB and others in this context – we cannot negotiate the way in which it can be resolved. If the bank has a long-term future. then let the minister set it out. Otherwise, it is an issue that will remain and cost the taxpayer money.”

The 2007 general election was fought on the basis of which party the electorate trusted most to keep the good times rolling. Fianna Fáil had become synonymous with the Celtic Tiger by then, which ensured that the party returned enough deputies to form a coalition Government with the Greens. Fine Gael fared much better than in 2002 but it still could not make up the arithmetic. The next election is still theoretically two years away.

If the economy was one of the key battlegrounds in 2007, it is likely to be the only thing the electorate will be worried about in 2012. Conventional wisdom would have it that Fine Gael should romp home to a decisive victory. After all, just as Fianna Fáil received the plaudits for the good times, they were blamed for the spectacular collapse of the economy.

But nothing is ever straightforward in politics. From a disastrous all-time low in the opinion polls six months ago, Fianna Fail’s ratings have been creeping back up on the basis that even though it got the economy into a mess, it is making a decent enough attempt at plotting a recovery. If the recovery gains traction in the next two years, then it could well be all to play for.

The prospects for Fine Gael’s success hinge on the performance of Richard Bruton probably moreso than any other party member, and that includes the party leader Enda Kenny, according to the latest opinion polls.

But elections are also about horsetrading and appealing to as many constituencies (in all senses of the word) as possible. But that is where the danger lies for the economy. The international credit markets were taking the view in 2009 that this country was sailing headlong into a fiscal crisis similar to what Greece is going through at the moment. What saved Ireland from that fate was a series of austere Budgets which stemmed the ballooning fiscal deficit and restored confidence. For now anyway. If that discipline was seen to be dissolving, the punishment would be harsh and unrelenting.

Bruton manages a very rare feat in politics these days. He commends the Government for the course of action taken but obviously not unconditionally. “I will give them their dues that after October 2008, which was a hopelessly inadequate budget, they moved twice in the following months to make amends – in February and April – when they recognised that the runaway train had to be halted. The last Cowen Budget was delusional, so to come from self-delusion to denial to reality is a turnaround – I will give them that much.”

That is where any common ground with his party’s implacable foe ends. He argues that after cutbacks that include hits to social welfare payments, €2bn in cuts to the public-sector bill, €6bn in new tax and €4bn from the capital spending programme, borrowing has been stabilised at 12.5% of GDP.

Fine Gael will continue to make the savings needed to keep the economy afloat, but it will also embrace a transformation agenda, and that is what will separate the two main parties in the next election, argues Bruton. He says the Government has not introduced any policies that would stoke economic activity. Fine Gael proposes to set up a utilities holding company that would attract €11bn in private investment which would then be used to invest in the infrastructure needed for a recovery: smart grid, broadband, water system and renewable energy among other sectors.

The second part of Bruton’s three-prong approach to transforming the economy is the highly contentious area of public-sector reform. “That means closing down unnecessary agencies, reforming the way we spend money, devolved power and accountability with consequences. It means implementing the McCarthy agenda of change in the public-sector structures.”

The Government commissioned the economist Colm McCarthy to come up with a plan on how to shave €5bn from State spending. Bruton charges that even though the Government commissioned the report, it has so far shied away from implementing any of the radical recommendations that would transform the way public services are delivered. “You have to have the balls to go and reform the way the system has been run and that is what has been missing.”

He says he would streamline the back office functions of the estimated 850 State agencies, which would free up resources for frontline services. “There has to be redundancies in the back office to improve frontline delivery.”

The third part of Bruton’s transformation strategy is likely to form a very heated backdrop to the next election: fairness. He acknowledges that cuts had to be made but he argues that the Government targeted 25% of the population – social welfare recipients and public-sector workers – to bear the brunt of the remedial action. He says that Fine Gael would spread the burden of adjustment more evenly.

So far so good, but Opposition politics offers a luxury that doesn’t exist in Government which is much more about decision-making and the art of compromise. Many of Fine Gael’s proposals, particularly in the area of public-sector reform, would most likely need a single party government to introduce. On the basis of current polls, the configuration of the next government will be a Fine Gael/Labour coalition. Labour has a different approach to the public sector and a much closer relationship with the trade unions, the most important constituent in attempting public-sector reform.

There is a view that the two parties could end with a much diluted and ineffective administration. Bruton is adamant that Fine Gael will not stray from its commitment to transformation. “Irish politics has got it wrong and needs to be changed. We are looking for a mandate for exciting agenda reform. We might not get a majority but we will sit down with like minded partners and seek to persuade them about the validity of our case.”

He says he plans to get the unions onside by outlining a strategy for growth and employment. “Something they can sell to their members.”

Nama or otherwise

The National Asset Management Agency (Nama) was established by this Government to separate the banks from the property loans threatening to collapse the whole system. Bruton was one of the most implacable critics of the proposal. His opposition to Nama has not abated. He cites comments made by the former chief executive of AIB, Eugene Sheehy, and the IMF to support his argument that the creation of Nama will not lead to an increased flow of credit throughout the economy.

He still maintains that his good bank/bad bank approach was the best way of tackling the banking crisis. But that is not without criticism. In the case of the French bank Credit Lyonnais, which was turned into a good bank along the lines of the Fine Gael proposal, because it was State controlled it was used to back politically desirable projects that were not necessarily economically viable which increased the cycle of bad debts. Moreover, where the bad-bank concept has been used, it led to zombie institutions with the management trying to keep the banks a going concern for as long as possible.

Bruton says that there are risks with a State-run bank but these can be safeguarded against. “There are mechanisms that would prevent it becoming a bureaucratic operation and you would not be looking at it becoming a permanent feature of the banking scene. We have operated quite successfully ICC and ACC in the past and they were not seen as basket cases backing politically favoured projects. I think it is not beyond our bounds of imagination to establish a strong board, with a strong mandate and a clear exit strategy.”

Neither does Bruton believe that the bad-bank solution is doomed to failure. “They are not bad banks at all, they are private-sector Namas. The taxpayer will still be on the hook because of the guarantee but they will be run on a very tough commercial basis.”

Bruton says that the Government went too far when it introduced the bank guarantee in September 2008. Fine Gael would not have included subordinated bondholders in the scheme. He says the cost of Government funding would not have increased by this move, although he hasn’t done any specific research into this area.

“They [subordinated bonds] have been bought back at more than the risk they faced. The guarantee increased their value. The subordinated bondholders were in line to take a very severe hit and they are now in a position to recoup a significant proportion of investment.”

And if he was in power this September when the rollover of the guarantee is up for renewal? “We would be doing the same as the Government, we would be taking advice on how to extend the guarantee. What you want to see is long-term liquidity coming in on a permanent basis. But we would not be extending the guarantee to subordinated bondholders.”

Anglo Irish Bank

Bruton says that Anglo Irish Bank was at the heart of the banking problem and that it is a model that is fundamentally broken. “It hasn’t lent a red cent to any bankable enterprise and I don’t see it in that space. The only argument the Minister has advanced as to why it is being kept open is that it will be harder to secure liquidity in the longer term if it is in an orderly wind down.”

Fine Gael has proposed to close down the bank, although the Minister for Finance Brian Lenihan says that he has seen no evidence that suggests the party has a credible plan to do this. “For the Minister to pretend that the Opposition is in a position to negotiate with the EU Commission and the ECB and others in this context – we cannot negotiate the way in which it can be resolved. If the bank has a long-term future. then let the minister set it out. Otherwise, it is an issue that will remain and cost the taxpayer money.”