Economic recovery still the only yardstick by which voters measure Coalition success

World of Politics with Harry McGee – harrymcgee@gmail.com

It might have been Bill Clinton who made the phrase famous – but it was his mercurial strategist James Carville who thought it up. “It’s the economy, stupid” was so powerful a catchphrase that it propelled the Governor of Arkansas into the White House.

Since then the four words have been ransacked and pillaged to death by journalists, commentators, pundits and by politicians. It doesn’t make them any less true.

This Government – or its major party at least – will be returned to power if the economy gathers sufficient momentum between now and Easter 1916.

People vote with their pockets. When it comes to general elections, the citizen tends to vote for the party it trusts most with handling the economy, securing the future, and not squandering taxpayers’ money.

Which brings us to the two arguments surrounding the announcement by the Government last week that it was going to exit the bailout without seeking a contingency credit line from the new EU bailout fund.

There is a political argument and an economic one – they are not mutually exclusive but they can be dealt with separately.

The first argument has been economic and it’s been a kind of academic one. The Government will stand on its own two feet, without the steadying hand of the Troika, because the National Treasury Management Agency has some €24 billion in reserve.

The reason it has that kind of cash in the kitty is because it borrowed it, at market rates, somewhere north of the current rate of 3.5 per cent for ten-year bonds.

So that borrowed money has come at a cost – an extra €1 billion a year. It could be that the total borrowing requirements between now and the end of 2016 could be €52 billion – that’s €34 billion to cover repayments and interests on loans and a further €18 billion to cover the gap between what the State spends each year and the revenue it takes in through taxes, charges and excises. It would mean the State would have to borrow an additional €30bn at a rate of 3.5 per cent.

If the Government had availed of the fall-back funding mechanism – an insurance policy in a sense where it doesn’t have to draw down the emergency funding unless things get very ropey – the interest rate available would have been less, at around three per cent.

And even though there is small print and terms and conditions apply, it would have meant the cost for the Government – and the taxpayer – might have been considerably less.

There was no shame in it, said Fianna Fáil. It didn’t mean another bailout package, they said – but, politically, that’s precisely what it would have meant.

Sinn Féin has been describing the contingency fund for months as a “second bailout”. Technically, the party was not correct in that portrayal but it was not incorrect fully either.

In any way, no matter how the Government would have presented it it would have been hard for it to parry the accusations that far from taking the country out of economic bondage, it was willingly taking us all in for a second spin on the merry-go-round.

And so the Government’s argument was grounded on the second consideration, which was a wholly political one. Sure, it might prove to be more expensive to exit with a ‘clean break’ but politically, the decision (as the credit card advert goes) is priceless.

I was a guest on Vincent Browne’s programme the other night and he kept on returning to the theme that it would have been cheaper for us to stay in a quasi programme.

For more, read this week’s Connacht Tribune.