Kenny and Gilmore targeta century in partnership

“Ta se mimhoralta, micheart agus michoir,” he said; it was immoral, wrong and unjust to saddle a generation with such overwhelming debt. Kenny made a brief note on a small sheet of paper.

An hour later when Kenny was elected by 117 votes to 27 — the biggest ever majority for a taoiseach — he returned to Higgins’s sharp words. Rejecting the personal slight, he said he would be making contact with the deputy from that moment on — “ag teagmhail leis an teachta as seo amach”.

The ambiguous “ag teagmhail” can mean simply “communicating”, or it can mean making robust physical contact on the field of sport. The look of menace on the new taoiseach’s face should have left Higgins in no doubt of its import.

KENNY, who turns 60 next month, has had to show more steel in his last year as Fine Gael leader than at any time in the previous decade. He has survived a series of negative opinion polls, vanquished a coup led by three men he appointed to cabinet last week, and had the most successful general election in his party’s history.

He has achieved his life’s ambition at what he calls Ireland’s “darkest hour” and will need to draw from that steely reserve in his first 100 days, a crucial period Fine Gael strategists believe will shape their government’s prospects for the next five years.

“If the people decide to elect Fine Gael to government . . . we intend to put in place a comprehensive first 100-days strategy,” Kenny declared at his final press briefing of the general election campaign last month. “Given the state of affairs that apply in Ireland now and the extent of the challenges that we face, there is no time to waste. Ireland urgently needs to get back to work . . . we are going to hit the ground running.”

The fast balls are already coming. Kenny sparred with Nicolas Sarkozy at an EU leaders’ summit in Brussels on Friday night as the French president sought “a gesture” from Ireland on our corporate tax rate.

Tomorrow, the finance minister Michael Noonan will travel to Brussels for a meeting of his eurozone counterparts and a larger gathering of the 27 EU finance ministers. The Ecofin and eurozone exchanges will set the tone for a EU heads-of-state summit on March 25 that could make or break the coalition’s pledge to renegotiate the EU-IMF bailout.

On March 31, the results of Central Bank “stress tests” on AIB and Bank of Ireland will expose the scale of their loan losses and the amount of further state capital required to continue trading as viable banks. The fear is that the sum will greatly exceed the €10 billion injection that Brian Lenihan, the last finance minister, postponed until after the election.

An ingénue in Brussels politics, Kenny will be looking for allies in Europe. A senior government figure said: “We have no friends, that is one of the consequences Fianna Fail has left us. We could have done with a period of patient diplomacy and support-building, but the level of market expectation is high that a Europe-wide solution will be found, and that intensifies the pressure on the Irish government because there isn’t a lot of time now.

“Enda is starting from scratch out there. The man is on a sticky wicket and he is out batting. It is not going to be easy.”

John McHale, head of economics in the National University of Ireland, Galway, said the biggest challenge for Kenny’s new government was to restore Ireland’s creditworthiness. He said a spike in Irish 10-year bond yields was being driven by further deterioration in Greece, a growing consensus that Portugal would need aid, and serious doubts that EU leaders would reach agreement on extending the bailout fund.

Spending commitments in the programme for government may have added to the fears of international investors.

“Our 10-year bond yields are now higher than when we signed the EU-IMF agreement,” McHale said. “That tells us that the bond markets think we’re going to end up defaulting on our debts.

“The programme for government has raised questions about the new government’s commitment to implementing the fiscal adjustment needed. It talks about introducing a jobs package, but doesn’t give any details as to how the package will be funded. Unless they can be absolutely clear about how they’re going to fund it, the government should not be talking about any new spending programmes.”

The programme for government proposes to raise €2 billion from the sale of non-strategic state assets and draw €4 billion from the National Pension Reserve Fund (NPRF) for a jobs stimulus package incorporating school building and the repair and upgrade of secondary roads, home-insulation upgrades, and new generation broadband infrastructure. The plan is vague about funding and the demands that further bank capitalisation may place on the NPRF.

With unemployment at about 450,000, can the public place faith in a jobs stimulus plan funded by assets not yet sold, and pensions investments that may be committed elsewhere depending on the success of our pleadings in Brussels?

“You couldn’t put the outcome of the European heads of government meeting into the programme for government before it happened,” said Phil Hogan, the new environment minister and one of Kenny’s coalition negotiators.

“We know what the banking policy has to be, we know we have to look for a renegotiation of the [bailout] programme and a reduction in the interest rate. That is the objective. I believe we will get a renegotiation of the programme — I’d be hoping that the loan period would be extended at least — and we will get a reduction of the interest rates.”

Hogan said when Noonan led a Fine Gael delegation to meet EU and IMF representatives in Dublin last November, they were prepared to accommodate a jobs stimulus package in the bailout programme to foster growth and increase tax revenue.

The coalition will begin to roll out that stimulus plan with a “jobs budget” in May featuring a cut in the 13.5% Vat rate on labour-intensive services to 12%; a halving of the 8.5% employers’ PRSI rate for lower-paid workers; and the abolition of travel tax in a reciprocal deal with airlines to restore dropped routes.

But if, as McHale says, the markets want austerity instead of stimulus, they will be looking to Labour’s Brendan Howlin, the public expenditure and reform minister, to prescribe further harsh medicine to the overstaffed public service.

“I think it is going to be one of the most crucial departments in this government,” said Brian Hayes, appointed a junior minister at the new Department of Public Expenditure and Reform last week. “In order to make a budgetary adjustment next year of €3-3.5 billion, we are going to have to be doing a lot of the heavy lifting on the [public sector] reform agenda that we spoke about — rationalisation and amalgamation of agencies, better work practices and so on.”

Labour’s election manifesto proposed cutting public service numbers by 18,000; Fine Gael outbid all rivals with a 30,000 target. In coalition talks, the parties compromised on a target of 22-25,000 posts. Howlin and Hayes must now work to deliver that compromise and to push through the efficiencies of the Croke Park agreement including flexible work practices, job transfers and voluntary redundancies.

“I support putting public-service transformation into a separate cabinet position, and we will work with [the government] on that job,” said Fianna Fail’s Dara Calleary, the former labour affairs minister who had been implementing the Croke Park agreement.

“But we are concerned about separating the revenue and expenditure functions [of the Department of Finance]. Fine Gael’s position on expenditure is more hardline than Labour’s, their policies on taxation aren’t clear, so that is where the fractures in this coalition could arise.”

THOUGH his appointment was overshadowed by the reaction to Eamon Gilmore’s decision to place Joan Burton in the Department of Social Protection instead, several Labour figures insisted last week that Howlin is suited to his new task.

“He will be forensic in going through the bilateral talks with all the departments on their spending plans and he won’t take any soft soap or waffle from the secretaries general,” predicted one rural deputy.

Another senior party figure said: “He is the person to send into that room with the senior civil servants or the trade unions, make the hard decisions and then defend them.”

Howlin’s department, though, is a compromise; designed to give Labour a say in the state finances without giving the party authorship of the budget.

The Economic Management Council (EMC) — a cabinet sub-committee comprising the taoiseach, tanaiste and the ministers for finance and public expenditure — will be a forum to resolve differences on issues such as the scale of spending cuts versus extra taxation. Labour wanted a 50/50 split, but Fine Gael demanded a 72-28 ratio, signalling about 2.5 times as much in spending cuts as in new taxation.

“We have been given two years to get our finances in sufficient order to be able to go back to the bond markets to borrow again. There is no room for complacency,” said McHale.

“The main priority of the new government must be to send out a strong signal that it will follow through on the fiscal adjustment. Unless the state can regain its credibility, everything else is secondary. All policy decisions should be taken with that in mind.”

But the EMC will also serve as a channel to communicate with senior civil and public servants, imparting political direction to them, and ensuring that their analyses, and fiscal and banking strategies, are fully synchronised with government policy.

In briefings with government officials during coalition talks, Noonan and his fellow cabinet ministers were horrified to discover there were yawning gaps between the forecasts of some divisions of government and the state’s financial apparatus, which comprises the Department of Finance, the National Treasury Management Agency (NTMA), the Central Bank of Ireland and the Financial Regulator’s office.

“Departments and agencies were giving diametrically opposed data on key issues,” said one source close to the talks. “There were guys with no clear political direction in their negotiating strategy in Europe — dedicated public servants working their asses off but with no co-ordination, no political direction, no strategy, no plan.”

NOW that the government finally has a plan — lower the interest rate and cut a deal with the European central bank (ECB)-IMF on extending the term of our loan — is it the right one? Will it arrest the endless cycle of announcements on bank capitalisation that rendered worthless the previous government’s assurances that the crisis was in hand?

“The problem up to now is that we haven’t been told the truth,” said Hogan. “Neither the banks nor the outgoing ministers have told us the true story. If you can get to the true extent of the problem then you can deal with it, but it has been a rolling maul for the last couple of years in terms of getting the true picture of what was going on in the banks.”

Karl Whelan, an economics professor in University College Dublin (UCD), fears not enough attention has been paid to the figure that really matters, the €150 billion owed by Irish banks to the ECB and the Central Bank of Ireland. “It’s the biggest number in the whole mix,” he said. “It’s the real, potential game changer.

“The size of the bailout package they gave us is quite small. Their plan is for us to be back borrowing in the bond markets next year. That puts enormous pressure on the government. Europe can’t have its cake and eat it. They can’t tell the Irish taxpayers to keep borrowing money at penal rates, and at the same time expect us to pay back €100 billion to the ECB and pay back senior bondholders. We can’t do it all.”

If Europe wanted bondholders paid back, he said, they could write off the ECB loans to Irish banks. Whelan believes the renegotiation of the interest rate may help, but it’s not going to fix the problem.

“If we got the interest rate down by 1%, that would save us €450m a year. That’s nice, but in the grand scheme of things, quite small,” he said. “If they [got] the interest rate down by the full 3% premium that they’re adding to the rate, then it starts to be really worthwhile, but I’d be surprised if they got anywhere near there.”

A senior government adviser said last week the coalition strategy on bank debt was finalised on Thursday morning at the first meeting of the EMC, chaired by Kenny.

“The taoiseach will have a more robust strategy than the one that went before — that is his inclination, that is Noonan’s inclination, that is the inclination of Gilmore and Howlin,” he said. “The whole situation is tenuous now at European level. Certainly the Portuguese and the Greek situations are serious and that does open up an opportunity for Ireland.”

Whether our strategy has changed from burning bondholders to burning the ECB will emerge soon in Kenny’s first 100 days.

‘Need for experience’ allows middle-aged men to rule

It was the first job of the new government and it went somewhat awry. When the new nominees for ministerial posts paraded into the Dail last Wednesday, surprise rippled through the applauding TDs.

Joan Burton, Labour’s finance spokeswoman, was not, as expected, walking behind Michael Noonan, the new finance minister. Instead, she was seventh in line, behind party colleagues Ruairi Quinn and Brendan Howlin. Instead of being appointed to the new portfolio of public expenditure and reform, she had been given the Department of Social Protection. Before the first vote for the new ministers was cast, it was clear there was going to be trouble.

With 111 TDs to keep happy, Enda Kenny and Eamon Gilmore, the new taoiseach and tanaiste, need to be deft and diplomatic in their management skills. Last week Gilmore, at least, was accused of failing to do this. Much of the political discourse around Labour after the ministerial appointments was bitter. It was not a good start.

One Labour TD, furious at Gilmore’s choices for cabinet and junior ministry positions, repeatedly described the leader and those close to him as “those f******”. Another said it would be “a serious understatement” to describe him as “annoyed”.

Joanna Tuffy, a Labour TD from west Dublin, was more sedate in her disapproval of Gilmore’s decisions. “There are less women in cabinet now than in the previous Dail, even though there are more female TDs,” she said. “That was not a good way to go. We hear all this talk of changing the gender balance, but when it comes to making appointments, the number of female ministers actually dropped. I’m very disappointed about it.”

In the immediate aftermath of the appointments, the political atmosphere was thick with speculation about what really had gone on behind the scenes in Labour. Those close to Burton theorised that Quinn may have convinced Gilmore to demote her during a trip to Greece last weekend.

Whether that is true or not, Quinn appeared to make little attempt to defend Burton on radio on Thursday morning, when he declined to deny that she had been passed over for the Department of Finance because she was “too strident”.

Gilmore’s camp insisted the new tanaiste had simply tried to pick “the best team” for the jobs. “Joan didn’t have a good campaign,” said one senior Labour source. “The key election campaign issue was taxation [on which the Labour party suffered], and who was responsible for that? She has been talking about banking and finance for the last number of years, but Howlin’s department has nothing to do with banking and finance.

“It has nothing to do with gender. Gilmore has just appointed the first female attorney-general, and that didn’t come easy because that is not what the lads down at the Bar were looking for. There was considerable resistance to that idea.”

Even if issues of gender did not influence the ministerial appointments, that was certainly the perception. The absence from cabinet of Roisin Shortall or Jan O’Sullivan — two high-profile Labour TDs — added to the impression of a male-dominated government. It certainly had a trickle-down effect.

In an apparent effort to defend himself against allegations of sexism, Gilmore plumped up Labour’s female representation in his junior ministerial appointments, giving half of the six positions to women. As a result, Ciarán Lynch was passed over in favour of his Cork colleague, Kathleen Lynch.

“It’s a mess,” said one Labour TD. “People are spitting mad about it. But we have to move on. Joan would be silly to make a big deal out of it. There won’t be any changes made and the story will be over in a few days.”

Jane Suiter, a political scientist at University College Cork, believes that, broadly speaking, the ministers should work well together.

“Looking at the cabinet line-up, the middle-aged man effect was a little overwhelming, which is a pity,” she said. “It’s a pity Burton wasn’t given an economic role, but we did need to see Howlin in the mix, and Noonan was the obvious choice for finance. It’s also a pity there aren’t new faces, but at a time like this you do need experience. We don’t have the luxury of letting new faces learn on the job.”

Conor Lenihan, a minister of state for the past seven years, described some of the ministerial choices as inspired. “It looks pretty conservative, with experience coming before new faces, but that was probably the way to go,” he said. “I think appointing Jan O’Sullivan as junior minister for trade in the Department of Foreign Affairs was an enlightened choice. Jan is a great performer, and moving the trade portfolio to foreign affairs was a great move.”

However, Lenihan reckoned splitting the Department of Finance could be a “recipe for tensions” between the coalition partners. “The jury is out on it,” he said. “The danger is you have one person from one party [Howlin] looking after spending, and the other [Noonan] responsible for taxes. It weakens the position of the finance minister and could cause problems.”

Suiter said that if it the government needed to make even deeper cuts than those already flagged, serious tensions could emerge between the coalition partners over social welfare and taxation.

“It will be hard, but these two parties have always worked well together,” she said. “The last rainbow coalition would have gone on for 20 years if they hadn’t had to come to an end. They have a good track record.”

Can Fianna Fail hold its nerve on responsible opposition?

WHEN Micheál Martin, the Fianna Fail leader, rose to his feet in the Dail last Wednesday, everyone watched with interest. During the election campaign, Martin had insisted his party would be “constructive in opposition”. Many simply didn’t believe him: Fianna Fail has a history of being stridently opposed to everything when in opposition.

But Martin seemed true to his word. “It is clear Deputy Enda Kenny has been given a mandate by the people to take up the office of taoiseach,” he said. “We will not follow the example set in recent years of manoeuvring to oppose everything for the sake of popularity.” Therefore, he said, Fianna Fail would not oppose Kenny’s nomination.

It was a political gamble, clearing the way for Sinn Fein and strident independents to score easy popularity points by attacking the new coalition government. So will Fianna Fail continue in this vein and is it the right way to go?

After two informal meetings of the party last week, TDs agreed with Martin that “responsible opposition” is the best way forward. “We would be laughed at if we went against policies that we developed ourselves, and we shouldn’t do it anyway,” said Timmy Dooley, a Clare TD.

“We got a strong message from the electorate that they didn’t want to see a tit-for-tat style parliament.”

Dooley doesn’t believe the party will get squeezed between the more populist approaches of Sinn Fein and the 19-strong group of independents. “I don’t think that will happen, although we do have to be prepared to be somewhat less popular than the other opposition parties by not jumping on the bandwagon,” he said. “We need to hold our nerve, as we did through tougher times.”

Johnny Fallon, a political consultant with EPS Consulting, said Martin had taken the best approach, one that is most likely to attract “centrist” voters back into the Fianna Fail fold.

“The really crucial thing for Fianna Fail now is to start making their own policies,” he said. “I don’t believe this government will stand or fall on the economic situation, because they will have Fianna Fail supporting them for the most part. Social issues are going to be the battleground. For example, Fianna Fail does not have to agree to what the government will do in health. The new government is planning big changes in this area, and it will probably lead to lots of protests. That will give Fianna Fail opportunity to come into its own.”

Therein lies one of the biggest challenges for Fianna Fail; policy formation. After 14 years in government, many of the party’s best policy ideas are going to be implemented by the new administration. Also, there is a sense of weariness among the Fianna Fail troops that does not seem conducive to long-term policy formation.

Seán Ó Fearghaíl, the new Fianna Fail chief whip, said it will take the party some time to get used to being in the opposition and a quarter of its former size. This sense of disarray is evident in Martin’s decision to appoint only a temporary front-bench this week, delaying permanent appointments until May.

“It’s early days,” said Ó Fearghaíl. “There is a process of acclimatisation to go through. Still, we have to do that speedily. Fianna Fail has to show it deserves to be the new biggest opposition party.”