Punch drunk coalition staggers from crisis to crisis on the road to oblivion

Albert Reynolds said it was the little things that trip a government up. For this one he couldn't have been more wrong, writes Political Editor Shane Coleman

Seán FitzPatrick

Seán FitzPatrick's reign at Anglo Irish Bank provoked Sinn Féin members to hold a mock collection outside the Anglo Irish Bank hq

SOME financial experts may be calling for the establishment of a so-called 'bad' bank to dump the financial sector's bad debts, but from the government's point of view, Anglo Irish Bank is proving quite toxic enough, thank you very much.

After another week mired in the mess that is Anglo Irish, Brian Cowen and Brian Lenihan must be wondering who they offended in past lives to have warranted having the bank from hell landing in their lap.

Another few more weeks like the last couple and it will be the cabinet 15 that need to be 'released', not the identities of the 'Maple Ten'.

Despite a brave performance from Brian Cowen on Wednesday morning's Leaders' Questions, the government took an unmerciful hammering in the Dáil last week over the issue of the identity of the 10 people who bought shares in Anglo Irish.

It was nasty stuff from the opposition, which failed to produce any evidence to back up its clear insinuations that the government was protecting the 10 investors or had been somehow involved in facilitating or encouraging what on the face of it looks a highly dodgy share support arrangement.

Cabinet members, not least the Taoiseach, were outraged at the line of questioning, and rightly so. But privately they admit that so much muck was thrown at them it would be impossible for some of it not to stick.

Fine Gael's strategy brought to mind what Lyndon Johnson is once reputed to have said in relation to an allegation about a political opponent: "Of course it's not true, but let's make the b*****d deny it".

The strong rumour in political and media circles this weekend is that the 10 names do not contain anybody explosive or with particularly obvious links to the cabinet. But the damage may already have been done. In the minds of many voters, despite its insistence that wrong-doers will be punished, the government is now inextricably linked with the so-called 'golden circle' in Anglo Irish Bank. It's not based on any reality but, in politics, perception is always more important that reality.

And the bad news for ministers is that, in terms of the overall banking crisis, the government has probably yet to see the tunnel, never mind a light at the end of it. Events at Anglo Irish Bank are likely to rumble on for the coming week, at least, and the most important question – the size of the hole in the bank's €72bn loan book, not the identity of the golden circle – has yet to be answered.

The Government will also have to finalise its plans over the coming days for a complete overhaul of the discredited regulatory system, which is likely to involve a merger of the Central Bank and the Financial Regulator into one body.

Then there are the altogether more complex issues of whether the recapitalisation of AIB and Bank of Ireland goes far enough, not to mention the financing needs of the other banks covered by the state's guarantee scheme. At this rate, the Department of Finance will soon be laying claim to the Department's of Health's patent on the nickname 'Angola', such is the number of potential landmines – some exploded, some poised for detonation – that scattered among the banking sector (not least in 'Angola Irish' Bank). And all this against the backdrop of a near €20bn deficit in the public finances.

The battering that the government has taken over the past nine months is clearly starting to take its toll. So much so that it is now legitimate to speculate just how much more it can take – and certainly that is what people in and around government are thinking.

"It's bad," one weary senior government figure admitted to the Sunday Tribune this weekend. "You're just a target. It's very stressful. I wish to Jesus those 10 names would come out. The toll is horrendous. How much [more] can one take?"

Extraordinary as it might seem, given Fianna Fáilers' innate sense of themselves as members of the party of government, the feeling from some ministers is that it would almost be a relief if the coalition did collapse. For now the goal is the local, European and by-elections in early June and, assuming nothing happens between now and then, the government will struggle on until that point. But privately ministers worry that, after the inevitable hiding in those elections, it will be difficult to come back and face into another two years of the horrors.

On one hand it's hard to see where any collapse in the government would come from. The Greens seem to be in it for the long haul. Backbenchers will be reluctant to do anything to trigger a general election when opinion polls show the party losing 40 seats. And the opposition parties, for all their 'bring it on' tough talking, may not be overly keen on taking over at the helm just yet.

But against that there are the enormous obstacles facing the government. It's not just the aforementioned banking landmines or that unemployment is likely to rise by around 150,000 this year, or that living standards are going to drop by 6% or more. Over the nine or 10 months, the government will probably have to introduce large increases in income tax, a return of third level fees, a property tax on all homes and a new carbon tax regime – not to mention serious cutbacks in spending.

Given the level of public anger that has greeted the public sector pension levy and pretty modest tax on second homes, the backlash against these measures is likely to be ferocious. Indulged by over a decade of unprecedented plenty, the electorate is clearly in no mood for the inevitable pain that lies ahead.

The impact on Fianna Fáil in the opinion polls is likely to see the party plunge yet new depths of unpopularity. We have seen examples in the financial world of a bank's share price plummeting to such a low level that it makes nationalisation inevitable. The worry for the government is that this will be mirrored in politics. It's impossible to put a figure on the percentage point in the polls at which the coalition's position would be unviable, but it will probably be glaringly obvious if and when it comes.

Former Labour Party advisor Fergus Finlay once wisely remarked that no government was either as unstable or as stable as it might look from the outside. And the apparent shakiness of the current government may prove to be temporary. It is eminently possible that the government may muddle through for another year or two. And politics being politics, nothing can be ruled out. Gordon Brown in the UK showed that it is possible to come back from the political dead and at least make a fight of things.

But some government figures believe that, so punch drunk is the coalition at the moment that unless it gets some form of, at least temporary, respite from the weekly hammerings it is getting, it simply cannot survive into the medium term.

Albert Reynolds famously declared that it's the "little things" that trip up a government. Not this government. If and when the Fianna Fáil and Green coalition does fall, rest assured, you can put it down to the far from "little"matter of the biggest global economic and financial crisis ever. It probably won't come as much consolation to the government, mind you.

February 22, 2009

Comments

#1 Sheila commented, on February 22, 2009 at 5:33 p.m.:

I think the Government should appoint Max Clifford as its publicist. I am sure everything would look better at once.

#2 Robert Browne commented, on February 22, 2009 at 7:27 p.m.:

In response to Shelia's comment about Max Clifford. Poor Max would find it impossible to conjure up a smoke and daggers scenario that would make this government look competent. I think novenas to Padre Pio or Mother Theresa might be more in order!

#3 Laura commented, on February 22, 2009 at 11:18 p.m.:

This issue with this government isn't whether or not it will survive, its the extent of the collosal damage it will have done to the country by the time it does leave office.

#4 Cathal ÓhÍcidhe commented, on February 25, 2009 at 1:37 p.m.:

If a private company bought the likes of Anglo-Irish and subsequently found out about its toxicity, the person who engineered the purchase would never be employed again. Ditto should apply to Messers Cowen and Lenihan along with Ms Coughlan. Sack 'em and now!

#5 Myles Rath commented, on February 25, 2009 at 9:19 p.m.:

If Brian Cowen stopped acting like Muffin the Mule in stubbornly refusing to increase income tax by up to 20 or 25% (or increasing in a structured manner the income levy) he could regain the high ground as a responsible leader acting in the national interest. He appears to be unable to admit he got the last budget wrong. Dail procedures may be important to him but the people want decisive action. Today Fine Gael is almost inviting him to increase taxes. He has completely misjudged the perceived unfairness of the public service pension levy. A big increase in income tax with a pension levy phased in over 2 or 3 years would probably have been accepted as fair. He could have easily got 4 billion or more from income tax plus the pension levy. It would have been a great start and would have done wonders for our reputation with international lenders.
Waiting for the commission on taxation is a mistake. Changing the types of taxes AT THE SAME TIME AS INCREASING THE OVERALL TAX TAKE is a recipe for more howls about unfairness. The Greens may be trying to exploit the current crisis to get the changes they think will save the world. In my opinion the people want our economy saved in the next 5 years rather than some gestures that might or might not have some miniscule effect on global warming in 50 years from now.
Labour is playing politics with the national interest. Cowen could probably get agreement from Fine Gael to support a set of measures that might be time-limited until 2012 (after the next election). Even George Bush had a time limit on big income tax cuts he provided for the wealthy - we could learn from the most unlikely of sources. The election could then be fought on what the parties would do about the public finances after the next election.
As someone who never voted Fianna Fail I would be willing to vote for them if Cowen provided real leadership on the economy, turned his back on cronyism a la Ahern, rejected cowboy capitalism a la McCreevy and the PDs and adopted policies designed to look after the interests of the all the citizens. All is not lost yet but I fear it may be soon.