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Archive for January 28th, 2013

Not content with receiving a bailout of €21bn – without which, the bank would be utterly bust – not content with shoveling €1.1bn into its pension fund last August 2012 – without which, AIB would be in the same position as myriad pension schemes around the country and have to renege on pension benefits – and not content with giving redundant staff five weeks pay per year of service  – when staff at Vita Cortex had to fight tooth and nail to get 2.9 weeks, this afternoon we learn via the BBC in Northern Ireland that several AIB staff are to receive GBP 2m (€2.3m) of bonuses and contract-increment payments.

In Northern Ireland’s Court of Appeal, three judges decided that AIB’s defence of economic hardship did not warrant reneging on the performance-related bonuses and contracted-increments. The case is said to involve up to 600 staff at the AIB Northern Ireland unit, First Trust Bank. The bonuses are reported to range from GBP 2,000 to GBP 10,000 per employee. So we’re not talking mega-bucks, but for staff in companies that have gone bust across the State, in some cases not even receiving outstanding pay, these additional payments will stick in the craw.

AIB had lost the original case in Northern Ireland’s employment tribunal and had appealed to the Court of Appeal. The bank official’s union had supported the case taken by the staff.

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It’s a bit of a shame that the Left end of the Irish political spectrum is in such turmoil with the Socialist Party withdrawing its TD, Joe Higgins from the United Left Alliance grouping, which following Seamus Healy’s withdrawal last October 2012 just leaves three in the ULA – Clare Daly, formerly of the Socialist Party until it accused her of forming the Mick Wallace Fan Club, and there’s Richard Boyd Barrett who seems to have feet in the Socialist Workers Party and the People Before Profit Party and finally there’s Joan Collins. It’s a pity because – to quote an old socialist mantra – “united we stand, divided we fall”. If there was a strong ULA, then they could pool their resources to avoid duplication and to beef up their research and produce better though-out policies overall.

Because the evidence from the past week is that they were doing their research and beginning to get to the point of formulating policy.

Twice in the past week have ULA members demolished the Government refrain that we’re borrowing huge sums – €1bn per month – to pay the salaries of nurses and Gardai. “No!”, the Left said (correctly), we are now mainly borrowing to pay interest on the burgeoning national debt. Richard Boyd Barrett and Paul Murphy MEP have both corrected the Government and pointed out that we have now moved to a financial position where the deficit is primarily caused by interest on our massive debt burden.

Take a look at a summary of the latest projections, courtesy of the latest Department of Finance Medium Term Fiscal Outlook published in November 2012 – the 2008-2011 figures are extracted from Seamus Coffey’s blogpost here. The “underlying deficits” exclude distorting bailouts of the banks.

PrimaryBalanceJan13

 

Our deficit consists of a primary balance – what we collect in taxes versus what we pay out for services, capital projects and welfare. As you can see, the results of five years of austerity are that the primary deficit will be just €3,250m in 2013 and should actually be a surplus of €930m in 2014. So, we are practically there in terms of paying nurses and Gardai, not to mention pensions and social welfare payments.

What is now pummeling us is the still-rising €190bn of national debt, and the interest thereon.

Where the Left is weak is in blaming the €190bn of national debt entirely on the banks. The reality is our national debt of €190bn at the end of 2012 has mostly come about because of the slow pace of the adjustment after the banking and property crash in 2008.

In 2009, we allowed – or if you want to be party political, Fianna Fail and the Greens allowed – a primary deficit of €15.5bn. Yes in 2009, we were really borrowing €300m per week to pay the salaries of nurses and Gardai. And sadly for us, when we add up all those deficits we allowed between 2008 and now and add in the debt we started out with in 2008, it seems that 65% of our national debt has been to meet boring old daily expenditure and another 10% of the debt has been used to built up a cash balance buffer or reserve.

It mightn’t have felt like it, but the reality is we have all been partying since 2008 to date or at least we were spending far, far more on services and welfare than we were collecting in taxes.

But the Left has four strong, or at least debatable, arguments

(1) €41bn of the €190bn debt is directly attributable to the bank bailout. Whilst we will have been paying interest on some of this, it should still be the case that less than 25% of our debt was used for the bank bailout. Of course we also raided the pension reserve for an additional €20bn-plus.

(2) €1.8bn of the deficit in 2013, is interest on the infernal promissory notes given to Anglo, INBS and EBS.

3) The interest rate on our national debt is understood to be 3-4%. It is almost certain the interest rate would be lower, perhaps far lower, if we hadn’t loaded the burden of the bank bailout on our shoulders.

(4) The banks have been recapitalized to pay existing bondholders and if there were to be default on these payments, it is arguable that the capital “saved” could be returned to the State and passed on to our sovereign lenders to pay down national debt and reduce the interest charged.

So a pity that the United Left Alliance is no longer “united” or really an “alliance” because pooling resources to research the facts, develop policy alternatives and to promote certain policies might be just what the State needs.

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