INSIDE THE WORLD OF BUSINESS
Long miles to travel on road to fiscal rectitude
NO ONE deserves a medal for not being as bad as the very worst in the class, but Brian Lenihan can at least take minor comfort from the fact Irish bond spreads no longer exceed those of Greece.
As concern mounts about the flimsy response of the Athens government to the appalling state of its public finances, Lenihan’s painful action to take control of our own bleak situation is bearing fruit with his European counterparts. As expected, EU finance ministers this week endorsed the European Commission’s one-year extension of the deadline by which he must bring the budget deficit to heel.
This may ultimately give Lenihan a little headroom. Notwithstanding the controversy over the €4 billion “adjustment” for 2010 – non-negotiable, he insists – the Government’s current arrangement with the EU calls for further cuts of €4 billion in each of the following three years. While the Minister may see merit in front-loading the pain, he is now able to contemplate a gradual scaling back of future cutbacks.
It’s far from a done deal, however. After all, Lenihan steps forth with his budget as the finance minister with the second-highest bond spreads in Europe, a supersonic borrowing requirement and a deficit just shy of four times the EU limit. Any deterioration in the economic performance next year will curtail his capacity to rein in the cutbacks later on.
Time and again, the Minister has insisted that austerity now is required to avert ruin later. Difficult as the medicine is to take, it’s hard to disagree. Forestalling the evil day any longer is simply not sustainable.
In Brussels this week, Lenihan told just how close to fiscal catastrophe we came as the banking crisis took hold. “We’re very fortunate to be in the euro zone because were we not in the euro zone in the last year our banking crisis could have resulted in a general financial collapse of the Irish State. That didn’t happen because of the support we’ve received from the ECB [European Central Bank],” he said.
Given what happened to Iceland, Lenihan can’t stand accused here of embellishing the argument for political gain in advance of his toughest cuts yet.
Yes, things ain’t as bad here as in Greece (or Iceland for that matter). But preventing demise short-term doesn’t necessarily ensure long-term survival.
As the ECB starts to unwind support measures for euro zone banks, Lenihan still has long miles to travel on the route to rectitude. As he rises to his feet in the Dáil next Wednesday, powerful people in Frankfurt and Brussels will be listening to every word and counting every euro.
Green energy takes on conventional hue
BORD GÁIS’S €500 million purchase of wind farm developer and operator SWS is further evidence that green energy – or at least wind generation – is getting sucked into the portfolios of conventional utilities. State companies are set to become the big players in the sector. Along with Bord Gáis, the ESB and Bord na Móna are planning to build Europe’s biggest on-shore wind farm at Owneninny in Co Mayo.
SWS was the second biggest green energy player in the Republic. Its sale to Bord Gáis leaves Airtricity and Viridian – which owns independent electricity and gas supplier Energia – as the leading lights of the private sector.
Below that level, there are many smaller players who no doubt hope their projects will be snapped up as the big operators look to increase their scale.
Many of them began planning these projects in the days of easy credit, when wind farm development costs were half the current €2 million-plus per megawatt, and are unlikely to have the resources needed to finish them. But anyone hoping to sell should note that Bord Gáis is now out of the running. The €2.5 billion it set out to spend on expanding from natural gas into power generation and electricity supply is now spoken for as a result of the SWS deal.
White elephant may fly despite grounding of runway plan
LAST YEAR a record 23.5 million passengers passed through Dublin airport, with the result that runway slots were filled at peak times. To ease the pressure the Dublin Airport Authority (DAA) proposed building a second runway.
The Commission for Aviation Regulation has now said it will allow the DAA to allocate €288 million for this new plaything, but has sensibly inserted a big “if” into the deal.
The DAA will only be able to recoup the cost of this project through airport charges if and when passenger numbers recover to 2008 levels. Which, according to the commission’s own predictions, won’t be happening any time in the next five years.
In other words, the plan has been shelved as the level of traffic no longer exists to justify it. So far, so logical. But surely the same logic applies to the €609 million Terminal 2 project?
“Obviously it won’t be as busy in the early years as you would have supposed using the DAA’s traffic forecasts in 2007,” conceded Commissioner of Aviation Regulation Cathal Guiomard. According to the DAA: “The new terminal was not designed and built for next year, but rather for the decades and the many millions of travellers to come. To view T2 merely through the prism of the current downturn is a hugely short-sighted position.”
Did somebody say white elephant?
NEXT WEEK:
The unveiling of the budget is likely to dominate the week’s events as Brian Lenihan announces his plan to save €4 billion in public spending. Following the collapse of talks with unions yesterday the Government will proceed with its own plans to cut €1.3 billion from the public sector pay bill.
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