Last year the cost of public sector pensions was €2.5bn, and this year it will be €2.8bn. This has to stop, writes SARAH CAREY
GOSH, THAT was all terribly exciting wasn’t it? On Thursday, the Dow Jones collapsed in the afternoon, only to recover by bedtime. On Friday the sovereign bond market closed and reopened on Monday. One week the euro is a dead currency walking. The next, the Irish delegation to the United Federation of Europe welcomes our new overlords, the Germans. On Monday share prices soared when the €750 billion fund was announced. Yesterday the euphoria dissipated when everyone remembered the deficits hadn’t.
Unless you like your anxiety attacks, the best advice is to ignore the whole palaver. Michael Hennigan, from the financial website finfacts.com, reminded me of Alan Greenspan’s advice during the 1998 Russian rouble crisis – put the newspaper in your inbox and read it in two weeks’ time. Sounds like a great plan. So let’s pretend you’re reading this in a fortnight.
What’s changed? Not a whole lot. The sovereign debt panic is a rerun of the banking crisis of 2008. In the eye of the storm there’s a liquidity crisis. Banks/countries can’t borrow the cash they need to keep going. The solution? A guarantee. The Irish State guaranteed all bank assets and liabilities. The European Central Bank (ECB), through the creation of a “stabilisation fund”, is the Mother of all Bailouts, effectively guaranteeing sovereign bondholders. There will be no default. If a country can’t borrow to pay their bills, or can, but only at default-inducing interest rates, the fund will step in. Well, that’s Plan A anyway.
So everyone exhales and life trundles on for another week. Of course, neither the bank guarantee nor the stabilisation fund address the core issue – the insolvency of the bank/state. Though the immediate threat has passed, we have to focus on the fact that the high-deficit countries, including ourselves (and while we’re at it, the US and UK too) are spending more than they’re taking in.
The fund’s principal function is to calm everyone down, but its mere existence can’t distract us from the essential task of slashing spending and increasing revenue. I’m glad the finance ministers got together and showed the sceptics that Europe can act decisively, but it’s the action in Dublin, not Frankfurt, that must command our attention now.
Presumably the ECB hopes the fund won’t be activated. If we do need to access the cash, International Monetary Fund involvement will ensure we’ll pay a high price in terms of lost sovereignty and dire public spending cuts. The only way to avoid drawing the fund down is to implement truly painful cuts that the IMF and the ECB likes, but on our own terms. So to maintain our sovereignty officially, we have to do what others want, unofficially. This is why you’re as well off turning off the radio and pulling the duvet over your head.
So now the question is: has our Government the stomach to reduce our deficit? Last year was a start, but there are more years and more cuts to come. Anyone reasonable is willing to knuckle down and get with the programme on the strict condition that the infamous pain is shared.
That means the only policy that makes sense is for politicians to ensure that justice is done – and seen to be done.
That’s why the U-turn on the pay cuts for higher civil servants was such a disaster, and why the ministerial pensions had to go. It’s why the seeming untouchability of a class of bank director and semi-state CEO rankles so much. And it’s why I don’t understand this persistent strategy to ring-fence public sector pensioners.
Public sector pensions are paid from current public expenditure, not a pension fund. Last year the cost was €2.5 billion. This year it will be €2.8 billion. So, while everything else is being forced down, that bill is going up. It has to stop.
The public sector has had two wage cuts – the 2008 pension levy and the December 2009 wage cut, yet neither have affected pensions. With such a big bill to be paid every year, most sane people recognise that this issue has to be addressed.
Yet, last week the Taoiseach issued a “clarification”, that the Government will make one concession on the Croke Park deal. It will withdraw the declaration to consider – simply consider – breaking the link between current salaries and pensions, the crazy policy that saw long-retired civil servants get the benchmarking increase.
If it’s all about sharing the pain, surely a retired civil servant can take pain? After all, if they’ve managed their affairs remotely sensibly, the house is paid for and their children reared and educated.
Others have observed the huge wealth transfer from the younger generation to the older through the purchase of property during the bubble. The generation in their 20s and 30s can least afford the cuts, yet they have to endure them along with huge mortgages and negative equity, while wealthier retirees are deemed untouchable.
Why? Is this simply political cowardice or evidence of a cynical game? Check out the grey hairs as the high-powered negotiators on both sides leave after talks. Naturally, they act out of self-interest. Or do the younger workers willingly concur, playing an even longer game? I don’t know – but this much I do know.
Sooner or later, an Irish government is going to have to cut that pension bill. If they don’t, others will do it for us.