Dwindling faith in Govt to lead in crisis

At a time when this country needs firm, decisive leadership, the Government appears transfixed, like a rabbit caught in the headlights, by the scale of the economic woes that have unfolded unchecked on its watch. In the face of ever-increasing negative economic sentiment, with businesses struggling to survive, thousands of workers losing their jobs and in the midst of an international banking crisis that has seen credit lines drying up, our Government seems bereft of ideas on how to go about tackling the escalating emergency which seems to be getting worse with each passing week. The coalition, which for so long basked in the afterglow of a decade and more of economic success, chose to ignore the growing series of red flags and alarms over the past 18 months which signalled the end of the boom, and effectively sleepwalked the country into a severe recession that is threatening to become a depression. With the economy on its knees and unemployment beginning to soar, the uncertainty caused by the Government"s dithering is exacerbating the difficulties being felt on the ground by the day. Other eurozone economies which also were heavily reliant on construction seem better positioned to weather this storm and this week in Britain, Chancellor of the Exchequer Alistair Darling revealed a stimulus package in his pre-budget statement that will attempt to breathe some life into the UK"s sputtering economy. What has Ireland done to counter the tide of bad news washing over us every day? Exactly the opposite of what other economies are doing - it is raising taxes and cutting spending. While there is a sensible argument to be made with regard to cautious and unnecessary spending in difficult times, recessions are a time to cut taxes in an attempt to stimulate spending. Instead, the recent budget has only encouraged taxpayers to keep their money in their pockets as consumers, already fearful of losing jobs, paying the mortgage, paying for Christmas, choose to hoard whatever cash they have rather than spend it. There is a huge crisis of confidence in the country right now. Taoiseach Brian Cowen"s platitudes about the Government managing its way out of the crisis simply does not wash with a public which can see what is and what is not being done, and the lack of action is now seriously undermining public confidence. What people want to see is a rescue plan, a grand announcement that will at least give the impression that the Government knows what it has to do and is determined to follow through with actions. Ireland Inc needs to hear about such a plan very soon. Much of the discussion this week has again been focused on the banks which are still at the centre of the economic meltdown. A number of private equity houses are circling this country"s financial institutions and the Government appears ready to strike a deal with them on investing in some of our bigger institutions, such as Bank of Ireland. Often regarded as asset-strippers, these private equity companies are aggressive, demanding and controversial but they have, in the past, managed to turn around distressed banks, most successfully in Japan. The Government will need to move very carefully if its decides to co-invest with entities like JC Flowers and Carlyle, two of the names mentioned. Clearly, the cash-strapped Government wants to limit the amount of cash it needs to inject into the banks in any re-capitalisation bid, while the private equity groups believe they can make a substantial profit from such an investment once the banking system is back on an even keel and lending again. However, the utterly single-minded private equity groups are focused on one thing only, and that is making a substantial profit from their investment. What price they will attempt to extract is not yet known, but the Government may well need to play hardball in any negotiations in terms of asset sales or major cost-cutting before any deal is cut.