New Taoiseach needs to be up for a fight

Just a couple of weeks after he takes office, the new leader of this country will find himself preparing for crucial talks with his EU counterparts on the Brussels bailout fund, specifically as it applies to Ireland, but which will centre on measures to prevent a repeat of the kind of crisis that has engulfed Greece and Ireland in the past year - and the single currency itself. It will be a major test of the new Taoiseach's mettle. The crunch summit of EU leaders will examine the interest rate schedule as part of a new permanent bailout mechanism which will apply to struggling economies when the current temporary arrangement runs out in two years' time. Both Fine Gael and Labout have made it a central plank of their economic platform that they will seek to renegotiate the interest rate on the EU/IMF bailout for Ireland. Along with the creation of jobs, this issue is the most crucial in the forthcoming election campaign. In order to comply with the IMF/EU deal, we need growth in the economy but without growth, it will be virtually impossible to pay the current penal rate of interest of 5.8 per cent on our €67.5bn loan, and we risk subjecting ourselves to years of austerity with little or no growth as a result, kicking off a vicious deflationary cycle. There are very mixed messages out there as to whether this bad deal for Ireland, concluded by Brian Cowen's government late last year, can be unravelled. Senior executives of the European Central Bank have said the rate cannot be rolled back upon and the bank's president, Jean Claude Trichet, has called on the Irish government to “apply the plan†of pressing ahead with budget cuts and not forcing losses on holders of government bonds. On the other hand, some EU officials have acknowledged that there is a strong argument for interest rates on bailout loans to be reduced so as not to place too high a burden on countries undergoing tough austerity measures to correct their economies, such as Ireland. Any reduction, however, is likely to be small, given that the EU will want rates to remain sufficently dissuasive so errant countries stay on the straight and narrow. Spending a massive proportion of our national income on cleaning up after the banking collapse has led us into a situation where we now have a uniquely large deficit, the biggest of any country of our size in peacetime. To put it right, we face several years of austerity and cuts with little prospect of economic growth. Thus, it is crucial that our new government can negotiate a better deal for Ireland than that achieved in 2010, given that what is on offer presently will not allow the Irish economy to recover. The difficulty is that any agreement on reducing the margin Ireland pays for the EU/IMF money would require unanimous approval from across the continent and different countries have different ideas about how to apply bailouts to countries in trouble. Naturally, Germany is at the centre of any decisions about the rescue fund and, along with France, has been making noises about Ireland's 12.5 per cent corporation tax. The Franco-German plan envisages a common consolidated corporate tax base, which is highly controversial in Ireland. It fears being forced into increasing the rate will damage the country's appeal to international business. All this, combined with the strong view that senior bondholders should be forced to share at least some of the burden of losses in the Irish banks, will mean whoever is Taoiseach after 25th February will have one tough job on their hands. There is clearly going to have to be some very tough talking done in Europe to ensure that Ireland gets fair treatment and that we can protect our economic interests at a time when we need to circle the wagons. Sharing the costs of bailing out our banks with bondholders is what the majority of people want and it is also what the two political parties most likely to make up the next government want. But we need tough negotiators with steely resolve going to bat for us around the table in Brussels. Seeking concessions while also ensuring we protect our vital national interests at a time when we have only a weak hand to play in Europe will require strong diplomatic skills but also an unerring resolve to do what is right by the Irish electorate at this crucial time. The new Taoiseach had better be up for the fight.