The Government is trying to shut down the debate over what should be done with the proceeds of selling AIB. It blames the EU’s Stability and Growth Pact (S&GP) for not being able to invest the money in infrastructure. It claims that its hands are tied and that it must pay down the national debt which in any event is declining, from 120 per cent in 2013 to 72 per cent of GDP.
But the truth is that there is flexibility in the pact and many states routinely break EU rules will little or no sanction.
Since 2011 Germany has broken EU rules over the maximum level of trade surplus, France has not met the 3per cent budget deficit rule since 2007 and only 11 of 27 states meet the required debt to GDP level etc.
Recognising some states’ difficulties, the European Commission published a paper in January 2015 on more flexible approach to the S&GP. It “gives clarity to member states on how to ensure that the common fiscal framework is supportive of the EU’s jobs and growth agenda, in particular as regards investment and structural reforms”. Thus it seeks to encourage jobs and investment, not discourage them.
In its assessment of the 2017 Euro members’ budgets, the commission found that in several states “the planned fiscal adjustments fall short, or risk doing so, of what is required by the S&GP”. Only five were fully compliant and with four more, including Ireland, being “broadly compliant”. Thus 10 states are not compliant.
It is relevant that a staff paper produced by our own Department of Public Expenditure this year on the EU fiscal and expenditure rules (ER) found that “there is some evidence from international research that the application of ERs coincide with lower levels of public investment”. It also said that the European Commission states that “the calculation of the expenditure benchmark could be usefully amended, in particular to exclude one-offs from the revenue and expenditure aggregates ... to ensure greater consistency with the structural budget balance rule.” So there is some recognition of the need for flexibility within Government.
More pertinently, would the commission seriously come after Ireland for investing say €6 billion of the AIB proceeds and generating a greater return than paying down debt; for addressing our woefully low public investment level, which will give us much needed public assets and will create more jobs?
Would the commission seriously come after one of its best performing economies, with the highest growth rates; falling debt; falling unemployment; high savings ratio; low inflation; a balance of payments surplus; a forecast surplus on the Government balance, but one of the lowest public investment rates because it addressing its failure on investment? I do not think so.
The biggest obstacle is not the commission but Minister for Finance Michael Noonan’s lack of ambition. The Government has already received €6.6 billion from AIB, all of which has been used to repay the national debt. The next tranche of capital from AIB should be used to invest in infrastructure.
In addition to investing in Ireland, the Government must take a strategic approach to AIB. On launching the privatisation, it said: “Today’s decision marks a significant step in the continued normalisation of the State’s involvement in Ireland’s banking system and reaffirms its commitment to recovering its investment in AIB for the benefit of the Irish people.”
First there has been nothing normal in this State’s relationship with AIB. It has been rather a parasitical relationship of private gain at public cost, over several decades.
Secondly, full privatisation is not the best way to ensure recovery of our money. We will not get all of it back if we privatise all of the company. There should be continuing partial ownership which gives us both control and allows us to share in the upside. It is finally back in profits, making €1.9 billion in 2015 and €1.7 billion in 2016, with one dividend of €250 million.
One State company alone, the ESB, has paid the taxpayer €1.5 billion in cash dividends over the past 10, tough years. In stark contrast AIB, once the largest company in Ireland, cost taxpayers more than €20 billion since the bailout.
We can see, from the collapse of all private Irish banks to the Eircom debacle, the case that private ownership is superior to public is simply wrong. We could sell off a majority of the shares over time to get capital for investment in Ireland but in the longer term, the Government should retain a decisive shareholding in AIB, one of Ireland’s leading retail banks.
Banks are too important to be left to bankers to run or ruin.
This blog was originally published in The Irish Times.
Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He is a member of the Economic Committee of the ETUC and chair of TASC’s Economists’ Network. He was a President of the Statistical and Social Enquiry Society of Ireland, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.