Confusion in Dublin as Government’s position cracks

At first they denied there had been any contact with the European Central Bank. Then they admitted there had been talks, but there was no discussion of a bailout. Then, by Friday, the Government admitted that some “theoretical” talks had taken place between officials over the possibility of Ireland accessing external financial aid.

By the time the markets opened this morning, the Government said that the talks between the Department of Finance and European officials had been “technical” in scope only, and there has been no application for a bailout. At the time of writing, it’s not clear what the next steps for the talks are, other than actual exchanges of money.

Since the rumours of an IMF or ECB bailout began, government ministers have had the unenviable task of keeping a straight face and defending the official line of: “Crisis, what crisis?” – while the world’s media openly speculated about the future of the Irish economy and its sovereignty.

The debate in Ireland has moved from whether Ireland needs external support to how much money is needed.

Indeed, such has been the international furore over the possible bailout that ministers have begun to blame the media for undermining confidence in Ireland and their handling of the economy. The last 24 hours has seen a distinct change in government language – from defensive rebuttal to combative anger.

This changing tone is because government is increasingly finding itself unable to control events. The international media, the blogs of Irish economists and tweeting opposition politicians are no respecters of official press releases, and – despite government’s best efforts to calm the discussion – the debate in Ireland has moved from whether Ireland needs external support to how much money is needed. Ministers meanwhile dismiss talk of bailout as unhelpful and unpatriotic.

Confusion reigns

Confusion currently reigns, as the official line from Government Buildings seems to ignore what many commentators believe is undeniable – that the price of Irish bonds has reached such an extraordinarily high level that the only option left to the government is to seek financial aid.

A flow of government ministers have loyally stated the mantra that Ireland has the money it needs until the middle of 2011 and that the forthcoming Budget will make the necessary cuts to narrow the exchequer deficit. For its part, the European Commission has officially said it is happy to leave the recovery of Ireland in the hands of the Dublin government.

The issue of sovereignty is an emotive one for the Irish.

The electorate, meanwhile, is less convinced. Brian Cowen’s government, which has repeatedly blocked the calling of four parliamentary by-elections, is reluctantly – after losing a court case taken by Sinn Fein – fighting an election in Donegal, which is rapidly becoming a referendum on the Irish economic crisis. Ministers who have made the journey across the country to help canvass are reporting that the electorate is happy with government policy but have urged candidates to stick to local issues.

The issue of sovereignty is an emotive one for the Irish and talk of a surrendering of sovereignty overseas has been used repeatedly by Opposition politicians on the campaign trail. The opposition is happy to claim talk of a bailout as an embarrassment to a government which has travelled the globe showing off its miraculous economic achievements.

With house prices crashing by 50 per cent, unemployment remaining stubbornly high at 13.6 per cent and the country experiencing forced emigration for the first time in generations, the banking and economic crisis is quickly becoming an electoral one for the embattled government which is unable either to control its finances or its message.

Dr Peter Stafford is a freelance economic and business research analyst based in Dublin.
Website: http://peterstafford.ie
Twitter: @peterstafford