Wednesday, 22 February 2012

The EU-IMF Deal Does Not Require Privatisation

Michael Taft: Whatever about the case-by-case merits of the Government’s announcement today regarding the sell-off of state assets, we should be clear: the EU-IMF Memorandum of Understanding does not require privatisation, in whole or in part. In addition, the discussion of the sale of state assets in the Memorandum does not take place in the fiscal section but rather in the section regarding obstacles to competitiveness. In other words, if there is to be a sale of state assets, the objective is not to write down debt but to improve competitiveness. Indeed, it is hardly likely that the Troika would demand that state assets be sold in order to reduce the projected debt of 115 percent in 2015 down to 114 percent (which is what the Government’s announcement today would do).

The quarterly reviews conducted by the Troika make it clear that the provision for selling state assets did not come from them – it came from the Government and its Programme for Government. And it was Fine Gael that was the driver of the privatisation provision in the Programme – Labour campaigned against privatisation in the last general election.

What we have had is an elaborate choreography around the issue of privatisation, shifting blame and inventing targets which have had the effect of obfuscating the issue. Nonetheless, this should not blind us to where the demand for privatisation is coming from. Senator Shane Ross, writing about the meeting between the Troika and the Technical Group of TDs, reported this exchange on the subject:

‘The troika delegates insisted that they had not prescribed any privatisations. They wanted to see certain semi-states "restructured" and competition in the market. Contrary to media perceptions, they were not pressing the Government to raise any specific amount from the sale of State assets. The figures in the public arena of between €2bn and €6bn did not come from them.’

That this is confirmed by Sinn Fein, from their meeting with the Troika, only reinforces this point.
The demand for privatisation – and the paying down of debt – does not come from the Troika. It comes from our own Government.
For a detailed overview of this issue you can read this post I wrote back in October.


Jonathan said...

Hi Michael, on the subject of privatisation, I read yesterday in the Irish Times that the plan for privatising the National Lottery involves the State offering the potential operators E50 million a year for 20 to 30 years. The State currently pays An Post E3 million to run it. If the State sells the lottery for E500 million (the approx. figure that was mentioned) it will end up pay the private operator E1.25 billion over 25 years. Subtract E500 million and you get E750 million, or E30,000,000 a year. If the State were to maintain the current deal with An Post, the total for 25 years would be E75 million. So this privatised deal will cost the State an extra E27 million a year (and this is assuming they don't include a clause that promises to make up the operator's shortfall if they lose money in that period). How can this possibly make financial sense?

Paul Hunt said...


The idea came from the previous government. This is the July 2010 ToR of the State Asset Review Group:
1. To consider the potential for asset disposals in the public sector, including
commercial state bodies, in view of the indebtedness of the state;
2. To draw up a list of possible asset disposals;
3. To assess how the use and disposition of such assets can best help restore
growth and contribute to national investment priorities; and
4. To review where appropriate, relevant investment and financing plans,
commercial practices and regulatory requirements affecting the use of such
assets in the national interest.

This was in place when the Troika turned up in Nov. 2010. FG made it clear in its NewERA policy document, quite a bit before this, that they would contemplate the sale of some non-stategic state assets to finance new investment. The notion of 'new assets for old' was floated. They were very cautious not to spook Labour too much because they didn't think an overall majority was within their reach.

In any event, the NewERA state holding company concept is not that far removed from ideas the ICTU was floating previously. This was another element of FG trying to square the circle with Labour.

You're right that the Troika was more interested in structural reforms in the sheltered sectors quite separately from privatisation, but, since privatisation was already on the then government's policy agenda they ride with it. However, apparently, wanted to see the proceeds used to pay down down debt rather than be used for 'airy fairy' schemes.

The Government has been struggling to water down the structural refrom elements of the Troika Programme. For example, it buried the requirement to have a detailed, 9-month long assessment of the electricity and gas sectors and has replaced it with some half-arsed, but as yet unseen, exercise by the International Energy Agency. And it seems to have won a concession on the privatisation proceeds so that it can be used for its own 'airy fairy' project - this Strategic Investment Fund (SIF) designed to reward its clientilist networks.

So I'm not sure what you're beef is. If the previous government's approach had been followed the electricity and gas sectors would have got the thorough working over they need and it is unlikely that there would be money for this 'airy fairy' SIF.

So maybe you should be thanking FG rather than berating them. Indeed it should be 'rent-seekers of the world unite and doff your hats before the Government'.

Michael Taft said...

Jonathan - I am not that familiar with the issues surrounding the National Lottery but the numbers you have presented are not surprising at one level. Debates on privatisation rarely take account of the long-term fiscal or economic benefit; nor is there any memory in this debate (remember the privatisation of Irish Life - its back with the taxpayer now). Its essentially short-termist with no historical grounding. Not only would a long-term analysis of the sale of the National Lottery be helpful - it would also be helpful to assess the cost/benefit of any pressure on dispersal of grant money arising from Lottery activities. I suspect we won't get that.

Paul - my only point is that privatisation is not mandated by the EU-IMF deal. I think that has been established.

Paul Hunt said...


I'm still confused about the relevance, or the implications, of the point your are making. There must be some, or else you wouldn't take the trouble to post here. I'm simply trying to clarifying the historical record. Privatisation was on the table when the Troika arrived and I think it is important to recognise that the Troika wase not prepared to allow it to be removed from the table when the new government was elected - with one faction having, presumably, secured a mandate for some limited privatisation and the other faction having a mandate opposed to any privatisation.

The Troika simply couldn't allow this while it was putting pressure on Greece and Portugal to privatise state assets. So I don't think your point has much substance, because if privatisation had not been on the table when the Troika arrived, they would have put it there.

Why don't you just get over it? Privatisation is on the agenda, ireespective of whether the Troika put it there, or is keeping it there, or the Government is following through on groundwork laid by the previous government, or whatever.

The point is that Labour bought in to it in return for this 'mess of potage' that is this SIF. And the Troika has swallowed this presumably because it has been persuaded this kind of grubby deal is needed to ensure the cohesion of the governing factions.

And the really important point is that the programme of privatisation that is being proposed is the most cack-handed, half-arsed, silly programme that could be conceived. The only slight upside is that the proposed part-privatisation of an integrated ESB has been been dropped. A decision in principle, I might add, advanced by a Labour Minister - and even worse, one, presumably, having some grounding in Marxist theology.

It is bad enough that the CER is imposing an implicit financing tax on all consumers to benefit the ESB (and government), but it would have been totally beyond the pale if a private sector investor were to benefit in any way from this.

Jonathan said...

Michael: The source of my numbers is here: