Better Nation

There’s been a lot said about Ireland’s money woes of late and with good reason as the situation involves questioning the very future of the Euro as a going concern and the prospects of the continent’s long-term recovery.

I have never indulged in the near-unanimous Peston-bashing that goes on out there in the big, bad world as I have a strong regard for the BBC’s business reporter and thoroughly enjoy his blog but I have to say he has quoted some quite odd numbers in his latest blog.

Which British banks are at risk? Well according to new research by Morgan Stanley, total lending to Ireland’s private and public sectors is equivalent to 92.3% of the net assets of Denmark’s Danske Bank, 89.5% of Royal Bank of Scotland’s net assets, 60.2% of Lloyds’ net assets and 15.9% of Barclays’ net assets. Those figures exclude bank-to-bank lending, but they indicate how exposed Britain’s banks are to Ireland’s woes (RBS is most exposed, as the owner of a substantial Irish bank, Ulster Bank).

Looks worrying doesn’t it, 89.5% of RBS’ assets? No wonder Osborne is ploughing in to help Ireland out, we can’t bring RBS down with the Irish. Why is one of Britain’s banks so heavily linked in with Ireland anyway? Is it something to do with the Six Nations? Well, the key distinction is that this is net assets rather than just plain old assets. That 89.5% only applies to the difference between RBS’ total assets less its total liabilities and, well, after the whirlwind few years that the Bank has had who knows what that number could be.

If RBS has total assets of £300bn and liabilities of £299.9bn, then RBS is exposed to a paltry £89.5m. If liabilities are £100bn then RBS is exposed to £179bn. In other words, that 89.5% really doesn’t tell us anything in the absence of absolute figures which we clearly don’t have available. I suspect mind games are at play here and we’re being coerced into swallowing our medicine. What’s Morgan Stanley’s exposure to Ireland, I wonder?

Of course, some of Britain’s bailout money will presumably go towards the aforementioned Ulster Bank which is 100% owned by RBS. So, if you want to see it that way, this is actually (in part) a British Government bailing out a British company, just doing it on the scenic route via Ireland. (And I hope it went up the West coast, beautiful it is there)

We are not lending to Ireland to help Ireland out, we are lending to Ireland to save our own skin. I would have thought that the Tory backbenchers and Nigel Farage’s of this world would be at the forefront of such an approach since Osborne’s is a Britain-first policy, but it seems they’ve decided otherwise.

Think about it this way, if Ireland was on the other side of the world, if this was New Zealand or Paraguay facing financial meltdown, would Britain altruistically ride to its rescue? Unlikely. ‘Not my problem guv’ we would probably collectively say or ‘no spare change mate’ even, shamefully if so.

The overriding message is that it is the banks that continue to be the drag on the recovery, not to mention the initial problem in all of this. Osborne’s actions in the short term should not be difficult to sell politically as it is self-interest at stake, whatever way you want to look at the Net Assets of the entities involved.

The real political problem for the politicians is the perception that the Banks have collectively got away scot-free with causing so much pain. One solution, to turn RBS into some sort of mutual Green bank, isn’t one that should be looked down on too disdainfully.

John Swinney has delivered his long anticipated budget proposal for the next financial year and there has seemingly been no big surprises. With a lack of financial levers at his disposal the Finance Secretary has successfully managed to flick a few switches that can ease the coming pain:
 
-          Public sector pay freeze
-          Business rate rise for larger companies
-          Cut motorway maintenance and tourism
-          Early deal with Councils to ensure smooth agreement between Government and local authorities
-          A shift in spending from Revenue to Capital because countries who stand still end up going backwards if the rest of the world goes forwards
 
Difficult to complain against really in the current financial climate.
 
So all eyes will now be on unions and opposition parties to see how receptive they are to the suggestions. The simple logic of a pay freeze in order to keep as many people in jobs as possible should be robust, particularly when UK unemployment is falling while Scotland’s is rising. There have been murmurs of discontent amongst some of Scotland’s unions but hopefully they will see that, in the round, John Swinney is making the best of a bad situation that was not of his doing.
 
Opposition politicians are there to oppose so one shouldn’t be too hard on them for stretching the bounds of credibility with their objections. The main objection from the larger opposition parties is that this budget is a ‘one year budget’ but it should be looking into the longer term. I don’t see this having much traction with the public and, when times are tough, it can be preferable to wade through the difficulty before you only one step at a time.
 
That said, it would be good to know what each of the parties have in mind for free care for the elderly, free tuition fees, abolished road tolls and free prescription charges, all the Scottish-only benefits that would appear to be unaffordable moving into the medium-term. It is important that the public has an understanding of what lies in store for these areas from each of the parties this side of the election, but, crucially, not necessarily this side of a successful budget. After all, should the SNP lay everything out on the table just because it happens to be in Government up to May 2011, only to be thumped at the next election or should all parties be equally afforded the opportunity to hold unpalatable information back from the public? It’s election year and the answer is unavoidable I’m afraid. We need only look to Westminster 2010 election to know that each party won’t show us the full picture of what the coalition’s cuts will mean for devolved Scotland. The SNP is no more culpable in that regard while Labour, for example, is promising everything from GARL to numerous new prisons to lock up those carrying a knife.
 
The other main objection to Swinney’s announcement has come from the Green party and it is probably too early to know how much traction their calls for use of the tax-varying powers to raise revenue will garner with both the public and the media. There is still plenty of scope for this proposal to take off and, equally, there is every chance that the public will shun tax rises and give the Greens a good stuffing. Turkeys, Christmas, you know the rest. I am hoping for the former of course. It’s worth pointing out that the budget has £17m for Renewable investment and £2.3bn for a new road bridge. The Scottish Government will have a difficult time ‘greenwashing’ over those figures.
 
The bottom line is, there is very little for opposition parties to object to here. With less money comes less options and with less options comes less scope for other parties to plough a different path to that of Swinney’s. Don’t get me wrong, Labour will still find a reason to vote against the budget or abstain, they are already dredging up their ‘anti-Glasgow’ rhetoric from last year. The Lib Dems, so difficult to predict, may well be partisan enough to do the same.
 
The SNP has the Greens and it has the Tories and, although it is a long road still to be traversed, this budget had pretty much written itself even before today’s announcement. Don’t expect it to change much between now and when it’s voted through the Parliament in early-2011.