Whilst academics and bloggers fiddle, the Tiger is going up in smoke…

A close relative was working for an Irish civil engineering company in Thailand when the Pacific Tiger economies went belly up. I remember him commenting at the time the levels of remorse at the misdirection of the fast profits of those growth years, and the lost opportunities for developing infrastructure. Ireland, I suspect will have benefited from the direction given it by the EU’s structural funds. But, as John Murray Brown notes, there is nothing left in the tank. The so-called ‘optimal solution’ to the Broadmeadow Viaduct collapse alone is proof of that…Murray Brown:

…the reality is that whichever party is in power, stabilising the economy will involve awkward choices. Financial support for the banks will add to the fiscal burden. Reducing the fiscal deficit, while necessary to maintain credibility with the debt markets, risks worsening the economic contraction. Cutting expenditure, while it may dampen demand less than raising taxes, will hit the most vulnerable in society.

Such are the straitened circumstances of Ireland’s public finances, however, that the government is having to countenance cutting social welfare entitlements just to contain the deficit at current levels. Where several European Union countries have announced stimulus packages, Ireland has no resources to soften the impact of the recession, with the budget swinging from a small surplus in 2007 to a projected deficit equivalent to 12.2 per cent of GDP this year.

Interestingly he concludes with the suggestion that the kind of shadow boxing that has long characterised Irish politics, simply will not do (for government or opposition):

The government is starting to recognise that unless voters see the bankers and developers taking some of the pain, it will be difficult to secure a wider mandate for the rest of the reforms now under consideration. Responding to reports that Derek Quinlan, one of Ireland’s leading developers and owner of the Connaught and Berkeley hotels in London, had moved to Switzerland, Mr Lenihan last week seemed keen to reassure voters that Nama would have powers to recover its loans if the borrower had left the country.

“I don’t know if this man is paying his debts,” he told FM Radio. “But I do know that some aren’t paying their debts to Nama and it will have to take enforcement proceedings, seize the land involved, and hold it as an investment. And if the land is insufficient to pay the sum owing, the personal assets will have to be pursued.”

It is tough talk from the minister – but unless Dublin is seen to take tough action too, its ability to plough on with its recovery plan will be in doubt.

As Noel Whelan noted in the irish Times on Sunday, selling Nama will take a political will (along with a vision) that has thus far been lacking. And that political will, still substantially lies with Fianna Fail:

While academics have the luxury of always questioning, debating and redebating, ultimately the decisions about Nama must be made in the political realm.

The Cabinet has often been criticised for delaying or failing to show leadership and yet when it reiterates its intent to proceed with Nama, while open to suggestions for improvement, it is accused of rushing or bullying.

Cabinet, unlike a symposium or a blog, is a decision-making body. Governments have to decide and then seek parliamentary approval for their policies.

Having made its decision to initiate Nama, the Government should now steer the matter through both Houses of the Oireachtas and get on with the job.

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  • Itwas SammyMcNally whatdoneit

    It is very difficult to see how FF will be able to push NAMA through with trust in the party ruptured by the collpase in the economy. The Green Party may well jump ship as their rank and file now see themselves tarred by a worse brush than tarred the PDs – not only keeping a corrupt party in power but one that may well be about to bankrupt the country.

    Without economic consensus (46 economists arguing last week against NAMA) FG can choose to play politics whilst quoting economic theory and the 2 crazy old adversaries can once again re-enact the old civil politics as the country enters its greatest crisis sine 1923.

    With Paddy Power offering the shortest odds (even money) on an election this year (2010 9/4) the smart money (oxymoron?) way well be with an election to decide on NAMA.

  • I don’t think we should exaggerate the crisis. Yes – this year the economy is expected to shrink 10%. But economists agree the decline will drop to perhaps 2% next year. You also have to examine green shoots such as the strong performance of exports and industrial output that greatly exceeds the EU average. Eurostat (the EU’s official statistics office) says that Irish industrial output in April-June was 9.3%, compared to a drop of 0.6% in the Eurozone as a whole. Likewise, Irish exports rose 5% in the year up to April, compared to a 9% drop in the UK and a 29% drop in Germany. To sum up – it is the construction meltdown that is responsible for the crisis. It needs to work itself out of the system of the Irish economy, so that we end up with a more export and services-based economy rather than a construction-dependent one. Before the downturn, 25% of Irish men were employed in construction. Eurozone membership, while irreversible at this stage, must also share the blame for imposing Franco-German interest rates on Ireland. From 1996-2001 average growth rates were approx 11%, compared with 5% in 2001-7. 2-5% interest rates in such an environment constitutes pouring oil on an overheating economy. The artificial housing-market imported through the decision to open out labour-market from Day 1 to the new EU member states in 2004, following the ratification of the Nice Treaty, also contributed significantly to an overheating housing market.

    In that context, it’s high time we started to question whether further European integration – as IBEC claims – is really in our interests from an economic perspective. I believe the lesson – for any who choose to see it – is that when policy is centralised in Brussels, small countries lose out. Voting for Lisbon won’t help us. After Spain voted yes to the EU Constitution, unemployment doubled to 18%. We have to get ourselves out of this mess through an aggressive policy of promoting competition, and reducing public-sector charges on business. In particular, this means an end to the nonsensical and Janus-headed policy of the Electricity Regulator to keep prices high in the supposed belief this will encourage competition. A better model involves the sale of much of the ESB network of powerstations to the private-sector. A big bang approach is needed if we are to end our notoriety as having the second most expensive energy prices in Europe. An aggressive crackdown on barriers-to-entry in the legal and medical profession is also needed, and the ending of barriers-to-entry in the pub trade. It is typical of the Cowen govts procrastination and drift that Tanaiste Mary Coughlan has fobbed off demands for reform of the professions by sending it to yet another of this govt’s ‘committees’ that then become an excuse for inaction.

  • Mack

    FutureTaoiseach –

    I agree with a large portion of your argument about the way out of the crisis. I’m not convinced you’re right on Europe.

    This is tenuous –

    After Spain voted yes to the EU Constitution, unemployment doubled to 18%

    Really? Employers just decided to sack workers en masse for their chutzpah in voting yes?

    The Irish property bubble predated the Euro, the regulator and others with authority did little to dampen it’s spirits (in fact many of our leaders cheerled it). Countries outside of the Euro also partied hard, borrowing on the European wholesale market (Icelanders had full control of their monetary policy)..

  • Mack, the Spanish point has to be made to counter the nonsense from the elite linking a yes vote to economic recovery.

  • kensei

    Mack

    I believe the phrase required is “Correlation is not causation”

  • barnshee

    All that has happened over this crisis is that huge private losses have been dumped on society:

    The losses are still there, smothering the economy.

    Taxes must rise. Debts must slowly be purged.
    This also means that the developers who borrowed and the banks who lent to them, have to go to the wall.
    Protect the depositors let the banks and the developers fold