Why only €10 million?

This question was raised every day by my colleagues in Seanad Eireann and in a stormy Dail debate. It referred to the Government commitment of €10 million to deal with the devastating floods that destroyed large parts of Ireland. Why so little?

The deserts and sky rise cities of Dubai have literally nothing in common with the ruined homes in Athlone, Carrick on Shannon and Ennis. But some of the answer to the question of how the Government can find so little money for so much disaster can be understood by looking at recent dramatic events in the United Arab Emirates.On Wednesday Dubai World, the Gulf owned conglomerate, announced a six month debt standstill on loans of €22 billion. This signalled that they were not currently able to pay back the capital or interest on their loan book.

In response to this, the cost of insuring against a default of Dubai government debt rose from €360,000 on €10,000,000 of loans to €460,000 in a single day. The increase is even more dramatic when you recognise that this difficulty is experienced by the region which was an iconic symbol of global economic exuberance.

The sheiks of the Gulf and Fianna Fail share more than a penchant for horse racing, tents and spending vast amounts of government money. They also share a common challenge.

The cost of fiscal stimulus packages combined with the financial costs of saving banking systems has caught governments in an economic perfect storm. They need to spend more to deal with the costs of a recession while dealing with the rising costs of current and future borrowing.

The International Monetary Fund estimates that public sector gross debt in developed economies is due to rise from 78% of national income in 2007 to 118% in 2014. This is at the same time that economies have to deal with the cost of retirement for healthy workers and higher unemployment levels.

So, back to the flooded plains of Ireland. Why only €10 million? Lack of concern does play a big part but larger economic factors are at work.

This is because the current financial crisis is not a speed bump along the road back to another Celtic Tiger. We are on a completely new road. Ireland profoundly integrated our national economy into globalisation at a time of abnormally high growth. Tax levels and living standards were predicated on the ‘irrational exuberance’ of world economic growth rates that might not ever return.

We must be honest about this. Government, employer or union leaders talking of ‘temporary adjustments’ are guilty of the same economic dishonesty that ruined our country.

Social partners should not be delivering a short term plan but a plan that straddles at least the next 3 budgets. The exodus of shoppers to the North points again to the need to conduct a war against the mad cost of living in the Republic. This is vital to maintain decent living standards to cope with the higher tax levels and lower wages that will follow if our economic security is to be maintained.

€10 million heralds arrival of austerity economics. Whether we like it or not austerity politics will soon follow. Maybe this arrival will be a bit easier if we recognise this and are more honest about the consequences.