Business

Thursday 27 April 2017

Football's a funny game but there is a point to the jokes

Funny football banners - you'll never beat the Irish!
Funny football banners - you'll never beat the Irish!

Do the Irish have a special talent for funny football banners? The wit of the terraces worldwide is justly famed but can other countries' supporters include pertinent comments on current affairs in their jokes? The best-known, of course, is "Angela Merkel thinks we're working." I've read a lot less cogent descriptions of the Euro crisis than that in my time. But another famous banner from the past could be applied to the present.

This was unfurled on Hill 16 during one of the legendary clashes between Dublin and Kerry in the 1980s and read, "Come on the taxpayers!" - a reference to the complaint that PAYE workers were carrying an unfair share of the austerity burden of the time.

Now the recrimination is not between urban and rural but workers and bondholders, as well as between the Irish and their creditors in the rest of the Eurozone.

We have been ordered about too much, and asked to carry too much of the cost, it goes, although rarely as pithily or amusingly as the banners.

The "austerity" debate may be losing some of its force as the economy rebounds, although the political force may take a bit longer to abate since any rebound in incomes will be slower than that of output.

The feeling grows that the two sides in the debate are retreating to their tents for the next battle, rather than coming to any agreed conclusions from the evidence so far.

That would be a pity. The great thing about financial journalism is that nothing ever repeats itself and something new is always happening.

We do not know what will be next but it would help in dealing with whatever it is if there were more of a consensus about what has already occurred.

One of the big problems with the austerity debate was that a lot of it came off the second-hand shelf and related to countries in a very different position than Ireland. There is certainly no point in looking to American experience - the world's dominant economy with the world's reserve currency. An economy the size of Kansas with no currency at all can learn little from that, although it might learn something from Kansas.

Even so, there is a popular school of thought that the Government should simply have borrowed more for longer, thereby deflating the economy less and limiting the fall in jobs and incomes. That conveniently ignores the fact that we had no one to borrow this money from.

Which presumably means it is the fault of the Europeans and IMF for not lending more to us. It would have had to have been an awful lot.

Despite early application of austerity by Brian Lenihan, the deficit rocketed from zero to almost 12pc of GDP - before any bank rescue costs. It may be more than coincidence that the people who argue most against austerity are often among those who bear a heavy responsibility for that destruction of the public finances.

In any case, behind that argument is the assumption that it would have worked. Again, comparisons with the USA or UK are of no use - even if one accepts the premise that, in countries like those, there is some enormous, undefined scale of borrowing which would have made things better. The questions which matter here are what, if anything, could have been done differently, given our membership of the monetary union and insignificance in credit markets, and what difference, if any, would it have made?

The departing governor of the Central Bank, Patrick Honohan, attempted some answers in his recent lecture at an old alma mater, the London School of Economics. While conceding that they are not easy questions to answer, he nevertheless knows the one he favours.

It is that austerity (described by him as "the way in which fiscal policy halted and then reversed the growth in the debt ratio") actually promoted economic recovery. Easier policies would have delayed it because of the damage to business and market confidence.

"In the range where Ireland has found itself, it is simply not the case that fiscal contractions are self-defeating: corrective action does work; the deficit ratio was reduced substantially and, in due course, the debt ratio was placed on a downward trajectory."

All other things being equal, reducing the deficit by two percentage points of GDP less than was actually done in the three years of the bailout would have left the debt ratio 12 percentage points higher, at more than 130pc of GDP. It takes a big assumption that a bit less austerity induces such a jolly spurt of spending and investment to reduce that gap to any degree.

This is more important than even a lecture at the LSE. It seems fair to say that Dr Honohan's view is not the general consensus. Even the Government often seems to claim credit, not for doing the right and clever thing, but for reluctantly carrying out the iniquitous demands of the troika in an efficient and socially just way.

If that is the mindset, the political impetus when future unknowns happen will be to soft pedal the correction. The failure of former ministers, trade unions and lobby groups to recognise their significant contribution to the collapse is already showing in the return of the same kind of attitudes and demands which got us there in the first place.

The one place where popular attitudes do seem to accord with the evidence is some of it was the fault of creditor governments and the ECB. Not just popular attitudes, either. The two men who led the IMG team in Ireland, Ashoka Mody and Ajai Chopra, have been trenchant critics of policy towards Ireland.

However politely, Dr Honohan agrees. He believes both Ireland and the European institutions themselves would have benefited if the government's requests for direct funding and capital for the banks had been accepted. It wasn't just about burning bondholders.

Theoretically, Europe now agrees. We suffered somewhat more than was necessary but it may still be happening, despite the talk of doing things differently. More than intellectual conviction is required if things are to work better. There must be a certain level of trust between Eurozone governments and, more, there must be a certain amount of altruism - a willingness to make sacrifices for the greater good.

When that Croke Park banner was raised, there was genuine distrust and resentment between urban and rural. Like the more recent one, the humour had an edge to it. But the things that hold the Irish Republic together were strong enough to withstand that kind of tension - and many more besides. The really big question is whether that is true, or can be true, of the European currency regime.

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