Ireland has undergone a five-year financial wake, the last three of which were controlled and monitored by the troika. Now the wake is over and the troika has departed.
New forecasts by IBEC (2.8pc growth) and the ESRI (2.7pc growth) predict that the Irish economy is entering a new phase offering the prospect of significant growth in employment and greater buoyancy in tax revenues which may forestall the need for further austere measures in the next Budget. As these optimistic forecasts were announced the Government launched its new policy, A Strategy for Growth: Medium-Term Economic Strategy 2014-2020, a document "to point the way to a stable and prosperous future, and away from the failed policies of boom and bust that have cost us so dearly".
What is happening and will this new strategy deliver?
Ireland during the Celtic Tiger years has so far undergone two phases. The first was the virtuous phase from 1994 to 2000 when the country experienced unprecedented growth by very effectively linking in with Silicon Valley's hi-tech revolution and acting as a pontoon for hi-tech products and services between California and Europe. The US hi-tech multinational companies (MNCs) provided the core for growth around which the services and construction sectors were able to expand further.
Tax revenues increased, the budget deficits transformed into budget surpluses and the national debt/GDP ratio fell dramatically. It was the best of times. Unfortunately, just after the economy appeared to peak in 2000, the worst-of-times scenario started to unfold. The dot-com bubble burst, growth declined in the US economy, confidence fell -- sparked further by the atrocities of 9/11 -- and, as 2001 unfolded, it looked as if Ireland's growth phase was over.
This turned out not to be the case as the second phase of Celtic Tiger emerged. The 2002 Budget provided a range of apparently attractive fiscal incentives for investors in the property market and the Irish banks found an apparently unlimited new source of funds in the euro markets. The builder/developer/banker second phase of the Celtic Tiger produced a property market bubble the consequences of which produced Ireland's five-year financial wake.
Now it appears the period of mourning is over and Ireland is back on the path of economic growth. This, in my opinion, is the start of the third phase of the Celtic Tiger, a phase that once again will be driven by the export performance of MNCs linked in closely with the US and UK economies, both of which are in growth phases. Through the period of 2008-12, as the economy suffered, the MNCs nevertheless remained robust and expanded into further sectors such as social media and gaming.
Against this promising background it may be asked whether the new medium-term strategy provides sufficient direction for Ireland to embark effectively into a third, and more virtuous, Celtic Tiger phase. Unfortunately, after reading it, one feels that our policymakers are caught up in a type of Stockholm Syndrome identifying too closely with their recent gaolers, the troika, and not fully capable of providing a vision for the path of the economy as it moves towards 2020.
Of course the fiscal rules of the game have to be presented and maintained. The targets of a 3pc budget deficit for 2015 and a movement towards budgetary balance in 2020 are obligatory. The maintenance of these will bring the debt/GDP ratio from its current 125pc to close to 90pc in 2020. But once these elements were factored into the strategy, there was considerable scope to provide some vision rather than outlining a wide range of aspirations.
If we are to embrace the viewpoint that our economic destiny is very closely linked to the growth of the MNCs then why is there so little about this sector and its needs in the strategy?
THE MNCs continually call for more numerate and linguistically gifted graduates. Current government strategy has greatly reduced funding to the universities while, at the primary school level, pioneering foreign language programmes have effectively been abolished -- Fine Gael still has to fulfill an election promise about making Irish an optional subject.
So how will current policy produce the necessary graduates and linguists? And what type of contingency planning relative to the MNCs is in place to counter any of the proposed changes in corporate taxation that have been raised both in the United States and Europe?
The cleansing and development of the banking sector is obviously a vital part of the re-construction of the financial sector of the economy smitten by debt overhang and deleveraging. The strategy document keeps referring to "a suite of financial products" (p.34), "a suite of appropriate products" (p.34), and "a suite of tailored and customised financial products" (p.39). It will be interesting to see if and when these suites of financial products will be unleashed. In the interim it may be more important to spell out the possibilities for the two pillar banks (AIB and Permanent/TSB) owned by the State and how exactly they will unlock their bad loans and non-performing mortgages.
Groupthink was one of the root causes behind the recent financial collapse. This strategy document still smacks of groupthink. Vision and creativity are lacking. They are badly needed if Ireland is to progress towards the full employment society of 2020.
ANTOIN MURPHY IS A CO-AUTHOR WITH DONAL DONOVAN OF 'THE FALL OF THE CELTIC TIGER: IRELAND AND THE EURO DEBT CRISIS' (OXFORD UNIVERSITY PRESS).