Brendan Keenan: An isolated Greece keeps the herd safe
Greece's crisis give Ireland a great chance to recover from the errors of the last 18 months
NEVER waste a good crisis, they say, and we certainly have a good one erupting right now. There is not much doubt, either, that events in Greece present Ireland with a great chance to recover from the errors of the past 18 months and start again.
As you have no doubt heard, Ireland has avoided the worst of the Greek-induced crisis. But read the fine print. It is more a case that the others have joined us, rather than us leaving them. The group in question is the legendary PIGS, made up of the fiscally-challenged Portugal, Ireland, Greece and Spain.
But the deficit crisis is only this month's problem. There is more to come -- for them and us. The EU leaders gave Greece a breathing space, and the markets gave one to us.
Last spring, I argued that the first task was to get Ireland back in the herd, not to have it trailing along behind like a wounded wildebeest calf; easy prey for the circling hedge funds. That has now happened. A few weeks ago, the cost of borrowing for the Irish Government was 1.75 per cent more than for the Spanish. It is still more -- but only by half a per cent.
It also helps that, as predicted in these columns, Britain is joining the ranks of problem borrowers. There will be fun and games after the British election -- perhaps before it, if Gordon Brown decides to delay the poll and hope, like Mr Micawber, that something will turn up.
The fun and games, which will involve budget corrections almost on an Irish scale, will not be good for the Irish economy, north and south. But the herd will be bigger, and the whole idea of a herd is to distract predators' attention. We should make use of these distractions to look again at our own problems, making use of the hard lessons learned since early 2009.
At least, one hopes they have been learnt. The first, surely, is that there is no alternative to holding the deficit at its present levels of €19bn a year -- that is all the programme of spending cuts and tax rises is intended to achieve. Without them, the deficit would rise and it is now perfectly clear that the people who have the €19bn we need to run the country would probably say no dice.
If that proposition is accepted, then anyone with any sense of responsibility should be prepared to seriously seek agreement on how the deficit targets should be met. Or, to be more precise, how the burdens should be shared.
The fiscal programme is not an attack on public spending, because public spending will not fall. With the economy set to shrink again in 2010, it will actually rise as a proportion of national income. Neither this ratio, nor the budget deficit, can be expected to fall until growth resumes. Which brings us to the second, more fundamental, crisis affecting both the three little PIGS, and the one big one, Spain.
It is not just our public sectors which live beyond their means, but our entire economies. In Greece, the amount consumed exceeds the amount produced by about 15 per cent of GDP, as measured by their balance of payments deficit.
Spain is not far behind.
Ireland looks better placed in this regard. Its payments are almost in balance. But its recession is the most savage of the four, so that is not as good as it looks. The astonishing 14 per cent fall in retail sales has a lot to do with the return to balance.
This time, we will have to earn the money, not borrow it, to restore consumption and growth. There are several threats to the prospects for Irish growth. Costs are one. A reduction in general levels of foreign investment flows around the world is another. The general lack of efficiency in the Irish economy is a third. The unavoidable need to restrain public spending and raise taxes is another.
By a happy coincidence, the budget and economic crises converge at this point. A good deal of the costs and inefficiencies are in the public sector. But not all of them, and the professional classes and shopkeepers may be the hardest of all to get to change their ways.
Nevertheless, the present condition of much of the education, transport, energy and local government sectors is simply not good enough to give confidence in a return to full employment growth in the new decade.
This fact was finally, if vaguely, recognised in the abortive social partnership talks earlier this year. Now that the alternatives are so starkly visible, it should surely be possible to make the facts explicit and start to deal with them.
- Brendan Keenan
Originally published in
