Our leaders need to stop talking and start acting
THEY say of poor Christopher Columbus that, when he set sail, he didn't know where he was going, didn't know where he was when he got there, and didn't know where he'd been when he got back. The social partners taking part in yesterday's preliminary talks on the public finances will know the feeling.
Events are moving so fast that a realistic policy of even a few weeks ago is out of date. Projections for the economy, and therefore the public finances themselves, change by the day -- so far always for the worse.
The world's great leaders have only the faintest idea about what has happened, which means they have no idea at all as to what will happen next, and only their best guesses as to what they ought to do about it.
They do know there is no time to sit around trying to find out. That is as true of the United States as it is of Ireland. Except, of course, that Brian Cowen's problems are even greater than those of Barack Obama. Major changes must be made, and they must be made quickly.
Colm McCarthy, the economist in charge of the body trying to find ways to save on public spending, put it another way at a conference in Dublin yesterday.
"Governments have to move quickly, but it is like driving fast through fog. They are going to bump into unexpected things. But it is better to move quickly, and change policies if they don't work, than do nothing and wait to see what happens."
Fear of bumping into things may still be deterring the Taoiseach from actions which in normal times would rank as political suicide.
There is certainly little sense of speed, through fog or otherwise. Mr Cowen said yesterday that January was to be used to see how the social partnership model which he admires might be used to help manage the situation. That is not quite what the EU Commission, or the ratings agencies which are hovering their knives over Ireland's credit standing, think. They believe January is the deadline for hard decisions on how to reduce this year's projected €20bn borrowing by €2bn.
It is worth pausing in the rush to consider those figures. If the €2bn savings are found, borrowing will still be €18bn. And there is a catch. Last year, €18bn would have been 10pc of the economy's production (GDP). Because that production will fall by at least 4pc this year, and prices by at least 2pc, that same €18bn will be at least 10.5pc of GDP this year.
That is the measure the ratings agencies, the EU and the international lenders use. So far as we know, no Irish government has ever faced a situation where percentage borrowing would rise, even though the deficit itself had not. The shrinkage in the economy will be the biggest since such records began in 1947 -- possibly in the history of the State.
Neither Government nor the social partners (not even the employers) have yet managed to convey the gravity of this situation. They are probably worried about damaging business and consumer confidence still further, and spooking the financial markets even more.
Normally, that would be sensible. But these figures are no longer forecasts of far-off things. They are estimates for this year, and they are essentially those of the cautious Department of Finance. The real damage to confidence will be done, not if the estimates are true, but if nothing much is being done about it.
In that event, we may not even be able to borrow those amounts just to keep the public services operating. Not because of the size of the deficit so much, but because it would still be growing.
In 1987, confidence responded rapidly to even a small reduction in the deficit. It might do so again. It will certainly evaporate if the figure keeps rising.
There is just about enough of January left to see what can be agreed with the social partners and then proceed with the measures. It would clearly be better if the partners did act together on the rescue of the economy. But they and the public they represent will have to realise that this €2bn, over which there is such a fuss, is only the first instalment.
For now it is necessary to start with the amount. Those who think it can be less than €6bn over the next two years have a lot of explaining to do. If the figure is agreed, though, there can indeed be a constructive debate on how it should be shared. The unions are entitled to ask how much of the burden will fall on companies, and how much on those who amassed great wealth during the bubble and managed not to lose it again.
They seem strangely unaware of the burden already falling on private sector workers. Many will gasp in astonishment at IBEC and ICTU fighting over postponement of the national wage agreement. They have already fallen victim to what appears to be almost a formula of 20pc redundancies and 10pc pay cuts, as firms desperately struggle with collapsing sales and lack of bank credit.
Such employees did not choose to step up to the plate in this way, but will anyone else volunteer to join them?
- Brendan Keenen
