Friday 27 May 2016

Plenty more battles to fight if economic war is to be won

Marc Coleman quizzes the Tanaiste on his tactics for dealing with the ECB chief and his own Budget dissenters

Published 15/09/2013 | 05:00

A NOSE FOR CAUTION: Jean Claude Trichet warned us in 2005 to rein in our spending
A NOSE FOR CAUTION: Jean Claude Trichet warned us in 2005 to rein in our spending
UNNECESSARY SUFFERING: Eamon Gilmore is annoyed at 'austerity hawks' – 'It is possible for us to reach our targets – and without an adjustment of €3.1bn.' Photo: Tony Gavin

A few weeks back, Tanaiste Eamon Gilmore attended the 1913 Lockout commemoration that is the start of several such events in the coming decade. And as we exit the bailout this year we are in an economic sense re-enacting one of those centenaries. Our economic war of independence is still ongoing and on Thursday I asked the Tanaiste about his role in the crucial battles, his plans to haul Jean Claude Trichet before the banking inquiry and whether some ministers are more interested in a civil war than a War of Independence. Finally, I asked him if the full €3.1bn adjustment wanted by the Troika is good or bad for the war effort.

In fairness to the Tanaiste – and his department, which covers trade and foreign affairs – they have two crucial victories under their belts so far in this war. Our exports are growing at double the rate of world trade growth. The vigilance of Gilmore and his team – and Enterprise Ireland and the IDA – in conducting trade missions around the world (this author helped with one of them) has helped put a strong wind at the back of our exporters. They have also been instrumental in restoring a national reputation badly damaged by the previous administration.

"We have worked over the last two-and-a-half years to rebuild our reputation in terms of trade and to expand our reach. We have decided to consciously use our embassy network to lead that to co-ordinate the entire trade effort across government," Gilmore said.

He is happy with the OECD's vote of confidence in our recovery but acknowledges vaguely that it has slated the Government for a lack of reform (still too many quangos). Although we are technically back in recession, several trends look positive: 33,800 net jobs were created in the 12 months to July. If sustained, full employment should be restored by 2020. Business confidence is also returning and – if at excruciating cost to taxpayers – the fiscal situation is improving.

Here Gilmore is annoyed at "austerity hawks" whom he thinks want us to suffer more than we should. "We will do what is necessary but there is no case for doing more and my reference to austerity hawks are those people who say, 'OK we know you are going to hit your targets but you should do the €3.1bn anyway.'"

Who are the austerity hawks, I ask: the ECB? "I didn't identify anybody, I didn't name anybody, I'm not in the business of naming anybody."

But if he won't identify the ECB he is unlikely to see it as a gallant ally. Earlier last week he suggested asking Jean Claude Trichet to appear before a banking inquiry. There is a touch of the Dreyfus affair here perhaps: it was Trichet who warned us as early as 2005 to rein in our bank lending and be more cautious about growth. And it was parties like Labour and others who ignored that advice by assuming in their 2007 manifestos that growth would continue. The Tanaiste's people assure me that the plan is merely to get Trichet to appear before the banking inquiry to help clear the air.

The trouble is it might do more than that. In a rejection of a request to publish the letter from Trichet to Lenihan in November 2010 – a letter allegedly threatening a withdrawal of bank funding (that would have shut down every ATM in the country) if Ireland didn't enter the bailout – the Department of Finance stated that publication could have a "serious adverse effect" on our financial interests. Gilmore seems to contradict this: "Internationally the distinction is being clearly made between what happened in the past and what is happening now."

And even if he does appear, Trichet could be more popular than we think: when our governments were taking money out of our pockets in tax hikes his rate cuts were putting it back in.

To win a war an army needs to be united. But there are some – advocates of hiking PRSI for the self-employed – who seem to want to shoot our own best soldiers in the back. Here Gilmore's comments suggest these views are more individual than collective: "Some of that reflects their own department priorities. Some of that reflects particular perspectives they have on the Budget and, you know, are there differences? Yes, but we'll make a collective decision."

When it comes, that Budget may disappoint the "austerity hawks". "I've said publicly a number of times that it is possible for us to reach our targets – and without an adjustment of €3.1bn." What he ignores is that it was far swifter and deeper austerity – cuts in spending equal to 10 per cent of GNP between 1987 to 1990 – that launched the good phase of the Celtic Tiger. That successful adjustment also kept taxes as low as possible.

Which brings us finally to corporation tax. A supporter of our regime up to now, Angela Merkel may have to switch coalition partner after this month's general election in Germany, from the free-market, low-tax Free Democrats (who like low corporation taxes) to the left-wing Greens (who don't). This may force her to take aim at Ireland. News on Friday that EU finance ministers are already "scrutinising" our tax regime is ominous. Here Gilmore is in a dilemma. His party's left- wing ideological allies have whipped up populist hysteria against low corporation taxes that they blame for the collapse of Hypo real estate which cost German taxpayers billions. But they have the wrong culprit: it was weak regulation, not low corporation tax, that caused our financial meltdown. And a tax regime that helps Ireland's exporters recovery can only be good for the Eurozone and by extension the euro.

If the recovery is to survive the next year, Eamon Gilmore and his department will need all their strength and skill to make that message loud and clear in Berlin.

Sunday Independent

Read More