Honest debate on economy needed
Published 24/01/2016 | 02:30
An intense bout of stock market instability since the start of the year has shown the world economy to be precariously balanced between slow but continued recovery and a fresh outbreak in the decade-long global financial crisis.
The uncertainties surrounding the global outlook should not be lost on politicians here, who are busily engaged in old-style auction politics in the countdown to the General Election. Voters should take note. Leading economists believe the instability threatens to exacerbate the vulnerability of households and companies.
At the World Economic Forum in Davos last week, however, Taoiseach Enda Kenny sought to reassure that Ireland was well positioned to withstand any potential fall-out.
He has said that Ireland has in place a long-term economic plan to "insulate" the country in so far as possible from shifts already under way or which may come. In that regard, he pointed out that the country would continue to be competitive, keep its cost base under control and manage public spending. Ireland had learned from the lessons of the past, he said, and would not return to a boom and bust situation.
That will sound reassuring to an international audience, but does not sit easily with the range of election promises rolled out, to varying degrees, by all of the political parties to date. Those promises are based on economic projections which many fear are not sustainable.
Just last week the European Commission, in its latest extensive report on the economy here, questioned the view of Irish authorities that current revenues were sustainable and, for example, sought clarification on the specific factors underlying the strong corporate tax revenue performance last year.
The Irish Fiscal Advisory Council has also estimated that increases in total government spending in cash terms will be limited to a mere 2pc annually over the remainder of the decade. The EU authorities have insisted that additional revenues which arise owing to any kind of windfall be used to cut debt and that the only way spending growth can exceed benchmark levels is if new taxes are imposed to cover all of the additional costs.
Notwithstanding the Taoiseach's reassurances in Davos, Ireland can not escape if the growing fears of international agencies like the European Commission, the IMF and the OECD, which have revised downward their global economic forecasts, come to pass. China's economy, the world's second largest and a stalwart of growth, is slowing; oil prices are languishing around 12-year lows; US growth is looking uneven. Before the market can stabilise there needs to be signs of relief on these issues. That said, the pessimists could be wrong and there is always a chance that stock market weakness will prove to be another puff of smoke.
A more tangible concern is the continued economic under-performance in the eurozone since 2008, which in large part relates to the continuing failure to address the scale of the banking crisis.
A priority for the next government will be to draw a line under the country's banking debacle. It may also be that the state of our public finances in the recent past has been subject to premature celebration. As the election moves closer, politicians need to talk openly and honestly about these issues. The electorate deserve nothing less.