Monday 23 April 2018

Jody Corcoran: Noonan will have to do battle in Europe if our economy is to take off

Even after Ireland exits the bailout, we will still face economic stagnation mired in a mountain of debt

Jody Corcoran

Jody Corcoran

IN MARCH last year, Finance Minister Michael Noonan said Ireland had become so competitive in this period of austerity that, if the world economy picked up, the country could "take off like a rocket".

"We may have very strong growth rates in the next couple of years," Noonan said back then, when he welcomed a 20 per cent jump in the country's goods-trade surplus compared to January 2011.

Six months later and Ireland was back in recession, from which it only recently but tentatively emerged: growth rates were up 0.4 per cent in the last quarter, but are likely to come in under the 1.5 per cent predicted for this full year.

Last week's Budget has been presented as a "victory" for Labour, when, in fact it was a Fine Gael Budget through and through, the skill only in the execution of a political necessity: protect Labour.

Not only did the Budget cushion the majority of middle Ireland, it also went some way towards the implementation of troika recommendations, for example, that young people be provided with education and training, taken off the dole and into employment.

It would seem that Ireland was not competitive enough, back in 2012 – it still isn't – when Michael Noonan predicted that, with a fair wind, the country could take off like a rocket.

He would not be the first Finance Minister, nor will he be the last, to talk up the economy only to be let down by events, dear boy, as they subsequently transpire.

In one of its periodic reports, the troika had also raised a collective eyebrow at the numbers, elderly included, on medical cards here, 1.8 million, give or take, or almost half the population.

Similarly, it should come as no surprise that the Government has announced a "review" of the medical card scheme – a scheme that politicians of all parties have abused through the years.

Perhaps more frequently than they are called upon to fix a pot-hole, in this political system of ours – more than anything else – TDs have made representations to the HSE to secure a medical card for a constituent.

So let us leave the world economy, even the European economy, out of this for a moment, and Noonan's spin, too: the truth is, the country was not ready to "take off like a rocket" in early 2012.

The question now is, when these latest measures, and others contained at the behest of the troika, with the enthusiastic support of Fine Gael, are implemented, will the country then be ready to take off?

The indications are that, yes, the economy does, indeed, look set to take off – not like a rocket, more like a helicopter struggling but more certain than not to get off the ground. Noonan had better hope so, anyway, because that is all he can do right now: hope that the world economy, and more specifically the European economy, takes up the slack.

For when it comes to what he has called "this period of austerity", the appetite for such harsh measures is at an end.

Politically, the Finance Minister cannot return, this time next year, to look for another package of cuts and savings with the promise of a bright new dawn around the corner.

Austerity is formally at an end when a telephone allowance is taken from a bachelor farmer in splendid isolation, say, up the Kerry mountains, whose local garda station has long since closed.

There was always going to be a political risk associated with an easing off on austerity this year from a proposed – and somewhat accepted – €3.1bn to €2.5bn.

Noonan has deployed what is, effectively, a three-card trick to argue that, in fact, the total adjustment package for 2014 will be closer to €3.1bn, when what he has called "additional resources and savings elsewhere" are taken into account.

Next year, cuts and savings in the region of €2.1bn are proposed, tough in itself, but also a double- edged sword.

Noonan will not have the troika to blame, so responsibility for slashing a further €2.1bn, or more, will be his alone, and therefore the blame – and blame there will be – will rest with the Government. Should that figure come in below the €2bn mark, the Government can claim success: if not, failure will be an orphan.

There are several factors that will dictate whether Noonan is the father of success, not least economic growth: last week there were a few straws in the wind.

Eurostat released figures which showed that the foreign trade surplus in the eurozone grew to €7.1bn in August from a €4.6bn surplus in August last year. In the southern periphery, the economies of countries like Greece and Portugal are also regaining a degree of competitiveness. After a six-year recession, exports in Greece were up 6 per cent in the first seven months of the year; in Portugal, also due to exit an aid programme next year, exports were up by 4 per cent between January and July.

More immediately, Noonan will have to do battle behind the scenes in Europe if, as he hopes, the economy here is to take off.

There are so many stars aligned in this regard that it is difficult to see success, other than modest growth over the next few years, perhaps for a decade.

For example, German finance minister Wolfgang Schauble last week said that retrospective bank recapitalisation for Ireland was "not probable" for the time being, a declaration which may, or may not, be part of negotiations to form a government there.

"I actually felt he left the door open," Noonan said – and perhaps Schauble did.

There are other well-rehearsed headwinds: the Budget deficit is currently 7.3 per cent of GDP; Moody's still rates Irish debt as "junk"; household debt is still 200 per cent of GDP; mortgages in arrears by 180 days are at a record 17 per cent.

Ireland's emergence from the bailout programme in December may give rise to a happy Christmas for some, but the reality of eco-nomic stagnation, mired in a mountain of debt, will still exist in the new year.

Last week, in his Budget, Noonan rolled the dice: right now, all he can do is hope the gamble will pay off. The key is a return to sustainable, and strong growth. In that regard, nobody will keep his fingers more crossed that the Finance Minister.

To quote back to him, in another context, John Butler Yeats, father of the budget poet: "Happiness is neither virtue nor pleasure, nor this thing nor that, but simply growth. We are happy when we are growing."

Sunday Independent

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