Business Irish

Tuesday 16 January 2018

Shades of the Roman Empire before collapse from the excesses of emperors

One of the more infamous senators of the Roman state was Incitatus. Of strictly limited intelligence, and possessed only of one main talent, that of being a close companion to the head of state, he not only was a senator but also was talked about as a possible future ruler.

Incitatus lived a life of luxury, with gilded furniture, the finest meals, lavish clothes and in general all the fruits of the state.

Incitatus was a horse, the horse of Caligula, the mad emperor, who to show his contempt for the Roman people had his equine companion made senator. Also part of the equine family are jackasses, donkeys and mules.

During the last week or two the main topic of political discussion has been about another appointed senator with a love of the good things in life.

Ivor's travails, and the fine distinction between fake and forged invoices, has been entertaining, but it is not as though even in the silly season we don't have plenty of real world issues that are of vastly more importance.

Did Ivor ever get phones? Did, as legend asserts, Incitatus ever eat oats mixed with gold flakes? Either way, they stand as symbols, and are far more important as such than they ever were in life.

The banks are bust, with perhaps one exception. Even Bank of Ireland, however, would struggle to raise funds at an economically viable rate were the Government to remove the blanket guarantee.

With loan losses continuing to mount; with the twin black holes of Anglo-INBS destroying money at an astronomical rate; with AIB flensing itself for any salable assets and leaving the taxpayer to eventually pay €3bn-€4bn for the residual unprofitable skeleton; with credit continuing to contract (as it does, will and always was going to do in a deleveraging recession); with interest rates rising, and with the NAMA business plan unravelling towards reality, one thing is clear. Anyone who relies on credit, for any reason, and that is most of the economy at some stage, is going to have to cut costs.

If the banking system was not cut-inducing enough, we also face a fiscal crisis of unparalleled magnitude. In essence, the Government is overspending by hundreds of millions per week.

The magnitude of the overspend is such that if every single public servant were to work for free next year and if not a single public sector pension were to be paid, we would still face a deficit of close to €10bn.

Taking in €30bn tax, we cannot raise rates, even if we wished to, and even if it were not economically foolish, by anything like the amount to close the gap. Thus, massive, ongoing and deep cuts, far in excess of what we have seen, are required.

So far, the Government has not taken hard decisions, content to salami slice a per cent here and there off budgets. The fiscal crisis will require entire expenditure lines to be eliminated. There is no political will to do this.

Finally, on a household level, unemployment and negative equity are to be a semi-permanent feature of Irish life for the next decade.

Both of these act to depress consumer expenditure, the ultimate driver of a modern economy.

While there is good news in the way (the hi-tech part of) the exporting sector has held up, this cannot act as an engine of employment in the degree needed.

The remaining exporting sectors will, in time, grow, the world economy permitting.

But it can only grow if costs, labour and others are cut and remain low.

Overall then, cuts and deep cuts are likely to be the dominant feature of nearly every sector, except for the political classes.

Irish Independent

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