Friday 22 November 2019

The Economy: If Noonan can deliver the debt deal, he will have earned his fat salary

Thomas Molloy

The philosopher Isaiah Berlin divided people into two types; foxes who know many small things which they use in a dynamic and flexible way and hedgehogs who know one thing and know it well.

The late Brian Lenihan was a fox who adopted all sorts of policies such as a bank guarantee, the National Asset Management Agency and the so-called Croke Park deal.

Michael Noonan is a focused hedgehog, who appears to know just one thing; that Ireland won't be able to survive much longer without a deal to cancel a large chunk of our debt.

Like Churchill waiting for the US to enter World War Two, Noonan is trying to simply survive until a much bigger force enters the scene.

Noonan's entire economic policy can be boiled down to obeying the troika's rules and securing a debt write-down to finally put the country's finances on a sensible footing.

So far, the first part of that plan has succeeded while the second part has failed. Noonan has exceeded the troika's target for reducing the gap between spending and borrowing. To many people looking at Ireland from outside, the deficit target is the only thing that matters; and Noonan has delivered in a way that is significantly better than anybody dared to hope a year ago.

Alas, Noonan's repeated, insistent but inchoate efforts to secure agreement on a debt writedown have been noticeably less successful.

The election of Francois Hollande in May seemed to offer hope but the French have their own problems and are not inclined to help a country that seems to be doing okay. The high point came a month after Hollande's election in late June when European Union leaders said something must be done to break the link between national and bank debt, but the statement was vague and fell far short of the "promise" or "pledge" that Noonan often claims.

We have very little information about the talks about a possible deal. What we do know for certain is that the French and German governments, who will have to pick up the bill, don't sound positive.

Deadlines have come and gone but there is one deadline written in stone: March 2013. Last year's March deadline for the repayment of €3.1bn in Anglo Irish-related debts resulted in a disgraceful fudge.

This year's deadline will tell us whether the Government's plans have worked out or not. That means that the most important financial and economic event of 2013 will probably be over in the next 90 days. If Noonan pulls it off, he will have earned his fat salary cheque, which makes him one of the Western world's best paid finance ministers.

An agreement would be the beginning of a virtuous circle paving the way for cheap borrowing on the bond markets and cement Ireland's position as a small and erratic economy that is capable of swinging from boom to bust and back again in a relatively short space of time.

The year that is ending brought many other positive developments for Ireland although they have yet to bear much fruit. The most obvious development has been the market's renewed faith in the strength, durability and permanence of the euro.

This time last year, it appeared possible, many thought probable, that Greece would be ejected from the single currency and Ireland would follow. That this didn't happen is the reason for our economy's relative stability.

Although it is almost wicked to talk about stabilisation when so many people are unemployed, underemployed or have emigrated, the data show an economy that is now bumping along after years of freefall.

Frustratingly for those who are unemployed, companies are always loathe to take on workers until all the evidence points to an upswing, but the surveys that track hiring intentions show many companies don't expect to begin hiring in 2013 but to pay existing workers a little more.

In many cases, that will be enough to cancel out the effects of the last Budget but we are still a long way from the boom and unemployment is likely to remain unacceptably high for years.

There is another problem coming up on the inside track that is worrying the Finance Minister because there is little he can do.

That danger is the anger of ordinary people in Britain, France, Germany, Australia and the US about the pathetically low taxes paid by the likes of Google, Amazon and Facebook. These companies are using Irish tax laws combined with the tax laws in the countries where they operate to avoid paying anything like the taxes paid by high street retailers.

Nobody minded much when the internet was a novelty and tax revenues were buoyant. Now that the internet is destroying well-known retailers and employers while government money is tight, ordinary citizens are beginning to get angry about tax avoidance.

This affects us because these companies have operations here which employ many highly paid workers to justify their tax avoidance elsewhere.

Hours before Noonan announced his Budget in the Dáil earlier this month, the British Chancellor of the Exchequer, George Osborne, unveiled his own budget where he promised voters that he would work with France and Germany to tackle the issue.

That promise and Britain's determination to lure more foreign direct investment may well have a deeper impact on the Irish economy than anything Noonan announced in his own Budget a few hours later.

Indo Review

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