Saturday 14 December 2019

The economy is at a crossroads but we aren't the ones behind the wheel

Fine Gael leader Enda Kenny
Fine Gael leader Enda Kenny
The Government is following the mantra of Bill Clinton’s man, James Carville, pictured, that ‘it’s the economy, stupid’
Richard Curran

Richard Curran

'It's the economy, stupid" has become something of a cliché around general elections. As the electorate cast their votes tomorrow, how much space will the economy take up inside their heads and influence their political preferences.

Based on how the election campaign has gone so far, probably not as much as we might think. People are talking more about health, crime and local issues than GDP growth. The economy has played an enormous role in the outcome of Irish general elections, particularly since 1997, when our finances began to pick up.

Before that, the emphasis was on public spending and taxation - the proverbial "pound in your pocket". Once Ireland found economic prosperity for the first time, elections were driven by which parties might help us all to hold on to the good times.

In 2004 Bertie Ahern rediscovered his inner socialist while walking on the beach near Inchydoney, the West Cork luxury resort. The inner socialist meant a massive increase in public expenditure while also continuing with tax reliefs for the very wealthy. It reduced the tax base while increasing expenditure.

Government expenditure rose by 140pc from 2000 to 2008, with the most marked increases ahead of the 2002 and 2007 general elections.

Following the catastrophe of the crash in 2008, the 2011 election was dominated by the need for change and a desire to punish the party that helped blow up the system.

In 2016 the game appears very different. The government parties' biggest mistake was to think, it was only about "the economy, stupid". Having steered the country out of the troika bailout and into a GDP growth rate of 6.9pc, Fine Gael and Labour casually assumed this would see them through. The "economy, stupid" phrase was coined by James Carville in 1992 when he worked as a campaign strategist for Bill Clinton's successful presidential campaign against George Bush senior. The phrase was intended for an internal campaign worker audience as one of three messages to focus on. The other two messages were "change versus more of the same" and "don't forget healthcare."

Clinton was not the incumbent and the US was in poor economic health. Delivering the economy message couldn't have been any easier. For Fine Gael this time round the situation is quite different.

Being in power during a period of rapid economic turn-around, is not the same as making that turn-around happen. The Fine Gael-led government got a lot right in the tidy-up of the exchequer mess, in rebuilding Ireland's reputation and taking tough decisions on containment of public expenditure. Yet, a lot of the economic growth has been down to blind luck with factors completely outside our control, such as low interest rates, a cheap euro for Irish exports and then cut price oil.

The problem for the government parties is that many people say they simply don't see the benefits. There is widespread disillusionment with politics and an at times, an unnerving hunger for something different, which isn't always properly thought through.

The economic and exchequer gains that have been made are genuine and real but they are also limited and incredibly fragile. There are significant economic risks completely outside the control of the Irish business community and any Irish government. Progress has been made with the exchequer figures, but we still spent over €7bn on interest payments on the national debt last year. That is €135m per week.

Oil prices will not stay low forever. Eurozone interest rates look like remaining low for a while yet but ultimately there is a cycle. The advantageous euro/sterling exchange rate has been clawing back since the end of last year.

If you want to appreciate how delicate our economic fortunes can be, look at Boris Johnson. The Mayor of London seems happy to play the colourful clown and toff, yet his decision this week to back a Brexit, possibly for personal political gain, helped drag down the value of sterling.

Johnson is a man who once said he voted for David Cameron as Conservative Party leader, "out of pure cynical self-interest." He once described Portsmouth as "too full of drugs, obesity, underachievement and Labour MPs." Yet, incredibly his decision to back Brexit, hopefully temporarily, reduced the competitiveness of Irish firms exporting to the UK in the months ahead.

As one of the most open economies in the world, Ireland is very vulnerable to external political and economic events.

We keep hearing that the Irish economy is at an important crossroads.

The economy may be at a crossroads, but the Government are not the ones driving the car. The best we can hope for is a government that will keep its eyes peeled and safeguard the public finances for when we do go down a rocky road.

Yet the debate so far has been around driving economic growth instead of putting forward a clear vision of what they want to achieve with the limited resources we have.

Anyone can have a vision with unrealistic financial promises, as some left wing parties are promising. Parties that are being more realistic with their figures, seem to lack the vision piece.

These shortcomings in the campaigns of the established parties, have opened the door for greater uncertainty and instability which could be very damaging.

During the week a group of senior business figures wrote a letter to this newspaper warning of the dangers of political instability and what that could mean for the economy. They are absolutely right. But I am not sure that voters who feel most disaffected and cynical about politics will take advice from some of the wealthiest business people in the country.

Before politicians compete on how to spend all of the money that might become available, we should remember that the fiscal space could very easily turn into a black hole.

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