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Wednesday 20 November 2019

Debt crisis was far simpler but politics were more complicated

Brendan Keenan, Economics Editor

ONE view of the events of 30 years ago is that they mark the only occasion when trouble in the North had a profound effect on the economy of the South.

There is evidence that the hunger strikes persuaded Charles Haughey to delay calling his first general election, while the election of hunger strikers may have deprived him of forming a government in 1981.

Whatever the reasons, Mr Haughey did not live up to his famous televised promise to get the country living within its means. We shall never know if he would have done so had he achieved a majority, but his policies five years later suggest he might.

Political instability in the early 1980s meant that nothing serious was being done to tackle deficits. As we found out again in 2006, in an economy as small as Ireland's, a few years can mean the difference between manageable trouble and disaster.

Nineteen eighty-two marked the start of a serious austerity programme by the minority government of Fine Gael and Labour headed by Garret FitzGerald. It was a severe crisis which almost led to an IMF bailout. The big difference from today's mess is that it was much simpler.

There were no problems with the banks. Households had very little debt – not least because banks then were ultra careful about lending. The global economy was still suffering from the sharp rise in oil prices in 1979, but nothing like the present situation, which is widely regarded as the worst in 80 years.

But if the crisis was simpler, the politics were far more complicated. The electorate seemed evenly divided between those who hoped Mr Haughey could weave his magic spells and those who believed that tough action would have to be taken.

Later, they came down firmly on the side of sound public finances. One reason for the apparent Irish acceptance of austerity, which so puzzles foreign observers, may also date back to 1982 and the beginnings of an un-Mediterranean-style belief that the books ought to balance.

Budgets were introduced in January in those days but the coalition fell at the first hurdle when it failed to win the critical vote on the acceptance of the Budget.

Popular lore has it that this was due to the imposition of VAT on children's shoes, because Dr FitzGerald was worried that women with small feet would be able to avoid the tax.

He was concerned about that but the government fell because of his unwillingness to spend more public money on deals with independent TDs, and in particular with the eccentric Sean Dublin Bay Loftus.

Mr Haughey had no such qualms. He secured office in March with a generous agreement on inner-city development with the late Tony Gregory TD.

It quickly became clear that a minority government could not impose the necessary corrective measures and Mr Haughey's administration fell the following year.

By then, public debt had risen so much that the country was in a "debt trap" where payments on the interest bill exceeded economic growth.

Just like now. It took a strong global recovery to get the country out of the trap five years later. It probably will again.

Irish Independent

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