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Troika brings a much needed reality check


Laying down the law: Members of the Troika in Dublin in 2012. Photo: Tom Burke

Laying down the law: Members of the Troika in Dublin in 2012. Photo: Tom Burke

Laying down the law: Members of the Troika in Dublin in 2012. Photo: Tom Burke

It is almost exactly four years ago to the day since Ireland formally entered a bailout. It is just under a year since that bailout was exited. Barring early repayment of EU bailout loans, it will be 16 years before overseeing technocrats stop coming back for twice-yearly "post-programme" check-ups on what Irish governments are doing to maximise the chances that they will get their money back.

Given how few lessons appear to have been learnt from recent economic history, it may be no bad thing to have outsiders come to deliver regular reality checks until the 2030s.

The second of many post-programme missions was completed last Thursday. Since the Troika formally departed almost a year ago, much has changed. And much of the change makes little sense to the overseers.

The Irish economy has surged ahead on almost every indicator. And this stronger -than-expected performance has allowed the Coalition to end austerity earlier than planned and to introduce the first (modestly) stimulatory budget in seven years. The Government did this instead of sticking to the original plan, which was to borrow less and balance the books more quickly.

Here at home, the independent watchdog tasked with assessing how the public finances are managed made it clear before the Budget that it believed the Government should stick to that plan. So did the Irish Central Bank. So, too, did the European Commission and the IMF.

Little wonder, then, that the latter two bodies reiterated that position at the end of last week as they departed. The commission stated its preference for "more ambitious deficit targets for 2015 and 2016", while the IMF said "a somewhat faster pace of improvement would have been preferable".

They did so not because they are sadists, but because there is a very considerable risk that the very fragile situation internationally will get worse, with big knock-on consequences for Ireland. If that happens, this administration and its backbenchers do not have the stomach to go back to belt-tightening. They will go to the country before they do that. An election next summer, with the prospect of more austerity after it, bodes ill. With the polls as they are, don't bank on the 42nd Dail producing a government.

If an uncertain political future is one reason for the Troika to counsel caution, a dismal history of economic management is another. The Irish political system is addicted to spending every available cent it can possibly justify, and often more. Over decades, this has meant that in good times governments fuel the flames and in bad times they make matters worse by being forced to resort to austerity. An intelligent system would do exactly the opposite in order to end the roller coaster of boom-bust that has been our lot for far too long.

Just like most domestic observers, the technocrats wonder at how politics has soured so badly, despite Ireland racing to the top of the European economic growth league table.

'Since the Troika departed almost a year ago, much has changed. And much of the change makes little sense to the overseers'

The Coalition's near-death experience in the spring brought home the inherent fragility of coalition governments, particularly in the absence of fixed parliamentary terms, as exist in many peer countries. The proximate cause of that brush with break-up was water charges. While there have been more than a few missteps and mishandlings by the Government since the much-vaunted regaining of economic sovereignty last December, water charges have been central to increasing voter dissatisfaction with the Government parties.

All of this has left the technocrats perplexed. If there was some wonderment among the Troika teams in the dark days of 2010 (and later) about how little protest there was on Irish streets, there is now no little puzzlement about the reaction to water charges. In the rest of the developed world people pay for water as unquestioningly as they pay for electricity. Of all the income-reducing measures that have been introduced since 2008, none makes more sense than water charges.

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Despite that, the issue which has turned a normally socially calm country into one in which some of the most widespread and aggressive street scenes in living memory have been seen. The technocrats were still scratching their heads about this as the headed for the airport.

While it is as yet unclear as to whether the Government has been permanently and significantly damaged by the water saga, something else is crystal clear - the international organisations involved in Ireland's bailout are not going to stick their oar in on the issue.

They know the biggest domestic risk to a continued recovery is now political. And even if they don't understand why the water charge issue has become super-heated, they know that even if they made any attempt to push the Government in one direction on the matter (even if they had the power to do so - and they don't) there would be nothing to gain and a lot to lose.

Apart from the politics, the technocrats see other risks. While, on balance, the risks are more negative than positive, as already alluded to, they do see a number of - in economist-speak - "upside risks".

One is a weaker euro. Given the dismal performance of the Eurozone economy and its grim short-term prospects, it is a wonder that the single currency has stayed so strong against sterling and the dollar for so long. Logic has long dictated that it would depreciate. If that were to happen sooner rather than later it would boost Irish exports to Britain and America in the short term.

Another upside risk is a stronger than anticipated recovery in the construction sector. Having gone from being monstrously bloated in 2007, the industry is now much smaller than the average size for construction in a mature economy - in both how much it builds and how many builders it employs. If more development funding became available and/or foreign construction companies entered the market to build much-needed homes, the impact on the economy would be considerable.

A third upside relates to household indebtedness. Everyone who analyses the Irish economy agrees that the debts run up when banks were lending to beat the band continue to depress consumer spending. That is entirely normal after the kind of recession that has been suffered. But as the banks are finally making progress on their non-performing loans and mortgage arrears appear to be on a downward trend, there is chance that those burdened with lots of debt will begin to feel more confident. That could result in this unlucky grouping, which numbers in the tens of thousands, spending more.

These good things could happen. But so could a lot of bad things. As the European economy, the continent's politics and the global economy all deteriorate, nobody should be counting their chickens, least of all Ireland as its fortunes are so entwined with those of the rest of the world.

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