Monday 16 December 2019

David Quinn: Nation's economic destiny no longer in our own hands

David Quinn

It's now more than 10 years since Mary Harney delivered that famous speech in which she declared Ireland to be closer to Boston than Berlin.

Whether that was ever true, today it is Berlin, not Boston, that is dictating our economic destiny. What Boston thinks of our upcoming Budget doesn't matter a damn, but what Berlin, and Germany's Chancellor Angela Merkel, thinks matters a great deal.

When EU Commissioner Olli Rehn comes to Ireland shortly, he has to be presented with a budget plan that will find favour in Merkel's eyes or it's back to the drawing board.

Reading Harney's speech 10 years on, we can now see in it the hubris that was completely characteristic of the time and that has led to the current loss of economic sovereignty.

She boasted of our successful economic model and how we had cut taxes on capital, on corporate profits, on personal incomes.

She said we had managed to do this without dismantling the welfare state or the concept of social inclusion.

In retrospect, that should have set alarm bells ringing right there because when someone has convinced themselves that we really can have our cake and eat it too, that ought to be taken as prima facie evidence of a delusion.

At the time, the main criticism of Harney's speech was that it didn't put more emphasis on the welfare state and on public spending, even though, as she rightly said, "we have provided very significant real increases in expenditure on key social services such as health, education and training".

Then she said something that can only be read now with a sense of bitter irony in light of Rehn's impending visit: "We have succeeded because even though we are members of the European Union, including now a currency union also, we still retain very substantial freedom to control our political and economic destiny. Our taxation policy, for instance, is decided in Dublin not Brussels."

Harney said this at precisely the time decisions were being made (or rather tough choices were being avoided) that have resulted in us losing a very great deal of our economic sovereignty to the point where Rehn himself is now telling us that our days of being a (relatively) low-tax economy are over.

When Harney delivered her speech she was heavily attacked on the left, which wanted us to be much more like Berlin than Boston. They might be tempted to think that time has vindicated them because, whether we like it or not, we are now in the orbit of Berlin.

But this hasn't happened in the way they would have wanted. When the left said we should be more like Berlin, what they meant is that we should spend yet more on our social services. However, if we had done that, then our budget deficit would be even bigger than it is now, unless taxes had been raised to politically suicidal levels.

The influence of Berlin is now being exercised in a way almost no one sought; what is being imposed on us is a very Teutonic kind of fiscal rectitude.

Mary Harney reckoned we had combined the best of Berlin with the best of Boston. In retrospect, we had combined the worst of both. We borrowed from Boston a kind of reckless capitalism that thought it had abolished risk and we borrowed from Berlin the idea of high social spending.

But what we didn't borrow from Berlin was the idea of restraint, of not spending what you haven't got, and of not fooling yourself into thinking that the bloated tax revenues of today will last forever.

In short, we chucked overboard the idea of fiscal conservatism, something that is written into the German DNA, thanks to the experience of the Weimar Republic.

The country we should have copied was Australia. John Howard, the prime minister for 12 years, presided over a fast-growing economy that encouraged free trade and sensible deregulation but that kept public spending under control and didn't thoughtlessly cut taxes.

Its property market didn't overheat to the extent that ours did and the banks were well run.

The result is that the Australian economy is in good shape. It hasn't slipped into recession and unemployment is low, allowing thousands of Irish people to realistically dream of heading Down Under again.

In fact, the Australian experience proves you can run an economy along free market lines without getting yourself into the kind of problems now being suffered by Britain, America and, even more so, by ourselves.

This is very simple really: don't spend what you don't have. That's what we should have learned from Berlin when Mary Harney delivered her fateful speech 10 years ago. Now we're learning it the hard way. It'll be a long time before we're close to Boston again.

Irish Independent

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