Thursday 22 August 2019

Colm McCarthy: 'Danger signs for Ireland are plain to see in the gathering gloom'

From climate change to the housing crisis and sterling heading south, Ireland has much to be worried about

'The sterling exchange rate slipped quickly in the weeks following the 2016 referendum, which meant an upward revaluation of the euro and a hit to competitiveness here.' Stock photo: Depositphotos
'The sterling exchange rate slipped quickly in the weeks following the 2016 referendum, which meant an upward revaluation of the euro and a hit to competitiveness here.' Stock photo: Depositphotos
Colm McCarthy

Colm McCarthy

At the peak of the bubble in July 2007, anyone who had expressed worries in public about economic and financial risks was admonished by taoiseach Bertie Ahern at a trade union conference in Bundoran. "Sitting on the side-lines or on the fence cribbing and moaning is a lost opportunity. In fact, I don't know how people who engage in that don't commit suicide," he suggested, to applause from the assembled delegates. With boosterism now the official policy of the Johnson government and the UK's cribbers and moaners daily castigated for insufficiency of faith, Bundoran Syndrome has found a new exponent in London. Johnson derides "the doubters, the doomsters, the gloomsters" for asking questions about his preferred no-deal crash-out in October, but lessons have been learnt in Ireland about the value of worrying.

Last week's NRA (National Risk Assessment), penned by officials under the leadership of the Taoiseach's department, is the latest in a series dating back to 2014, following the exit from the EU/IMF financial rescue programme which followed the crash of 2008. It warns about the debt overhang, risks from incessant pressure for extra spending, climate change, demographic ageing, the return of protectionism in the world trade system and, most immediately, the uncertainty about Brexit.

Successive versions have tended to mirror the public obsessions du jour and have focused on identifying potential problems rather than the articulation of solutions. But it sure beats the dismissal of any and all concerns as 'Project Fear' across the water, Bundoran Syndrome writ large, the substitution of optimism for policy. Three of the issues raised in this year's NRA stand out. These are climate change, on which government has yet to articulate an adequate policy response; the housing affordability crisis, to which the same applies; and the likelihood of an immediate sterling depreciation to accompany Brexit.

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Today's results from the Kantar survey for the Sunday Independent reflect increasing public alarm about climate change, and the NRA concurs. The response to climate change, when inevitably it begins to take concrete form, will be bad news for rural Ireland. Last Thursday's report from the Intergovernmental Panel on Climate Change argues that the meat-based diet and the livestock farming which supports it produce 23pc of the Earth's carbon emissions, comparable to the total coming from road transport. Ireland's primary agricultural production is dominated by livestock farming, mainly beef and dairy, and there is already evidence that the public is beginning to alter its food preferences. There have always been food fads and shifts in product demand but concern about climate change adds a new dimension.

Worldwide dairy and meat consumption has been rising by about 2pc per annum in recent decades (population growth is 1pc) but has already begun to decline in the richer countries and looks like it could be heading for a nosedive. Demand has risen toward rich-country levels in China, which makes it less likely to drive worldwide demand in future - the Chinese government has adopted formal targets for reducing meat demand. India and Africa have low per capita meat consumption and high population growth, but they also have environmental movements and social media. If young consumers in Europe are trendsetting for climate-conscious diets, their colleagues in developing countries will hear about it quickly.

There have been protests from beef farmers, beset with poor prices and worried about Brexit, at meat plants around the country in recent weeks. Another downward shift in European demand looks imminent, and it is hard to see a long-term future for small-scale suckler beef production in Ireland. But dairy farming has been buoyant and any moves to herd-size limitations will be resisted. The scientific evidence appears to support the view that, since dairy herds will be needed somewhere, Ireland is one of the better places to locate them. Carbon emissions, per kilogramme of product, are lower in grass-fed systems and the herd reductions should be targeted elsewhere. A European policy initiative aimed at dampening overall demand for dairy - while letting comparative advantage in cost, including carbon cost, allocate production - is less threatening to Ireland than arbitrary herd limitations.

The risk assessment report flags housing affordability as a strategic issue but it understates the case. The problem, entirely a result of domestic policy, is largely confined to Dublin and the east region, whose economic and social character is being altered rapidly by the extraordinary prices and rents now prevalent in the market. The central areas and inner suburbs of Dublin are turning into a facsimile of Manhattan, the preserve of the rich and such of the poor as qualify for subsidised public housing. Those on normal incomes are consigned to distant dormitory suburbs, grinding commutes and excess carbon footprints. Last week the president of the professional body for architects, the RIAI, proposed that parts of Dublin Bay, including Sandymount strand, should be infilled for housing. The suburb of Sandymount includes, as does every other inner suburb, numerous derelict sites on which housing development is frustrated by the same nimby political forces which preserve the rolling prairies which surround the city.

The NRA is content with "a housing system in which real house price growth (and rents) do not deviate for lengthy periods from real economic growth", provided volatility in prices is avoided. This is a formula for the indefinite continuation of the current housing crisis. The risk assessment notes that inadequate saving for retirement is a growing problem given the pace of population ageing and rising dependency ratios. It omits to make the connection with housing policy failures - there has been such a sharp decline in homeownership as to threaten what, for middle-income earners, was a key component of retirement saving, the monthly elimination of mortgage debt. Today's rent crisis for Dublin workers becomes inexorably a rent crisis for retirees a few decades hence.

Since Dublin is the only Irish city large enough to compete in much of the mobile international investment market, a continuing failure to address Dublin housing affordability is not just about intergenerational equity, waiting lists and homelessness. It is a handicap to national economic policy. The dysfunctional planning and land-use policies are not addressed by the current focus on the provision of public housing or on publicly owned derelict sites. Architects and planners have plenty to occupy their reformist instincts on dry land.

The sterling exchange rate slipped quickly in the weeks following the 2016 referendum, which meant an upward revaluation of the euro and a hit to competitiveness here. It also put a dampener on the inflation rate in Ireland. The UK currency weakened again last week - one euro now buys almost 93 pence sterling, versus recent figures in the range of 85 to 88 or so. The result is cheaper UK goods in Ireland and stronger British competition for Irish exporters to the UK. The doomsters, targets of Boris Johnson's invective, have been predicting further sterling weakness after a no-deal crash-out. If the sterling rate falls again there will be another negative step-change in the competitive position of many Irish firms, on top of Brexit disruption. Irish inflation, down to 0.5pc, will be dampened once more, something to bear in mind as the pre-election pay claims pile up.

Sunday Independent

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