SILVER LININGS 1204 XXXVIII

SILVER LININGS

One of Ireland’s leading left wing politicians  expressed bemusement recently as to why the Irish were not out in the street protesting, like the Greeks. I pointed to a possible reason last time. Remember  Sherlock Holmes and the dog that, recognising his master, didn’t bark in the night?.

The answer to the question is that Ireland – and the Irish – are still pretty well off. Partly this is artificial – we are still borrowing way beyond our means to fund  generous welfare benefits. But beyond that, the impact of the cuts and austerity measures which began four years ago have been nothing compared to the effect of those introduced in Greece. Moreover, despite the erosion of the tax base, enough of it remains and the culture is by and large one of tax compliance, so our fiscal position, though not good, has stabilised.

Despite some cuts,  Ireland’s complicated web of interlinked welfare payments has scarcely been touched, so people still have (some) money in their pockets. The absence of social discord has been helped, in effect, by the relatively large transfers from the moderately well off to the slightly worse off, cemented and enhanced during the tiger years, howls from the left notwithstanding.

Indeed the Irish Left is casting around for an issue that might ignite and is currently pinning its hopes on the attempt to introduce a property tax. Reflect on this one: the Left, advocates of greater social equality,  is mounting a campaign against a pretty modest property tax, beginning (year one) at $130! How this highly unpopular and emotive issue unfolds will be fascinating.

While there is certainly little discernible objective improvement  in our economic circumstances, as the government enters its second year in office, the general mood appears to be slightly more upbeat. This could simply be because there is a feeling that at least now there is a government, in contrast to the final year of  its shell-shocked predecessor! Also that, for most, the situation has not panned out quite as badly  as feared. This also despite the fact that there IS to be a referendum  on the Fiscal Compact treaty this year, date not yet known – a prospect normally regarded with foreboding.

Events elsewhere may also have played a part. Certainly watching Greece seems to have proved cathartic. Events in Libya and Syria may also have helped, reminding us Irish that we have things to be thankful about. We live in a democracy; we can, and have, changed our government without upheaval and bloodshed. We have had an uninterrupted democratic system of government since the 1920s.

The verdict on the government’s first year is broadly neutral. To adapt a Bertie Ahern election slogan: “A start made; much more to be done”. Promises were made, but  only the most disingenuous expected them to be carried out once the new government was mugged by the reality of having to govern. On some things the government has pleaded for more time; as time passes it will be watched closely on these for specific performance. Should there  be some deal on our scheduled debt repayments (the promissory notes), which as I write is starting to appear likely, but which requires good will from our creditors, the government will benefit from the public’s all-round feeling of relief.

The domestic  economy , though flat, is not getting any worse and job creation, in the form of FDI, continues at an encouraging rate. It may not be enough to dent the unemployment figures, the legacy of the expansion of the workforce during the tiger years, with structural unemployment seemingly destined to be with us for years to come. But again, it’s not as bad as Greece, or Spain. And exports are booming, not just the pharmaceuticals and hi-tech, but also from the  agricultural sector.

The government’s jobs initiatives can be taken with a shovel of salt, but there has been some progress. Steps have been taken to improve our competitiveness by cutting costs, despite hiking back up the minimum wage, and initiatives to encourage tourism seem to be working. Ireland is now good value and tourist numbers are up. There is a major push to encourage the diaspora to come and visit in 2013. There is a new focus on the BRIC countries and other new target economies.

The point also seems to be registering more and more that, over and above the bank debt, we still have, and must solve, the much larger and growing debt burden caused by the structural budget deficit. There’s clearly an aggregate effect and an aggravation of the interest burden when the bank element is factored in. Hence the importance of any deal, however small, on the promissory notes. But few seriously expect the rest of Europe and the IMF to discount or write off  the sovereign loans granted to cover our day to day spending. Watching the Greeks twist and turn has concentrated a lot of minds here.

None of the above should obscure the fact that for the many who have lost their jobs and/ or are struggling with mortgage debt and negative equity times are hard and not scheduled to get softer anytime soon. The mortgage issue in particular  has not improved one whit, with the numbers seriously in arrears or impaired now touching 15% of all mortgages. The housing market is frozen and property prices continue to fall, preventing any improvement. Whether and how this problem is resolved could well prove the defining issue for the government and next year could be the crunch.

Even on the referendum the point seems to be dawning on the public already that this one is different. There is no “loss of sovereignty issue” for the opposition to bandy about, no fantasy that we have a veto power if we don’t like it. If we vote No, the treaty will come into effect anyway once eleven other states ratify it. We will be outside its provisions, including access to the new greatly enhanced bailout fund, the European Stability Mechanism, with consequent implications for our future borrowing ability.

There is no telling how the referendum debate will develop. On past form other issues are likely to be dragged in, or at any rate to form the basis on which voters choose. A deal on debt would in theory greatly boost the prospects for a Yes. Who knows what arguments the No lobby will dredge up? Whatever happens, this time the gun is firmly in our own hands, pointed at our temple, and if we choose to pull the trigger the only casualty will be us.

There is a certain irony in that many commentators feel that the whole treaty is something of a Potemkin Village – a measure designed to reassure the German public that its Euro partners will be fiscally and financially prudent but actually having little practical application. Put simply it is  the latest in a line of political solutions to an economic and fiscal problem. Yet perhaps this is to do  European democracy a disservice. Above all there appears to be a steady resolve not to let the whole edifice collapse. To echo Virgil: “ Tantae molis erat Romanum condere gentum.”

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