IT’S THE ECONOMY, STUPID 1504 LXXIV

T’S THE ECONOMY, STUPID

Year Five of the Government, still lagging in the polls but with ratings for both parties beginning to improve. It’s less a case of an increase in popularity, more the avoidance of banana skins recently. Ministers have also demonstrated a willingness to be proactive on some issues – something noticeably lacking last year.

There are other factors. With the election campaign in almost full swing some minds at least are concentrating on what alternatives are on offer. They’re not great. Fianna Fail, anchored at a low level of support, can scarcely criticise a government which has largely implemented its own blueprint for recovery. Sinn Fein comes with legacy baggage and a fanciful populist economic programme which seems unlikely to stand up to any serious forensic scrutiny. Ditto for anti-austerity groups and individuals on the left; it is difficult to envisage any coherent electoral threat emerging from them or other independents articulating dissatisfaction over sectional and local grievances. Disenchantment with the political system, yes; more independents yes; an alternative government no. The appeal of the newly launched Renua party is difficult to gauge at this stage; its first priority will be to establish itself.

Externally, the failure of the new Greek government to make much headway in writing down its debts has also helped. Any deal it might manage to secure spells trouble for the government here, so the deafening silence from the left over its lack of progress so far has spoken volumes. This may change – Greece might get its deal, but on the evidence so far it is unlikely to be a radical one. The saga is providing a lesson in basic economics as well as one in realpolitik. The Greeks have four months from end February to negotiate something.

By then some domestic issues here may be either resolved or coming to the boil. Irish Water remains a running sore. By June the impact of the first water bills will have registered and the level of the “can’t pay, won’t pay” movement become clearer. Will the bills fuel more mass street protests? Or will the middle classes back off, uncomfortable with the aggressive tactics of a minority of activists? The issue is too close to call and has huge potential to bury the government. Mishandled from the start, can the current structure survive a non-compliance figure of 40%? And how will the 60% compliant feel about paying for the water of the other lot?

Perhaps, like the Poll Tax in Britain a generation ago, the politically best solution would be to fudge, dump, and start again. There appears to be enough buoyancy in rising government revenues to carry the cost until the issue has been thrashed out comprehensively. Given that this is the second largest infrastructural project in the history of the State it surely merits this. Irish Water has proved a quango too far and this message, which has resonated from the public in letters of red, should be taken on board politically. Despite protestations this has simply not yet happened.

Poised for take- off also is the problem of Repossessions/Evictions. Readers of this column will know I have been pointing up for several years the political impossibility for any Irish government to countenance thirty thousand plus evictions, period. Following several bouts of can kicking over the years, a) we’ve now run out of road, b) the banks – what’s left – have exited zombie status and are again profit making, and c) property prices are once more on the rise. The banks, holding all the cards, scent an opportunity to repair balance sheets and maybe even make a profit. The result has been a dramatic surge – to one thousand a month – in applications to the Courts for repossession orders.

It has been a slow process – but, like melting ice, at a certain point the pace begins to pick up. Which is where we are at. Presumably the Government hoped the issue would not become toxic this side of the election. And, indeed, it may well be that the number of ACTUAL evictions (as opposed to court orders issued but not executed) in the year to come will be few, with court delays and adjournments. However, the issue is now out there and the sticking –plaster attempts to deal with private insolvencies thus far have been exposed as totally inadequate.

Government at last appears seized of the issue but what to do? In a nutshell, the problem is the thirty seven thousand plus mortgages over two years in arrears (around one-in-twenty of the total). Realistically these mortgages are dead and will never be redeemed. These are not mortgages on properties to let – for which there is no public sympathy – these are on the family homes of ordinary people.

Writing down – or off – the debt raises the issue of “moral hazard” – admittedly a dubious concept in view of our bailout of the banks – and bankers – and the emergence, phoenix-like and relatively unscathed, of many of the major figures and developers who stoked the boom. But there are obvious difficulties in justifying debt forgiveness for the next-door-neighbour to someone who has dutifully paid often crippling mortgage repayments, and suffered the increased taxes and levies since 2008. Perhaps a new NAMA can be devised, one with a mandate to sort out and rein in the banks and deal on a case by case basis. The issue merits this. Government strategists should be wary lest a series of hard luck cases emerge, replicating the political damage of the medical cards fiasco last year. Like Irish Water it’s a political problem requiring a political solution. Both require action.

While these and other issues make for general uncertainty over the next twelve months, the Government’s prospects have definitely improved, underpinned by Ireland’s economic recovery. It’s patchy, it’s partial, but it is undoubtedly real – as the employment figures and improved tax revenues demonstrate. It’s not rocket science, nor is it the result of brilliant stewardship by the Government, whatever politicians may claim. By and large the Government stuck to the Troika programme it inherited and is beginning to reap the benefits, the Irish Water farce aside.

The international climate has helped considerably. Favourable economic conditions in our biggest non-Eurozone markets (Britain and the USA), the sharp decline in world oil prices and the drift downward of the Euro against the dollar and sterling have each played a part in stimulating the economy. Factor in unprecedented low levels of interest rates in the Eurozone, and the embracing by the European Central Bank of quantitative easing and the Government could hardly have better conditions to work around. The annual burden of financing the public debt has been reduced, and, combined with some debt restructuring, this has enabled it to claim that, overall, it has (just about) protected the levels of basic social welfare payments, collateral damage at the margins notwithstanding.

Will it be enough? There are precedents, Truman in 48, Major in 92. Both faced inept opposition. Given a continued favourable economic climate, no major banana skins and in the absence of a coherent plausible political and economic alternative, the Government might just squeak it. If so it would be a comeback worthy of Lazarus.

18/03/15

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