St Patrick’s Day is often pretty grim, not least on account of the American habit of suggesting the poor old boy is actually the patron saint of uncooked hamburgers. It is St Patrick’s Day or Paddy’s Day and “Patty’s Day” is an abomination.
True, the pubs tend to be stuffed with insufferable amateurs today but in general Ireland is a decent place to pass St Patrick’s Day and a better one than most. At least there are proper Irish people there.
But this is not an especially bonny St Patrick’s Day and not even a new government that can scarcely fail to be some modest improvement upon its predecessor can alter that drab fact. The Irish Times publishes a rallying leader today, arguing that solidarity and optimism can lift Hibernia from her present predicament. That such an editorial is thought necessary is bleak commentary enough. Moreover, the paper’s optimism seems tissue-thin since it concludes that recovery is possible “so long as good policies and favourable circumstances allow”.
Nevermind the policy; the circumstances are wholly unfavourable and sufficiently unfavourable to render much government policy all but moot. As Brother Blackburn observed the other day Ireland is caught in a vice, squeezed by the imprudent promises made by the last government and the predatory kindness administered by the unholy troika of the IMF, ECB and European Commission.
The new finance minister, Michael Noonan, says “We can’t take much more” and he’s right. It looks as though the Irish banks will need at least another €10 billion* while Bank of Ireland and AIB are being stress-tested to see what happens if house prices fall by 13% this year and a further 14% next year. That’s just one straw in the wind but it confirms the wind remains a cold one.
That Ireland cannot meet the terms of its obligations is by now, one would have thought, obvious. There is no use in the Irish squeeling about the unfairness of the deal handed down by its international overlords. That will cut no ice with Frau Merkel or Monsieur Sarkozy. They have their own constituencies to look to and each has enough in the way of domestic difficulties that little Ireland’s concerns amount to next to nothing in the grander scheme of things. Indeed, pressuring Ireland can be good politics at home.
Shaving half a point off the interest rate Ireland must pay won’t change matters by anything like enough to make a real difference. It may be that the Irish attachment to its low rate of corporation tax is out of proportion to the damge that would be done by raising it by a point or two but that is not the issue. It has become a totem and a symbol of whatever remains of Ireland’s fiscal independence. There is shame aplenty in Ireland right now but conceding on this matter would heap fresh humiliation on Enda Kenny’s new government.
The argument must be made differently. As Colm McCarthy argues, it must be advanced on practical, not emotional grounds: Ireland wants to pay but cannot pay in this way. Failure to appreciate this risks disaster:
Most economists agree that tighter budgetary policy, consisting of tax increases and expenditure cuts, is necessary but do not believe that this will be enough. The markets agree with the economists and not with the EU Commission and the ECB. So it follows that the European authorities are proceeding on the basis that the markets are wrong and that there is no risk of default. It is more or less an open secret that the IMF agrees with the economists and the markets, and does not agree with the EU Commission and the ECB.
If fiscal stringency, however inevitable, will not resolve the immediate crisis in the European periphery, it is necessary to consider measures, in the short-term, which will reduce the risk of disorderly default. That means decisions about the distribution of losses on sovereign and bank debt, losses that have, according to the markets, already occurred. It is the European authorities, and not everyone else, that are out of step in believing that kick-and-hope is an adequate policy response.
[…] The oft-expressed view of European decision-makers, that the troubled periphery countries can bail themselves out through fiscal stringency alone, has virtually no supporters amongst economic and financial commentators, whose virtual unanimity on the issue is itself an unusual state of affairs.
Indeed. Meanwhile, domestic politics rumble on. The new government cannot help but become unpopular in record time and even looking and learning from the Cameron-Clegg-Osborne experience won’t help them much. Unemployment at 14.6% is just the beginning of it.
So growth is Ireland’s only chance. That means wholesale reform of the public sector to assist deficit reduction but that won’t be enough either. Many of the things that the French and Germans most resent about Irish tax policy are precisely the things that Ireland needs if it is to have any chance of growing into recovery. You can protect French and German bondholders or you can bully Ireland into adopting less competitive policies, but can you do both? Perhaps not.
Not that the Irish have anywhere to go. At least not yet. Leaving the eurozone has a superficial attraction but would come at a heavy cost and, anyway, must contain many devils in the detail. And Ireland’s debt would still be in euros anyway.
A pretty bloody grim St Patrick’s Day then as the Irish enter Year Four of this crisis with no end in sight and no obvious way out. These are Gordian Knots that resist the swift and tempting solutions offered by sharp swords.
*Billion, not million! Thanks Ben.
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