Taking stock at Davos
Each year Davos, a mountain resort in the Swiss Alps, serves as a stage for the World Economic Forum (WEF), where political leaders, corporate bosses, opinion formers and interest groups gather to discuss rather than to decide global issues. Twelve months ago a common concern of those at the forum was the fate of the euro, and the weak state of the world economy. This year, if financial stability in the euro area seems more assured, the state of the global economy, however, remains sluggish.
The Government, via Taoiseach Enda Kenny and Minister for Finance Michael Noonan, has used the Davos meeting to good effect – by leveraging Ireland’s high-profile position as holder of the rotating six-month presidency of the European Union. At Davos they reminded their international audience of what Ireland has done to stabilise the public finances, involving five years of austerity, and with more to follow.
They also suggested that a successful Irish exit from the bailout programme later this year could also set an example for Europe, by showing that austerity policies can work. That may only prove possible if first, Ireland’s heavy debt load is lightened, and second if, as Mr Noonan has indicated, Europe agrees to some “back-stop measures” to reassure financial markets, thereby helping the State resume market financing of its borrowing needs.
The Government can be encouraged by two responses: the admiration that many Davos participants showed for the Irish public’s acceptance of austerity measures, and signs of growing support in Europe for Ireland’s case for a fair deal on debt. The European Parliament president, Martin Schulz, put it bluntly: “My appeal to European partners is to stick to what they promised to Ireland after the Irish, by taking the banking burden on their shoulders, saved the banking system in Europe”.
A matter of wider global concern at Davos was the faltering world recovery, despite the quantitative easing – or money printing – of many of the world’s central banks in their efforts to stimulate national economies. In the developed world many governments are burdened by huge debts and constrained by large budget deficits. They are unable to boost demand, either by cutting taxes or raising spending.
In turn that has put central banks under greater pressure to act, to offset their governments’ inability to provide fiscal stimulus. And this they have done by favouring an aggressive monetary policy, involving low interest rates and quantitative easing. Jens Weidmann, the most hawkish member of the European Central Bank, has warned that central banks were being bullied by governments and risked losing their independence, with currency wars now a worrying prospect. Let us hope Mr Weidmann’s fears are unfounded.