Silver bullet to resolve our economic woes is a fantasy
OPINION:IF THE strategy set out by the group of economists to this newspaper last week – “Austerity without growth a guarantee of stagnation” – was a viable option for this country, nothing, as a Labour Party Minister, would please me more.
The contributors argued against what they termed a “contractionary” economy policy and in favour of an investment strategy, harnessing all the available assets of the State, to provide a boost for the domestic economy. They argued that austerity without growth was a guarantee of economic stagnation. They were critical of the European response to the financial crisis.
There is much in this that I and the Government can agree with. The Taoiseach is on record on numerous occasions advocating a more proactive role on the part of the European Central Bank, a taste of which we have seen in recent months.
The importance of growth is factored into our budgetary figures. Our own economy has returned to modest growth and indeed, the greatest impediment to future growth is the state of the global economy.
Many of the strategies advocated by the group are ones that we are pursuing. In my department we are driving productivity growth and efficiencies in the public sector.
I believe that the response of the public sector to this crisis has been a tribute to our public servants. With fewer resources and considerable reductions in take-home pay they have mobilised to face a considerable increase in the services demanded of them. Much more, of course, needs to be done.
A newly established agency, New Era, is already looking at the investment strategies of the commercial semi-States. The Government is open to using the National Pensions Reserve Fund to leverage up investment in the domestic economy and we are exploring ways to encourage Irish pension funds to invest more in our own economy.
We are committed to thinking creatively about freeing up resources for investment in the economy – the part-funding of the national children’s hospital by an upfront payment of the next lotto licence being a case in point.
Yet none of the above absolves us from the difficult task of getting our budget in order. Through the decisions taken by the previous administration we have already heaped a sufficient burden on future generations without compounding the error by ignoring the problem.
Contrary to the view articulated, the Government is not pursuing an “austerity” strategy. The opposite is the case. We are borrowing enormous sums of money to sustain the Irish State and to protect the living standards of its citizens. We have extended the time available to the State to reach its 3 per cent deficit target from that agreed in the original troika agreement. What we do realise, however, is that this cannot last forever.
Perhaps, had the scale of the problem facing us not been so huge, we might have been in a position to go further with counter-cyclical stimulus. While the so-called left-wing critique of the stability treaty suggests it is about austerity alone, the opposite is also the case.
Had an appropriate structural deficit strategy been a priority of the Fianna Fáil governments since 1997 we would have had more in the locker to deal with the crisis in the public finances.
Sadly, that was not the case. The Government is now confronted with the problem of a catastrophic deficit, the result of a catastrophic policy failure without precedent in the State’s history.
It is perplexing then to see a problem of this scale effectively dismissed by the suggestion that there is a better, simpler, pain-free way. Perhaps that is to simplify the argument made by last week’s contributors, but I don’t doubt that their contribution feeds those who, for political reasons, wish to make this case.
The first reality facing this State is we need to borrow money to fund our day-to-day living. The second is that there is only one group of lenders prepared to lend to us at the moment. And they will only do so if they believe we are intent on both eliminating our existing borrowing requirement and repaying the debt. That is their firm condition.
The idea that we would use all of our available resources in an all-or-nothing attempt to kick-start the economy strikes me as more Fianna Fáil circa 1977 than John Maynard Keynes, bearing in mind that the sum mentioned, €15 billion, equates to approximately one year’s exchequer borrowing requirement, money borrowed to pay day-to-day costs.
The complete frustration of all citizens with the predicament we have been put in is understandable.
In that context the search for a silver bullet solution is a natural response. The reality though is more complex.
As President Obama said last year describing his administration’s response to the financial crisis:
“What’s guided us from the start of this crisis hasn’t been the search for a silver bullet, it’s been a commitment to stay at it, to be persistent, to keep trying every new idea that works and listen to every good proposal, no matter which party comes up with it.”
For its part this Government will do the same.
Brendan Howlin TD is Minister for Public Expenditure and Reform