Stop blaming troika for crisis of our own making

Sat, Jan 7, 2012, 00:00

INSIDE POLITICS:Some have sought to deflect attention from home-grown woes, writes STEPHEN COLLINS

THE DÁIL will resume for normal business in the coming week, after one of the shortest Christmas breaks on record, but events taking place outside the country in the coming months will have a far bigger impact on the lives of ordinary people than anything that happens in Leinster House.

The key issue that will impact on the welfare of the Irish people in the years ahead is whether the euro survives and, more critically, whether this country remains part of it. A complete collapse of the single currency has the capacity to plunge the entire world into a deep economic depression on the scale of the 1930s. That would make our current woes seem trivial by comparison.

In Dublin during the week the secretary general of the European Commission, Catherine Day, expressed the strong conviction that the euro would not only survive but become stronger in the years ahead.

Even if she is right there is no guarantee that Ireland will be able to remain in the single currency. That issue is largely in our own hands but, given the shallow level of so much of the debate on the EU-IMF bailout and our membership of the euro zone, anything could happen if we need to have a referendum on the treaty establishing a fiscal compact.

One of the problems is that so few senior Government figures have come out with a clear and consistent message on the core problem facing the country. One reason for that is probably because they made so many foolish utterances while in opposition.

Minister of State for Finance Brian Hayes yesterday took up the cudgels and hit back at a coterie of prominent media figures who have argued consistently that the solution to Ireland’s problems is to leave the euro and establish our own currency.

“I believe that people who advocate this line of action are in effect supporting car-crash economics. If we crash a car and are lucky enough to survive, we will be taken to hospital, put into intensive care and at some stage we will start to get better. And getting better is good, of course. But would anybody crash a car in order to feel better at some later stage? Not very likely,” said Hayes.

More of his Government colleagues need to stand up to the economic car-crash enthusiasts and spell out the consequences for the people of the country if their drastic remedies are adopted. Experienced and respected economists need to do the same and not leave the field to the “celebrity economists” so dubbed by the late Garret FitzGerald.

Another obstacle to a realistic assessment of the current position is the way in which so many Ministers have persisted with the myth that the budget cuts can all be blamed on the EU-ECB-IMF troika. This shirking of responsibility for their own decisions has fanned an anti-EU mood and encouraged voters to believe Opposition rhetoric suggesting that there is some easy, if unspecified, way out of the mess.

The upshot could well be that, if asked, the electorate will be tempted to vote No to the treaty on the fiscal compact. What the consequences of such a decision would be nobody can say for sure at this stage but it would certainly not help the country on the road to recovery. One thing for certain is that the rest of the euro zone will not wait until Ireland votes a second time.

In any case as long as we are part of the bailout programme its terms will supersede any of the disciplines contained in the treaty. A rejection of the treaty would probably make it impossible for us to get out of the programme and back on to the international money markets, but whether our EU partners would be willing to subsidise us in a second programme in those circumstances is doubtful.

Whethera referendum will be required will be determined in the nitty gritty negotiations on the details of the treaty which will take place over the next few weeks. Taoiseach Enda Kenny has made it clear that he would like to see a deal that did not require a referendum, and Irish negotiators will be doing their best to ensure that the final draft is compatible with the Constitution.

Former taoiseach John Bruton has raised a serious concern about one of the elements in the first draft of the treaty. It specifies that a ban on structural deficits of more than 0.5 per cent should be introduced in “national binding provisions of a constitutional or equivalent nature”.

This would imply that a referendum would be required but there is also a serious question about how a structural deficit is to be defined and who is to decide whether or not the Government is adhering to it.

The notion of trying to force countries to quantify and control their structural deficits is no bad thing. A structural deficit or, for that matter, a structural surplus, is a figure that would apply in normal times, when the economy is neither in a temporary downswing nor a temporary upswing. For instance, if such a regulation were in force during the Celtic Tiger years it would have prevented the Irish government from using the tax revenues generated by the property boom as if they were going to last for ever.

However, Bruton has raised an important point about how structural deficits are to be calculated and he maintains that in the final analysis it would not be economists but judges who would have the final say in the matter. “These are not legal matters of the kind that Supreme Court judges are normally called on to decide. They involve economic assumptions and calculations that are highly arbitrary, and deeply contentious, on which economists, who might have studied the issue all their lives, would be deeply divided.”

This is one of the important issues to be thrashed out before the next EU summit on January 30th and the Government will be hoping that the final wording can be softened to avoid a referendum in the short term and give greater room for manoeuvre in how the fiscal compact is interpreted. An awful lot will hinge on how those talks go over the coming weeks.