The decisions to be taken

Fri, Nov 19, 2010, 00:00

IN THE days ahead potentially enormous decisions will be taken. The effects on this State and its citizens will be felt far into the future. Outsiders will be making the running. Although it is an abomination that this sorry point has been reached, it may give some small comfort to know that Ireland’s position is not as powerless as is usually the case when governments have mismanaged their affairs so badly that they require rescue. Normally, governments receiving external aid in bailout situations face empty coffers and are desperate for funding sources of any kind. The Irish State is not in that position because €20 billion is on hand owing to earlier borrowings. This provides more leverage than rescued countries can usually deploy.

Chief among the matters on which this leverage must be focused is the preservation of Ireland’s decades-old low corporation tax rate. Although it is far from certain that a higher rate will even be sought, if it is, it must be resisted at all costs. An increase would hinder recovery, threaten an outflow of jobs and undermine the economy’s long-term growth potential. Nobody’s interests would be served. It should also be stated loudly that the intellectual case for tax harmonisation in a currency union is weak or non-existent, demonstrated not least by the freedom of states and cantons in the US and Switzerland respectively to set their own corporation tax rates.

Far less contentious is the size of the budget adjustment for 2011. Given that this had already been agreed with the European Commission, it is difficult to envisage any push for a significantly larger adjustment. However, its composition may be another matter. The Croke Park deal guarantees no further cuts in public sector pay and no involuntary lay-offs. Its abandonment would signal very clearly who calls the shots.

It is also important that the State’s (weak) hand not be overplayed. That Ireland is in a precarious position is well known. It may be even more precarious than the Government either understands or is prepared to admit. The astonishing speed with which outside forces moved in over the past week suggests that those at the helm may still be behind the curve in dealing with the economic policy-making challenges they face, or they are in denial about them.

How the institutions of the State play that hand also requires consideration of the shared European interest in maintaining monetary and financial stability. Any threat to the existence of the euro is a grave threat to all those who use it. The containing of the contagion which threatens the single currency is not just a concern for the EU-IMF personnel, but for Ireland too. There is no better demonstration of the extraordinary nature of this crisis than the fact that Ireland’s weakness poses a greater threat to Portugal in the short term than it does to this State itself owing to the latter’s urgent need to continue tapping the bond market. If obduracy in Dublin is blamed for triggering a Portuguese bailout, then precious goodwill will be lost and ill-will generated.

Resolve, fortitude, intelligent prioritisation and sharp focus are needed by those representing the State.