Lane follows Brown and promises no return to boom and bust

Headline growth of close to 8% last year is not a stable level of growth

Irish Central Bank governor Philip Lane at the IMF spring meeting in Washington. Photograph: Reuters/Yuri Gripas

Irish Central Bank governor Philip Lane at the IMF spring meeting in Washington. Photograph: Reuters/Yuri Gripas

 

Central Bank governor Philip Lane’s confident assertion that the Irish economy has been reoriented in such a way as to avoid the boom-bust of the past is reminiscent of Gordon Brown’s now infamous mantra.

Brown spent much of the Noughties as UK chancellor assuring the British public that his prudent management of the economy would ensure there would be no return to “boom and bust” economics. That was until the mother of busts blew up in his face and swept him and his party out of office.

Taking part in a panel discussion entitled Booms and Busts: Are We Better Able to Deal with Them Today? at the IMF spring meetings in Washington on Saturday, Lane said the Irish economy was better placed to withstand a recession this time around because of the higher levels of equity being used to finance investment.

“It’s very important to recognise that there are different categories of boom and bust cycles. What happened in Ireland and Spain was a classic plain vanilla real estate boom-bust cycle,” he said.

Lane noted that this time around the Irish economy had been recalibrated away from construction to exports and other activities, ensuring there was now more equity in the system than during the previous boom-bust cycle.

And technically he’s right. We don’t have the same concentration of economic activity around construction, even if the housing crisis is keeping a new generation of young people out of the market, nor the same credit-fuelled bubble underpinning it.

But with headline growth running at close to 8 per cent for last year and house prices advancing annually by 13 per cent, it’s hard not to conclude we’re in the grip of a dynamic that nobody quite has a handle on. This is not a stable level of growth.

For the European Central Bank, the definition of stability is a growth rate of 2 per cent. That’s not something that’s mentioned regularly here.