Timing an important aspect when considering growth

One year to the day since the bailout exit it is, perhaps, difficult to understand why the decision to make a clean break was so controversial.

As with all types of risky bets, when they pay off it seems easy and obvious with hindsight. If things had turned out differently – a recession in the US and UK – we would be berating the Coalition for its recklessness. Instead the Government should be congratulated for its courage and for its luck. It was a wager that economic growth would turn up, something that was far from certain.

There was a mere 10 months between the gamble of the exit and the first post-austerity budget. Nobody saw anything like that coming. Those 10 months saw the questions change from the size of the next expenditure cuts to the wisdom of modest tax reductions.

The moral of this story is that we always need to remind ourselves how quickly the terms of the economic debate can shift, often dramatically so. Indeed, we can be certain they will shift again.

Catalyst

By contrast, the Greeks are struggling to exit their bailout. Circumstances are very different, and it is reasonable to argue that

Greece

never stood much of a chance of any kind of exit, at least not one this side of another debt default. The catalyst for the latest set of worries serves as a reminder that timing is also an important factor: if our electoral cycle had been turning in Greek fashion this time last year we may not have been so lucky.

The Greeks are in trouble for all sorts of reasons but the possibility of a 2015 general election that will return a left-wing Syriza government opposed to the dictates of the troika has sent Greek financial markets into turmoil.

This time around Greece’s problems have not led to financial contagion: their bond yields have moved up to 11 per cent with virtually no effect on any other market. In another new twist to the old euro crisis saga, markets now seem to think that a Greek exit from the euro might be a one-off event (and still far from certain).

Political calculations were absent around the time of our exit. No election was imminent and investors assumed that Ireland is a stable political entity. By contrast, if we were trying to exit the bailout today, given the opinion polls and the seeming rise of our own hard-left politics, we might be faced with Greek-like nerves about what happens next. Timing was, in this context, everything.

More generally, the post-bailout flood of capital into Irish bonds and property during 2014 signalled that investors were not worried about political risk. After all, economic policy hardly changed following the last general election.

Our bond yields still suggest an utter disregard for any political risk. But it is tough to understand anything coming out of sovereign debt markets at the moment: the distortions caused by actual and prospective quantitative easing are hard to disentangle. There isn't much point in the short selling of financial assets – government bonds – that Mario Draghi might one day soon start to buy in large quantities.

That may change: the message from the bond markets may quickly reverse if, say, Draghi is prompted to resign, or back down in less dramatic fashion, should the Germans win the argument.

Uncertainties

Given all of these complexities and uncertainties we should look elsewhere for an early warning of market concerns about the outcome of the Irish general election.

One market that has done as well as government bonds is, of course, property. And the property market is not guarded by the backstop afforded to bonds by the possibility of quantitative easing.

All of that money flowing into Irish real estate could stop very suddenly should current opinion polls start to look like they will be replicated in a real election. The best way to nip property prices in the bud is to build more houses.

Another way to achieve the same result would be to elect our own version of Syriza, the Greek party so worrying financial markets today. Irish property could suddenly become very affordable again, although this might be a version of the old “be careful what you wish for” story.