Tanaiste reacts to 'Erin Go Broke' headline in US
THE TÁNAISTE Mary Coughlan has acknowledged that the Government has “a lot of work to do” to reassure foreign investors that it is taking the right steps to ensure that Ireland remains an attractive country in which to do business.
Speaking in Washington ahead of meetings with the US treasury secretary, commerce secretary and labour secretary, Ms Coughlan described as unhelpful some economic commentary on Ireland’s difficulties.
“There has been comment which has been neither helpful nor, in my view, appropriate, and I would like to move on from that and give the view that we have collectively as a Government have, yes, difficult times, but we have the capacity to deal with these issues and we would like to revert back to the international reputation we had and continue to have,” she told The Irish Times.
In a New York Timescolumn yesterday, headlined “Erin Go Broke”, Nobel prize-winning economist Paul Krugman identified Ireland as a model for the worst-case scenario for the global economy.
“The Irish Government now predicts that this year GDP will fall more than 10 per cent from its peak, crossing the line that is sometimes used to distinguish between a recession and a depression,” he wrote.
“But there’s more to it than that: to satisfy nervous lenders, Ireland is being forced to raise taxes and slash Government spending in the face of an economic slump – policies that will further deepen the slump.”
Prof Krugman identified Ireland’s decision to “jump with both feet” into the world of unsupervised global markets and the light regulation of banking as the main source of the country’s problems.
He said the cost of bailing out the banks had imposed a fiscal strait-jacket on the Government in Ireland at a time when it should be trying to stimulate economic growth.
“On the eve of the crisis, Ireland seemed to be in good shape, fiscally speaking, with a balanced budget and a low level of public debt.
“But the Government’s revenue – which had become strongly dependent on the housing boom – collapsed along with the bubble,” he wrote.
Irish economists’ criticisms of the Government’s plan to buy up the banks’ toxic property loans echo Prof Krugman’s misgivings about the Obama administration’s bank bailout in the US.
The Nobel laureate acknowledges, however, that the Irish Government has no choice but to cut spending and increase taxes.
“As far as responding to the recession goes, Ireland appears to be really, truly without options, other than to hope for an export-led recovery if and when the rest of the world bounces back,” he wrote.
Ms Coughlan said she would articulate to treasury secretary Timothy Geithner the Government’s concern about proposals to change the tax regime governing US corporations operating overseas.
The Obama administration has promised to review rules that allow American companies to defer paying US tax on foreign earnings – a move that could have a major impact on companies operating in Ireland.
“We have major concerns about that, and we are very anxious to have an interaction with the senior members of cabinet to indicate to them the implications that deferral would have from an Irish perspective, and also it’s important to say that the American companies and corporations that we’ve met have also indicated that it would have a competitiveness issue for them as American companies,” she said.
“American companies would find themselves in a situation that they would be uncompetitive and that they may have to look at various other parts of the world and we wouldn’t have an opportunity to look at building on the huge footprint that we currently have in Ireland.”
The Tánaiste said that an IDA official will arrive in Washington next week to work on international tax issues with lobbyists for American companies.
“This is an American domestic issue that has implications for us because we are quite reliant on foreign direct investment,” she said.