At best, Cowen's efforts to cure look dubious. Are we counting down to international rescue, asks PETER MURTAGH
WHAT IF it doesn’t work? What if Brian Cowen’s “third time lucky” attempt to deal with our banking and revenue crisis simply falls short of the mark (as all of the Government’s earlier efforts have)? What if the Government fails to get the economy back on track and its day-to-day spending remains hideously out of kilter with revenue? What then?
Well then, we’re into a whole different ball game, as they say, and what is likely to transpire will make the current harsh realities facing most people seem mild indeed. (Which is not to say that the day-to-day problems facing people now are mild – and don’t forget, this is only phase one; phase two comes when there is mass inability to keep on top of accumulated problems such as credit card debts after next month’s tax increases kick in. And phase three? Well, that’s when it gets really messy . . .)
So far the Government’s emphasis has been on a, trying to sort out the banks, and b, raising taxes to plug the revenue hole in public finances. Events will reveal whether they’ve got it right on the banks, but increased taxes alone will not correct the revenue imbalance and so cutting Government spending deeply is what must happen next.
This is something we either do ourselves or tough medicine will be imposed on us by the International Monetary Fund (IMF) or the European Union or a mixture of both. What would that be like? Right now, Latvia is on a life-support loan from the IMF. The Baltic country (within the EU but not yet using the euro) was granted a €7.5 billion loan with staged payments linked to government action on spending.
In February, the government of Latvia collapsed trying to negotiate cuts to keep its deficit below 5 per cent of gross domestic product. Earlier this month, around 12,000 Latvian teachers demonstrated against planned pay cuts . . . of up to 20 per cent.
Latvia’s economy is due to shrink by 12 per cent this year, with retail sales down 25 per cent. Unemployment has passed 10 per cent and, last month, the prime minister warned the country would go bankrupt in June if the IMF did not pay the next tranche of the loan. Hungary, also in the EU but not the euro zone, is on a €19 billion IMF life-support. Its economy is projected to shrink by up to 6 per cent this year and a new prime minister is trying to keep to a 3 per cent deficit target.
Some taxes are going up but widespread cuts in public spending have been flagged. These include a public sector pay freeze for two years and a 5 per cent pay cut; ministers and state secretaries face a 10-15 per cent pay cut, as do managers in semi-state companies, while the board members of such companies will get no pay until May 2010. There will also be social welfare payment cuts.
Governments and the public sector here have got used to the social partnership model – good for the good times, but is it capable of agreeing the sort of cuts that have to be faced now? A political culture based on back-scratching cronyism and throwing money at problems is not renowned for producing visionary leaders of probity who are honest with the public who in turn believe what they are told.
Relying on the IMF or the EU and European Central Bank would be humiliating evidence of national failure no government would deserve to survive.
Brian Cowen, as Taoiseach and Minister for Finance, has played a leading role in the Irish economy’s mismanagement. He says he has full confidence in Minister for Enterprise Mary Coughlan. Business people I know who have seen her abroad batting for Ireland have squirmed with embarrassment and would disagree withhis assessment.
Yesterday, the Taoiseach honoured the men of 1916 and the vision they had for our country.
I wonder what the Taoiseach made of the part of the Proclamation that calls on the children of Ireland “to sacrifice themselves for the common good”?