OPINION:DESPITE RECENT market turmoil we are not at present heading towards a global double-dip recession. While growth is clearly slowing in the main developed economies, world trade will continue to expand.
Irish exporters still have the capacity to thrive and grow market share even in this more challenging global context.
The Irish economy remains on track to grow this year and next. The value of what we produce in Ireland will increase by about 3 per cent this year and over 4 per cent in 2012, and this augurs well for the plan to fix the public finances.
Austerity measures greater than those already planned would be at odds with the economic needs of the country at this time.
The response to current economic challenges cannot be a repeat of the 2008 response. While the events of three years ago were caused by a financial crisis and the freezing of credit for business and households, recent turmoil is primarily driven by concerns about future growth.
The risk of a similar breakdown in the interbank lending market has increased recently, but memories of the financial crisis are too fresh for policymakers to allow this to happen again. We are dealing with a different problem which requires a different reaction, both domestically and globally.
To restore confidence and create the context for sustainable growth a definitive solution to the euro zone sovereign debt crisis is required. This can happen if the political leadership and will is there.
The euro zone’s total debt levels are sustainable, but policymakers must agree a fair framework for burden sharing which enables all member states to regain market confidence.
The vast majority of Europe’s citizens have too much to lose from a disintegration of the euro zone. While the politicians will muddle on for a little longer, the actions required to preserve the euro will prove to be more attractive than the alternative.
The wider European debate is rapidly shifting as the cost of inaction becomes more obvious. Much more ambitious responses to the problem are now on the table.
New rules to strengthen economic governance in the euro zone will form part of the solution, and this is the rationale behind new Franco-German proposals.
But growth is ultimately the only answer to Europe’s problems. There is a risk that we lose sight of this fact.
It makes no sense for Europe to do a solo run on any tax policy that would damage its attractiveness as an investment location for either the financial sector or business generally.
Greater economic co-ordination is needed but this must not come at the expense of competitiveness and future economic growth.
To a large degree Ireland will remain a bystander to this wider global debate. As was always the case, the global context will be largely determined by the global players. However, political developments have already yielded significant benefits for Ireland.
The deal by EU leaders on July 21st to reduce the interest rate on our loans has provided a major boost to Ireland’s debt sustainability and will save Irish taxpayers hundreds of millions of euro.
We exert much greater influence on our domestic economic fortunes and this is where efforts must focus. Yes, serious problems remain in restoring the health of the domestic economy and the unacceptably high level of unemployment must be the number one priority, but Ireland is slowly but surely trading its way to recovery.
Major progress has been made restoring competitiveness and ensuring that businesses are on a firm and sustainable footing. This very tough adjustment is paying off and exports by Irish firms have recovered strongly.
Of course, as one of the most open economies in the world, Ireland is not immune from global trends. From early this summer it was clear to Ibec members that international trade was softening. More recent market events are likely to further hit demand in many of our key trading partners and knock already shaky domestic sentiment.
In light of this some want to see Ireland retreat deeper into its austerity bunker. The renewed rush to austerity across Europe is not, however, a reason for Ireland to accelerate its plans to close the budget deficit.
This approach would stunt our growth prospects and it is unproven what, if any, benefit we would garner from the markets.
Now is not the time to change course. We have a credible plan to correct the public finances. We need to stick to it.
What is actually needed is greater ambition for growth and recovery. Ireland has demonstrated to the markets that it can deliver on austerity; what is now at issue is our capacity to grow our way out of our problems.
We must continue to plan and invest for the future and aggressively tackle obstacles to entrepreneurship and employment. The cost of doing business must be reduced, and labour market and social welfare rules need to be reformed to incentivise work.
Ireland has already made headway and has shown itself to be responsive to changing economic circumstances. But we cannot afford to be complacent. Reform objectives agreed with the EU and IMF are the minimum required and should not limit what can be achieved.
Although the economic outlook for our main trading partners may be anaemic for some years, Irish business can weather the storm by continuing to grow market share.
Despite the dramatic economic collapse of recent years we retain many enduring strengths, and we need to build on these.
Ireland’s growth potential is double the EU average and, despite the heavy burden of austerity, we have a much greater capacity to outgrow our debts than our EU neighbours.
Ireland has a largely open and deregulated economy that supports entrepreneurship. We have the most favourable demographics in the EU, and our productivity performance is strong due to excellent labour market skills and world class flexibility in the workplace.
We should not discount the significant progress made towards reviving our economic fortunes. The economy has stabilised and begun to grow again. Fiscal targets are being met, and the next challenge is sustainable growth and getting people back to work.
Market values of stocks and bonds will continue to ebb and flow as the global crisis evolves, but we shouldn’t get too transfixed by market gyrations. We can make further inroads in restoring investor confidence even in these difficult circumstances.
Danny McCoy is director general of Ibec, the employers’ body