Stephen Collins: False sense of security prevails on Covid-19 costs

Politicians need to be frank about scale of the economic crisis ahead

Paschal Donohoe: brought a reality check to the talks on government formation by laying out some very pertinent  facts. Photograph: Ireland/PA Wire

Paschal Donohoe: brought a reality check to the talks on government formation by laying out some very pertinent facts. Photograph: Ireland/PA Wire

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A dangerous air of unreality has begun to pervade Irish society at all levels about the options facing the country when the Covid-19 lockdown ends .

If our political leaders do not soon start facing up to the hard choices that need to be made, an economic catastrophe that will cripple the country for the next decade beckons.

Minister for Finance Paschal Donohoe brought a reality check to the talks on government formation on Wednesday evening by laying out some basic facts which the negotiating teams for his own party, Fianna Fail and the Greens need to come to terms with if they are to form a coalition.

For a start he outlined the massive hole in the exchequer finances arising from the Covid-19 crisis. The Government is already committed to spending €23.5 billion this year to deal with it and the final bill is more likely to end up at €30 billion. A massive 1.2 million people are now on some form of State income support through the pandemic unemployment payment, the temporary wage subsidy scheme and the normal jobseekers’ allowance.

The immediate impact on the economy has been devastating and, while there will be a gradual recovery as the emergency measures are lifted, some sectors, particularly in the tourism and hospitality, will recover very little by the end of the year. The one bright spot is that foreign direct investment is unlikely to be hit as hard as the domestic economy.

Donohoe suggested that by the end of this year unemployment could still be at 15 per cent and could remain at that level for years to come. He expressed the fear that, unless the right measures are adopted, the country will face a rerun of the 1980s with massive unemployment, high levels of income tax and a constant struggle to keep borrowing under control.

It was a sobering assessment for the negotiators but one that was overdue. In their framework document for the talks, Fine Gael and Fianna Fail indulged the fanciful notion that all sorts of spending commitments could be entertained along with pledges that taxes will not increase or any spending programmes be cut. Fianna Fáil leader Micheál Martin followed that up with a promise to abandon the reform of the State pension system started ten years ago by the government of which he was a member.

No wonder vested interest groups of all kinds came to the conclusion that the exchequer is there to be milked for all it is worth.

The demand by the employers’ group Ibec earlier this week that the State embark on a massive spending spree, on top of all the measures already taken to deal with the emergency, was an illustration of the delusional nature of some of the discussion about the future.

The last time the country was gripped by such fantasy was in the summer of 2008. Back then employers and the unions, with the encouragement of the government, agreed a generous public service wage deal when everybody could see that the roof was about to fall in. The outcome of that was record unemployment, a massive debt and the EU/IMF bailout.

Dangerous fantasy

The latest mantra is that things will be different this time around because interest rates are at a record low and the Government has access to unlimited borrowing.

This may well be true of the measures taken to cope with Covid 19 but the notion that we can borrow as much as we like and not worry about paying it back is a dangerous fantasy. The reason Ireland can currently borrow at negligible interest rates is because of a hard ten-year slog to prove our creditworthiness. If that reputation is lost we will be back where we were at the height of the financial crisis.

The reason the country managed to get through that was due to the way then minister for finance Brian Lenihan faced up to the problem. He took on members of his own cabinet, as well as the opposition, and drove through a whole range of measures necessary to underpin the recovery, including cuts in public service pay and pensions. Fundamental to his achievement was an ability to communicate the scale of the crisis to the public.

Not everybody listened but a majority became convinced by the message and persuaded of the need for a range of stringent measures to ensure that we did not have another lost decade like the 1980s.

Paschal Donohoe faces a challenge that in some ways is even more difficult. He has to convince not just his own party but two others as well that hard choices have to be made to safeguard the future of the country. He also needs to get that message across to a public that has been lulled into a false sense of security by people who should know better.

There is a media cliché about the need to speak truth to power but in Irish politics the challenge for politicians is to speak truth to the public. Donohoe got little thanks for avoiding the temptation of a pre election give away last October. He may get even less for spelling out the reality of what lies ahead but he has no other choice.

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