Soft Irish Rain

Once a year, the sheep dotted hills around Lough Gartan pulsate to the sound of lively discourse, courtesy of the Colmcille Winter School. No surprise that this year’s theme was The Recession and no surprise either that despite the panoramic surroundings on the edges of Glenveagh National Park, the mood was glum. Trinity College economics professor, Frank Barry pulled no punches in his scathing criticism of the Government for irresponsible fiscal policies, which have created the mess we are now in. And no, contrary to the mantra of government ministers, Ireland is not the innocent victim of world recession. Au contraire! We made it happen all by ourselves and the global crisis has just compounded matters. We have plummeted from a six per cent growth rate two years ago to a predicted growth rate of minus four per cent this year. In the words of Prof. Barry, that is a spectacular collapse second only in disastrous performance to Iceland. So how did we do it? We let developers and bankers run amuck. We flitted away the copious proceeds of the boom with no thought for tomorrow, paid ourselves too much and let our tax base collapse so when the downturn hit, there were no reserves. There are no reserves so once again, front line essential services are in the firing line for cutbacks they can’t endure. When I say we did all that, of course most people were mere bystanders but we elected (and even re-elected) those who could, nay should, have managed our country responsibly.
“We had become so dependent on the construction sector in Ireland. The size of the construction sector in Ireland was twice the European average, twice the US average, so it was clearly becoming unsustainable in terms of its share of employment, because of the housing boom. So it was going to burst at some time or another. The only instrument at our government’s disposal to protect us against that was fiscal policy. That means that in the good times we should have been running much much bigger budget surpluses than we were running so that we would have the resources available to protect ourselves in the bad times. That is what countercyclical fiscal policy is about, that it goes against the fiscal cycle…. Fiscal policy should have been used to slow down the housing boom because that was the only way. This is not rocket science. It is pretty simple.”
Barry pointed out that the EC twice warned the Irish Government about its pro cyclical fiscal policies and to our shame, was twice ignored. Both times in 2001 and 2007 were on the eve of General Elections when Irish Finance ministers are wont to getting the economy rip roaring drunk. Instead of reining in spending in 2001, Charlie McCreevy chose populism and to the cheers of the public introduced SSIA saving schemes, reduced income taxes and relaxed measures that had been introduced to control the property boom. The pro cyclical policies pushed wages up too high resulting in a loss of competitiveness and when the house boom ended tax revenue “collapsed catastrophically”. But Barry isn’t letting trade unions off the hook either.
“The fact that income taxes have eroded as a share of tax revenue is really a consequence of social partnership in place since ‘86, ‘87. The social partnership deals are to be understood as the unions saying to government we will offer you moderate wage demands but in return you have to give us income tax reductions. That is the entire history of the first twenty years of social partnership. And it worked. It brought industrial peace. It helped get us out of the original fiscal practices but it means that income taxes kept coming down and down. And income taxes as a share of tax revenue are a very stable source of tax revenue compared to the others.”
And a normally more circumspect Michael O’Regan, political correspondent with the Irish Times was also in no mood to suffer fools in what he described as a thoroughly hopeless situation. He blamed the state we’re in on greed, incompetence and opportunism.
“What we have today is absolutely wretchedly hopeless government. This is simply a fact.”
His prediction of social unrest, even revolution, was echoed enthusiastically by the audience. A lone Fianna Fail councillor gamely attempted to defend the party but seemed to lose his train of thought. Back in Dublin on Saturday evening, Taoiseach Brian Cowen extolled that Ireland would rise again. On the shores of Gartan lake a rising of a different kind was being contemplated.

Tags: colmcille winter school, frank barry, ireland, recession, ssia.

This entry was posted on Sunday, March 1st, 2009 at 8:38 pm and is filed under The Recession Sessions, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.