On The Road To Recovery Or The Road To Nowhere?

The government has been celebrating Ireland’s recent exit from the Troika bailout and have proclaimed that Ireland is now on the road to recovery. The Taoiseach addressed the nation to celebrate the regaining of Ireland’s economic sovereignty. But are we out of the woods yet? Is Ireland facing a new dawn that leaves the nightmare of the recession behind or is it only a mirage of false hope while we are still stuck in the mud?

The government has undergone a period of rejoicing and self-congratulation since the exiting of the bailout. However has anything really changed? Before the bailout, the Fianna Fáil government cut spending and raised taxes. Once the Troika arrived the Fine Gael-Labour government has been “forced” to cut spending and raise taxes and after it leaves the government will continue to cut spending and raise taxes. No matter who is in charge, austerity is the only policy that will be implemented. So while there has been a changing of the guard, we are unlikely to see any change in policy. The government is free to do whatever it wants so long as all it wants is austerity.

The government claims the recession is over, the economy is growing and unemployment is falling. The gap between government spending and its revenue is narrowing and exports are booming. They paint a picture of an Ireland which has been bruised and battered but has weather the storm. Slowly but surely, things can only get better.

A cynic would that things couldn’t get worse. A country is only considered in recession if declines for two quarters in a row. Even if it is stagnating, it is still out of recession so long as it isn’t falling. Like a man who has fallen off a cliff and hit the bottom, Ireland is no longer falling, but it is still suck in the gorge. Economic growth has been weak with a quarter of growth being matched by a quarter of decline. Its two steps forward, one step backwards.

The government claims it is on target to reduce the deficit to less than 3% of GDP (in line with EU targets) by 2015. Some ministers even speak hopefully of having closed to gap sufficiently to allow room for tax cuts. Perhaps the government will meet its target, but it has a history of missing them. The target was initially 2013, then it was pushed to 2014, now it is 2015, but the OECD has warned that the government will miss this target too and 2016 will probably be the new target. The government has become overly pre-occupied with meeting its targets, ignoring that fact that even once the target is met, the Irish economy will still be in a dire state.

It is true that exports are undergoing a boom but they are only one section of the economy. They alone cannot pull the rest of the country out of the slump, especially while investment and consumer spending remains depressed. There is also a ceiling on how far exports can grow while Europe and America still have high unemployment and little disposable income to buy our goods. Until the world economy starts to improve (which could take another few years) exports will be unable to have a major impact on the rest of the economy.

Unemployment has fallen from its height of almost 15% to 12% but this is still far in excess of the level for a healthy economy. Even worse still, most of the drop comes not from people finding jobs, but rather from unemployed people emigrating or no longer qualifying for unemployment benefits. We are a generation with few opportunities at home and have to look abroad for success. Of my friends who have graduated, hardly any have jobs using their degrees. Ireland is not solving its unemployment problem, it is exporting it.

Ireland is like a house that has survived an earthquake, it is still standing but its foundations are weakened. Another shock could push us back into recession and reverse all the improvements of the last few years. The Euro zone debt crisis was never resolved but merely delayed. The peripheral countries (Ireland, Greece, Spain, Portugal, and Italy) still have huge debt burdens, massive unemployment and weak economic growth. A shock too any of them could create a new crisis, with new bailouts that core countries (Germany, France, and Belgium) can less afford and would be less willing to pay.

Just a few short years ago, the Euro teetered on the brink of collapse and while it is no longer on the edge, a crisis could easily push it right back. The fundamental problem of the differences in the economies of the core and peripheral countries was never resolved. As France and Germany’s economies to recover they may push for higher interest rates to combat inflation. This would be severely damaging for peripheral countries with their huge debt burdens and could spark another debt crisis.

The most worrying feature is how little has changed. Since the recession there has been no major change in financial regulation to prevent future banking crises. There is nothing in place to prevent future housing bubbles from re-occurring. The political system is as flawed as ever and there has been little economic reform. The government seems wedded to the lax regulation, low tax, hands off status quo that got us into the crisis in the first place. Rather than seizing this opportunity for major reform, politicians on both sides of the Dáil seem to have learnt nothing and seem doomed to repeat their mistakes.

It is a long road to recovery and may never reach the end of it. We could be stuck with permanently high unemployment and thousands emigrating. Even if the budget finally balances the economy could remain weak for years. It could be 2020 before the economy can be said to have fully recovered. This could be a lost decade where our resources are wasted as people and machinery are left idle like unneeded ghost estates. There is light at the end of the tunnel, but it remains to be seen whether it is the exit or an oncoming train.

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