The transition of the final quarter of 2013 into the New Year has sparked an unfamiliar sense of optimism amongst business, economic and political discussions across the country. On the 6th of October 2013, I sat down and opened the business section of the Sunday Indo (Sindo) to read an interesting headline: “Champagne sales rising in a clear sign of recovery”. I thought to myself: ‘people must feel the end is near and finally we can crack open the bottles once more’. That sense of optimism had hit me too, ed which it had for the first time in years reading a business section of any paper. When i finished reading the article, with a more springier step than usual I went up to study for my Economic Policy Analysis mid-term that was coming up. I soon realised when I looked at the debt to GDP figures from my notes, rather than Champagne sales, my optimism was left in the green bin along with the Sindo. I turned 21 on the Monday the 7th of October, the next day, which may have been what I had mistaken my good mood for all along. After reading the paper later that Sunday my Dad asked did I need anything from the offo for my birthday tomorrow? “Ah sure, a few of the lads are coming up tomorrow, may as well pick up some bottles of Champagne”.
That optimism has not, as some may have thought, lived a short existence. It seems to have gathered momentum and continued into the new year as good news stories hit our headlines in an unbroken sequence not seen in years. From successful emergence from official lending schemes (bailout), and technical emergence from recession (two consecutive quarters of GDP growth) to banking inquiry progress. These are all true, so it now seems like a good time to ask is there good reason to be optimistic after so long?
No. Putting our debt difficulties into context is no easy task as sometimes looking at the figures, it becomes, in real terms- incomprehensible. So many billions, so much debt. Thankfully there is a field of research dedicated to this miserable reality, and you know it well. Also known as the ‘dismal science’, and my chosen degree for the last 3 years, economics seems a good place to start as I look into the basis of the media’s recent optimism.
1) Bailout Exit:
Irelands entrance into the Troika’s bailout programme meant a lot of things to lots of people. It meant anger for citizens, job losses for workers, headlines for papers, rhetoric for politicians, and repayments of bad investments for large investors but not homeowners. As we exit this official lenders programme it has only solidified these harsh realities, as a result for economic mismanagement for previous years. Taking all emotion and rhetoric aside, it means one thing and one thing only to me. €60 billion. From 2011-2013 the only thing that remains certain during this time of plenty of uncertainties is, we borrowed €60 billion, which is now nearly all spent. Exiting the bailout this month does nothing in the way to soften this reality, it simply affirms it. That €60 billion was not ours to spend, but now it’s ours to owe, long after we leave this bailout.
2) Emergence from Recession:
The term recession in economics is commonly defined as two down consecutive quarters of GDP. This is the definition the ECB has favoured in the past. This definition is also, a complete understatement of the Irish and European economy for the last 5 years. Compare this definition with a short synopsis of what occurred in Ireland.
We had a unique case of twin bubbles. The largest proportionate banking/property bubble which has ever happened anywhere ever, which eventually went bust. Simultaneously a public expenditure bubble which left us unable to access financial markets and with a Debt to GDP ratio of approx 120%. On top of this in 2013 we still borrowed over €1 billion every month.
I think this shows that our problems go far beyond two consecutive quarters of growth.
I will make no apologies if you now feel worse off than you did before picking up this paper, but not dealing with reality is what caused all the above. Economics is simply a study of scarcity, and right now our options are scarce. But we don’t need many, we just need the right ONE.
Dealing with our debt is the biggest problem facing our economy over the next decade. This limits us from Fiscal reaction to boost the economy. Mario Draghi’s ECB are the only ones who have a say in our interest rates, and money supply- scratch Monetary policy off our list of scarce options. Consumers carry excess debt in the form of mortgages, and job uncertainty will keep their money under the bed sheets.
In Colm McCarthy’s response to the Champagne article I mentioned at the start, Champagne sales are good if you’re French, not Irish. Which is the key to our solution. Only exports will save us. Naive Keynesianism will leave us further in debt and once more locked out of financial markets. Expect no help from the German controlled ECB. Consumer spending is fragile and leaks its way out through imports- which is nearly everything. Only selling to our neighbours will lead us out of another lost generation, and even that plan has its limits, but I better not dampen our spirits any further. Lets hope the decision makers have learned something in Leinster House- but unfortunately economically responsible policy makers are also scarce.