October 5, 2009

Don't believe the hype, 'Yes' vote won't save our economy

Posted in Debt · 2 comments ·
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The massive swing to the pro-Lisbon camp reveals something enormous about our state of mind now, our insecurity and more than anything else, our fear of what is to come. It says more about the state of the economy than our perceptions of European integration.

We are petrified and have concluded that there is comfort in numbers. Better to be in the big warm club as willing participants rather than focus any more unwanted attention on ourselves and risk being left out in the cold.

The ‘Yes’ side did a much better job this time around at linking the likelihood of you losing your job to the result of the referendum.

Although a ‘Yes’ voter myself on this and the last occasion, it is very clear to me that from an economics perspective, there is very little connection between the Lisbon Treaty and unemployment, taxation and the prospect of the huge battles ahead between the Government, the financial markets and the public sector unions.

In fact, Lisbon will soon be forgotten when the reality of the unprecedented reductions in public spending are appreciated.

So why was the ‘Yes’ side so keen to portray Lisbon as a positive for the economy? And was there any logic in this position?

The first argument was that multinationals that invest here might regard Ireland as a pariah for voting against the treaty and therefore, would not invest here. This is not persuasive because most multinational strategists realise that the benefits of investing in Ireland are local in nature. We are (and still would be even had we voted ‘No’) in a single market with an attractive tax regime.

As Craig Barrett, the chairman of Intel, said at Farmleigh, in the long term, it is investment in education and our general competitiveness which will determine whether we continue to be a place that multinationals want to do business.

Lisbon will not affect either of these issues, but crucially the split between current spending cuts and continued capital investment in the years ahead will. If the Government — in an effort to get the public finances under control — slashes spending on education, training and infrastructure it will have done more to undermine the job prospects of the next generation than a ‘No’ vote ever could.

It’s going to take a judgment call on Mr Lenihan’s part to keep the bias of cuts away from sensible spending which raises the productivity of the country. It is particularly important because we are competing with everyone for everything now and so many countries are massively spending on infrastructure and education.

In terms of judgment, he will have to cut current spending primarily. This puts him on a collision course with the unions. The debilitating prospect of mass industrial unrest and the sight of a weak coalition trying to fight on all fronts will scare bond investors far more than had we voted ‘No’ but were living in a performing economy. (Irish bond prices didn’t budge after the first Lisbon vote, they collapsed after the near implosion of the financial system.)

In short, those who finance us to the tune of more than €500m a week now (with the publication of the budgetary figures last week) are more concerned with our fiscal incontinence than anything else.

As for Ireland’s reputation abroad, the real problem here is the monumental failure of our government regulators to do anything about the banks that were out of control and have now bankrupted the country. Ireland’s corporate reputation was already sullied way before Lisbon and no amount of positive results at the ballot box is going to change that.

In fact, by prolonging the banking charade with the silliness of NAMA, the European Central Bank is not doing Ireland Inc a favour as has been suggested by the Government.

On the contrary, by facilitating NAMA the ECB is simply allowing the “lads” to stay in control and is actively throwing a financial hospital pass to the next generation.

By allowing the State to borrow in return for NAMA bonds the ECB (and by extension the EU) is effectively “robbing tomorrow to pay for yesterday”.

So although it is comforting initially to see such support, particularly when we feel vulnerable, when we look at the ECB’s motives a bit closer we see that they are not aligned with the interests of our people and are more driven by the ECB wanting to avoid the embarrassment of a bank failure on its watch within its currency zone, the euro.

So when we boil everything down, the Lisbon ‘Yes’ is not a universal panacea and the euphoria on the ‘Yes’ side only makes the likely comedown more precipitous.

The ‘Yes’ vote and, more importantly, the massive swing, is indicative of a terrified electorate who realise the scale of the challenge ahead. We are all on the same side now. We are in this together and yes, we need our friends, but real friends tell you the harsh truth when necessary.

That’s what Ireland needs now and no amount of backslapping from the EU Commission about the ‘Yes’ vote will change that. We are now dependent on the financial markets to keep the cash coming, if they change their mind and the Government’s cheques bounce in the months ahead, Lisbon will return to being a nice city to visit — if only you could afford it!


  1. Alan42

    What about the government being pro active ?
    Why don’t all FF TD’s Ministers and Cowen pay themselves the average industrial wage and suspend all pensions for serving ministers and TD’s until the next election . ?
    Address the nation and take full responsability for the current mess and explain to everybody about the severe state of the public finances .
    Explain clearly the need for cuts and reform . Propose a clear plan to cut waste in the public service .
    If they lead by example and cut public spending in an intelligent way they would have the people behind them .
    People are not stupid and fully realise that Ireland Inc is bust . If they lead by example and first cut their own compensation there is not a thing the unions , media or opposition can say against them .
    They take a private sector approach to crisis . They move fast and have a clear approach to cuts . They invoke a Dunkirk spirit in the people as they are leading by example .
    Explain that the tiger is not coming back anytime soon . But they do have a plan for recovery .
    Overseas students is worth $ 15 AU billion to the Australian economy . Why is the land of saints and scholars not in on this ? You have people like K Whealan , B Lucey and David screaming at them about the errors of their ways . You bring them into the fold and they either put up or shut up . Experts from the private sector would be shamed into working for the national good on the minimum wage .
    I realise that I am being completely nieve here but it is either a crisis or it is not a crisis . No private sector business would sit on its hands borrowing fantastic amounts and planning to make cuts in a couple of months . Why not ?

    • Alan42

      Some governments actually have people in them who have a sense of ‘ public service ‘
      Look at Obama talking to the press about the nobel peace prize . He was clearly stunned and embarressed . By giving him the nobel peace prize they clearly stated that they expected a lot from him . He played it down because he knew that they had just made his job a lot harder and at least on the international stage he will always be judged on the peace prize .
      Why can’t Cowen step up to the plate ? How difficult is it when you have the entire country screaming for some leadership ?

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