Steely resolve required to make necessary cuts

By Brian O’Mahony

Saturday, December 05, 2009

"OUR economic situation, while urgent and grave, is not unique. As we are integrated into global trade and production networks our recovery will be intrinsically linked to a recovery in global trading. Now is our time to fight to regain our place in the global economy.

"Our ambition to develop Ireland as a Smart Economy means creating new, internationally traded business ventures to prove that Ireland, despite the current challenges, retains the capacity for sustainable growth based on innovation and increased productivity. We must replicate the success of our existing global companies such as CRH and Glen Dimplex with more fast-growing indigenous companies."

Those were the comments of Taoiseach Brian Cowen in early November when he launched the UCD Growing Ireland conference held the following week with representatives of some of our finest companies in attendance.

He could have thrown other big success stories into the list of companies we need to emulate if the indigenous sector is to thrive in the years ahead.

Given the uncertainty over the budget and his dithering over the public sector pay concerns, pep talks about using indigenous industry to drive the engine of economic growth seems a bit premature.

Right now it looks as if the two Brians should do a reversal of roles.

Finance Minister Brian Lenihan, right or wrong, has shown steely determination over the banks and NAMA. The country may yet live to regret that ferocious determination in the face of all obstacles, virulent and deeply incisive criticism from opposition parties and some heavily sceptical senior economists who think Mr Lenihan is sleepwalking us into an even bigger disaster than the one he’s trying to resolve through this bad bank scheme.

Some who have had time to reflect more dispassionately on the crisis, like a former senior civil servant friend, reckon we have just mortgaged the future of the next generation yet again and that they, not the banks and the speculators, will be paying for this disaster for a long time to come.

That may well be the case and some experts fear that the valuations being put on some of the assets going across to NAMA are way too optimistic.

At least Lenihan has shown resolve and it must be hoped that his leader will indeed lead from the front over the next few days and insist that the pay cuts and the budget achieve what needs to be done to keep the economy afloat.

The sceptics argue Mr Cowen has been weak from the start and should have allowed his finance minister to let Anglo Irish Bank collapse when the crisis first erupted, spelling the end of the boom and a severe rupturing of the of the property bubble.

Firm evidence that Lenihan was for letting Anglo go bust has never been produced, but the whispers are that Cowen stopped him on that fateful night.

The good news is that the global economy is starting to gather momentum.

In a recent report Goldman Sachs endorsed the moves taken by the Government to extricate the country from this crisis, the worst it has faced since the late 1980s.

The big bankers globally, who lend to us, are beginning to view Ireland’s economic prospects more positively in the past few months.

Because of the ongoing uncertainty over public sector pay cuts "the bond vigilantes", to quote Alan McQuaid, are more edgy and the cost of borrowing for the state has risen steeply in the past while.

If the budget fails to deliver, the cost of borrowing could rise significantly and that would seriously undermine our chances of recovery that even from an optimistic perspective are still quite fragile.

This story appeared in the printed version of the Irish Examiner Saturday, December 05, 2009