As the Brexit bandwagon continues to trundle along towards October 31 and as the Minister for Finance prepares to deliver in just over a month, what is most likely to be the final budget before the ‘confidence and supply’ arrangement comes to a welcome end, it was never more important for Ireland to keep a very close eye on international developments.
We need to make sure that everything possible is done to insulate the Irish economy from increasingly evil and menacing looking external developments.
We obviously still have no idea what the world post-October 31st might look like, but the seemingly safest and most prudent assumption to make is that the UK will exit the EU in less than eight weeks’ time without a deal with the EU and hence we will not have the comfort of a two-year transition period to agree a new and relatively benign trading relationship with the UK.
The rest of the world is also failing to give many reasons for joy. The Euro Zone economy continues to weaken; China is clearly under pressure, not least due the shenanigans in Hong Kong and the even more troubling shenanigans emanating from the White House; and global geo-politics are probably in as unstable a state at the moment than we have seen for many years.
It is a very strange world out there now. The recent interactions between Denmark, which is one of the most civilised and inoffensive countries on the planet, and Donald Trump, is deeply disturbing on so many levels. However, it just proves how anxious Trump is to tear up the international rules of diplomacy.
It should be of concern, that at a time when the Western world should be uniting in the face of serious global threats from the growing strength of China; the actions of Putin; the lunacy in North Korea and the rise of extremist politics in many countries, it is becoming increasingly fragmented. This is largely due to the Brexit lunacy in the UK and the increasingly erratic behaviour of Trump.
Menacing opponents like nothing better than fragmentation and disunity on the other side. There certainly appears to be plenty of that now. For a very small and a very open economy like Ireland, all these external threats should be of immense concern. Of course, there is not a lot we can do to influence those external factors, but we do need to make sure that we control and manage all those issues that are within our control.
The domestic and external competitiveness of the economy is of paramount importance in that regard. In the run up to the crash in 2008, the National Competitiveness Council (NCC) constantly warned about the evolution of the cost base over several years, but those warnings were effectively ignored.
We allowed the cost base of the country, on several different fronts, spiral out of control, and then when we were hit with the sucker punch in 2008, we were not able to react. This summer, the NCC has again warned about the costs of doing business in Ireland and we need to heed those warnings before it is too late.
Trade unions in the public and private sector cannot be allowed force an escalation in wage costs; stakeholders in the property market cannot be allowed preside over spiralling rents and a hopelessly inadequate level of housing supply; the Minister for Finance cannot be allowed undermine the public finances through excessive growth in expenditure and a further narrowing of the tax base; and banks cannot be allowed withhold credit from productive parts of the economy.
It is also to be hoped that the Central Bank will not cave into the inevitable intensification of populist political pressures to ease the very sensible and prudent restrictions on mortgage credit.
On the surface, Ireland still appears to be doing very well. In the first six months of the year, merchandise exports expanded by a very robust 10.3 per cent. However, now is the time for a cautious and prudent approach to economic management and political bravery in the face of populist pressures.