Savage cuts will herald a long winter of discontent
They took a laid-back attitude to the credit boom while the Central Bank kept quiet and talked about a soft landing.
As a consequence, we are experiencing one of the sharpest downturns in living memory. Six months ago, Finance Minister Brian Lenihan told us the corner had been turned.
He forgot to say that it was just one of many very dangerous bends ahead of us, some of which are proving hard to negotiate. How we do that will be critical and could indeed determine the state of this economy for at least 10 years.
The pros and cons of what ought to be done now are getting some focus but are being buried with the obsession of having to knock €15 billion off government spending over the next four years.
Faceless bureaucrats in the EU have determined this should be so and, in the short term, we appear to have no option but to bow to their demands.
We effectively are no longer running our own affairs. But we simply cannot roll over and be humiliated totally by the EU mandarins.
We are close to the edge. Markets have lost confidence in us and the ECB and the markets are dictating the pace.
It’s difficult to see how we can revert that situation given the pressures we face, but we have to show some back bone and insist that serious measures to boost the economy be introduced. Otherwise, we risk getting engulfed in an ash cloud of economic misery for a decade or more.
It happened in Japan and it happened in Finland too, where soup kitchens became the order of the day in the early 1990s.
We’re not talking ancient history here. These are real situations that happened within the last 20 years or so.
In the midst of the furore one crucial point is being missed or ignored by Government as it scrambles to restore market confidence in the economy.
It is ironic that, despite the moves to initiate massive cuts over the four upcoming budgets, the cost of borrowing continues to rise as bond prices make new record highs.
Markets now fear the burden is getting too heavy for us and the budget cuts will make a bad situation even worse.
To change that perspective, some argue for a counter cyclical approach to the economy, something we failed to do during the boom years and as a result, we ended up with the property bubble and banking crisis that has left us in deep trouble.
Going against the economic cycle of falling growth is vital at this stage, economists like Dermot O’Leary of Goodbody Stockbrokers and Alan McQuaid of Bloxham have argued.
From the world of academia, Charles Larkin of Trinity College told the Institute of Certified Public Accountants last week that major cutbacks are incompatible with achieving growth.
If we slash demand in an economy already close to record unemployment, we will drive ourselves into a bigger black hole.
It is wishful thinking to expect growth of any real worth in the next few years if we cut demand further.
It makes no sense, Mr Larkin argues.
Right now this government and the bulk of its advisers seem to be clinging to some vague hope that if wages, social welfare and other services are cut, this will result in restoring the economy back to normality.
The ESRI has warned against the dangers. They have used the “tipping point” analogy, warning that if the cuts are too savage, we risk a long winter of discontent that will be very hard to correct.
