Positive outlook for Irish economy

THIS week produced a raft of key reports, the bulk of which reflected positively on the Irish economic outlook for the next year or two.

In one comment that went largely unreported the Economic and Social Research Institute lobbed a low ball in the direction of the EU, or more specifically the European Central Bank.

It said Thursday the bank faced increasing pressure to do something about the growth gap emerging between it and the United States.

If it was to take that issue seriously that would require it to redefine its remit beyond keeping inflation at 2% or less.

To put the growth issue in context the US grew 4.4% in 2004 against a paltry 1.8% for the Euro area.

European growth this year expected to decline to 1.6% returning to 1.8% in 2006.

The US will do 3.6% this year and 3.3% in 2006 so the gap is quite significant.

In overall terms it would be easy to say Europe needs radical reform if it is to enjoy what the US has in terms of living standards.

That is a bit of a myth and while we have people suffering lying around on trolleys due to health service chaos we do not necessarily want to ape the US model, whatever Tony Blair might think. For the record productivity in the eurozone isn’t that far behind the US when length of holidays are factored in.

For those with a greater social conscience it can be dangerous to glorify the US model.

Europe is still a better place overall to grow old in or to be ill. That might sound like scarping the bottom of the barrel but it can be argued an economy or a country is best judged on how well it looks after those most in need.

On that yardstick the US is well down the OECD or any other league you care to mention.

That said the ESRI’s take on the ECB is relevant. Growth in Europe is pretty grim by comparison. And to those of us who have watched the ECB it has an obsession with inflation. That can be traced to the German Central Bank which has been and remains a key influence on the entire culture within the ECB.

In the US Alan Greenspan as head of the US central bank has a brief to keep inflation in check and economic growth at acceptable levels.

When the US hit troubled waters in 2001 Greenspan slashed interest rates from 6% to 1% in order to keep growth going.

Inflation become secondary and rightly so. So much of the rest of the world relies on a healthy US economy. His strategy fuelled consumer driven growth and the US current deficit is hitting €600bn in 2005. Uncertainty persists about how robust the US recovery is.

The point is that Mr Greenspan wasn’t shackled by the narrow consideration of keeping inflation at a certain figure.

And indeed the experience of Ireland at certain stages when inflation hit 24% in the 1970s suggested we had a lot to learn.

Those days are long gone and nobody is suggesting that we can be cavalier about inflation. We cannot.

But we must look to the bigger picture and the ESRI has done a service in posing the question about the remit of the ECB.

With something bold as the whole European concept it is understandable that from time to time crises will emerge.

The ECB’s role does not fit that description, not yet. It is impervious to the growth issue and always has been.

In immortal words of Tony Blair 10% unemployment does not sit with the European ideal of being socially responsible. Europe needs to stop taking itself so seriously and look at the bigger picture if it hopes to keep this experiment on track.

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