We must keep pace with US economy

WITH US interest rates on the move upwards, the doom merchants are already preparing their dismal analysis on the global economy.

Not everything is clear cut at this stage about the US, but it needs to be said categorically that rising US rates are good news.

While the Prozac side of the economic debate over the past few years predicted a major world economic crash, Alan Greenspan and the rest of his enlightened staff in the US Central Bank - the Federal Reserve to you - busied themselves cutting interest rates from 6% to 1%.

From mid-2000, the number of rate reductions went into double figures as the chairman tried to balance the need to keep demand going while not undermining confidence by being seen to panic in the face of the US downturn.

Classic economics says that after years of strong growth you get years of recession.

But the interesting thing about economics is the only certainty is uncertainty.

Due to Mr Greenspan’s endeavours, the US consumer, who accounts for 75% of demand in the American economy, kept spending in the wake of the US dotcom bubble.

Low interest rates did the trick and while most economists were convinced a deep recession could not be avoided, the Fed chairman looks to have pulled the rabbit out of the hat.

The focus has shifted now and the old issue of Boston versus Berlin is back.

From an Irish economic perspective, the US return to growth is good news.

While we owe Europe a lot, and I have no wish to sneer at its dramatic impact on Irish society, we are in to a broader issue here.

That is whether Europe as it is capable of getting back to the kind of growth level the 10 new EU members hope to cash in on like we did after our membership become official in 1973.

The omens do not look good. Europe this year will grow by 1.6% to 1.7% - if it’s lucky.

Ireland, by comparison, will grow by 6% while the US is well on its way to being back to growth trends of between 4% and 5%.

Recently, the ECB president Jan-Claude Trichet lauded our success, saying: “The progress of the Irish economy was a journey of transformation from economic stagnation to a position of stunning and exemplary economic success.”

High praise. But one wonders if in 20 years time a new president of the EU, if it is still around, will be in a position to make the same claims for any of the new states or for the ones in there that have struggled for several years to get back to reasonable growth.

What I am trying to get at here is that Ireland has defied gravity and beaten the sceptics. There were those who said we were doomed once the dotcom bubble burst in 2000.

Those sceptics now concede we performed against all the odds during the past few years and refused to be dragged down by the slow downturn that became a recession for a short period in the United States.

The reasons can be explained by a more open attitude to work and our ability to adapt.

As things stand we, as a result of that flexibility and capacity to bend when needed, look like the only economy in Europe capable of keeping pace with the US in the years ahead.

That does not mean we ought to abandon some of the core social values espoused by the EU.

It seems we are lucky to be presented with a set of opportunities and historic links that offer us the best of both worlds.

If any one thing has the capacity to sink this economy right now it is over- lending and the possibility of a house price bubble.

Rising interest rates, though not upon us, are looming and we need to tread carefully if we are to rub shoulders with the US in the economic stakes in the years ahead.

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