Time for Ireland to revert to the ‘old normal’

‘New normal’ economics new but never normal, writes Eugene McErlean.

Time for Ireland to revert to the ‘old normal’

Last year was the year of the unexpected, when it was best to apply Forrest Gump’s motto, “you never know what you’re gonna get.”

Leicester City won the Premier League at odds of 5000/1.

The likelihood of Remain winning the EU referendum in the UK was quoted at around 90%.

Ireland beat the All Blacks, Iceland knocked England out of the Euros and ELO played to sold out stadiums.

If this trend continues then there is a new range of previously unthinkable possibilities for 2017.

Our tabby cat Ringo becomes an internet sensation. I understand Snapchat. Spurs win the Premier League.

The Beatles reform with Liam Gallagher standing in for John Lennon. The Brexiteers admit they have made a terrible mistake and call a second referendum.

Not so many years ago, the current economic phenomenon of negative interest rates, massive quantitative easing and stock market highs accompanied by sluggish growth would also have been classed as unthinkable.

Now, several commentators call it the “new normal”. It may be “new” but it is difficult to see how it could be accepted as “normal”.

This new dispensation has generated the latest acronym JAMS, the ‘just about managing’, who have become one of the fastest-growing groups in the population.

It has given oxygen to extremist movements and left future generations with a legacy of debt that they are unlikely to be able to repay.

It has created an increasing gap between the rich and the poor, according to OECD figures.

The Central Bank’s QE policy is designed to help restore the balance sheets of the banks but it is hard to tell if it is working.

In Ireland, this new normality has inured us to the harsh reality of bad lending. It is not normal for more than 34,000 homes to be slotted for repossession. It is not normal for the high number of those loans to have been sold to unregulated vulture funds.

It is not normal for banks to function with 20% of their loan book in arrears. It is not normal for mortgage arrears advisers to report that vulture funds are more straightforward to deal with than the banks.

Recent mortgage arrears figures revealed a number of issues that should be of material concern.

In an economy with some of the highest growth rates in Europe it would be normal to expect that the bulk of the arrears problem would be behind us some eight years after the crash. Instead, the long-term arrears figures have hardly budged.

The consequences of this failure to tackle long-term arrears are very significant, ranging from the high cost we pay for credit through to the general dysfunction in the housing market.

What is predictable is that unless we change our approach and adopt a more comprehensive policy, there will be no improvement.

Last month, the Governor of the Central Bank Philip Lane told the Oireachtas Finance Committee that the domestically-focused banks had made considerable progress in working through non-performing loans; a sentiment which we have heard expressed repeatedly by the Central Bank from the start of the decade.

This comforting reassurance appeared to be contradicted by his acceptance that the outstanding volume of non-performing loans, of which mortgages account for more than half, remain high in both absolute and relative terms.

It sounds like more of Ireland’s ‘new normal’, involving a continuation of the arrears crisis, more repossessions, a continuation of the rental crisis and an increase in homelessness.

My wish for 2017 is that when the Governor makes an appearance in front of the Oireachtas Finance Committee this time next year he will have some actual good news to report indicating that we have returned to the “old” normal.

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