Ireland cannot ignore the warnings of stock markets

The best way to insulate Ireland from any fallout from the potential of more global market turmoil, following this week’s Wall Street sell-off, will be to balance the books and invest in public services, according to Finance Minister Paschal Donohoe.

Ireland cannot ignore the warnings of stock markets

After a speech to Ibec business leaders on the ‘New, New Economy’, he told reporters the “best sources of strength” lay with investing in the country.

Mr Donohoe told the Ibec gathering of Government plans to spend €100bn over 10 years.

He said he wants to spark a debate on the best uses of the funds to help communities across the land.

“I think we have to put recent events in the context that we have now seen global stock markets and particularly American stock markets are on an upward trend continuously since March 2009,” he said.

“Much of which has been predicated on economic growth post-crisis and also expectations on future inflation and therefore future bond pricing.”

Balancing the budget will help insulate Ireland, and the country should “look at those levers that we can pull” to boost “the resilience” of the economy, said Mr Donohoe, referring to the €100bn long-term investment plan.

This week’s turmoil reflected the ratcheting up in stock-market valuations but there was “every reason to be confident about the kind of economy and society we can create”, he said, expressing his utter confidence in the country’s future.

Mr Donohoe’s assessment rings mostly true. The shockwave that hit Wall Street was notable because it had been forewarned.

One lesson from the financial crash is that market signals shouldn’t be ignored. The US TV business shows may endlessly repeat that economic fundamentals support US corporate earnings, bolstered by the experiment of tax cuts by President Donald Trump.

Similar claims were made in the years leading up to the global economic crash. World banks may be healthier — even though the scars still run deep across the soured Irish loan books.

The chances of stock markets getting things hopelessly wrong have increased, not lessened.

Dominated by oil giants, London’s Ftse 100 tells us more about global oil prices and big international firms than acting as a monitor of the financial health of British firms facing Brexit.

The big US stock indices are dominated by a handful of multinationals, Apple, and Microsoft, and Amazon.

Indeed, Wall Street looks a lot like the list of the top payers who contribute the lion’s share of the annual €8bn Ireland collects in corporate taxes.

Such are the risks to a very globalised Irish economy, no matter how much the Government invests.

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