Despite cheap money, families remain homeless

The European Commission, still sensing the Brexit tremors beneath its feet, this week ignored its own regulations and chose not to fine Portugal and Spain for failure to comply with fiscal limits.

Madrid and Lisbon have made big inroads into reducing their budget deficits — but they still missed the official targets.

Like a canny referee on All-Ireland final day, the EU’s executive arm knows an over-zealous application of the rule book at this stage of the game could lead to rancour in the stands and criticism in the commentary box.

This wouldn’t be the first time Europe has waved play on. When Germany and France borrowed more than they should in 2003, there was no real punitive action.

The catchily-titled Excessive Deficit Procedure was dreamt up to keep Germany happy.

Bundesbank officials could sleep soundly believing that fiscal rectitude had been imposed on the eurozone’s less trustworthy members.

The rules did nothing to prevent Ireland from carrying the ball out over the touchline and crashing into the hoardings.

The State didn’t borrow recklessly during the boom. Our debt levels were well within acceptable levels; our budgets were balanced.

Yet, by 2011, we were laden with mammoth borrowings and desperately trying to close the gap in the public finances. The rules were utterly useless in preventing disaster.

But here we are in 2016, adhering to the new and improved fiscal playbook in Ireland.

The good lad, who refuses to pull the opponent’s jersey, Ireland now finds itself trying to rebuild its public infrastructure and solve a chronic housing crisis within the confines of Europe’s ‘fiscal compact’.

It is certainly compact — leaving little room for governments to borrow money regardless of their need to do so.

In 2003, the German finance minister Hans Eichel argued against the strict pursuit of deficit reduction — saying cuts would damage Germany’s fragile economic recovery.

But come 2012 and Germany’s new found love for belt-tightening won the day. Ireland, dependent on European monies, signed up by referendum.

Fiscal stimulus, namely efforts to grow an economy through public investment, is largely a thing of the past.

Hence the carry-on that ensued around the establishment of Irish Water. Ireland’s investment in its crumbling water infrastructure needed to be ‘off balance sheet’.

In the end, the protests and non-compliance buried the utility and put the argument to bed. Not enough people paid up and Eurostat proclaimed it to be on balance sheet.

So much for that.

The more recent example has been Simon Coveney’s housing plan. With families crammed into hotel rooms at great expense to the State, mandarins at the Department of Housing have spent months trying to decipher the cryptic Eurostat rules.

They don’t want their social housing plans to offend some number-cruncher in Luxembourg after all.

All this at a time when Ireland’s borrowing costs have never been lower.

Certain types of new borrowing would effectively represent free money. But no, we must run around trying to drum up schemes that satisfy the rules, like the torturous Nama social housing model — in which the State pays for homes to be built, leases them to housing bodies, which then sublet them to social housing tenants... Who are we kidding exactly?

For five years, the country was effectively allowed to fall into wrack and ruin. As it tackled the debt mountain foisted upon it, there was little to spend on schools or hospitals, to build bypasses and to fix pot-holes.

In 2014, the rate of public capital expenditure here was the second lowest in the EU. The lowest was Cyprus. As a result, a huge gap emerged. The current capital programme of €5bn over five years won’t come close to restoring the public infrastructure to the trajectory it would have been on had the crisis not happened.

The softer treatment of Portugal and Spain amplifies the point that realpolitik will always trump seemingly inviolable rules.

The EU, with Brexit on the agenda and Italian banks teetering again, has chosen to ignore the fiscal compact.

The Irish Government may well win some additional fiscal space in its discussions about Ireland’s structural deficit, but it won’t amount to much.

With our debt ratio improving all the time, and cheap money readily available, it is infuriating to think that homeless families will remain in hotel rooms and water will continue to leak into the ground for fear that the over-zealous referee in Brussels might brandish the black card.

  • Paul Colgan is economics editor at Ireland Live News on UTV Ireland.


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