Brian Lenihan probably made the best fist he could of it

RICHARD BRUTON was right yesterday, sort of. In Ireland’s main trading partners, policy is geared towards stimulating growth and avoiding deflation. The Government’s approach, however, is to squeeze wages. While other countries attempt to boost their economies by fiscal expansion, Ireland is tightening its belt.

Time will tell which approach pays off best and fastest for countries. It is one of the ironies of the current situation, though, that Fianna Fáil and Fine Gael almost appear to have swapped sides.

No one would have been surprised if a Fine Gael minister of finance had delivered yesterday’s emergency budget. The best that could be said for it was that it was broadly progressive and sought to plan for export-led growth in the future. Populist measures were extremely thin on the ground.

By contrast, the leader of the opposition, Enda Kenny’s speech to his ard fheis on Saturday night had a welcome focus on jobs but, a graduate tax aside, there was little attempt to help prepare the country for hard choices and shared sacrifice. The message was simply Fine Gael would not have gotten Ireland into this mess. You pays your money and you takes your chance on that one: like it or not, we can’t rerun this decade.

Perhaps this political cross-dressing explains the state of the opinion polls. There is a big vote out there for motherhood and apple pie. Brian Lenihan knows that as well as anyone. Just look at all the hard decisions he put off yesterday: commissions and reviews here, there and everywhere, and promises or threats of even tougher measures next year.

Fianna Fáil’s problem is that it had a second audience to impress yesterday. (Yes, there is a Green component to the current government but its impact on Lenihan’s speech wasn’t immediately obvious.) Fianna Fáil had to do just enough to keep the international markets and the European Union vaguely onside. Having blown a gaping hole in the 3% deficit threshold, it had to be seen to be doing something and devaluation is not an option for as long as membership of the eurozone remains a sine qua non.

Some things are not in doubt. Ireland is suffering a deeper recession than any other eurozone country. The economy probably shrank by 2.5% last year and will contract much more this year, before hopefully levelling out somewhat the year after as America pulls through. Unemployment has already doubled, though, and the public finances are shattered.

When the bubble burst, it left a legacy beyond unsold houses and bad debts. The housing boom had chipped away the central pillar of Ireland’s offer, competitiveness. Inflation picked up and labour costs spiralled, again more than in the rest of the euro area. Ireland had become a rip-off in more ways than one.

Rightly or wrongly, the political debate seems to be not about how best to get out of this situation – although, as already noted, there is a large constituency for adopting an ostrich-like approach — but the degree to which the incumbent government is to blame.

There might be something in the Taoiseach’s claim that Enda Kenny’s ard fheis speech was a bit of a “cod” but, whether or not Fine Gael would have done any different if they had been in office, on the question of fault the verdict must go against Fianna Fáil.

IRELAND was not alone and the record shows that FF was egged on mercilessly by the opposition parties, but there was, as Richard Bruton put it, “spending like there was no tomorrow”. It might have seemed fair and generous at the time but it was out of control. There was no attempt to put something aside for a rainy day. A half-decent cause wanted cash and Fianna Fáil finance minister after Fianna Fáil finance minister shovelled it out the door.

They couldn’t say No, although – in fairness again — all the parties went into the last election pretending there were no such things as economic cycles and held out the promise of tax cuts aimed at different sections of society.

It all seems a very long time ago now, doesn’t it? Can it really be only two years since Brian Cowen was telling the Dáil “Ireland’s economy is strong” and “Growth is running at 5%, its ideal, sustainable level”? Things are scarcely ideal now. As recently as 2007, he was reporting “the fundamentals of the economy are still good” and “this Government will manage the resources available so that growth will be sustained into the future”.

It didn’t, and it hasn’t been. The Government itself says living standards will drop 8% this year and is having to revise its forecasts almost from month to month.

Cowen can’t take all the blame, although it cannot have been a comfortable experience to hear the man next to him admit, “More should have been done to contain the housing market”. His predecessor too, Charlie McCreevy, was just as prone to wishful thinking. It was as if the boom would never end. As McCreevy himself admits, the money was there, so he spent it. There was reinvestment aplenty, but little in the way of corresponding reform.

Cuts in income tax left the public finances too dependent on windfall revenues from VAT on new homes, capital-gains tax and stamp duty. Those revenues dried up swiftly once house prices and sales slumped, pushing the budget into deep deficit. As Brian Lenihan put it gently yesterday, “part of the gap between spending and revenues derives from structural problems in the public finances”.

The pity is that he went on to put the emphasis on raising more money, rather than cutting back spending and making the investment in public services go further. Out of a 7,500 word speech just 300 precious words were devoted to restoring competitiveness. The language was woolly in the extreme. Everything is hedged around by phrases like “where we can” and “with due consideration”.

Instead, the balance is almost exactly 2 to 1 in favour of tax increases in 2009 (and 3 to 1 over the full year) while, for all the fuss made of losing five junior ministers – saving very little indeed — the real job of paring back waste has been long-fingered again. We have to wait for the report of the bizarrely-named ‘Special Group on Expenditure and Numbers’ for that.

In the circumstances, though, Brian Lenihan probably made the best fist he could of it yesterday. Serious mistakes were made, some by him, but most by his colleagues. He had been dealt a terrible set of cards when he took on the job. What the economy really needs will not be accomplished in a day or even a year. In hindsight, it should have been an ongoing project. But hindsight is a wonderful thing.

Has he settled the situation in the eyes of the world? Probably, for now. Will he have to come back again with yet more proposals before he intends. Again, probably.

Crucially, has he gone too far for some of the backbenchers and the Independents? That remains to be seen. Fine Gael say they want an election. With some more hard decisions still in the offing, however, they should be careful what they wish for.