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News : Irish Economy Last Updated: Dec 17, 2013 - 11:08 AM


Kenny and Ireland's dead cat bounce
By Michael Hennigan, Finfacts founder and editor
Dec 16, 2013 - 6:20 AM

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Enda Kenny, taoiseach, speaking to the nation, Sunday, Dec 15, 2013

Enda Kenny, taoiseach, made a broadcast to the nation last night to mark the official end of the international bailout and he deserves some credit for meeting the financial terms of the bailout and winning concessions from Europe on debt. However, the crisis provided the best opportunity for radical change since the late 1950s and now the time has passed. The Economist in a blog post titled 'Dead Cat Bounce' says that meeting the bailout terms "has done little to solve Ireland's underlying ailment: the fact that domestic activity - - roughly equivalent to GNP - - only accounts for 80% of GDP. As the multinational firms that account for most of the rest contribute little towards government revenue due to Ireland's super-low tax rates, Ireland’s debt burden will only become more sustainable when domestic firms start booming."

The reality was that despite election campaign bluster, the new government in March 2011 had little choice but to stick to the bailout terms and negotiate for better ones. The solo-run on the State bank guarantee at the end of September 2008 was evidence enough to the new ministers that the policy making apparatus had left a lot to be desired and adventures such as debt default and exiting the euro at a time of crisis, were to be avoided in a country with a very poor record in project management.

Reform has been glacial: it remains to be seen how productive more than 2 years of meetings in a room in South Dublin, discussing public service work practices line-by-line, will be, but change could not be remotely compared with what was achieved in Sweden and Finland in the 1990s.

The 1850s British Empire's state guarantee of employment for civil servants remains and in 2012 a job had to be created for the partner of Eamon Gilmore, tánaiste/ deputy prime minister, when her agency was abolished - -  on existing terms.

It took exactly 6 years after the onset of the credit crunch for Ireland to legislate to make it easier to prescribe generic drugs - - the State's drugs' bill rose from  €850m in 2002 to €2bn in 2013.

The taoiseach said in his address:

This week, the Government will publish a new medium-term economic plan that lays out the road ahead for our country. This plan will set out the steps that we intend to take to grow our economy between now and 2020.

It will be a plan based on enterprise, not on speculation. A plan to ensure that never again will Ireland’s stability be threatened by speculation and greed. We are never going back to that culture.

The plan will have two central pillars. First, we must continue to pursue prudent budgetary policies. That’s what convinces those who create jobs that Ireland is a place in which they can invest with confidence. Everyone knows that you can’t keep spending more than you are earning. As of today, we have already completed over 90 per cent of the necessary cuts and tax increases."

However last week a government spokesperson said the document of around 40 pages, will not be specific but will set out "high-level objectives" as well as laying out the overall plan as to how Ireland will meet its fiscal targets - -  in effect it will be more a brochure than a strategy.

Finfacts: Irish Medium-Term Economic Strategy 2014-2020: Exports to plunge by €50bn - Part 1-6

On Saturday The Irish Times reported that the IMF will maintain “intensified surveillance” on Ireland, Craig Beaumont, the Fund's mission chief for Ireland said. The Fund will retain an office in Dublin and carry out a second annual mission every year to monitor the Government’s performance, instead of just one IMF review under regular oversight of a country.

“We agree entirely that there is still work to be done,” he said. “It is often the case when a fund-supported programme comes to an end, there is a set of issues that still needs to be addressed," Beaumont said.

Mortgage arrears had started to flatten out but more resources are needed to “engage with the unemployed” to tackle the high level of joblessness while the Fund would be “very interested” in seeing how strong the Government’s medium- term economic strategy would be.

“My expectation is that it will set out a road map that people can monitor over time and see progress being made. The Government has built a reputation for its economic management and it surely would not want to harm that,” he told the newspaper.

The Economist absent the required reserve of IMF staffers, was more blunt:

What is painfully clear, for the all optimism and brave faces Ireland's political and economic elites have put on, the Celtic Tiger boom has drawn to a close. Ireland's banking crisis saw to that during the financial crisis, and its consequences continue to act as a drag. The Irish government could introduce structural reforms to boost the country's growth, but its politicians have more often sought to block, rather than support, such measures. In many ways, Ireland deserves much better. But with very little in terms of political will to force through such reforms on the horizon, it will be many years until Irish eyes truly smile once again."

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