Tuesday, 1 February 2011

Cometh the hour...

Slí Eile: If the experience of the past 30 months has shown us anything it is how unstable, unpredictable and volatile the domestic economy is and, along with it, domestic politics. The range in GDP or GNP forecasts is one such indicator. It is easy (and convenient for some) to forget about 'turning the corner' and 'green shoots' around this time 12 months ago. Times move on. In terms of GNP the latest forecasts from the IMF indicate continuing contaction all the way up to early 2012 where they forecast an extremely modest growth of 0.8%. The Central Bank is more upbeat projecting 1.5% growth in GNP in 2012 following more contraction this year. Behind this headline figure are three significant underliers:

* Falling consumer demand up to the end of 2011 followed by scarcely any volume growth in 2012 (+0.2%).
* According to the Central Bank investment (Gross Fixed Capital Formation) will slump in 2011 and decline modestly in 2012 and
* government consumption will continue to decline in 2011 and 2012. All of this is according to the Great Four Year Plan.
You have guessed where the leap comes from - exports. They are set to grow by around 5-6% per annum this year and next following a big spurt in 2010 at 8%. This is very much driven by a recovery in world trade - at least for now.

Economic policy has become a one-hand-clapping strategy = WAGE CUTS = COMPETITIVENESS = EXPORTS = ECONOMIC RECOVERY. That's the message plain and simple. Sorry about unemployment, poverty and emigration. There is no alternative. And silly any politician who tries to negotiate on the overall size of the deflationary strategy (as distinct from the composition and timing of this) - the received wisdom is that beggars cannot be choosers and we have no cards left to play. We just have to take it on the chin and keep driving wages and public spending down until market confidence is restored. But, you can fool some of the markets all the time and all the markets some of the time. But, you can't fool all the markets all of the time. Hello Eurozone crisis II.

If the IMF and Central Bank (and ESRI) happen to be right then the prospects for employment and consumer spending and infrastructual investment look very bleak indeed - and these along with exports are vital to recovery and debt-reduction in the long-run. In political terms the authorities have chosen to 'default' on the home labour market with high numbers out of work and emigrating rather than 'default' on private debt now transferred to citizens' debt.

To argue, as some do, that deposits and bonds are on an equal footing in Irish law is outrageous, If this stands up in any court then change the law. People as in children, the sick, the young unemployed as well as everyone else come before man-made laws.

In relation to forecasts, it would be more accurate to describe these as technical working scenarios based on a particular set of assumptions (which are not always spelt out in public). In other words, the foreseen future is based on past relationships and future extrapolations based on particular chosen assumptions. Nothing fundamentally wrong with that - but lets not imagine that anything in this world quite behaves and reacts like the way macro-economic forecasting says it must. Markets, Governments (and the weather!) have a mind of their own. And so do voters later this month.

What is so desperately needed now, today is a coherent set of agreed policies on a wide range of key issues that can command a progressive consensus. Such a consensus needs to spell out the 'non-negotiables' - the red line issues beyond which no party to the agreement will go into Government or support a Taoiseach. One may not transform Ireland in four years and achieve well-being, prosperity and fairness all at once - but it is the direction of movement that matters and the soundness of any strategy to address the twin scourges of unemployment and debt (all types of debt and not just governmental and corporate-banking).


Ronan L said...

The problem is, as I understand it, that lots and lots of the bondholders there in 2008 have gone, replaced by ECB deposits. So by the time someone gets around to try to hit the bondholders, Houdini may have struck and it will be only deposit holders left.

(At which point, you convert any deposits from one household or institution of over say €100m, into bank shares...)

David O'Donnell said...

Is the Labour Party a touch blinded by the thought of power? If a Labour Taoiseach emerges, I'll buy the 'coyness' - if not, then best opportunity to lead, and more importantly institutionalise, a Strong Pragmatic Left Social Democratic Alternative will have been lost.

The level of socialisation of private banking debt is obscene. Sinn Fein and Joe Higgins et al at least address this issue head on - most has escaped but there are alternative options.

Martin O'Dea said...

I am feeling the need for a social democrat party in Ireland. My technological based optimism is available and, having now a number of years of problem resolving and 'ironing-out', ready. In truth I am or was until recently a member of the Labour Party - and, indeed, nearly ran for office but through my own fault did not proceed.
I, like everyone else see people that matter to me unable to get employment - some during their forties and I feel helpless, and infuriated but not because I see no way out - I see nothing but ways out (and to quote one of our political cliches just a bit of joined up thinking and certain set of principles plus action and we get to 2020 in a much much better manner than the course we are now taking. I believe currently, that Labour has the principles but is missing the other two and perhaps this is purely due to a final ingredient a political movement would need and that is a starting point that is at a remove from politics.
May seem like an odd time to start - but it should always be about what you can do and the game of politics should not exist

I heard a man say recently that he loved his party, he had discussed the concept or loyalty in the past. This whole perspective (particularly when added with his successor who had claimed that winning was the thing that mattered) did not work out too good - and, in truth, with a little thought - it never could

Slí Eile said...

@Ronan You raise an important point. Now am I being offbeat to suggest that the absence of clear, accessible data on who owns who what and how much is guaranteed/not is an accident or a convenience. You have a good handle on data - you might point us in the right direction?

@David - banking is the achilles ...much will come to grief until Ireland is freed from private debt.

@Martin As Brian Cowen eloquently said yesterday in the Dáil 'I urge the people to examine the policies being advanced by each of the parties and to cast their vote accordingly.' It is the best most of us can do at this time.