I was in the US last week meeting IMF and world bank officials, economists and think thanks. I wrote yesterday in the Sunday Independent about how they thought Ireland was doing, compared to how we’re actually doing. They were under the impression that we were best in the bailout class. However, when I made them take a closer look at some of the underlying figures, they were shocked. Here’s the article in whole…
Last Tuesday I had lunch in Boston with four Harvard professors. I hoped to discuss one question: what can Ireland do to turn around our levels of national debt, household debt and unemployment? To my surprise, the view of Ireland’s prospects was decidedly positive. We had taken the hard medicine, were closing the budget deficit and our economy was growing again.
So I gave them the following two figures: 1) our gross national product (GNP) fell by 2.5 per cent last year and 2) our national debt was climbing towards 160 per cent of GNP. One of the professors paused, looked me in the eye and declared: “You’re screwed.”
Over the course of Wednesday and Thursday, I met a further 13 people in Washington DC — IMF and World Bank officials and a range of experts from leading American think tanks. Amongst those I met were renowned economists and advisers to the Bush and Clinton administrations.
The view was largely the same. Ireland was doing well; it was successfully differentiating itself from Greece, Spain and Italy; it was on a path to recovery. But once the 2.5 per cent and 160 per cent figures were thrown into the mix, optimism faded.
These experts knew that no country had ever repaid that much debt without being able to print its own money. They knew that without a significant reduction in the national debt, a lot of people were not going to get paid back the money they had lent us.
They knew that economic growth and large-scale job creation would be next to impossible with the current levels of household debt. They knew that a country whose GNP was still falling by 2.5 per cent in the fourth year of a crisis was most definitely not on the road to recovery.
What, then, is causing this positive view of Ireland’s prospects across the Atlantic?
The first reason is marketing. It is the result of the Government’s efforts to project an image of stability. This, it believes, is necessary to attracting foreign investment. Our senior politicians may have no economic or financial training or private-sector experience, but by God they know how to tell a good story. It is for this that we keep electing them, after all.
The second reason is technical. In evaluating Ireland’s economic prospects, analysis tends to focus on gross domestic product (GDP), rather than GNP. GDP is a measure of the total value of goods and services produced in the Republic in a given year — so it includes revenues for the foreign multinationals. But much of this revenue leaves Ireland for the US in the form of repatriated profits, and does not help Ireland’s ability to reduce our national debt.
GNP, on the other hand, considers only the productivity of Irish-owned companies, both here and abroad, and as such is probably a better indicator of our ability to service the national debt.
GDP and GNP are roughly the same for most countries, so it doesn’t matter which is used. But it matters for Ireland. The large number of multinationals here means that Ireland’s GDP is over 20 per cent higher than its GNP. So if you use GDP, you get a much rosier picture than is the reality for Irish companies. You see a small amount of economic growth for 2011, but miss the fact that GNP fell by 2.5 per cent. You see a debt-to-GDP ratio of 120 per cent (which is also unsustainable but just barely within the realms of make-believe), but miss a debt-to-GNP ratio of closer to 150 per cent. This leads only to the question: ‘Who do you think is going to not get paid back first?’
The third reason is social. Foreigners, both in the US and across Europe, see that there have been virtually no public demonstrations against what has happened here.
We talk of the gross injustice of forcing a society to pay the debts of professional investors and of surrendering their sovereignty to foreign technocrats as a result. But surely, the logic goes, if the truth was really this objectionable, then the Irish people would at the very least march in protest.
This lack of public demonstrations perplexes international observers when they find out what really happened here. A French civil servant with whom I discussed this recently gave a gallic shrug and said: “In France, we simply would not tolerate such a thing.”
A US official commented that he was utterly bemused by Irish inaction and that such treatment would never be accepted by the American people. There have been large-scale demonstrations in every European country affected by the euro crisis — except here.
Why is this? Typically, it is unions who have the ability to mobilise large groups of people in peaceful protest. But the unions were bought off early with the Croke Park deal, at an enormous cost to the country. We may yet see the unions try to mobilise, but if they do, it is likely to be in order to protect unaffordable wages, rather than for the good of the country.
The current Government, when in opposition, did not try to mobilise people. How could they, given that they supported the bank bailout and voted to give the then finance minister, Brian Lenihan, virtually unlimited powers to funnel public money to bondholders?
Now that they are in power, they are very keen to keep people off the streets. They want Ireland off the front pages of the international press. They don’t want potential investors to see public marches. This is a very dangerous game. Pretending that everything is okay while the foundations are collapsing is exactly what happened in Argentina — to disastrous effect.
It makes it very difficult to inject any sense of urgency into the ECB and European Commission for a major reduction in our national debt. It also allows the banks to continue to refuse to pass on any of the €7.5bn that we gave them to deal with distressed mortgages, thereby continuing to strangle any hope of economic revival.
It means our allies in the US don’t realise how bad the situation here really is and therefore they may not be aiding our diplomatic efforts for a deal on the debt as strongly as they might otherwise do. It sends out the signal that if the Irish people are not protesting, things must be okay.
And to our Government, a continued lack of protest is interpreted as follows: “We’re happy about how you’re approaching this, we’re okay with you ignoring our election promises and with the fact that we are continuing to implement Fianna Fail’s strategy of doffing the cap, paying off everyone’s debts and hoping this will sufficiently ingratiates Ireland with powerful foreigners that they cut us a deal.”
Of course, we are angry. We’re furious. But in public we have generally kept our heads down and avoided making a fuss.
But not all of us. The good people of Ballyhea and Charleville in Co Cork have been showing their opposition to the bondholder bailout since March 2011. That was when Enda Kenny broke his pre-election promise of burden-sharing with the bondholders. It was 81 weeks ago.
Every Sunday since then, they have held a walk to remind our political leaders that they are not happy with their money being used to make a fortune for speculators. Tomorrow, to mark the start of the new Dail term, they are taking their march from Cork to Dublin.
As they make their way, tomorrow and on Tuesday, they will stage short walks in Nenagh, Roscrea, Portlaoise, Kildare, Newbridge, Naas and Bray. At 2pm on Tuesday, they will walk from the Garden of Remembrance to Kildare Street, where they will hand a letter in for the Taoiseach objecting to the €64bn bank bailout.
They are not alone in this sentiment. The latest IMF report, out last Monday, contains numerous references to the stupidity of what has happened and to the need for the Irish people to get their money back from the banks.
It does not help Ireland’s case for everyone to think we’re on the road to recovery and that we accept what has happened. We must take the hard decisions on the Budget whilst speaking the truth about the debt. This problem cannot be ignored away. It is only with a major breakthrough on the debt that we can begin to rebuild.