IN JUNE the Central Statistics Office (CSO) told us that Ireland has re-entered, in a technical sense, the recession that most people haven’t felt us leaving. A recession is two or more quarters of negative GDP growth. It transpires that as of Q1 2013 we have been in recession for nine months, and it’s not looking good for the Q2 data that’s coming up.
In the UK the idea that the country was sliding back into recession for a ‘double dip’ dominated the political and economic narrative for over two years. The credibility and career of George Osborne, Chancellor of the Exchequer to our Minister of Finance, was inextricably linked to this notion that the country must not enter a second recession.
We have just entered our fourth recession since the crisis began. Michael Noonan’s response? “It’s one set of statistics,” he said, shrugging his shoulders.
The country is trying to struggle its way out of the troika bailout programme, get the deficit down so that we can start reducing our debt pile compared to the size of the economy and get folks back to work. So far we’ve been meeting the monetary targets for government deficits, through a combination of tax hikes and cutting into capital spending in particular. But on the key front of actual economic growth, we’ve not been performing and this is already keeping things like unemployment higher than they were planned to be.
2011 was actually a very good year. We were due to achieve 1.75 per cent GDP growth, but managed 2.2 per cent. Great, super, fantastic. Unfortunately 2012 was a dud: growth was supposed to take off even more like a rocket, as Noonan famously put it, to 3.25 per cent. We managed 0.2 per cent. This year was originally planned to be 3 per cent when the troika rolled into town. We’ll be doing well to achieve half that.
The official predictions tend to go like that: they give watery but soft growth figures for the year to come, and then all of a sudden two and three years out the economy is supposed to go from the doldrums to double or more the growth seen in prior years.
GDP is most interesting to economists, but most of us think more about the unemployment rate. According to the original recovery plan in 2010, unemployment was supposed to be down to 11 per cent by now. It’s at 13.6 per cent, and the new plan won’t see it get down to 11 per cent till 2015, two years late and a few euro short for all the additional folks who will be compelled to emigrate or who will lose their skills sitting on the long term unemployment rolls.
Though god may have put economists on this earth to make weathermen look good, a recent ESRI study of what might happen to the Irish economy was interesting in that they didn’t predict growth so much as give three views of what would happen to us in a high, mid and low growth scenario.
The low growth scenario isn’t pretty – and the medium picture that’s based on the government failing to sort the likes of our mortgage arrears crisis isn’t much better. Best case, with growth exploding to 3 and then 4 per cent in the next two years from recession today, we get to 5.6 per cent unemployment by 2020. Worst case, a still rosy looking 3.5 per cent GDP growth next year but dipping to 1.3 per cent the year after, and we stay at 11.8 per cent unemployment right to the end of the decade.
The outturn will lay somewhere in the middle, I suspect. But there is no scenario that predicts a return to the good old days, and there is a lot of room for poor growth particularly caused by “policy failures” as the ESRI puts it.
New jobs are being created in the economy, particularly in the foreign direct investment sector and its spin offs. But jobs are still being lost left and right and unemployment stats by themselves are half the story.
What’s really keeping our unemployment rate down is the fact that well over 300,000 people have emigrated and thousands more have left the workforce altogether. The participation rate has dropped from 64 per cent of the population to 60 per cent. That is a potential further 163,000 people who would have been working a few years ago, who aren’t counted unemployed but also haven’t emigrated. A further 80,000 people are on job training programs such as JobBridge and doing various courses, and so those people are not counted as being unemployed (much to their surprise, I’m sure).
Employment peaked at 2.16 million in Q1 2008 and it’s now at 1.86 million. Demographically to rights at full employment we’d have more than 2.16m at work today if we were still going full tilt. Beyond the headline unemployment figures there is a lot more mountain to climb to get us back to an employment level that can sustain our population.
The total human cost of unemployment multiplied by time that the economy remains in a funk for lack of proper solutions is difficult to quantify. People out of work lose lifetime earning potential rapidly. This knocks on into the life they can provide for their own children in future. All those who emigrate and settle abroad lead vastly different lives to the ones they may have, and the land loses sons and daughters who could be leaders and breadwinners for the nation in the future. Of course, unemployment and economic detachment also fosters social and mental health issues as well we know and often fail to properly address in Ireland.
And the “pro-growth-pro-business-pro-catchphrase” solution from government?
Well, for all the spin, consumer spending took its biggest hit since the start of the entire crisis in the first quarter of this year. It’s not hard to see why when taxes are going up 60 per cent faster than economic growth and we are also suffering the largest unresolved mortgage arrears problems of any country, period. The only rocket that’s taking off in Ireland is the number of mortgages in arrears. In other countries, they have proper bankruptcy laws and banks that are willing to go through the process of folks handing back the keys to houses they can no longer afford and freeing themselves to get on with life.
Unfortunately the Irish state owns almost all the banks, and certainly is on the hook for all their liabilities at this stage; and is already the largest single property owner in the world via Nama. There is a huge disincentive to see folks handing back houses to banks who will have to realise the losses, which in turn will require a bailout from the state to keep them going; and which will also likely pass even more property onto the books of the state.
Is the government taking a proactive approach to all of this? Of course not. They’re stalling for time, hoping against hope for a recovery in the European economies so we can get going again and afford to get out jail relatively free in several years. Meanwhile we have slow reforms designed to go nowhere very fast in insolvency regimes and mortgage restructuring that will condemn thousands to sit in purgatory until those magical economic fairies sort out Ireland for Michael, Brendan, Enda and Eamon.
Make no mistake, that is the plan: We will sit and we will wait for whatever scraps fall from the European table and the Irish government will do the minimum possible rather than take a chance on real reforms that might annoy a special interest group or two. The troika is, in official language, practically screaming at the government in their latest – and near final – reviews, trying to coax officials to push through long delayed reforms that will have positive economic benefits.
The troika is lamenting our efforts on mortgage arrears and unemployment, identifying the Department of Social Protection as a “critical bottleneck”… Strong words from bureaucrats. They know, and we know from past experience, that the government is simply trying to wait them out till the bailout is over and the good old boys club in Dublin 2 can get back into action without oversight.
The government will try to do the minimum to overtly annoy their special interests while leaving hundreds of thousands stuck in unemployment, mortgage arrears, or other forms of hell caused by indiscriminate cutting of frontline public services. They will shrug and ask “What can we do?” when they know perfectly well that there are avenues open to us to spark growth, if only they take on a few core constituents of their parties.
Instead they will seek to take what money they can – such as this famous extra €1 billion from the promissory note restructuring – to buy off a few clients, grab a few quick votes in time to save a few TDs their jobs and ensure a second term in office. What’s more important?
Unfortunately, of course, that €1bn isn’t actual cash the Irish government is generating. It’s just €1bn less than it had planned to borrow; and if we use it then we will simply add another billion a year to the debt pile. Non-banking related debt since the start of the crisis will be about €200bn by 2020, by the by, so that €1bn a year could save us €7bn off that borrowing if we don’t use it in 2014-2020.
Meanwhile, government spending in 2013 will be €54.6bn. That’s down from €56.4bn in 2007. Austerity? What austerity? Meanwhile, in Europe, the only countries that are growing at a decent clip are the Baltic countries. They, incidentally, didn’t run huge deficits, have low tax policies and are now rebounding with growth. So is Iceland. You remember Iceland? Those idiots who let their banks go to the wall? Booming growth, plummeting unemployment.
Both sets of countries took difficult decisions. Ireland, a country of political fudges, is looking likely to be stuck in a decade of stagnation to come. Take from that what you will.
Aaron McKenna is a businessman and a columnist for TheJournal.ie. He is also involved in activism in his local area. You can find out more about him at aaronmckenna.com or follow him on Twitter @aaronmckenna. To read more columns by Aaron click here.
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