Ireland Calling by John Spain
In Ireland life revolves around the slip sliding economy
Posted on Friday, May 06, 2011 at 09:56 AM
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I once actually spoke to Simon back in 1965 in the Les Cousins folk club in Soho, a favorite haunt of a few of us Irish students who were doing summer jobs in London at the time, mainly working on building sites.
None of us had a penny because we were all saving for college, but you could hang out in Les Cousins all night listening to the music for a pound or two.
Simon didn’t have much at the time either. He arrived by himself at the small club which was in a basement under a restaurant in Greek Street.
I remember him opening the guitar case, tuning up and chatting away to the capacity audience -- about 50 of us. I think he got £50 for the gig.
That was good money for someone who was relatively unknown at the time, but it was still a bargain. He played and played into the early morning and we were enthralled by his songs, songs that went on to become global classics.
My daughter is a big fan. She’s part of the iTunes generation who know sixties and seventies music better than those of us who were there at the time.
She has a vast iTunes library (I know because I see all the songs on my credit card statement!) with James Taylor, Jackson Browne and all the rest of the greats from back then. It’s one of the best things about the iPod and on-line music. It’s brought great songs to millions who were not even born when they were first released.
Simon could fill a stadium here, but the upcoming Dublin gig is an intimate concert in a small hall called Vicar Street (although it’s still ten times bigger than the basement folk club in Soho). That’s why it’s sold out and why tickets are changing hands for small fortunes.
If we can get tickets, I’m going to shout up a request for “Slip Sliding’ Away.” It’s one of those songs that instantly transport me back to the old days.
And the title seems somehow appropriate for this country at the moment. Which is where this column slyly segues into yet more about the Irish economy.
The problem for any columnist here right now is that, in the end, everything comes back to the economic catastrophe that has befallen us. Of course there are other things going on, but everything else seems trivial in comparison. The elephant in the corner of the room is so enormous it cannot be ignored.
This column could focus on some of the other things that have been making the news, including the capture and killing of Osama bin Laden on Sunday. It could discuss why the Irish were glued to the TV coverage of the Royal Wedding, or the preparations for the visit by President Obama, for example. But there is an air of unreality about everything else. Somehow even events as big as that seem a distraction from what we need to focus on.
Moving attention away from the Big Question (how can we survive as a nation over the coming years without financially going belly-up?) seems like we’re dodging the elephant. It’s like we’re pretending the problem is manageable. Or that it’s slowly getting better.
It’s not. It’s getting worse.
Last week the government revealed that growth this year in Ireland is likely to be 0.7%, not the 1.7% that had been estimated in the budget in December. And the official forecast for 2012 has been downgraded as well.
In normal times, this might not be such a big problem. But it’s a huge problem now because our ability to get our budget deficit down and make our repayments on the EU-IMF bailout are dependent on growing the economy so that tax revenue increases and spending on welfare falls as more people find work.
Our four or five year plan to get our economy back on a sustainable path depends on growth. Without that growth we are, as Paul Simon sings, Slip Sliding’ Away.
You will remember that our agreement with the EU requires us to get our deficit below 3% of national output (GDP), by the end of 2015. The target used to be the end of 2014, but the new government pushed that out by a year.
Even that extended target now seems unachievable, with some IMF sources last week predicting that it will be 2017 at the earliest before Ireland hits the target 3%, which is the agreed maximum deficit level under EU rules.
Our almost stagnant economy means tax revenue is still down and that the government now expects borrowing this year to be 18.2 billion euro compared with the original estimate of 17.7 billion euro. And it could be more.
That’s more or less where it was at last year. Which means we are still living way beyond our means. Tax revenues still only pay for two-thirds of what the government spends and the rest is being given to us by the EU-IMF.
If there is any improvement in our finances this year, it will be fractional. It will not be nearly enough to get us back on track.
None of this is a surprise. You don’t have to be a government economist to be aware that the economy is still in the dumps – the closed shopfronts everywhere tell us that, as does the number of people out of work or emigrating.
The official figures that were released last week came in the first progress report on how the economy is performing since we got the bailout. The report, called the “Stability Program Update,” has to be produced every quarter for our masters in the EU.
These new rules also require us to submit budget plans for assessment by the EU Commission. The government is insisting that the planned 3.6 euro correction due in next December's budget will not be increased, even though it’s now clear we won’t be meeting our targets this year.
The government is saying that any deeper cuts needed to make up the lost ground will be pushed out to the budget for 2013. But it remains to be seen whether the EU and the IMF will accept this, or whether they will insist that deeper cuts must be made in the budget for 2012 in December.
My bet is that the EU won’t appreciate our long-fingering approach to the problem and will insist that we make an adjustment (the polite word for cutbacks) of ***5 billion euro in the December budget. The fact is that the deficit this year is still way up there and next year it won’t be much better (8.6% compared with the target of 7.3%), according to the new figures.
The government is blaming higher interest rates on its borrowings, the huge welfare bill and so on. But the real problem is that significant growth has failed to emerge, growth that would have paid some bills and kept us on track.
What all this means is that we have some very severe budgets coming at us for the next three or four years at least, with massive cutbacks in state spending and tax hikes.
The original plan for our recovery was based on steady and increasing growth, with the economy growing from next year by an average of 3%. Based on the figures we got last week, this now looks hopelessly optimistic.
What that means is more and more cutbacks, which will make the depression even harder to turn around since there will be less money out there.
One scary item in the government figures released last week was the forecast that interest payments on the national debt will gobble up around 21% of tax revenues by 2015, compared with just 3.5% of revenues in 2007. And that’s just to pay the INTEREST on the debt.
For the ordinary person here what all this will mean is that there will be no extra state money to spend on anything. Instead, services will be cut and our standard of living will fall sharply.
It also means that all those promises made by the new government during the election are out the window unless they can be paid for by cuts elsewhere. Or as the IMF guys like to put it, they have to be budget neutral.
The first casualty of this is the so-called Jobs Initiative which was a key election promise by Fine Gael. The government has now admitted that there will be no new money for the Jobs Initiative Fund. The promised jobs budget is not going to happen because reducing the deficit has to be the priority in any budget, not extra spending on government programs.
The cost of the Jobs Initiative -- which it was said during the election would put thousands of people back into work -- will have to be paid by reducing spending elsewhere. So it’s unlikely to happen to any significant degree.
There is a way out of this mess, of course. But it requires a complete change of strategy by the EU and the IMF, involving an acceptance that Ireland can’t pay back everything and that foreign banks and bondholders are going to have to take a major hit.
If that doesn’t happen, we will end up defaulting anyway and Greece and Portugal may default as well. The money markets are already betting on this.
Maybe I should ask Paul Simon to dedicate “Bridge over Troubled Water” to us instead?