IRELAND’S ECONOMIC crisis is attracting more and more international attention. Yesterday Angela Merkel indicated that Germany will consider assisting Ireland and other euro zone members in financial difficulty if they are frank about it. In Dublin, Jean Claude Trichet, president of the European Central Bank, praised our economic achievements and prospects but said hard decisions must be taken to correct fiscal shortfalls, policy mistakes and loss of competitiveness.
Resolute action by the Government to tackle the crisis can attract solidarity from key EU partners – and avoid unacceptable conditions they might impose if it is not taken.
Yesterday there were hopeful signs that political leaders now realise why they need to act together for the national interest to head off an international rescue effort. The elements of a plan to tackle the crisis became more visible as Brian Lenihan said the tax burden has to increase, Enda Kenny agreed a budget is needed soon, and Eamon Gilmore called for a three-year plan to repair the State’s finances. It should be possible and it is certainly necessary to transcend normal political competition ahead of June’s European and local elections by finding cross-party agreement on a plan combining these three components. Those parties which make the most convincing case for national recovery will gain most.
Taxation is crucial to any plan for economic recovery. The gaping hole in the public accounts cannot be filled by expenditure cuts alone, but requires extra revenues to replace the windfall taxes lost when the property boom collapsed. It will be impossible to convince trade unionists that the burden of recovery is fairly distributed unless they see that the high earners and owners of wealth who benefited most from the boom are paying their proportionate share by increased taxation. If that is done it should be possible to find agreement between the social partners on a three-year programme, including pension levies, that would also command wider political support. An emergency budget could be framed that would not prejudice structural reforms recommended by the Commission on Taxation. Indeed, its work would have more legitimacy if it reported in such a political setting next July or August.
While it is good news that German leaders are moving towards greater European solidarity in confronting the crisis, yesterday’s reports from Berlin make it clear this would come with conditions. These could include a review of Ireland’s low corporation tax regime, long a bone of contention for Germany and France. Mr Trichet’s upbeat comments on Ireland’s political ability to manage a recovery are welcome and encouraging, but he also insisted that lessons about the dangers of short-term, pro-cyclical policies must be learned.
Dr Garret FitzGerald warned yesterday that unless political action along these lines is taken urgently this State will lose its independence and find external solutions imposed upon us. It is better by far that we emerge from this crisis under our own control. EU solidarity would then help us find solutions, not impose them.