OPINION:Some commentators are wrong to suggest the crisis has sentenced the country to decades of poor living standards
RECENT DETAILS of the truly staggering cost of tackling the banking crisis have understandably left many with a sense of hopelessness for our economic future. The grim public mood is understandable and justified.
Great damage has been done to Ireland’s international reputation and the reputation of Irish business. This has angered the broad business community in the same way as it has angered the rest of the country.
This anger will remain raw for some time, but it is essential that we channel our collective efforts into restoring the country’s reputation and our economic fortunes.
We have overcome economic challenges in the past, and the business community, for its part, is ready and able to again play a major role in the recovery.
Years before the property bubble began sucking resources from the productive parts of the economy, Ireland had a sustainable template for economic success. From 1993 to 2000, Ireland cultivated a dynamic, competitive, productive economy, which delivered growth, wealth and employment levels never before witnessed. We retain the skills and ambition to do so again.
Enterprise can again lead the country out of recession by doing what it does best: trading Irish goods and services, providing jobs, creating wealth and ensuring a sustainable economic future.
Despite the huge public resources required, definitively addressing the banking crisis was always going to be necessary, though painful. The wider economy will remain in the doldrums without a vibrant, competitive banking sector that is able to provide an adequate flow of credit to businesses and consumers. Bank recapitalisation is a necessary step towards that end.
At about 20 per cent of GDP, even excluding the risks associated with Nama, the cost is enormous. It is far above the cost of banking crises in other countries. The Swedish crisis of the early 1990s cost only about 4 per cent of GDP and the Finnish crisis, which occurred at the same time, cost 11 per cent of GDP. Our debt-to-national-income ratio is now likely to peak at about 100 per cent in 2012, if we include already established bank recapitalisation commitments. This represents a staggering increase from just 25 per cent in 2007 and illustrates the damage to our public finances brought about by the worst recession in the country’s history.
The scale of the money involved would appear to be overwhelming for a small country like Ireland, but it is important to keep the ongoing costs in perspective.
Excluding the risks associated with Nama, recapitalisation is estimated to cost the Irish taxpayer about €33 billion. The debt servicing cost on this will be €1.5 billion annually, which equates to a daily cost of €3 for every household in the State. Although substantial, it is a fraction of the cost that has been erroneously suggested by some commentators. This is hard-earned money we could all find a better use for, but is nevertheless a manageable burden if the other parts of the economy begin to work again.
It is, therefore, wrong to suggest that the crisis has sentenced the country to decades of poor living standards and impoverished public services. A national debt of 100 per cent of income will place Ireland somewhat above the EU average, but well below countries such as Belgium, Greece and Italy. Ireland will most likely exit this global crisis with a national debt similar to that of the UK.
The resources devoted to overcoming the crisis nevertheless represents a depressing lost opportunity. The money could have been invested in delivering world-class public services and infrastructure, but unfortunately we have more pressing concerns.
Getting people back to work is the single biggest challenge facing this country. While the economy is now on the verge of exiting recession, the shape of the recovery and its capacity to generate new employment will depend significantly on the Government’s enterprise and employment policies, and on the capacity of private enterprises to grow.
To drive economic recovery, the Government must also revisit the public capital investment programme. The pipeline for new capital projects has become worryingly empty. The Government urgently needs to set out a revised investment programme for the coming years, which takes into account the policy implications of Nama and the new reality of the public finances.
A year and a half ago, the Irish economy nearly collapsed. Domestic fiscal and financial woes collided with a global economic tsunami that prompted questions as to whether we had any control over our economic future. Since then, things have improved, and thousands of businesses across the country continue to successfully trade their way through the crisis. While major challenges remain, we have passed a number of difficult but crucial milestones on the way to recovery.
The economic crisis will leave emotional and financial scars on Irish society, but the best way to overcome these is through rebuilding. It has reinforced the need to foster an outward-looking enterprise-led economy. This is where our economic success came from in the past, and it is where our future must rest. To achieve this we need to work together and take advantage of new opportunities as they arise. It means dealing soberly and decisively with the economic realities we now face.
We all need to look forensically at what went wrong. We must learn the lessons and ensure that a crisis of this magnitude never happens again. While we cannot change the past, we must change our future.
Danny McCoy is director general of Ibec, the employers’ representative body