Ireland: consensus on austerity
IRONIES abound on the Irish political and economic landscape today. The previous government, that of Garret FitzGerald's Fine Gael, collapsed when its coalition partner withdrew support to protest proposed social spending cuts. But when Fianna Fail, under the leadership of Charles Haughey, long regarded as a classic ``spend and spend'' politician, returned to power after February's elections, its budget was even more austere.
Now austerity appears to be achieving results - but government officials don't admit it unless they are really pressed. It is private forecasters who are hailing such good news as there is.
And as for the unemployment rate, nearly 19 percent: Government officials frankly call it ``appalling'' and note that it is likely to get worse before it improves.
The good news in all this, however, is that there is at last consensus on the government's austerity program. Opposition leader Alan Dukes, who has replaced Dr. FitzGerald, has announced that his party will support the Haughey government on economic matters. In effect, Ireland has a grand coalition government.
Ireland got into its present predicament in a way familiar to most of us: For years it spent more than it took in. The two main political parties are nominally right of center - ``Christian Democrats,'' so to speak. But over the years the Republic of Ireland has had a long tradition of government involvement in the economy. Huge sums have gone to social services, for instance - and not without results, as is evidenced by progress in eliminating rural poverty.
The economy, however, has been on a downward spiral for 10 years; the national debt has doubled in five years. Austerity is unavoidable, the government says. ``There are no choices anymore.'' The hope - already beginning, but only just beginning to be realized - is that austerity will push down interest rates and make investment easier.
Ireland has some specific problems:
Its tax structure: Ireland has very high personal income rates on a very narrow base, low corporate taxes, and almost no taxes on homes or farmland.
Its labor force: High birthrates mean that the economy would have to absorb quite a number of new workers just to keep joblessness from getting worse.
Its extremely open economy: Traditional fiscal stimulus doesn't work. Extra money in people's pockets tends to get spent on imports or travel.
Its currency: The Irish pound (punt) tends to get pulled in two directions at once, because Ireland belongs to the European Monetary System, but Britain, with which its economy is so closely linked, does not. Right now Irish interest rates are being held up by Britain's high rates, and that helps depress business confidence.
The Irish still have much to do to put their economy in order. Some kind of tax reform is obviously needed, to mention only one aspect. The heartening thing, though, is that the government is taking steps, and with a broad public consensus.
Third in an occasional series on Ireland.