Sunday Times - Money Comment - November 28, 2010

Posted by Jill Kerby on November 28 2010 @ 09:00

For bankrupt Ireland, there’s simply too little, too late


At the heart of The National Recovery Plan is the assumption that Ireland has four years grace in which to cut its deficits by €15 billion.


The plan assumes that “the prospects for a return to growth are favourable” and that GDP growth (an unreliable indicator of genuine economic activity at the best of times) will reach 1.75% by 2011, 3.25% in 2012, 3% in 2013 and 2.75% in 2014, mainly on the back of stronger exports. 



These figures are wildly optimistic, especially given the continuing debt crisis in Europe and America.



This plan reads as if it was written six months ago when the supremely deluded Minister for Finance and Brian Cowen, the Taoiseach, told us that the banking crisis was under control and the recession was technically over. Last September, they insisted that a €45 billion was a "manageable" estimate for the cost of the bank bailout.

They’re still at it. Despite the arrival of the IMF to our bankrupt shores 10 days ago, the government insists on page 14 of the Recovery Plan that  “The economy is emerging from recession.”


No it isn’t. 


The economy had a massive heart attack back in 2008 when the property bubble burst and the tax take collapsed. Not enough was done to try and save the patient, despite the cutting of public service pay and pensions and most social welfare payments (but not the state pension) and imposing crude health and income levies.


Instead we went into life support mode, guaranteeing the insolvent banks and getting Big Nurse at the European Central Bank to put up an intravenous line of cash.


The idea now that increasing taxes by €5 billion and cutting spending by a mere €10 billion over four years, will somehow work after allowing the national debt to soar to €250 billion, is a recovery ‘solution’ that only this discredited government could devise. 


The tax details hinted at in the 140 page plan, will be revealed on December 7th.  But this would have been a deeply flawed document even if it had been published back in 2006.


This Plan still favours higher earning public and civil servants, and there is little sign that universal social welfare benefits will be abolished. The property site tax, which should have been in place a decade ago, will still not be introduced until 2012.


While the middle classes are being told that a return to 2006 tax rates won’t be that great a hardship, no account has been taken of the huge personal debts that these earners accumulated before and even since 2006.  This is debt they cannot pay now, even with the benefit of a low taxes.



There was always going to be a day of reckoning for the spectacular economic errors we’ve made. This plan will not work – not over one year, not over four years, for one simple reason: the sheer size of our collective debt is too great, and so long as we remain within the eurozone, it cannot be repaid.


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Our only hope


Events may very well overtake the recent proposal from the government’s expert group on mortgage arrears and personal debt. The lifeline they’ve thrown out will probably be of use only to those treading water near the shore, who can afford to pay 66%of the interest on their mortgages. 


What is missing from this report, however, is debt forgiveness. The only hope for thousands of young couples with falling incomes and negative equities that is another of the groups recommendations, reform of our archaic bankruptcy laws, happens sooner than later.


A national bankruptcy plan, tough as it would be, is what the insolvent Irish state needs, too.

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