The Central Statistics Office recently confirmed that economic output in Ireland grew a spectacular 6.5 per cent in the first quarter of 2015 from a year earlier, as measured by Gross Domestic Product (GDP), making it by far and away the fastest growing economy in Europe. However, Eurostat’s ruling the previous day that Irish Water will have to remain on the State’s balance sheet stole the limelight amid concerns raised about its commercial status – something that has become a feature of the current government.
Taking a big picture view of the economy, positive developments over the last four years – resurgent economic growth, reduced unemployment, record low borrowing costs, etc. – have been continuously overshadowed by the Government’s mismanagement, at a micro level, on the provision of social services and the growing sense of inequality. The haphazard implementation of Irish Water is the classic example: a stream of negative headlines, distraction after distraction, all of which could have been avoided.
Irish Water was doomed from the outset when water charges were linked to the bailout deal with the Troika. In this context, instead of being viewed as a payment for the provision of public water and wastewater services, it came to be seen as a payment to bail out the bankers, the bondholders and the elite. Of course, it was made worse by the Government’s lack of strategic direction and reports of excess when the utility was being set up. Hence, they were never going to be able to change opinion on the true agenda behind Irish Water, as much as a proper functioning Irish water utility makes sense.
I have no political bias, nor am I inspired by many of our political leaders. But it is worth remembering that when the Fine Gael-Labour coalition came to power in 2011, the economy was on the rocks, almost every economic indicator was flashing red and the outlook looked bleak. We were effectively on financial life support from the Troika. After serving as Fine Gael leader since 2002, it is clear that handing Enda Kenny his debut as Taoiseach was not so much a reflection of the people’s confidence in his leadership skills, rather than an indictment of the previous Government’s failings. People just had enough of Fianna Fáil.
Four years on, presiding over the fastest growing economy in Europe, with GDP surpassing the pre-crisis peak, one could be forgiven for thinking the Government should be riding high. The recovery we have seen in Dublin has not reached all parts of the country in the same way yet, but rebalancing an economy so heavily skewed to the construction sector, prior to the crash, was always going to take time. Of course, GDP has its flaws in measuring the health of an economy but it is difficult to find one economic indicator that can encompass the inner complexities of all its stakeholders.
Looking from outside the country, the perception of Ireland as a place for doing business continues to be strong, based on our ability to continue to attract multinational companies, albeit helped by our favourable corporate tax rate. Certainly the approval ratings from the international bond markets are high; the rate at which the State can borrow at over 10 years has fallen from near 15 per cent in 2011 to 1.26 per cent. The European Central Bank (ECB) has played its part, but as we saw in Greece, yields can rise sharply when a member state’s financial position deteriorates, even in an ECB inspired low-interest-rate environment.
Yet many people can’t wait to get rid of the current Government. What explains this disconnect between approval ratings at home and abroad? Domestically, the issue is the same issue that plagues all governments: their failure to efficiently allocate tax revenue for the provision of a sustainable and high-standard public service.
Pension levies, income levies, property taxes – and people are still wondering what is there to show for it. The healthcare system is still sub-standard, health insurance costs are soaring and public waiting lists are longer. Private pensions were raided while our tax revenue is being used to fund massive public service pensions. Perhaps most galling of all was the recent announcement of pension increases for the political leaders who failed in their duties leading up to the crisis.
Irish Water was just the tipping point. The explicit non-payment of water charges is simply the means by which the people of Ireland are expressing their loss of faith in the political establishment. It is not about paying for water. There is a feeling that not much has really changed under the current Government. The same old politics reign supreme: a system that bails out the banks and the wealthy elite, and where money and power are intertwined.
Economic utopia does not exist, but the current Government has missed a massive opportunity to set a new standard in terms of how the country is run. But can Irish politics change? I am not convinced.
Still, if Fine Gael and Labour can shift the focus to the big picture – the improvement in the broad economy – and away from the usual political shenanigans and the likes of Irish Water, they have a strong case for being given an opportunity to lead what should hopefully be the next stage of recovery.
For Enda Kenny and Fine Gael, being replaced as the leading party would feel like the equivalent of taking over as manager of a team that has just been relegated, winning promotion, and then being sacked the following year. Think of Chris Hughton; he took over as caretaker manager of Newcastle United in 2009 following relegation, gained promotion to the Premier League by winning the Championship, and was sacked the following December with the team sitting in 12th place. However, in the case of Fine Gael, the leading replacement is Fianna Fáil, the party who led the relegation in the first place.
Vincent McCarthy CFA is a senior investment consultant at Invesco Ltd