Irial Ó Ceallaigh ponders the tough task of economic recovery, and why ‘Big Society’ Britain seems popular while Tea Parties and violence dominate America and France respectively.
When tackling a deficit crisis as large as the one we now face we should look outside our own national bubble and view how other European states have managed. Our biggest question now is how best to structurally reform our finances without killing potential future growth and in a way that can lower our interest rates on the bond markets. Equally important is the ability to demonstrate to the markets an ability to carry out these reforms without mass strikes or political turmoil. For the interest rate to drop, the government must not only sell its austerity package but also its own ability to implement it.
The bond markets thrive on statistical data and for the rate to drop before we borrow again next year we would need to offer detailed information on budgetary reform, ambitious multiple-year plans and precise figures on intake and losses. All this means nothing without the ability to ensure the markets that these cuts will then be implemented. So far the markets are understandably worried with a Minister of Finance that has continuously and grossly understated the level of deficit; also, the fact that reform plans have still not been outlined and will remain so until after the by-election and in full on December 7th.
Another key component in selling this package to the bond markets is the political capital of an executive to implement reforms. A need for a new course, away from the abyss of bankruptcy, the IMF and executive exclusion from the EU is accepted by opposition parties but in the austerity package the government coalition must not only satisfy them and the markets but also the Irish people, unions and their own backbenchers. If the measures are to have any hope of successfully implementing structural reform, before the IMF does, they need to balance the needs of all concerned and not fall from power.
Ireland is not alone in the need for structural reform, although our case is more acute. Our closest neighbours to the east, in the UK and France, and to the west in the US, are also in the process of huge reforms with massive social implications. Dealing with the deficit has led to deep cuts in the UK, pension reform in France and the rather easier option of printing more money in the US. The UK seems to have sold its austerity package to the markets and the public. This contrasts with France and the US in that the public has seemed somewhat willing to accept social and fiscal reform without major social upheaval.
The secret is that in the UK, (although it can be argued that David Cameron, as a newly elected PM, carries more political capital to implement reforms) many say that it was his ability to sell these reforms that maintained relative social stability. The Conservative/Lib-Dem alliance cleverly coupled the unpopular idea of spending cuts with the more accepted idea of the need for smaller government and rebranded budget cuts into the concept of ‘Big Society’ which gives supposed power to the people and forms community spirit. Ed Miliband himself described the idea as an attempt to glorify increased hardship on the poor and vulnerable. However the sale has worked and the UK is now seen by many economists as being on the way to recovery. In stark contrast to this we see huge social upheaval in France and the US.
The French Government’s austerity plan, centering on pension reform, has encountered huge opposition from French society symbolised in the strikes. Although a culture of protest exists in France the scale and intensity of these protests was huge. In the French case, cuts implemented to deal with the deficit were not sold to the French people but rather forced. In the US the Tea Party movement and the recent swing in electoral support (especially after the passing of ‘Obamacare’) indicates that spending your way out of a deficit can equally be as powerful a mechanism in forcing the public react. Tackling the deficit is the number one binding force of the movement. The ‘great communicator’, Obama has been attacked for not selling his message and the logic behind economic measures taken. The international community has also attacked US fiscal policy and Obama has failed to garner international support which has led to his fall from the top of Forbes Most Powerful People in the World list. Like Cameron, Obama and Sarkozy have passed their reforms but unlike the PM they have not sold austerity in a way that would have made society more accepting.
Marketing and perception have a vital role in sales. Brian Lenihan must now sell something to the Irish people that nobody wants; but there are signs of hope. Firstly, the EU will not let the Irish State fail; secondly, the Irish people realise the magnitude of what faces us, and most importantly Fine Gael and Labour would rather see Fianna Fáil and the Greens implement the deepest cuts in Irish history rather than they. This four-year plan will have to be the mother of all sales. Brian Lenihan must not only sell it to the markets but to the ECB, to coalition ministers and supporting independents, to the opposition parties who carry through the cuts, to the unions and to lastly to the people. If one of these does not accept the measures then the IMF will probably be here by Christmas.