So, the FT has an op-ed on the Irish recovery. And it is, sadly, about as wrong as can be.
The op-ed starts with the facts, of the crash and the recovery. Then it moves into how this miracle happened (noting the actions of Draghi in reducing bond yields as key, a fact lost on the cheering chimps of cutting that lurk in Irisheconomy.ie .
In some ways Ireland has been fortunate. Its two biggest trading partners, the US and Britain, are both growing strongly. Its low bond yields owe more to the decisive actions of Mario Draghi, European Central Bank president, than to any decisions made in Dublin.
So, the external environment has been in our favour. And it has.
The FT has two main paragraphs on how we dunnit, whatever it was we dun.
The first is a doozy.
The costs of a bloated public sector were reduced with swingeing wage cuts and slashing the payroll.
Nice to see that they identify the real culprits – NURSES! :). Phew, that’s simple then. Reduce bloat, and get bigger. Sort of a conflation of the Neutron Diet and expansionary fiscal contraction.
Private sector wages have fallen by more than 2 per cent annually in the past four years, restoring competitiveness to industry.
Really wonder if that was all it took. If it was a mere 2% per annum for 4 years that’s a cut in wages of less than 8%. Given that wages are a part (how much?) of industrial costs, it seems unlikely that that would be the driving factor. The National Competitiveness Council 2014 report rings alarm bells, with a whole range of issues other than wages exercising its concern muscles – see page 4. I also don’t know where the numbers come from. The CSO data suggest that compared to Q2 2010 private sector wages are actually UP by about 1.5%.
Above all, the government recognised the serious risk played by its shattered banking system and took steps to rebuild it. Through its “bad bank”, the National Asset Management Agency, it made banks come clean about their losses.
Above offer excludes residential and buy to let (fester) mortgages. Honestly, this can only have been culled from a government press release.
By forcibly swapping toxic assets for safer government debt, it cleared the way for lending to start again.
Ah, the old “NAMA will get credit flowing” reborn as “NAMA got credit flowing”. Except, it didn’t. Lending hasn’t started again. A glance at the Central Bank Business credit data will show that credit growth rates to business have been negative since 2011. NAMA will do what again now?
It then goes on to say some frankly bonkers things
Instead, Ireland must rely on exports and on attracting overseas investment. Wage restraint has restored competitiveness, which alongside a flexible English-speaking labour force, make it a choice destination for multinational companies such as Pfizer, Dell and Apple. As a result, Ireland has a healthy current account surplus and investment growth of 15 per cent per year.
Hmm. Again the wages, despite ZERO evidence that they are a driver of good or bad competitive pressure. Again the haunting sense that this reads like something a politician might say. Again, a missing of the points that the Irish Balance of Payments is a volatile beast. A look at Table 1 of the CSO release will show just how. And don’t, please, mention anything about tax-efficient investment strategies, or the mysteries of how computers can be manufactured and sold from Lodz in Poland and appear as Irish exports.
For struggling eurozone nations it must be tempting to place their hopes in more effective action at an EU level. But recent efforts to pep up demand look insufficient. And for small, open economies such as Ireland external conditions are far less important than steps taken at home.
Yes, because when you trade with the world, what they have in terms of demand conditions are irrelevant. Some modern equivalent of Say’s Law holds at all times internationally, so relentless cost pressure (via wage restraint, regardless of whether that is relevant or not) is the only way forward. And don’t look for anything remotely like coordinated supranational coherence. Yer on yer own. And didn’t they say at the top that the external environment was the key? I’m confused.
This article first appeared on Prof Brian Lucey’s blog here.