Wednesday, 2 September 2009

Letters from Ireland #4

The more serious debates going on in Ireland at the moment are, naturally, all about the economy. There is a palpable sense of a country at crisis point. Perhaps more than any country, Ireland, “the Celtic Tiger”, had been on a roll during its boom years. Jobs in finance blossomed, partly because the Irish Government lured the investment banks here with tax incentives and a relatively light-touch regulatory regime. (And here I will take the opportunity to point out once again how during my years on the Treasury Select Committee the Tory members were obsessive in harking on about how we were in danger of losing City jobs to Ireland because of high taxes and over-burdensome regulation. Funny how you don’t hear them saying we’re taxing the banks too much now!)

Housing prices went through the roof during the Celtic Tiger years; my father reckons his modest bungalow would have sold for €300,000 a few years ago, but would struggle to fetch €160,000 now. The evidence is everywhere of over-enthusiastic developers having been caught out by the economic collapse, with sparkling new office blocks and aspirational ‘executive homes’ standing empty. Unemployment is running high, at 12.3%, and the backlash has started against migrant workers from the EU accession states who are seen to be taking all the jobs. It was certainly true that virtually everyone I came across working in the service sector, from petrol stations to newsagents, to supermarkets to hotels, to the staff on Irish Ferries, had foreign accents and at least one ‘z’ in their name.

The Irish seem to be somewhat behind the game when it comes to taking action to deal with the banking/ economic crisis. The big debate is about the creation of NAMA (pronounced ‘narma’), a National Asset Management Agency, which will buy up bad property loans from the banks. There’s no sign of the Taoiseach (and yes I did have to check the spelling) in this debate. It’s Brian Lenihan, the finance minister who is in the firing line, being accused by his critics of bailing out banks and his friends in big business, rather than putting taxpayers first. The leader of Ireland’s Labour Party, for example, has been calling for nationalisation of the banks instead.

As Lenihan’s supporters have tried to stress, it’s not about bailing out the banks for the sake of the bankers; it’s because unless credit starts flowing (OK, trickling… or at least not gushing) again, there’s no hope of an economic recovery.

Lenihan is also looking at a report from a Commission on Taxation which has recommended, inter alia, a property tax, metered water charges for all homes, a tax on child benefit, and a cut in tax relief for high earners. There doesn’t seem to be much of a debate around spending cuts, but perhaps I’ve not been in the country long enough to spot that. And he's also coming in for some stick over the fact that the former chief executive of Irish Nationwide still hasn't repaid his €1 million bonus despite promising five months ago to do so.

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