Ireland has to date met the terms of the EU-IMF bailout, but that does not guarantee a successful exit from the troika programme later this year. If that does happen, the Government will again assume responsibility for the management of the national finances. However, the recovery of economic sovereignty may well prove more apparent than real. Certainly, it will allow the Government some limited scope to soften the impact of austerity. But the Government cannot relax efforts to bring the public finances back into balance, and to reduce the high level of public debt.
Figures from the Central Statistics Office and the Department of Finance this week have indicated the scale of the ongoing challenge: in 2012, a €12.4 billion gap between what Government raised in taxes and spent, and this year, general Government debt is set to exceed €200 billion. After five years of austerity measures, much progress has been made in repairing the national balance sheet. Equally, very many people have paid a heavy price for that necessary economic adjustment – in higher unemployment, emigration and lower living standards. Much work remains to be done.
Whether the Government can exit the bailout programme will depend greatly on the state of the global economy and on the condition of financial markets by year-end. After leaving the programme, a route map for the journey ahead – an economic plan for this new departure – will be needed. The State’s ability to borrow on acceptable – affordable – terms will be determined by how the Government, post-bailout, manages the economy, and how it mobilises scarce resources to best effect. The Government, by putting a coherent economic plan in place and outlining its intentions, will help to focus minds at home and to reassure foreign investors of its seriousness in restoring the State to full solvency.
Admittedly, the Government has limited room for manoeuvre. Ireland relies greatly on an export-led recovery for growth, but for 2013 the outlook in its main export markets is poor: no growth in the euro zone economies, at best modest growth in the UK and moderate growth in the US. Nevertheless, the Government can influence what is within its control. Here, the focus, as Minister of Finance Michael Noonan, rightly, has said must be on investment for jobs. The Government's decision to use the residue (up to €6 billion) left in the National Pension Reserve Fund for that purpose could provide the cornerstone for such an economic plan. In the late 1980s, faced with a similar, albeit less daunting, crisis involving high debt and low growth, the domestic political response paved the way for economic recovery. In the current, and even more challenging environment, an economic plan by Government should attempt to do likewise.
