Why Irish eyes aren’t smiling

Ireland and Canada offer contrasting warnings from the front line of the budget deficit wars.

As he softened up the public for his brutal austerity package, George Osborne contrasted the coalition, steering Britain out of the "financial danger zone", with the wretched condition of our closest neighbour, Ireland. His put-down would probably have resonated with his Anglo-Irish aristocratic ancestors. Heir to the baronetcy of Ballintaylor in Tipperary, the man in charge of the British Exchequer doubtless laments the demise of the old Ascendancy that ruled John Bull's other island for so long.

Yet the reality is that our rookie Chancellor, along with his cheerleaders in the right-wing press, has been swallowing wholesale the dangerous blarney about the benefits of draconian budget cuts that has floated over the Irish Sea from the department of finance in Dublin.

Osborne's obsession with "rebalancing" the books in just five years is scarily similar to that of the Irish finance minister, Brian Lenihan, who is hell-bent on bringing the republic's borrowing level back down from a projected high of 32 per cent of GDP to the EU limit of 3 per cent of GDP by 2014, whatever the consequences.

The proud scion of a post-independence political dynasty, Lenihan has waved aside all objections, inside and outside the Dáil, slamming through a series of slash-and-burn budgets. His measures have merely compounded the bleakest financial crisis since the foundation of the Free State. Things will become even grimmer for Ireland when Britain, still its biggest trading partner, starts to feel the full effects of Osborne's austerity. The Irish might be burning effigies of Lenihan, were he not fighting a life-threatening form of pancreatic cancer. The plain people of Ireland remain impressively compassionate, arguably much more so than their present masters.

The more Lenihan slashes - he is planning another double whammy of spending cuts and tax rises in December (amounting to at least €4.5bn, on top of the €3bn he hacked out last year) - the more he lengthens the nation's dole queues. There are 455,000 Irish citizens (almost 14 per cent of the population) registered as unemployed or underemployed, and the jobless total is heading for the half-million mark, further reducing income tax revenues and VAT receipts. As the republic's beleaguered retail bosses could tell Osborne, consumer spending also nosedives when so many are jobless or fearful of losing their job.

Ireland might be celebrated as a fine exemplar of sound fiscal management, but it demonstrates powerfully the counterargument that a country cannot cut its way out of a re­cession and back to economic growth. Someone who apparently comprehends this is another finance minister who is fiercely proud of his Irish ancestry, Canada's Jim Flaherty.

Osborne has cited Canada as a model for deficit reduction, seeking Flaherty out for advice at the G20 summit in Seoul shortly after the Tories' election triumph. What has impressed advocates of neoliberal economics is the way Canada slashed its national debt from almost 80 per cent of GDP in the mid-1990s - when there were threats of the IMF being called in - to just under 15 per cent in 2007. With Ottawa recording annual budget surpluses at the beginning of the millennium, one supportive think tanker proclaimed this performance the "redemptive decade".

In fact, Flaherty's prime response to the glo­bal economic crash has been to adopt a strikingly Keynesian approach: he authorised a huge increase in federal expenditure in Canada's 2009 budget, and remains committed to deficit spending until the country is safely out of recession. Defending his stimulus plan this summer, he stated: "When you're faced with a country going into a recessionary dive, as we were in the last quarter of 2008, that is not internally generated, that comes from outside the country, what do you do?" He decided "to stimulate the economy with government money, with taxpayers' money, to replace the absence of private demand". It worked, and the IMF is forecasting that Canada's economy will grow 3.1 per cent this year and 2.7 per cent in 2011.

Canada goosed

In contrast to Osborne, Flaherty was no fiscal novice when he stepped into national office. He was finance minister of Canada's most economically powerful province, Ontario, when the treasury in Ottawa embarked on its draconian spending review. He remembers the pain of sharp cuts to education and health, and has said he would have done things differently back then.

Flaherty understands that one important reason the shrinking of his country's public sector was not more catastrophic was that the country's most vital trading partner, the United States, was in the middle of the prolonged, credit-fuelled Clinton boom, which helped to expand the Canadian private sector.

However, it should be emphasised that Flaherty hasn't metamorphosed from tight-fisted free marketeer into big-state spender. On a recent visit to Dublin, he praised Ireland, saying it had led Europe "in taking the necessary, courageous decisions towards fiscal consolidation". Yet, were he to spend more than a couple of days in the ould sod, it is questionable whether he would be as complimentary about his Irish counterpart's "resolve". If he were to witness first-hand the effects of austerity across this small island, as he did in Ontario, Flaherty might believe things should be done differently in Dublin - and London.

Rob Brown is senior lecturer in journalism at Independent Colleges Dublin

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