A new virulent strain of Small Dog Syndrome has recently broken out amongst ministers and even economists. It seems we now firmly believe that Europe’s largest economy and the EuroZone’s strongest member – Germany – that its sole obsession is that Ireland will successfully emerge from the financial assistance programme – aka “the IMF/EU bailout” – at the end of 2013 and will be able to access funds from traditional lenders at reasonable interest rates on the international bond market.
But cast your minds forward to 2017, and imagine this:
Ireland’s debt:GDP instead of falling back to about 100% as planned, is actually at 189%. How could this apocalypse come about? Let’s say Eurostat decide that NAMA’s bonds should in fact sit on the national debt which would boost debt:GDP by 15% and remember we have the ipsissima verba of Minister Joan Burton that NAMA may make a loss of €15bn. In addition, let’s say the European economic crisis is still not solved and that more countries have tipped into recession because of the ECB insistence on keeping a cap on inflation and demanding deficits be dealt with through austerity. Let’s say our politicians plumb for soft options – for example, cutting the capital programme – to close the 9% deficit and the effect of those options is to stymie recovery. Let’s say the mortgage crisis overwhelms our banks and eventually there is a stronger bankruptcy regime which means the banks incur large additional losses and the State bails them out again. And lastly remember that in Ireland, a debt:GNP is widely seen as more comparable with other countries’ debt:GDP, that that pushes up debt by 20%.
You might say this is totally pessimistic but let’s ask ourselves the question:
What blind bit of difference would it make to Germany in 2017 if Ireland had a debt:GDP that mirrored Greece’s actual projected debt:GDP in 2013?
Might Germans just shrug their shoulders and correctly dismiss our plight as the result of failing to get our deficit under control when the banking/property sectors collapsed in 2008, AND the decision of our State to guarantee and bail out massive losses at our banks?
“The Irish, a tragic people” they might kindly say in 2017.
But Europe needs a success story, say the Small Dog Syndrome folks, which this week include economist David McWilliams. Maybe Europe does, but if it does, it is more likely to be preserving the economies of Spain, Italy or indeed France.
As for Ireland, the country on the geographic outskirts of Europe just below Iceland, with a population of less than 1% of the EU’s and with an economy hugely boosted by the presence of US IT and medicine companies – companies which Germany might like to see located on its territory, and whose low corporate tax rate of 12.5% is seen as anti-competitive; if Germany can stomach a debt:GDP in Greece next year of 189% then if we can cast off the Small Dog Syndrome for a moment, we might realise that Ireland having a 189% debt:GDP in 2017 is no big deal in the overall scheme of things.