The view of special advisor to Brian Lenihan, Dr Alan Ahearne, is that the Irish economy has ceased to be in a real recession, and is returning to positive growth, with exports as the engine that drives the machine. Dr Ahearne claims it is advanced technological and scientific exports, from our highly educated population, that has helped make Ireland a competitive country once again.
Currently on a leave of absence from positions at NUI Galway and at Bruegel, the influential Brussels-based economics think tank, Dr Ahearne gave his view on the country’s current economic situation in a lecture entitled ‘Between a Rock and a Hard Place: Policy Making in a Time of Economic Crisis.’
Speaking at NUIG on Monday night, Dr Ahearne said that 2009 had been a year of stabilisation and that 2010 would be the year of positive growth. He claimed that many economists had misread the Irish economy, and that taken as a whole 2010 would be a highly positive year for Ireland.
“We are on the road to recovery but it will be a bumpy road. It is still an uncertain world and the financial markets are fragile. Unemployment is still increasing, although the rate has slowed down,” he noted.
He admitted that the adjustment to public service pay had been painful but that the alternative would have been for Ireland to say “we’re bust”. The country he said was now a net lender of money abroad internationally, turning our once worrying deficit to a current surplus. Dr Ahearne said we were not now in any danger of going broke.
Dr Ahearne was keen to make comparisons with Japan, which suffered a “lost decade” in the nineties due to its property market collapse. Eager to reassure listeners that Ireland was not suffering a similar fate, Dr Ahearne said that we are supported by the European central bank, and by bailing out the banks had saved the economy in the long run.
A number of factors are starting to fall into place to ensure that economic growth can be anticipated in 2010, according to Dr Ahearne. He said that 2009 was a year for stabilisation and that the measures taken last year should result in growth later this year.
According to Dr Ahearne, a number of factors gave rise to such optimism. He said there was a five per cent improvement in unit labour costs in Ireland since the autumn. The unit cost in Ireland dropped two per cent in Ireland last year at a time when they increased by three per cent in the euro area.
“This is already kickstarting growth. We are starting to gain market share but we need to do more as we lost our competitiveness during the boom years,” said Dr Ahearne.
He said that export-led growth would be the engine for the recovery but that it would probably be 2011 before real impact would be felt, after years of over-dependence on house building.
While many have been extremely critical of the move, Dr Ahearne drew comparisons to the Great Depression, where the American government had let bank after bank fail. The results had been disastrous. He said he followed the leadership of Ben Bernanke, chairman of the United States Federal Reserve, where he had previously worked as an analyst who claimed it was in the world’s interest to recapitalise its banks to prevent further economic disaster.
He said that as firms expand in the recovery it was crucial banks could provide credit, so sorting out the banking sector was key to this.
“There needs to be a proper sequence of events and that is what is happening. Around €19 billion will be transferred into NAMA next month and that first transfer will give us a lot of information,” he said.
Dr Ahearne said that the remainder should be transferred by the end of September and that the cost of recapitalising the banking sector would become apparent in between.
He said that when the ‘risky’ loans were gone off the balance sheet and the banks were recapitalised, the banking sector would be well able to meet the needs of the economy. Dr Ahearne dismissed suggestions that banks should default on bondholders.
“The bulk of bonds in Irish banks are ordinary senior bonds. They are part of the banks’ funding and not risk capital. They are owned by pension funds, insurance companies, credit unions and other long-term providers of funds,” said Dr Ahearne, who added that, in any event, such bonds were covered by the bank guarantee scheme.
Defending NAMA, Dr Ahearne asserted that as well as recapitalising the banks there was a necessity to form an asset management company. He said this was a way to act aggressively against toxic bank assets such as property, and the lack of such AMCs was a key factor to Japan’s long term economic problems, a mistake he was adamant to avoid in Ireland.
DrAhearne would not point to a single root cause for what caused the economic recession, claiming that we were hit by a “perfect storm” of economic woes. DrAhearne said it was worth comparing where we were now to where we were twelve months ago and realising Ireland was coming out of trouble.
Dr Ahearne and the Paddy Ryan Memorial Lecture was introduced by NUI Galway president, Dr James J Browne. He said that people in Ireland today owe an enormous debt of gratitude to Paddy Ryan and to his generation.
“Paddy Ryan and his peers worked to build the modern Ireland. He will be remembered for his contribution to Galway’s business and civic life and as an exemplar of the nation-builders of the fifties, sixties and seventies.
“Like many of his generation, he believed in ‘giving something back’. He had a strong sense of responsibility towards helping those less fortunate.
“In many ways, he embodied what is nowadays referred to active citizenship and social responsibility,” said Dr Browne.
President of Galway Chamber Mr Paul Shelly presented Dr Ahearne with a specially commissioned medal designed by the artist and sculptor Padraic Reaney following his lecture. The medal was sponsored by Schneider Electric IT Logistics Europe (formerly APC ).
The Paddy Ryan Memorial Lecture alternates between GMIT and NUI Galway. Paddy Ryan was a former Mayor of Galway who was a successful businessman in the city until his death in 2004. Dr Ahearne’s presentation can be viewed at http://www.nuigalway.ie/about-us/video/paddy-ryan-memorial-lecture.html