Loss of economic sovereignty ‘a lot of political guff’

The idea that Ireland lost its economic sovereignty when it had to be bailed out by the Troika is a lot of political guff, a former adviser to the Department of Finance has told an economics conference in Limerick.

Recent comments from the Taoiseach Enda Kenny and the Minister for Finance, Michael Noonan, about Ireland regaining its economic sovereignty later this year when it exits the bailout programme, are harmless political guff as long as the viewpoint doesn't feed into policy decisions, economist Alan Ahearne of UCG told the annual Dublin Economics Workshop.

Dr Ahearne, a former adviser to the late Brian Lenihan during the last Fianna Fáil led government, said Ireland's economic policy options collapsed in 2007 when the exchequer, which had become one-third dependent on taxes from the construction sector, found itself hugely short of funds after the property bubble burst.

The government’s deficit was 11.5 per cent by 2009 and there was only one policy option, get the deficit down. This meant austerity. The deficit had to be reduced by way of cuts and tax increases, and the decisions as to the balance between the two remained with the government post the bailout. However dealing with the deficit was the only policy option available, irrespective of whether Ireland was borrowing from the markets or the Troika.

He said the idea of economic sovereignty would have a cost if it fed into the idea that Ireland should not enter into a backstop arrangement as it left the bailout programme, because the arrangement would have conditions attached to it. The Government might opt to maintain large cash balances as an alternative backstop. Maintaining such balances comes at a cost because the deposit interest rate received is greater than the rate being paid on the borrowings.

The International Monetary Fund's resident representative to Ireland, Peter Breuer, said he could not say if he would still be in Ireland at the end of this year. "That depends on what happens," he told reporters. He said that all countries that came out of programmes were subjected to post-programme monitoring by the IMF.

He told the conference the problems of the Eurozone required structural reforms and that the challenge was all the greater because these reforms needed to be introduced at a time when there was growing disenchantment with the European project throughout the continent and not just in peripheral countries.

Accountant and former adviser to the leader of the Progressive Democrats, Cormac Lucey, told the conference he believed the plans to resolve the Eurozone crisis would not work. Ireland, he said, should leave the euro, establish a "punt nua" that would be allowed devalue before joining with sterling. Ireland should then "pray" that the UK did not leave the European Union.

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