THE FURIOUS, though largely politically manufactured, response to Taoiseach Enda Kenny’s Davos debt comments have a lot more to do with cynically playing to a national inhibition about washing our dirty linen in public than any real belief that Kenny was wrong. Wandering off script, his words were perhaps insensitive, unnuanced and unqualified. But the fundamental truth of their thrust is indisputable. And, like the alcoholic, the first step to recovery is to break the habit of denial, that insistence that someone else, everyone else, is to blame.
“Irish people simply went mad to borrow . . . which spawned greed to a point where this went out of control and led to the spectacular crash,” the Taoiseach said. True. “The extent of personal credit, personal wealth created on credit, was done between people and banks – a system that spawned greed to a point where it just went out of control completely with a spectacular crash.” True. Though he should have added, as he has in the past, that government and regulatory failure and bankers’ excess played their part.
In Davos, according to our correspondent, the response to the Taoiseach’s comments was warm, a welcome for his frankness, and an appreciation of the other part of the message, that there is light at the end of the tunnel. One veteran Irish Davos-attender described the criticism as “ludicrous”. Businessman Denis O’Brien observed that “Our Taoiseach is one of the few leaders who have come to Davos and actually been honest,” while a letter writer on this page suggests a headline “Nation in shock as politician tells the truth.”
The realities of our addiction to personal debt in recent years are deeply disturbing. CSO figures show that between 2001 and 2008, while GNP increased by some 56 per cent, household loans (including mortgages) soared 245 per cent. Borrowing has tailed off a bit since the crisis, but remains at just below historic highs. Economist Cormac Lucey cites a US study which argues that when household debt exceeds 85 per cent of GDP it becomes a drag on growth – in Ireland that threshold is exceeded by 50 per cent.
By comparison with other countries, moreover, a study by consultants McKinseys finds Irish household debt (as a proportion of GDP) currently running 57 per cent higher than the average in “mature economies”, and only marginally better in respect of Spain and Portugal. Of the two other countries associated with the euro zone crisis, Greece and Italy, household debt here is double the former, and 2½ times the latter.
There is an argument currently being made in some quarters that the austerity being imposed on the Irish public is entirely about bailing out German and European banks who irresponsibly lavished us with cash, tempting us to borrow and spend beyond our means. And that they are entirely culpable for the mess we are in – we owe them nothing. But as German ambassador Dr Eckhart Lübkemeier put it bluntly at a meeting in Trinity on Thursday night, “it takes two to tango!”. Borrowers have a moral responsibility too.