Perhaps because of our history, the Irish have a long tradition of pessimism. There are always prophets of doom in politics and economics. And for those who decide to adopt it, this stance has advantages.
First, it has the merit of precluding accusations of naivety which, because of our traditional inferiority complex, are greatly feared in our society. And, second, when the calamity fails to occur, there is little danger anyone will remember the prophecy; but if the prophecy should by chance come true, its author can claim enormous credit.
I doubt if I can be accused of being this kind of professional pessimist. Indeed, for some years past - well before the time when the Celtic Tiger sobriquet was invented - I have been offering in this column a consistently cheerful and upbeat economic analysis. But we have now reached a point at which it is necessary to say there is a possibility - I am not saying a likelihood - that our run of good fortune could abruptly end.
I can identify at least five distinct potential dangers. Two I will not dwell on here: the possible impact upon us of a general downturn in the world economy and the probably temporary problems that could arise from impending Irish entry to the EMU unaccompanied by Britain.
The latter issue has been well rehearsed, but it is worth noting the sterling problem is currently the opposite to that upon which most attention has been lavished in the past; for we are now faced with sterling which is too strong rather than too weak. Thus the nature of the danger from delayed British entry has changed from a possible competitive threat to Irish-made goods coming from cheap British products to a possible importation of inflation due to the high pound prices of goods imported from across the Channel.
There are, however, three other distinct but potentially interactive dangers. First, the danger of our growing economy overheating, thus creating inflationary pressures that could hit job-creation. Second, the effect of a possible failure to adjust, in the context of EMU membership, our mechanisms for regulating cyclical movements in our economy. And third, the danger of a weakening in the pay moderation that has allowed a huge increase in employment.
There is now an obvious risk of our economy overheating. The ESRI's Quar- terly Commentary, out this week, suggests that in 1997 the exceptional GNP growth rate of the three preceding years, averaging 7.5 per cent, accelerated to an unprecedented 9% per cent. The expansion of credit linked to the doubling of house-building in the past four years, and with the huge increase in house prices, has obvious inflationary dangers.
And as we approach EMU entry, the sharp decline in the pound's value, especially in relation to sterling, threatens to import inflation. The Central Bank has said: "Some of the symptoms of overheating are already evident".
What has not received corresponding attention is our need, as EMU participants, to modify radically our approach to regulating cyclical movement in our economy.
In earlier periods we have been able to stimulate our economy in periods of sluggish growth, not merely by cutting taxes but also by reducing interest rates as well as by Central Bank action to increase the liquidity of the banking system. In future, only tax cuts, and in certain circumstances spending increases, will be available for this purpose.
Now that particular limitation on our freedom of action may not be too serious, partly because we are, and for a good while are likely to remain, a high-growth economy not requiring stimulation, and also because in the main tax cuts are a fairly readily available weapon.
But the same is not true the other way round. If we need to control an overheating of the economy, the weapons available to us in future will be very limited indeed, and difficult to deploy successfully.
In recent decades we have faced several such crises, at the time of the first oil crisis in 1974, and again in the years from 1981 on when overspending and unwise tax reductions in the immediately preceding years had combined to create an Exchequer Borrowing Requirement that threatened to exceed 20 per cent of GDP.
We were able to tackle these crises by means of different combinations of spending cuts, increases in direct and indirect taxes, higher interest rates and curbs on bank liquidity, while a fall in the value of our currency provided a further cushion, if an uncomfortable and somewhat dangerous one.
But within the EMU we will be unable to raise interest rates in such a situation, and our exchange rate will be fixed. And with the harmonisation of European Union VAT rates, little room now remains for increases in taxes on expenditure. Moreover, recently we have had to commit ourselves to reducing corporate taxation on services by two-thirds so as to avoid being required by the EU to raise substantially our crucial 10 per cent tax on industrial profits, the retention of which would involve an unacceptable element of tax discrimination.
Finally, our national pay agreements have all been based on multi-annual commitments to reduce the level of income tax, and this leaves no room for reducing demand by raising such taxes in an inflationary situation.
That leaves spending cuts as a weapon with which to tackle an overheating problem, and spending cuts are not only crude, painful and often wasteful, but also very difficult to implement rapidly enough to be effective in a crisis.
Part of the reason for this is that only a small element of public expenditure actually consists of resources used up in running the State, other than public service pay. Of course, the public service pay bill is composed of two elements, the rates of pay and the numbers employed, and numbers could, of course, be reduced, as happened in the 1980s when they were in fact cut by 7 per cent.
But it took seven years to achieve such a cut, and since 1989 increases of one-eighth in numbers in the Civil Service, of one-sixth in the health service, and of one-fifth in education, have pushed the total for the public service as a whole back up to a level 4 per cent above that of 1982.
Now public service pay and national debt interest together account for just over two-fifths of all public expenditure. And transfer payments (social welfare etc) account for another two-fifths. And of the remaining one-fifth, a fraction goes on subsidies, mainly to agriculture.
So goods and services used up by the public authorities in running the State (two-thirds of them spent by local authorities rather than central government) absorb only one-sixth of all public spending. Thus, if spending cuts had to be concentrated solely in this area, an impracticable cut of almost one-fifth in the amount of such resources employed would be required in order to reduce total cut public spending by, say, 3 per cent.
These are uncomfortable facts often ignored by people who demand cuts in public spending without telling us in which of these areas they propose such cuts be made.
To sum up: we are by far the fastest-growing European economy, and therefore more vulnerable than most to an overheating of the economy involving a recrudescence of inflation. This risk is currently about to be aggravated by the fall in the value of our pound against sterling as we prepare to enter EMU.
But should such a problem arise, our capacity to tackle it under EMU conditions will be significantly less than that of many other countries. For, while all who join the EMU lose the weapons of interest-rate changes and devaluation, unlike many others our capacity to use that most effective weapon, income tax increases, is constrained by the terms of our multi-annual pay agreement.
The vulnerable situation in which we now find ourselves could, perhaps, have been eased if the Government had chosen to confine income-tax changes in the recent Budget to those to which the trade unions believed the public authorities are committed through an understanding concerning the Taoiseach's Department's Option P document referred to in this column several months ago, and if other Budget provisions had been neutral or moderately restrictive.
But by introducing an expansionist Budget at a time when the economy was already growing at an annual rate of 9 per cent, the Government chose instead to increase the risk of overheating. At the same time, it ignored advice from many quarters (for example the OECD, the ESRI and IBEC) as to the form of income-tax cuts, choosing to cut the top tax rate rather than to increase allowance and bands this year along Option P lines.
By leaving over to the 1999 budget such a large proportion of what the unions see as commitments on tax allowances and bands, the Government has left itself burdened with a requirement to reduce income tax by at least a further £350 million in that Bud get 10 months hence, just at the time when there might be an urgent need to rein in demand through a restrictive budget.
By any standards, this is choosing to live dangerously. There will be little sympathy from public opinion if, as a result, the Government were to find itself in an economic bind before the end of this year. Even if we get through this year without finding ourselves facing a crisis that we are now ill-equipped to cope with, a longer-term strategic issue will remain.
Our multi-annual national pay agreements have hitherto been successful in containing wage pressures by trading tax cuts for pay moderation. But it may now be unwise to persist with them when the only effective short-term means of regulating overheating would seem to be temporary income-tax increases effected within the context of a long-term downward movement in the tax level now imposed on people on low or middle incomes.
Of course, whatever may replace this series of tax-related multi-annual national agreements may carry its own inflationary risks - whether it take the form of non-tax-related national agreements or of some kind of free-for-all - and I do not share the optimism of some economists about moderation of pay increases in such free-for-alls.
Whatever form future pay settlements may take, the situation now emerging poses a big challenge to our extraordinarily beneficial national pay round system. Uniquely in Europe this system has made it possible during the past decade to share the benefits of economic growth almost equally between those seeking employment - whose numbers have risen by 240,000 in the past five years alone - and the existing labour force, where the value of the pay increases secured by a male industrial worker on an average level of pay have in recent years been bolstered by 80 per cent through tax reductions.
To adjust our pay determination system so as to provide the flexibility necessary to tackle a possible overheating will require great skill from the Government and union leaders. It will also require from workers exceptional patience, long-sightedness, and continued generosity to the unemployed, whose numbers have been reduced by 65,000, or almost 30 per cent, in the past five years, as a direct result of the pay restraint secured by national agreements.
At a time when we are within three months of fixing irrevocably the pound's relationship with those of our continental EU partners, and thus of bringing our interest rates into line with theirs by the year's end, it is surprising that these crucial issues are not being aired, let alone addressed.