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Posts Tagged ‘Irish economy’

Shopping in Newry

1 January, 2010 Leave a comment

Fair play to President Mary McAleese. We needed someone in high office to break the trope that there’s reason to question the patriotism of those who travel up North to go shopping, in some sort of pretence that they are a factor in our continuing economic trouble.

She spoke on RTÉ (Conversations at the Áras at 14m 25s) this morning, praising the choice Irish consumers have about where they shop as members of the European Union.

We did not become successful when we were by having an insular outlook, nor did any country. If no one was to shop up North, the primary effect would be to hurt the household budgets of families here.

Rather than being envious at the custom of business in other jurisdiction, we should take this as a signal to lower costs here. Without that, we won’t become competitive, and can’t expect to recover as we should.

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Economists for Europe – 5 Economists and one opinion

29 September, 2009 Leave a comment

Published on the Ireland for Europe blog

As previously noted here, a recent Indecon survey reported that 90.8% of economists asked said that Ireland’s overall economic interests were likely to be best secured by a Yes vote.

These were economists from the seven Irish universities, from the ESRI and from Indecon itself. Economists working for the media, banks, government departments or agencies, or with employer or trade union organisations were not included.

In light of this, we held a seminar earlier today titled Economists for Europe, chaired by Dr Alan Ahearne, Special Advisor for the Minister for Finance, and with presentations from Dr Alan Gray of Indecon, Prof. Antoin Murphy of Trinity College, David Croughan of IBEC and Paul Sweeney of ICTU (so, of course, only Gray and Murphy contributed to the Indecon survey).

In his opening remarks, Dr Ahearne reported that the American Chamber of Commerce have said that they provide 300,000 reasons to vote Yes. He emphasised the benefit our EU membership gives us as a traditionally export-based economy, which is to be the case again after the brief period earlier this decade when we were demand-based. 62% of our exports go to other EU countries. Given this emphasis in our economy, he said that it was important for us that the globalised world functioned well.

Alan Gray, Managing Director of Indecon International Consultancy Group, prefaced his remarks by stating that both he and other economists tended to stay away from political commentary, but felt it important to intervene on this occasion. He said that the fundamental question was about confidence, something which can have a major impact, even if not easily quantifiable in models. He said that the economic question is not about the Treaty per se, but about the vote. If there were no vote on Lisbon, we would not feel its absence, but the vote itself would send out a particular message which would be difficult to explain to potential investors. He also made the point that investors would generally give very little attention to Ireland, so this could have a serious impact on perception.

Prof. Antoin Murphy, of the Department of Economics in Trinity College, Dublin, highlighted the help we received from the European Central Bank in two periods: the initial stage of multinational growth from the late 1980s, and in the past year when we needed an injection of liquidity. He also refuted claims that bond prices have already taken our rejection into account, as the trend downwards, rather than upwards as would be expected in such a case.

Paul Sweeney, economic advisor to the Irish Congress of Trade Unions, referred to The Charter Group, a pro-Treaty lobby group. He also admitted that there were concerns about workers’ rights in the EU, but that these had nothing to do with Lisbon. He appealed to the right of collective bargaining in the Charter of Fundamental Rights, and the benefits of FDI which we have from being less Eurosceptic than Britain. He termed Cóir’s poster on the danger of a €1.84 minimum wage as a disgusting lie.

David Croughan, chief economist of the Irish Business and Employers’ Confederation, talked of how business was overwhelmed by the benefits of the internal market and the single currency. In terms of specific changes Lisbon would introduce, he outlined the benefits of the Protocol on Eurogroup in terms of closer coordination and dialogue between finance ministers. He said that business never really thought there was a problem threat to our direct taxation last time, and that despite what we might have heard, he felt that our international reputation was damaged last year.

In conclusion, Dr Alan Ahearne recalled the old joke that if you have five economists in a room, they’d have six opinions between them. On this occasion, however, they were all of one mind, that a Yes vote was a crucial component of our route to economic recovery.

Economic effect of the Lisbon Treaty vote

23 September, 2009 Leave a comment

First published on the Ireland for Europe blog

Those on our side of this debate have been criticized for linking the Lisbon Treaty with jobs or recovery. It is, of course, not as simple as a claim that there will be jobs that will be created or maintained directly because of the vote on the Treaty, but it is part of the process. It is because of the reality that we attracted multinationals to this country for many reasons, such as our low tax rates and our well-educated English-speaking population, but also because we provided a link to a European Union which now has a population of 500 million.

If we were to vote No, the appetite for reform among other European countries would not be diminished. But with the likely election of the highly Eurosceptic David Cameron as Prime Minister, the United Kingdom could well decide to opt out of that process. After a second No vote, European leaders could justly assume that we had made our decision clear that we did not wish to be part of that process either. While the United Kingdom could afford to go it alone if they wished, we should not consider this an option for us.

It is true that we will remain members of the European Union no matter what way we vote on 2 October. But a No vote will mean that we will not be a part of core decision-making processes. Particularly for those who have had concerns about EU policies in the past, such as on agriculture and fisheries, it is crucial that Irish voices are heard at all levels of the EU.

This might seem like a biased analysis coming from this organization. It is backed up, however, by those who have no interest beyond creating and securing jobs, and by independent economic analysts. Those working at all levels, whether small firms, medium enterprises or multinationals, have emphasised the importance to job-creation and maintenance in this country of a strong commitment to Europe.

A recent survey by IBEC found that 86% of employers polled believed the passing the Lisbon Treaty was important or very important to Ireland’s recovery. In its statement, IBEC Director of EU and International Affairs Brendan Butler said: “Ireland has been very successful in attracting major investment from abroad, which in turn has led to the creation of many jobs. Being fully engaged with Europe is vital to ensure this continues. A yes vote will send a positive signal to foreign investors that Ireland is committed to being a key player in the world’s most successful economic union.”

Most significant is perhaps the judgement of academic economists in the Indecon report, which surveyed the views of the 66 non-government economists in all Irish universities and the ESRI. The report concluded that our vote would have a significant effect on the cost of borrowing. Alan Gray, one of the authors of the report, wrote that “a No vote would result in additional concerns about Ireland’s precise role in Europe at a time when we cannot afford any self-imposed additions to our economic problems.” Equally, many economists have spoken out in their own capacity, such as Prof. Alan Matthews writing for Irish Economy yesterday.

It is vital not to create this uncertainty about Ireland’s place within the European Union at this time given the state of our public finances, the cost of borrowing and our rate of unemployment. Over the remaining nine days, we will be maintaining a focus on this aspect of the referendum and the implications of our vote.

Minimum wage and carbon taxes

During the comments on my decision to join Fine Gael, the minimum wage was mentioned, and the fact that George Lee is not in favour of abolishing or lowering it. I agree that this is to his discredit; of course, I was for four years a member of the Progressive Democrats, the party that introduced the minimum wage. I find it to be fundamentally a bad idea as a policy, and I discussed it today with Barry Walsh, President of Young Fine Gael, while he was on Nassau St with Enda Kenny and Leo Varadkar, before I introduced myself as a new member. They were launching a policy to incentivize youth employment, and I asked if they had considered doing anything with the minimum wage. He answered that it would be wrong to reduce the wages of those at that level.

There are two points to that. The first is that with rising unemployment, many of those who are now without work would rather work for less than €8.65 than not to work at all. They would get more than they would through welfare payments, with the dignity of working. We have one of the highest minimum wages in Europe. This was sustainable during the boom years, where it was near enough the market price for low-skilled labour. But with profits going down across all sectors, the work of some employees will be worth less than €8.65, but both firm and employee would be better off if a wage of, say, €7.65 was legal. It is low-skilled workers who will most suffer from these measures, the very group that it is ostensibly trying to protect. While, it is not accurate to argue conclusively that the minimum wages will always, on balance, cause unemployment and reduce welfare, our current level is unsustainable. Given that it is politically sensitive to lower it, perhaps the next time it is lowered, it should also be pegged to a measure such as GDP or the average wage.

The second is that if the state, and we as a community, believe that there are certain minimum standards of income that should be met, it does not follow that it should be the employer who should provide this. Their role works best when they compete for workers and the market for their product. Why should the costs of welfare fall on the employer? We should rather step in and top up the wages through taxation. One of the simplest method for this sort of redistribution is Milton Friedman’s negative income tax, where workers earning below a certain amount have their wages topped up by a level proportionate to the tax credit which they would otherwise receive.

On the subject of provisions that could help employment in small businesses, after two years in government, it is a shame that the Greens have not made any progress in achieving the carbon tax to replace all or most of PRSI payments, as advocated by Greg Mankiw with his Pigou Club, and proposed in their 2007 manifesto. Were such a proposal implemented, it would have the environmental benefits generally associated with carbon taxes, as well as helping small firms, who pollute at relatively low levels and workers, who would find a small bit more in their payslips and find it marginally easier to find employment. If they want to find some way to make a lasting change during what time this government has left, I hope they do consider this.