Ireland has now left the clutches of the bailout-for-austerity framework established by the Troika (the European Commission, the European Central Bank, and the International Monetary Fund) for indebted eurozone countries, and is leading the monetary union’s economic recovery. European policymakers, including Jean-Claude Trichet, the ECB’s former president, have suggested that Ireland’s dogged commitment to austerity is a model for others.
Really? It was not long ago that Ireland’s economic miracle was also seen as a model – what the Economist in 1997 hailed as “Europe’s shining light” – attracting admirers as diverse and distant as China and Israel. Then, Ireland became a model for how not to manage a property bubble and, subsequently, a banking crisis. Although exiting the Troika program is undoubtedly a success, especially when compared with the country’s wretched outlook in late 2010, no one should aspire to what Ireland has been through.
Most Irish citizens would also reject the notion that their country has been austerity’s model patient. The fact that the country has again become fashionable reflects the confusion in eurozone policymakers’ economic thinking and the folly of imitation across think tanks and international institutions. A bona fide socioeconomic model should be built around an ingrained “way of doing things” – indeed, so ingrained that the model, like the vaunted Nordic one, is almost impossible to replicate elsewhere.
Ireland’s “way of doing things” has hardly changed, despite the crisis. Political and institutional reform has not matched changes in people’s lifestyles; accountability in public life continues to be frustratingly weak.
Nonetheless, some lessons can be drawn from Ireland’s recent experience. Unlike the European Union’s other periphery countries, Ireland established a political consensus around the need for austerity, and repeated this message continuously, at home and abroad. Like Chile during Latin America’s period of financial volatility, Ireland’s crisis management was generally good, and high-quality outward-facing institutions, (such as the Industrial Development Authority and the National Treasury Management Agency) presented a consistent and positive image to the world.
But Ireland needs to do more. In particular, it needs to focus on how the banking crisis has affected the economy’s long-term growth potential, on how the nature and structure of the banking system needs to be changed, on local businesses’ ability to adapt in a credit crunch, and on the mounting social costs of austerity.
The political lesson Ireland’s leaders have taken from the bailout experience is that loyalty to the status quo, rather than a combination of truth-seeking and radical action, is the best way forward.
This, however, takes us only so far – and is potentially dangerous is the long run. While resoluteness can be commendable, a “head-down, maul forward” policy, to use rugby parlance, brings other risks. First, although Europe might be able to scrape through the current crisis on austerity alone, it would be left ill-equipped to address deeper structural shortcomings, to say nothing of making progress on fiscal, banking, and political union.
Moreover, there is a risk that some will conflate the view that “loyalty works” with the idea that “austerity” works. And it is too early to say that. How, for example, can we disentangle the impact of austerity from that of the colossal spending undertaken by ECB President Mario Draghi? Will we be able to claim that austerity was a success if, for example, a large eurozone economy like France fails to grow?
The second concern relates to the issue of risk-taking itself. A low-risk approach may have helped pull Ireland through the Troika program. But would it also galvanize the country sufficiently to reshape its banking industry, restore a failing health-care system, or repair the social damage wrought in towns across Ireland? In business, risk-taking – and its close relation, innovation – cannot be imported. Some things must be homegrown.
Michael O’Sullivan, who works in the investment-management industry, is the author of Ireland and the Global Question and the editor of What Did We Do Right? (with Rory Miller).
© Project Syndicate