Sunday, 24 August 2014

RESPONSE TO SUNDAY TIMES

Your correspondent, Justine McCarthy, in your edition of 17 August, gives a classic example of why it is  so difficult to find serious discussion of real choices in the Irish media.   Instead of dealing with the points I made she just wants me “remove the silver spoon and button my lip”.

Because of what she considers to be my personal financial circumstances, apparently I should not express any views at all about current economic choices facing Europe and the rest of the world.
  
I served as an elected representative for 35 years, much of that at a time when the country was poorer than it is today, so I fully understand the difficult circumstances many families face. I also care about this country.

If we want to preserve our welfare state, we must face facts. 

In the long run, the numbers do not stack up, unless we change things.

Arithmetic is not “right wing”. Burying one’s head in the sand is not ”progressive”.

By facing facts now, one can mitigate hardship, and generate confidence. By maintaining the “tactful silence” that your correspondent favours we do no service to anyone.

When I spoke in New York in 2013, I had in my mind the European Commission Report entitled “2012 Ageing Report...Economic and Budgetary projections for EU 27 (2012-2060)". 

It had been requested by the EU Summit of March 2011.

It covered the sustainability of pension, healthcare, long term care, education and unemployment transfer policies in the 27 EU countries up to 2060, based on current trends and unchanged policies.

It pointed out that the proportion of the population over 65 would rise from 17% to 30% by 2060. Life expectancy would increase from 76 years to 84. But  the working age population in the EU would peak in 2022, and decline thereafter.

In other words, fewer workers would be paying in to support health, long term care, and pension systems for an ever larger number, of increasingly elderly, retirees.

That growing gap could be bridged either by extra taxation, by reduced services, or by extra borrowing. Borrowing would be the best course. But the more one loads up with debt now, the less  one will be able to borrow later on, when this ageing gap will have to be bridged. 

That is why EU leaders focussed on this problem at their 2011 Summit. It is also why Keynesian stimulus is difficult when society is ageing. 

If EU states acknowledge the existence of these looming long term problems in good time, they  can adjust policies gradually. This is the best way to mitigate hardship would certainly come about if the problem is ignored, and then the financial markets suddenly wake up, as they often do, and do not want to lend  . This is partly is behind the need for prudent finance now. 

“Austerity” has become an all purpose term of abuse. Those who use it, should first define it.

I define austerity as spending less than one is earning. At the moment the reverse is still the case.

The government plans to spend more than it will take in next year, to run a (small) deficit. But, under the Fiscal Compact Treaty, negotiated by the Government and approved in a referendum, we are committed to running a surplus from 2018 on, until we halve Government debt as a percentage of our national income. This may well take 10 years, depending on the rate of economic growth.

When I referred to this Treaty based requirement to run surpluses, it seemed to shock some in the media, and even in the Dail, who seemed to be unaware of the contents of the Treaty approved by the Irish people. 

An ageing population, such as we have in most developed countries, means that there is an inbuilt tendency for government spending to rise, even without a policy decision. With no policy change since 2008, by 2013 the number of people of pensionable age increased by 13.5%, and people of that age use more health services. 

The same problem arises in the United States. 

Things have been difficult for many people since 2008. But life will be much harsher in the future, if we refuse to publicly about long term problems like these, because we are afraid, that when we do, we will attract the sort of personalised criticism that your correspondent and others have directed at me.
  
On the question of banks and bankers, if we do not diagnose our problems properly, we will simply repeat the mistakes again.

I do not believe in over simplifying issues, or in exclusively scapegoating individuals, or a class of people, for the economic downturn.  

Irish bankers are indeed to blame for bad lending decisions, and some for worse things than that. But that is not the whole story. 

The foreign banks, who lent recklessly, through the Irish banks, into the Irish property bubble share responsibility too.  They have not been called to account. So too do the bodies supervising all those banks, here and abroad, including the ECB, who failed to devise policies to detect and prevent bubbles.

Central Banks, like the Fed, who increased global money supply unnecessarily to finance the US trade deficit share blame as well. So does the then Irish Government, which increased spending levels permanently, on the strength of revenues from construction  that they knew were temporary.

Only about a third of the increase in our debt since 2008 is due to bailing out banks, and two thirds of it is due to having maintained spending levels, despite the fact that tax revenue had fallen. 

The remarkable thing about the article last week, and others like it, is that the author takes no stand on any issue. She prefers just to sneer, and leave it at that.

For the record, much of the criticism is directed at comments I made for which I was not seeking any particular publicity at all, without a script being issued to the media to get coverage. In New York , I was speaking at a purely private event, and had no notice that my remarks were to be recorded or disseminated. 

But I am happy to take responsibility for what I said.




Friday, 22 August 2014

ALBERT REYNOLDS RIP

I wish to pay tribute to the memory of Albert Reynolds, former Taoiseach, who died this Thursday morning. I was deeply saddened by the news.

As a person, he was warm and kind, including to political opponents.
He worked long hours and was accessible.

He was multi talented, being a success in politics, the food industry and in the entertainment world.

He will be missed greatly by his family, friends and political associates. I extend heartfelt sympathy to Kathleen and  all his children.

Albert Reynolds played a vital role in ending the violence in and around Northern Ireland that caused so much suffering to so many people from 1969 to  1997. His particular contribution was negotiation of the Downing Street Declaration of December 1993 which offered a path to political participation to all political forces in Northern Ireland.

In my view, four aspect of the Declaration were particularly important

1.The statement that “problems could only be solved by peaceful and democratic means”

2. The redefinition of Irish self determination as requiring consent from both parts of Ireland.

3. The passage in the declaration where , as Taoiseach, Albert Reynolds asked the people of Northern Ireland to   “  look on the on the people of the Republic as friends”  and committed himself to take steps to that end. This obligation bound his successors.

4. Paragraph 10 which said

                10. The British and Irish Governments reiterate that the achievement of peace must involve a permanent end to the use of, or support for, paramilitary violence. They confirm that, in these circumstances, democratically mandated parties which establish a commitment to exclusively peaceful methods and which have shown that they abide by the democratic process, are free to participate fully in democratic politics and to join in dialogue in due course between the Governments and the political parties on the way ahead.

Full participation in the political process was linked to a “permanent end to the use of and support for paramilitary violence”. This was crucial, but initially difficult to verify.

These elements of the Declaration helped redefine Irish politics, the relations between the communities in Ireland, between North and South and  between Britain and Ireland.

Statement by John Brutom, former Taoiseach.

Wednesday, 13 August 2014

AS TENSION MOUNTS OVER UKRAINE.......SALUTORY LESSONS FROM 1914

I have just finished reading  “Sleepwalkers, How Europe went to war in 1914” by Christopher Clark, Professor of Modern History in Cambridge.  He describes the statesmen who stumbled into War in 1914 as “sleepwalkers, watchful but unseeing, haunted by dreams, yet blind to the horror they were about to bring to the world”.

A web of interlocking commitments, designed to give individual countries security and peace behind their own borders, ended up tumbling the whole continent into War.

Austro Hungary had a defensive pact with Germany. Russia set itself up as the protector of Serbia. France  gave Russia a blank cheque in the Balkans because it needed Russian assurances against Germany. Britain had a rather more vague understanding with France.  It feared any Russian rapprochement with Germany because Russia could threaten British interests in India.
So, when Franz Ferdinand was murdered in Sarajevo by assassins that had come from Serbia, the possibility that all these dominoes might fall in the  direction of war opened up. But it was only a possibility. 

Serbia could have taken resolute action to root out the conspiracy behind the assassins before Austria issued any ultimatum. Austria could have issued a more temperate ultimatum. Serbia could have given a less evasive response.  Germany could have restrained Austria.

Russia could have held back from full scale mobilization in support of Serbia, and France could have made it clear that it did not wish to get involved in supporting a Russian attack on Austria so long as Germany stayed out too. Britain could have said it would remain neutral in a German war with France, so long as Germany respected Belgian neutrality.
The interlocking commitments between countries that led to war were not, according to Christopher Clark, “long term  features of the European system, but the consequence of numerous short term adjustments” made in the immediately preceding years. 

The War was not inevitable, but suited some leaders to pretend to themselves afterwards that it was, so as to avoid facing the consequences of some their own omissions, ambiguities and evasions.
Some of the issues involved are still current.

How does one pursue a criminal conspiracy launched from another jurisdiction? If the European Arrest Warrant was in place could Austria have obtained the extradition of some of the conspirators from Belgrade without threatening war?

Christopher Clark says Austria’s ultimatum to Serbia was milder than the one NATO issued to Serbia in 1999!

As we see a drift towards a confrontation between Russia and the West over Ukraine, the lesson I draw from this book is that leaders must not just think of the next move, but of the likely counter move, the move after that and so on, bearing in mind that nothing is inevitable until it has actually happened, and that they usually have more choices than they are willing to acknowledge.