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Holy grail of recovery still evading Ireland

By Brendan Keenan

Confidence, consumption and credit. The three Cs are the new holy grail of economic recovery, but finding them is a challenge that might intimidate Sir Lancelot himself.

At least it makes a change from all that talk about debt. Economic growth, which the three Cs would engender, is as much an ingredient of a return to normality as reducing deficits, or even defaulting on existing debt. Moreso, actually.

This is the fundamental problem for Greece and Portugal; that they appear to have little prospect of growth while locked into the same currency as Germany.

Ireland is held to be somewhat different. Its balance with the rest of the world moved into surplus at the end of the year. That is pretty remarkable, when the government is borrowing more than 10% of GDP from abroad.

It suggests that Ireland has better potential for growth than the other two.

The trouble, and it is serious trouble as the euro crisis worsens, is that it is hard to see where any early recovery in domestic demand is to come from. That, of course, raises the old conundrum of austerity deflating the economy, which means targets are not achieved, and more correction follows.

All of which is perfectly true, but one can as easily say that this makes the case that the correction should have been more severe, and therefore quicker, as that it should have been easier, and take longer.

In some ways, the present strategy is neither fish, fowl nor good red herring. Public service costs are to be ground down by €10bn (£9bn) over the five years to 2014. Taxes are to increase by €12bn (£10bn). This goes on year after year with the gory details emerging on an annual basis.

This Chinese water torture was interrupted by Michael Noonan calling on us to spend more. He has been much derided on the airwaves, but one can see why he thinks he has to try. With another quarter of weak data to hand, the government's hopes of growth above 3% next year are vanishing fast.

Taoiseach Enda Kenny's speech promising no income- tax rises or welfare cuts in the next budget may be seen as an attempt to instill some confidence.

But this did no more than replace what most people saw as a certainty with the uncertainty about what the budgets will contain instead, so that's not a lot of help.

Hence the suggestion that the government should spell out the broad details of what is coming in the next three budgets so that at least we'll know where we stand.

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