Belfast Telegraph

Beware the hooves of great black oxen

By Brendan Keenan

Like great black oxen, the years trampled the poet Yeats.

Two years into the bailout and four years into the crisis, we know that feeling.When a country finds it can no longer pay its bills, the sense of crisis often creates a consensus that tough action must be taken, sacrifices made, and so on.

But restoring solvency can take a long time. To paraphrase another saying, the country can stay insolvent longer than you can stay sane. People become more reluctant to continue with the process and often spark a fresh crisis by refusing to take any more.

And there are still at least three years to go. It raises the question whether a rapid, completely brutal approach is better. A doubling of income tax, say, and a 20% cut in government pay and benefits. The kind of thing they did in the Baltics, and endured in Iceland with the collapse of their currency.

The argument here has been more about making the adjustment even longer, on the grounds that each year will be less painful and therefore less economic damage will be done.

Psychology suggests that people react to the fact of a fall in their living standards, rather than its size.

A longer austerity programme might produce just as much weariness and anger as a shorter one.

The unions have answered this objection by coupling a slower adjustment to a €20bn (£16.6bn) investment programme €5bn (£4.2bn) of which would be spent in Northern Ireland.

The argument is set out in a report from the newly-created Nevin Economic Research Institute, named after the academic and trade unionist Dr Donal Nevin. There is something to be said for a bigger investment programme running alongside the deflationary measures needed to close the structural deficit.

There is even a case for doing it in the public capital programme at the expense of current spending, rather than from outside funding.

But the cheery impression created that this would somehow chase away the great black oxen, or soften their hooves, is, I fear, misplaced.

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