Going for broke may be the best shot at recovery
The Irish Government needed a lucky break before the weekend opinion polls came thundering down the track. It did not get it.
The nature of the Irish economy means that figures for quarterly activity every three months jump about the place like a demented cat. Data for the three months to June was no exception.
Hopes for a second quarter of growth were dashed, largely because the giant chemicals industry imported a lot of stuff to go into blockbuster drugs and other fancy products. It can give only grim satisfaction to Messrs Cowen and Lenihan that these growth-depressing imports will eventually reappear as hugely valuable exports.
Mr Lenihan pointed to the signs of stability, which are there. Building actually increased for the first time in almost four years, although it remains a shadow of itself.
Consumers continue to spend less than they did, with personal spending down 0.2% in the quarter. It is the smallest fall for some time, but there is little on the employment or confidence front to suggest any early improvement in personal spending.
It was, in fact, a bad day for confidence as well. It is certainly lacking among the banks and pension funds which lend money to the Irish government. The National Treasury Management Agency (NTMA) was obliged to pay 2.23% interest on loans which will be repaid next April.
This contrasts with the 1.6% they are prepared to accept from the British government for money due for repayment in five years.
Better times seem elusive. In the meantime, there is a sense that things are coming to a head. It seems curious that lenders would accept 1.9% on money repayable in February, but wanted more than 2.2% for an extra two months. What are they expecting?
They are anticipating the December Budget, of course. Mr Lenihan's stability contrasts with the hopes he had just a week ago that the economy might grow by 1% this year. The best that can be hoped for now is that Ireland does not slip back into recession.
It may require close to €3.5bn in new taxes and spending cuts to keep close to next year's target for a deficit of 10% of GDP.
Fine Gael's finance spokesman, Michael Noonan, accused the government of making a “huge mistake” by cutting €1bn from spending on infrastructure. Such spending would indeed add to growth and, done properly, improve long-term growth.
Almost everyone is now calling on Mr Lenihan to produce a detailed tax and spending plan in that strategy. That would require looking at long-term spending, such as pensions, as well as what is to be done in the next 12 months.
Perhaps the opinion polls will persuade Fianna Fail that it might as well go for it, and fall at the polls for the sake of Ireland. The fact is that the economy and incomes will not collapse if the fiscal strategy fails and Ireland calls on the IMF and/or EU, as many people seem to fear.
It would just mean that we would have to do what we could have done of our own volition. It looks like it may be time to decide.