Belfast Telegraph

Savings on public spending vital or we're a dead duck

By Brendan Keenan

While Enda Kenny and Michael Noonan were busy saving Europe from itself, some alarming news from the home front rather got overlooked.

This was the revelation that the HSE spent €1bn paying people to do the work of others who had left but could not be replaced under the recruitment embargo. It is an old, old story but one from which few lessons seem to have been learned.

Recruitment freezes are the Department of Finance's default position for making savings on the public finances. That word "default" has multiple meanings, most of which seem to apply in our current circumstances.

One definition is, "failure is to act".

This, however, is not a freeze. It is climate change. Ireland is already another piece of evidence for the historical pattern of financial crashes being much longer and more severe than consumer or investment crashes.

Without serious redeployment and re-training, the public services will not survive crude job losses over what could well be a decade.

Efficient downsizing requires management skills of the highest order. The public service does not have those kinds of management skills. Yet, somehow, they are going to have to acquire them, and a recognition by all that is going to have to be done. It's either that or Spanish levels of pay.

The critical point is that the whole restoration of financial stability depends on these cost savings. The restoration of tax revenues requires growth as well as new taxes.

The savings - if deflationary pay cuts are to be avoided, depend on urgent re-structuring to follow the 14,000 jobs shed so far by wrecking ball methods. One has heard very little from ministers on these topics. They are too busy trying to save Europe from itself, by persuading Europe to save us.

Yet, if the public spending savings do not materialise as planned, or public services wither away, there is nothing Europe can do to save this fledgling government turning into a dead duck.

It might seem a useful, if cynical, tactic to divert attention from flawed policies and flawed implementations at home by blaming Europe for charging too much and not picking up its share of the burdens.

That is if you believe it is a tactic. It looks more like being swept along by the tide of events and public anger.

The election was surprisingly competitive, given that there could be little doubt about the outcome.

At the time, it may have seemed a good idea to attack the terms of the bailout, since they were likely to be changed and the new government could then take credit for changing them. This reckoned without the needs of other European governments as well as us to get something from any new deal. As one seasoned observer put it recently: "They are democracies too." It could also have been foreseen that the something they would want would be changes to the Irish corporate tax system.

I gather there was almost a deal at this month's summit. The Germans like the idea of a common tax base, but not a consolidated one, and might have backed off on the rate change. Mr Kenny might have been tempted, but Mr Sarkozy snatched away the apple.

We will get there in the end. Europe, as always, is a building being constructed from the top down, which means lots of accidents.

At the very end, there will be a Union system for rescuing countries with financial crises, whose rules will be known, and other rules to prevent it happening. That is where one should start in building a monetary union, not finish.